Notice of Preliminary Results and Extension of Final Result of Countervailing Duty Administrative Review: Certain Softwood Lumber Products From Canada

Federal RegisterJun 12, 2006

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DEPARTMENT OF COMMERCE

International Trade Administration

[C-122-839]

Notice of Preliminary Results and Extension of Final Result of Countervailing Duty Administrative Review: Certain Softwood Lumber Products From Canada

AGENCY:

Import Administration, International Trade Administration, Department of Commerce.

SUMMARY:

The Department of Commerce (the Department) is conducting an administrative review of the countervailing duty order on certain softwood lumber products from Canada for the period April 1, 2004, through March 31, 2005. If the final results remain the same as these preliminary results of administrative review, we will instruct U.S. Customs and Border Protection (CBP) to assess countervailing duties as detailed in the “Preliminary Results of Review” section of this notice. Interested parties are invited to comment on these preliminary results. (

See

“Public Comment” section of this notice.)

DATES:

Effective Date:

June 12, 2006.

FOR FURTHER INFORMATION CONTACT:

Stephanie Moore at (202) 482-3692, or Robert Copyak at (202) 482-2209, AD/CVD Operations, Office 3, Import Administration, International Trade Administration, U.S. Department of Commerce, Room 4012, 14th Street and Constitution Avenue, NW., Washington, DC 20230.

SUPPLEMENTARY INFORMATION:

Background

On May 22, 2002, the Department published in the

Federal Register

(67 FR 36070) the amended final affirmative countervailing duty (CVD) determination and CVD order on certain softwood lumber products from Canada (67 FR 37775, May 30, 2002). On May 2, 2005, the Department published a notice of opportunity to request an administrative review of this CVD order.

See Antidumping or Countervailing Duty Order, Finding, or Suspended Investigation; Opportunity to Request Administrative Review

, 70 FR 22631 (May 2, 2005).

The Department received requests that it conduct an aggregate review from, among others, the Coalition for Fair Lumber Imports Executive Committee (petitioners) and the Government of Canada (GOC), as well as requests for review covering an estimated 256 individual companies.

On June 30, 2005, we initiated the review covering the period April 1, 2004, through March 31, 2005.

See

70 FR 37749.

In the notice of opportunity to request an administrative review of this CVD order, we inadvertently listed an incorrect period of review. We corrected this error in a subsequent notice of opportunity to request an administrative review.

See Antidumping or Countervailing Duty Order, Finding, or Suspended Investigation; Opportunity to Request Administrative Review

, 70 FR 31422 (June 1, 2005).

Of these 256 company-specific requests, 145 were for zero/

de minimis

rate reviews under 19 CFR 351.213(k)(1).

On July 8, 2005, we determined to conduct this administrative review on an aggregate basis, consistent with section 777A(e)(2)(B) of the Tariff Act of 1930, as amended (the Act).

See

the memorandum to Joseph A. Spetrini, Acting Assistant Secretary for Import Administration, from Barbara E. Tillman, Acting Deputy Assistant Secretary for Import Administration, entitled, “Methodology for Conducting the Review,” dated July 8, 2005, which is a public document on file in the Central Records Unit (CRU) in room B-099 of the main Commerce building. The Department further determined that it was not practicable to conduct any form of company-specific review.

Id.

On July 11, 2005, we issued our initial questionnaire to the GOC as well as to the Provincial Governments of Alberta (GOA), British Columbia (GOBC), Manitoba (GOM), New Brunswick (GONB), Newfoundland (GON), Nova Scotia (GONS), Ontario (GOO), Prince Edward Island (GOPEI), Quebec (GOQ), and Saskatchewan (GOS).

On August 31, 2005, we extended the period for completion of these preliminary results until May 31, 2006, pursuant to section 751(a)(3)(A) of the Act.

See Notice of Extension of Time Limit for Final Results of Countervailing Duty Administrative Review: Certain Softwood Lumber from Canada

, 70 FR 51751 (August 31, 2005).

On October 3, 2005, the GOC, GOA, GOBC, GOM, GONB, GON, GONS, GOO, GOPEI, GOQ, and GOS submitted their initial questionnaire responses. From January through May 2006, we issued a series of supplemental questionnaires to the Federal and Provincial Governments of Canada.

Pursuant to 19 CFR 351.301, the deadline for interested parties to submit factual information is 140 days after the last day of the anniversary month. However, both petitioners and the Canadian parties requested that the Department extend this due date. After a series of extensions, we established that the deadline for interested parties to submit factual information would be December 6, 2005, and that the due date for submitting rebuttal and/or clarifying information would be extended to December 22, 2005. Both petitioners and the Canadian parties submitted factual information by the established deadlines.

Extension of Final Results

Extension of Time Limit for Final Results of Review Section 751(a)(3)(A) of the Tariff Act of 1930, as amended (the Act), requires the Department to issue final results within 120 days after the date on which the preliminary determination is published. However, if it is not practicable to complete the final results of review within this time period, section 751(a)(3)(A) of the Act allows the Department to extend that 120-day period to 180 days. We determine that completion of the final results of the instant review within the 120-day period is not practicable as there are a large number of programs to be considered and analyzed by the Department. In order to complete our analysis, the Department required additional and/or clarifying information after the publication of the preliminary results, and now needs time to review the responses to these requests as well. Given the complexity of these issues, and in accordance with section 751(a)(3)(A) of the Act, we are extending the time period for issuing the preliminary results of reviews by 60 days to 180 days. Thus, the final results of review are due on or about December 4, 2006, which is the next business day after 180 days from the publication date of the preliminary results.

Period of Review

The period of review (POR) for which we are measuring subsidies is April 1, 2004, through March 31, 2005.

Scope of the Review

The products covered by this order are softwood lumber, flooring and siding (softwood lumber products). Softwood lumber products include all products classified under sub-headings 4407.1000, 4409.1010, 4409.1090, and 4409.1020, respectively, of the Harmonized Tariff Schedule of the United States (HTSUS), and any softwood lumber, flooring and siding described below. These softwood lumber products include:

(1) Coniferous wood, sawn or chipped lengthwise, sliced or peeled, whether or not planed, sanded or finger-jointed, of a thickness exceeding six millimeters;

(2) Coniferous wood siding (including strips and friezes for parquet flooring, not assembled) continuously shaped (tongued, grooved, rabbeted, chamfered, v-jointed, beaded, molded, rounded or

the like) along any of its edges or faces, whether or not planed, sanded or finger-jointed;

(3) Other coniferous wood (including strips and friezes for parquet flooring, not assembled) continuously shaped (tongued, grooved, rabbeted, chamfered, v-jointed, beaded, molded, rounded or the like) along any of its edges or faces (other than wood moldings and wood dowel rods) whether or not planed, sanded or finger-jointed; and

(4) Coniferous wood flooring (including strips and friezes for parquet flooring, not assembled) continuously shaped (tongued, grooved, rabbeted, chamfered, v-jointed, beaded, molded, rounded or the like) along any of its edges or faces, whether or not planed, sanded or finger-jointed.

Although the HTSUS subheadings are provided for convenience and U.S. customs purposes, the written description of the merchandise subject to this order is dispositive.

As specifically stated in the Issues and Decision Memorandum accompanying the

Notice of Final Determination of Sales at Less Than Fair Value: Certain Softwood Lumber Products from Canada

, 67 FR 15539 (April 2, 2002) (

see

comment 53, item D, page 116, and comment 57, item B-7, page 126), available at

http://www.ia.ita.doc.gov

, drilled and notched lumber and angle cut lumber are covered by the scope of this order.

The following softwood lumber products are excluded from the scope of this order provided they meet the specified requirements detailed below:

(1)

Stringers

(pallet components used for runners): if they have at least two notches on the side, positioned at equal distance from the center, to properly accommodate forklift blades, properly classified under HTSUS 4421.90.98.40.

(2)

Box-spring frame kits:

if they contain the following wooden pieces—two side rails, two end (or top) rails and varying numbers of slats. The side rails and the end rails should be radius-cut at both ends. The kits should be individually packaged, they should contain the exact number of wooden components needed to make a particular box spring frame, with no further processing required. None of the components exceeds 1″ in actual thickness or 83″ in length.

(3)

Radius-cut box-spring-frame components

, not exceeding 1″ in actual thickness or 83″ in length, ready for assembly without further processing. The radius cuts must be present on both ends of the boards and must be substantial cuts so as to completely round one corner.

(4)

Fence pickets

requiring no further processing and properly classified under HTSUS 4421.90.70, 1″ or less in actual thickness, up to 8″ wide, 6′ or less in length, and have finials or decorative cuttings that clearly identify them as fence pickets. In the case of dog-eared fence pickets, the corners of the boards should be cut off so as to remove pieces of wood in the shape of isosceles right angle triangles with sides measuring

3/4

inch or more.

(5)

U.S. origin lumber

shipped to Canada for minor processing and imported into the United States, is excluded from the scope of this order if the following conditions are met: (1) The processing occurring in Canada is limited to kiln-drying, planing to create smooth-to-size board, and sanding, and (2) if the importer establishes to the satisfaction of CBP that the lumber is of U.S. origin.

(6)

Softwood lumber products contained in single family home packages or kits

regardless of tariff classification, are excluded from the scope of this order if the importer certifies to items 6 A, B, C, D, and requirement 6 E is met:

To ensure administrability, we clarified the language of exclusion number 6 to require an importer certification and to permit single or multiple entries on multiple days as well as instructing importers to retain and make available for inspection specific documentation in support of each entry.

A. The imported home package or kit constitutes a full package of the number of wooden pieces specified in the plan, design or blueprint necessary to produce a home of at least 700 square feet produced to a specified plan, design or blueprint;

B. The package or kit must contain all necessary internal and external doors and windows, nails, screws, glue, sub floor, sheathing, beams, posts, connectors, and if included in the purchase contract, decking, trim, drywall and roof shingles specified in the plan, design or blueprint.

C. Prior to importation, the package or kit must be sold to a retailer of complete home packages or kits pursuant to a valid purchase contract referencing the particular home design plan or blueprint, and signed by a customer not affiliated with the importer;

D. Softwood lumber products entered as part of a single family home package or kit, whether in a single entry or multiple entries on multiple days, will be used solely for the construction of the single family home specified by the home design matching the entry.

E. For each entry, the following documentation must be retained by the importer and made available to CBP upon request:

i. A copy of the appropriate home design, plan, or blueprint matching the entry;

ii. A purchase contract from a retailer of home kits or packages signed by a customer not affiliated with the importer;

iii. A listing of inventory of all parts of the package or kit being entered that conforms to the home design package being entered;

iv. In the case of multiple shipments on the same contract, all items listed in E(iii) which are included in the present shipment shall be identified as well.

Lumber products that CBP may classify as stringers, radius cut box-spring-frame components, and fence pickets, not conforming to the above requirements, as well as truss components, pallet components, and door and window frame parts, are covered under the scope of this order and may be classified under HTSUS subheadings 4418.90.45.90, 4421.90.70.40, and 4421.90.97.40.

Finally, as clarified throughout the course of the investigation, the following products, previously identified as Group A, remain outside the scope of this order. They are:

1. Trusses and truss kits, properly classified under HTSUS 4418.90;

2. I-joist beams;

3. Assembled box spring frames;

4. Pallets and pallet kits, properly classified under HTSUS 4415.20;

5. Garage doors;

6. Edge-glued wood, properly classified under HTSUS item 4421.90.98.40;

7. Properly classified complete door frames;

8. Properly classified complete window frames;

9. Properly classified furniture.

In addition, this scope language has been further clarified to now specify that all softwood lumber products entered from Canada claiming non-subject status based on U.S. country of origin will be treated as non-subject U.S.-origin merchandise under the CVD order, provided that these softwood lumber products meet the following condition: Upon entry, the importer, exporter, Canadian processor and/or original U.S. producer establish to CBP's satisfaction that the softwood lumber entered and documented as U.S.-origin softwood lumber was first produced in the United States as a lumber product satisfying the physical parameters of the

softwood lumber scope.

The presumption of non-subject status can, however, be rebutted by evidence demonstrating that the merchandise was substantially transformed in Canada.

See

the scope clarification message (# 3034202), dated February 3, 2003, to CBP, regarding treatment of U.S.-origin lumber on file in the CRU.

On March 3, 2006, the Department issued a scope ruling that any product entering under HTSUS 4409.10.05 which is continually shaped along its end and/or side edges which otherwise conforms to the written definition of the scope is within the scope of the order.

See

Memorandum from Constance Handley, Program Manager to Stephen J. Claeys, Deputy Assistant Secretary regarding Scope Request by the Petitioner Regarding Entries Made Under HTSUS 4409.10.05, dated March 3, 2006.

Subsidies Valuation Information

Allocation Period

In the underlying investigation and pursuant to 19 CFR 351.524(d)(2), the Department allocated, where applicable, all of the non-recurring subsidies provided to the producers/exporters of subject merchandise over a 10-year average useful life (AUL) of renewable physical assets for the industry concerned, as listed in the Internal Revenue Service's (IRS) 1977 Class Life Asset Depreciation Range System, as updated by the Department of the Treasury.

See Notice of Preliminary Affirmative Countervailing Duty Determination, Preliminary Affirmative Critical Circumstances Determination, and Alignment of Final Countervailing Duty Determination With Final Antidumping Determination: Certain Softwood Lumber Products From Canada

, 66 FR 43186 (August 30, 2001) (

Preliminary Determination

);

see also Notice of Final Affirmative Countervailing Duty Determination and Final Negative Critical Circumstances Determination: Certain Softwood Lumber Products From Canada

, 67 FR 15545 (April 2, 2002) (

Final Determination

). No interested party challenged the 10-year AUL derived from the IRS tables. Thus, in this review, we have allocated, where applicable, all of the non-recurring subsidies provided to the producers/exporters of subject merchandise over a 10-year AUL.

Recurring and Non-Recurring Benefits

The Department has previously determined that the sale of Crown timber by Canadian provinces confers countervailable benefits on the production and exportation of the subject merchandise under 771(5)(E)(iv) of the Act because the stumpage fees at which the timber is sold are for less than adequate remuneration.

See

e.g.

, “Recurring and Non-Recurring Benefits” section of the March 21, 2002, Issues and Decision Memorandum that accompanied the

Final Determination

(

Final Determination Decision Memorandum

);

see also

“Recurring and Non-Recurring Benefits” section of the December 5, 2005, Issues and Decision Memorandum (

Final Results of 2nd Review Decision Memorandum

) that accompanied the

Notice of Final Results of Countervailing Duty Administrative Review: Certain Softwood Lumber Products from Canada, 70 FR 73448

, (December 12, 2005) (

Final Results of 2nd Review

). For the reasons described in the program sections, below, the Department continues to find that Canadian provinces sell Crown timber for less than adequate remuneration to softwood lumber producers in Canada. Pursuant to 19 CFR 351.524(c)(1), subsidies conferred by the government provision of a good or service normally involve recurring benefits. Therefore, consistent with our regulations and past practice, benefits conferred by the provinces' administered Crown stumpage programs have, for purposes of these preliminary results, been expensed in the year of receipt.

In this review the Department is also examining non-stumpage programs that involve the provision of grants to producers and exporters of subject merchandise. Under 19 CFR 351.524, benefits from grants can either be classified as providing recurring or non-recurring benefits. Recurring benefits are expensed in the year of receipt, while grants providing non-recurring benefits are allocated over time corresponding to the AUL of the industry under review. However, under 19 CFR 351.524(b)(2), grants which provide non-recurring benefits will also be expensed in the year of receipt if the amount of the grant under the program is less than 0.5 percent of the relevant sales during the year in which the grant was approved (referred to as the 0.5 percent test).

Benchmarks for Loans and Discount Rate

In selecting benchmark interest rates for use in calculating the benefits conferred by the various loan programs under review, the Department's normal practice is to compare the amount paid by the borrower on the government-provided loans with the amount the firm would pay on a comparable commercial loan actually obtained on the market.

See

section 771(5)(E)(ii) of the Act; 19 CFR 351.505(a)(1) and (3)(i). However, because we are conducting this review on an aggregate basis and we are not examining individual companies, for those programs requiring a Canadian dollar-denominated, long-term benchmark interest rate, we used for these preliminary results the national average interest rates on commercial long-term Canadian dollar-denominated loans as reported by the GOC.

The information submitted by the GOC was for fixed-rate long-term debt. For long-term debt, the GOC provided quarterly rates using data from Statistics Canada's (STATCAN) Quarterly Survey of Financial Statistics for Enterprises. We used the information from this survey as the basis for our long-term loan benchmark.

Some of the reviewed programs provided long-term loans to the softwood lumber industry with variable interest rates instead of fixed interest rates. Because we were unable to gather information on variable interest rates charged on commercial loans in Canada, we have used as our benchmark for those variable loans the rate applicable to long-term fixed interest rate loans for the POR as reported by the GOC.

As stated above, the Department is examining non-stumpage programs that confer non-recurring benefits. For those non-stumpage programs that require the allocation of the benefit over time, we have employed the allocation methodology described under 19 CFR 351.524(d). As our discount rate, we have used the rate applicable to long-term fixed interest rate loans for the POR, as reported by the GOC.

Aggregate Subsidy Rate Calculation

As noted above, this administrative review is being conducted on an aggregate basis. We have used the same methodology to calculate the country-wide rate for the programs subject to this review that we used in the

Final Determination

, the

Notice of Final Results of Countervailing Duty Administrative Review and Rescission of Certain Company-Specific Reviews: Certain Softwood Lumber Products from Canada

, 69 FR 75917 (December 20, 2004) (

Final Results of 1st Review

), and the

Final Results of 2nd Review.

Provincial Crown Stumpage Programs

For stumpage programs administered by the Canadian provinces subject to this review, we first calculated a provincial subsidy rate by dividing the aggregate benefit conferred under each specific provincial stumpage program by the total stumpage denominator calculated for that province. For further information regarding the stumpage denominator,

see

“Numerator and Denominator Used for Calculating the

Stumpage Programs' Net Subsidy Rates” section, below. As required by section 777A(e)(2)(B) of the Act, we next calculated a single country-wide subsidy rate. To calculate the country-wide subsidy rate conferred on the subject merchandise from all stumpage programs, we weight-averaged the subsidy rate from each provincial stumpage program by the respective provinces' relative shares of total exports to the United States during the POR. As in

Final Determination

and subsequent reviews, these weighted-averages of the subject merchandise do not include exports from the Maritime Provinces or sales of companies excluded from the CVD order.

We then summed these weighted-average subsidy rates to determine the country-wide rate for all provincial Crown stumpage programs.

The Maritime provinces are Nova Scotia, New Brunswick, Newfoundland, and Prince Edward Island.

Other Programs

We also examined a number of non-stumpage programs administered by the Canadian Federal Government and certain Provincial Governments in Canada. To calculate the country-wide rate for these programs, we used the same methodology employed in the first and second administrative reviews. For Federal programs that were found to be specific because they were limited to certain regions, we calculated the countervailable subsidy rate by dividing the benefit by the relevant denominator (

i.e.

, total production of softwood lumber in the region or total exports of softwood lumber to the United States from that region), and then multiplying that result by the relative share of total softwood exports to the United States from that region. For Federal programs that were not regionally specific, we divided the benefit by the relevant country-wide sales (

i.e.

, total sales of softwood lumber, total sales of the wood products manufacturing industry (which includes softwood lumber), or total sales of the wood products manufacturing and paper industries).

For provincial programs, we calculated the countervailable subsidy rate by dividing the benefit by the relevant sales amount for that province (

i.e.

, total exports of softwood lumber from that province to the United States, total sales of softwood lumber in that province, or total sales of the wood products manufacturing and paper industries in that province). That result was then multiplied by the relative share of total softwood exports to the United States from that province.

Where the countervailable subsidy rate for a program was less than 0.005 percent, the program was not included in calculating the country-wide CVD rate.

Numerator and Denominator Used for Calculating the Stumpage Programs' Net Subsidy Rates

The denominators used for non-stumpage programs are discussed below in the individual program write-ups.

1. Aggregate Numerator and Denominator

As noted above, the Department is determining the stumpage subsidies to the production of softwood lumber in Canada on an aggregate basis. The methodology employed to calculate the

ad valorem

subsidy rate requires the use of a compatible numerator and denominator. In the second administrative review, the Department explained that in the numerator of the net subsidy rate calculation, the Department included only the benefit from those softwood Crown logs that entered and were processed by sawmills during the POR (

i.e.

, logs used in the lumber production process).

See

“Aggregate Numerator and Denominator” section and Comment 9 of the

Final Results of 2nd Review Decision Memorandum.

Accordingly, the denominator used for the final calculation included only those products that result from the softwood lumber manufacturing process.

Id.

For purposes of these preliminary results, we continue to calculate the numerator and denominator using the approach adopted in the final results of the second review.

In the case of Alberta and British Columbia, it was necessary to derive the volume of softwood Crown logs that entered and were processed by sawmills during the POR (

i.e.

, logs used in the lumber production process). Our methodology for deriving those volumes is described in the “Calculation of Provincial Benefits” section of these preliminary results.

Consistent with the Department's previously established methodology, we included the following in the denominator: Softwood lumber, including softwood lumber that undergoes some further processing (so-called “remanufactured” lumber), softwood co-products (

e.g.

, wood chips and sawdust) that resulted from softwood lumber production at sawmills, and residual products produced by sawmills that were the result of the softwood lumber manufacturing process, specifically, softwood fuelwood and untreated softwood ties.

We would have included in the denominator those softwood co-products produced by lumber remanufacturers that resulted from the softwood lumber manufacturing process. However, the GOC failed to separate softwood co-products that resulted from the softwood lumber manufacturing process of lumber remanufacturers from those resulting from the myriad of other production processes performed by producers in the remanufacturing category that have nothing to do with the production of subject merchandise. Lacking the information necessary to determine the value of softwood co-products that resulted from the softwood lumber manufacturing process of lumber remanufacturers during the softwood lumber manufacturing process, we have preliminarily determined not to include any softwood co-product values from the non-sawmill category.

See, e.g.

, Comment 16 of the December 13, 2004, Issues and Decision Memorandum that accompanied the

Final Results of 1st Review

(

Final Results of 1st Review Decision Memorandum

see also

Comment 6 and 17 of the

Final Results of 2nd Review Decision Memorandum.

As demonstrated in this review, as well as in the prior reviews, the prices harvesters charge for logs are effectively determined by the prices they pay for stumpage plus harvesting costs. Because

of the relationship between timber (stumpage) and log prices, prices for logs in Ontario would be suppressed by the subsidized prices in the timber markets. As such, log prices in Ontario are unsuitable for purposes of measuring whether a competitive benefit has passed-through in transactions involving sales of Crown logs.

Id.

Instead, we have turned to private stumpage prices in the Maritimes, which we have found are market-determined, in-country prices. However, because we are measuring the competitive benefit for the sale of subsidized logs, we have derived species-specific benchmark log prices by combining the unsubsidized Maritimes stumpage prices with the various harvest, haul, road, and management costs reported by the GOO.

We then compared the per-unit prices listed for each transaction reported by the OLMA/OFIA that we determined were eligible for a competitive benefit analysis based on our benchmark log prices. If the price per cubic meter was equal to or higher than the benchmark price, we determined that no competitive benefit passed through and the corresponding volume was excluded from the numerator of our calculations. Where the per-unit price was lower than the benchmark price, and where the difference between the benchmark and actual log prices was greater than the province-specific per-unit stumpage benefit, we capped the amount of the subsidy considered to have “passed through” by the province-specific per-unit stumpage benefit. As such, the amount of the competitive benefit that was calculated to have passed though in the transaction was never greater than the subsidy granted by the Crown. This approach is consistent with the approach utilized in the second administrative review.

See Preliminary Results of 2nd Review,

70 FR at 33095-33096;

see also

“Use of First-Tier Benchmarks in Measuring Stumpage Programs Administered by the GOA, GOBC, GOO, GOQ, GOM, and GOS” section of the

Final Results of 2nd Review Decision Memorandum

. For the reasons discussed below, the Department continues to find that there are no private stumpage market prices in the provinces under review that can serve as first-tier benchmarks in Alberta, British Columbia, Manitoba, Ontario, Quebec, and Saskatchewan.

There Are No Useable First-Tier Benchmarks in the Subject Provinces Measuring the Benefit on Stumpage Programs Administered by the GOA, GOBC, GOO, GOQ, GOM, and GOS

In this administrative review, the GOA reported private price data and government competitive bid data as reported in Alberta's 2005 TDA update; the GOO provided an updated survey of private prices prepared by Demers Gobeil Mercier & Associes Inc. (DGM); the GOQ provided private stumpage prices charged in its province; and the GOBC provided prices from auctions the government administers under the B.C. Timber Sales (BCTS) program. As discussed below, we have preliminarily determined that pricing data reported by the GOA, GOO, GOQ, and GOBC are not suitable for use as a benchmark within the meaning of 19 CFR 351.111(a)(2)(i).

Province of Alberta

In response to the Department's request for private timber prices, the GOA explained that it did not have such data.

See

GOA's October 3, 2005, questionnaire response, Volume 1 at page IX-1. However, the GOA instead submitted the TDA survey as a source of data for arm's-length, cash only private log sales.

. at Volume 1, page IX-1 and Exhibit AB-S-79. We have examined the data in the updated TDA survey and continue to find that the TDA prices are not suitable for use as benchmarks.

See Preliminary Results of 1st Review

, 69 FR at 33214, “Private Provincial Market Prices” section of the

Final Results of 1st Review Decision Memorandum

and at Comment 19,

Preliminary Results of 2nd Review

, 70 FR at 33099, and

Final Results of 2nd Review Decision Memorandum

at “Pass-Through” section and Comment 12 in which we made similar findings.

According to the GOA, the TDA survey covers calendar year 2004.

According to the GOA, the TDA program began in the mid-1990s as a means for mediating disputes between timber operators and other industrial operators concerning the value of standing timber adversely affected by industrial operations on timber tenures. Pursuant to these efforts, a consultant collected information on log purchases made by participants in the TDA program. In describing the methodology in past reviews, they stated that “the values on the {TDA} table are derived by consultants from a two-year average of competitive Commercial Timber Permit (CTP) sales values, as well as the value of arm's-length log purchases, adjusted to stumpage values by backing out harvesting and haul costs.”

See Preliminary Results of 2nd Review

, 70 FR at 33099.

The GOA's response indicates that the methodology used to report the TDA private timber transaction data for this administrative review has not changed since the period covered by the prior administrative review.

See

page IX-1, Volume 1 of the GOA's October 3, 2005, initial questionnaire. In particular, the GOA states that the TDA survey continues not to differentiate between logs sold that were harvested from private lands and those sold that originated from provincial lands.

. As explained in the prior review, with respect to the TDA survey, the source of the logs and additional information, such as the respective volume and value of the TDA logs sales in Alberta, are highly relevant for determining whether Crown prices affect private prices in the province.

See

Comment 12 of the

Final Results of 2nd Review Decision Memorandum

. Such information is relevant because, as stated in the underlying investigation, “where the market for a particular good or service is so dominated by the presence of the government, the remaining private prices in the country in question cannot be considered to be independent of the government price.”

See

the “There Are No Market-based Internal Canadian Benchmarks” and “Private, Provincial, and CTP and CTL Prices as Benchmark” sections of the

Final Determination Decision Memorandum

However, despite the lack of specific information regarding transactions from private lands contained in the TDA survey, the GOA has estimated that only 290,439 m

of standing timber were harvested from private lands during the POR.

See

page XII-1 of the GOA's October 3, 2005, questionnaire response. Therefore, even if the entire volume of private transactions were included in the TDA values, the private transactions would comprise only about two percent of the total provincial harvest volume for the POR. As a result, the private transactions are a negligible proportion of the overall harvest and, as such, are overwhelmingly dominated by the Crown-provided timber.

See

Comment 12 of the

Final Results of 2nd Review Decision Memorandum

where the Department reached the same conclusion. Although the TDA survey data have been updated for the POR, the TDA survey methodology has not changed from that which was reported in the investigation and prior administrative reviews. Based on the fact that no new information has been presented that would warrant a change in our position and for the same reasons outlined in the prior review, we preliminarily determine that the prices in the TDA survey cannot be used to determine the amount by which the Alberta stumpage program confers a benefit.

See Final Results of 2nd Review Decision Memorandum

at Comment 12.

Therefore, based on the record evidence and consistent with the Department's prior determinations, we continue to find that the TDA survey prices cannot serve as an appropriate benchmark.

2. Province of British Columbia

British Columbia did not provide private stumpage prices for the record of this proceeding. Instead, as in the second administrative review, the Province provided prices from auctions the government administers under section 20 of the Forest Act. These auctions were formerly conducted under the Small Business Forest Enterprise Program (SBFEP). In the investigation and first administrative review, the Department determined that the auction prices under the SBFEP program were not suitable for use as benchmarks in determining whether the GOBC sold Crown timber for less than adequate remuneration because the SBFEP auctions were only open to small business forest enterprises. As such, we determined that these prices did not reflect prices from a competitively run government auction, as required by our regulations.

See

19 CFR 351.511(a)(2)(i) and the Preamble, 63 FR at 65377;

see also

the “Private Provincial Market Prices” section of the

Final Results of 1st Review Decision Memorandum

and

Preliminary Results of 1st Review

, 69 FR at 33214.

On June 20, 2003, the Ministry amended the Forest Act to create a new agency called B.C. Timber Sales (BCTS). On November 4, 2003, during the second review, the SBFEP was replaced by the BCTS program. Before the amendment, section 20 sales under the SBFEP were classified under three categories. Category one was broadened to include individuals or corporations that own or lease a timber processing facility. This change effectively eliminated the restriction of section 20 auction sales to small businesses, allowing them to include all applicants in the Province. The second and third categories were subsumed into the new BCTS program largely unchanged, and continue to contain the same restrictions on participants as before the amendments to the law.

The GOBC claimed in the second review that, pursuant to the changes, category one “unrestricted” section 20 auction prices may serve as first-tier benchmarks to determine whether Crown timber in British Columbia was sold for less than adequate remuneration. However, in reviewing the changes to the small business program, the Department determined that record evidence did not support the use of the auction prices as benchmarks to measure the adequacy of remuneration for Crown stumpage. For example, the Department concluded that the volume sold at auction is not “significant” and does not meet the standard set out in 19 CFR 351.511(a)(2)(i).

See Preliminary Results

, 70 FR at 33100 and Comment 14 of the

Final Results of 2nd Review Decision Memorandum

In the second administrative review, the Department further found that the auction prices are effectively limited by Crown stumpage prices paid by Crown tenure-holding sawmills. Thus, the Department determined that the prices for Crown timber auctioned under section 20 of the Forest Act, as amended, are not market-determined prices, but rather reflect prices for administratively set Crown stumpage. We based this conclusion on three factors. First, participants in the auctions included Crown tenure-holding sawmills but, most often, were loggers who then sold the timber to Crown tenure-holding sawmills. Second, the price that Crown tenure-holding mills are willing to pay at auction or, more frequently, to loggers is determined by the price the sawmills pay for Crown stumpage because of the non-binding Annual Allowable Cut (AAC) in British Columbia. Third, the price loggers bid at the auctions is limited by the price they receive from their customers, the largest of whom are tenure-holding sawmills. Based on these factors, we concluded that the auction prices, represented directly or indirectly by sales to Crown tenure-holding sawmills, are effectively determined by Crown stumpage prices. We further determined that the substantial presence of valuations by Crown tenure-holding sawmills within the BCTS prices means that the BCTS auction prices are not market-determined prices as required in the Department's regulations and are not useable as benchmarks for measuring the adequacy of remuneration.

See Preliminary Results of 2nd Review

, 70 FR at 33100 and Comments 13 and 14 of the

Final Results of 2nd Review Decision Memorandum

In the current review, the GOBC maintains its position that category one “unrestricted” section 20 auction prices may serve as first-tier benchmarks to determine whether Crown timber in British Columbia was sold for less than adequate remuneration. Furthermore, according to the GOBC, effective February 29, 2004, auctions of standing timber are used to determine the stumpage price for the timber harvested under long-term tenures. During the current POR, “unrestricted” category one BCTS auction sales accounted for 6.5 percent of the total log harvest compared to 1.1 percent (covering five months) in the second review period. Although the GOBC granted more timber auctions under category one during the current POR than in the previous administrative review, for purposes of these preliminary results we continue to find that the volume of Crown timber sold by the GOBC through these auctions cannot be considered to represent a “significant” portion of the timber sold in British Columbia, and that the prices from these auctions, therefore, do not meet a key requirement for their consideration as benchmarks for measuring the adequacy of remuneration for government-provided goods as specified under 19 CFR 351.511(a)(2)(i).

Additionally, the factors noted above that led the Department in the past to conclude that section 20 BCTS auction prices were not suitable for use as benchmarks continue during the current POR. For example, we continue to find that loggers that have acquired Crown-origin timber through the BCTS auctions typically resell the logs to tenure-holding sawmills.

See, e.g., Preliminary Results of 2nd Review

, 70 FR at 33100, citing to a study commissioned by the BCLTC and prepared by Susan Athey and Peter Cramton of Market Design Inc., entitled, “Competitive Auction Markets in British Columbia” (BCLTC Study).

Furthermore, we continue to find that loggers consider the price they will receive from tenure-holding sawmills and that this price effectively determines what the loggers bid in the BCTS auctions.

See, e.g., Preliminary Results of 2nd Review

, 70 FR at 33101, citing the BCLTC Study which states that sawmills' valuations of logs are reflected in the prices loggers pay at the BCTS auctions.

Evidence also indicates that sawmills continue to participate in the BCTS auctions.

See

BC-IV-43 of the GOBC's October 3, 2005, questionnaire response, which indicates that three sawmills were among the 20 largest category one BCTS participants during the POR. The 20 largest BCTS participants accounted for 9 percent of the total BCTS volume billed and harvested during the POR.

Moreover, the record of the current review indicates that, as we found in prior periods, the price that Crown tenure-holding mills are willing to pay at auction or, more frequently, to loggers is effectively determined by the price they pay for Crown stumpage because of the non-binding AAC in B.C.

See, e.g., Preliminary Results of 2nd Review

, 70 FR at 33101. The record shows that these large Crown tenure-holding sawmills did not exhaust the amount of timber they could harvest from their tenures during the POR. As such, they

were not forced to obtain timber from other sources, such as the BCTS section 20 auctions, because of a scarcity of available timber on their own tenure. Specifically, the Crown tenure-holding sawmills, which hold forest licenses and tree farm licenses, were allocated 64.5 million cubic meters of timber or 82 percent of the AAC, which is the annual rate of timber harvesting specified in each Timber Supply Area (TSA), during the POR. However, these licensees harvested only 54.8 million cubic meters or 85 percent of their AAC, a shortfall of 9.7 million cubic meters.

See

GOBC's October 3, 2005, Questionnaire Response at BC-S-156.

In the current review, the GOBC has argued that BCTS auction prices were used during the POR to determine the stumpage prices for Crown timber harvested under long-term tenures, thereby demonstrating the viability of using the auction prices as benchmarks in the Department's subsidy calculations. However, as noted above, the price loggers bid at the BCTS auctions is limited by the price they receive from their customers, most of which are tenure-holding sawmills that have access to abundant supplies of standing timber in the Crown forest. Therefore, in the absence of new information that would warrant reconsideration of the issue, we preliminarily determine that the factors that led us in earlier periods to conclude that (1) the BCTS auction sale prices are not market-determined and (2) that they reflect prices for administratively set Crown stumpage continued to exist during the POR. Thus, we preliminarily find that section 20 BCTS auction prices cannot be used as valid benchmarks to measure the adequacy of remuneration of B.C.’s administered stumpage system.

3. Province of Ontario

In the first and second administrative reviews, we determined that the prices for private standing timber in Ontario placed on the record by the GOO could not be used for benchmark purposes. Specifically, we determined that the prices reported in surveys commissioned by the GOO could not be used as benchmarks because the prices are effectively determined by the price for public timber. We also concluded that private stumpage prices in Ontario are not useable for benchmark purposes because they cannot be considered to be market-determined prices.

See Preliminary Results of 1st Review

, 69 FR at 33204, 33214-33215;

Final Results of 1st Review Decision Memorandum

at Comments 20 and 21,

Preliminary Results of 2nd Review

, 70 FR at 33088, 33095-33096; and

Final Results of 2nd Review Decision Memorandum

at Comment 16.

As new information for this administrative review, the GOO submitted estimates (based on mill return data) of the volumes of private timber delivered to the various mills during the POR.

See

the GOO's October 4, 2005, questionnaire response at Vol. I, page ON-3 and ON-4 and Vol. 2 at ON-STATS-1. The GOO also submitted a survey of prices of standing timber from private lands conducted by Bearing Point for 2004-2005 and an assessment of the survey by Charles River Associates.

See

the GOO's December 6, 2006, submission at Exhibit 1 and Exhibit 2.

The GOO submitted copies of price surveys and assessments that it had commissioned for the first and second administrative reviews.

See

the GOO's December 6, 2006, submission at Exhibits 4-7.

For the reasons described below, the new information submitted by the GOO has not led us to alter our findings from the first and second administrative reviews. In the second administrative review, we determined that information on the record shows that sawmills in Ontario rely on Crown timber for the vast majority of their timber supply needs and use private timber only in relatively small quantities. Evidence on the record of the current review leads us to the same conclusion.

According the GOO, all mills in Ontario that use more than 1000 cubic meters of timber per year are required to be licensed by the MNF, and, as of April 1, 2004, there

were 81 licenced mills which produce softwood lumber.

See

ON-99 through ON-100 of the GOO's October 3, 2005, questionnaire response. The data indicate that 91 sawmills in Ontario reported utilization of softwood timber at the “commercial” level of 1000 cubic meters per year, for a total of 15,990,167 million cubic meters.

See

ON-TNR-3 of the GOO's October 3, 2005, questionnaire response and the May 31, 2006, Memorandum to the File from Robert Copyak, Financial Analysts, AD/CVD Operations, Office 3, entitled, “Ontario Mill Return Data” (Ontario Mill Return Memorandum). These data also indicate that only 11 of these “commercial” mills used private timber exclusively and the other 80 used either Crown timber exclusively or both Crown timber and timber from private lands. These 11 mills account for only 3.62 percent of the total private harvest. The remaining 80 mills account for 99.62 percent of the overall timber consumption by “commercial” mills in Ontario and consume 96.38 percent of the timber harvested from Ontario's private forest. Further, the 25 largest sawmills, which account for the large majority of timber consumed in the Province, used more than 11 million cubic meters of Crown timber and over 1 million cubic meters of private timber. Although private timber consumption by these largest 25 sawmills is small relative to their overall consumption (only 8.49 percent), it accounts for 63.28 percent of the all private timber consumed by “commercial” producers during the POR. In other words, although the private standing timber market is a minor source of supply for these tenure-holding sawmills, they represent the main market for sellers of private standing timber in Ontario.

See

Exhibit ON-TNR-3, Volume 11 of the GOO's October 3, 2005, questionnaire response and the Ontario Mill Return Memorandum.

In the first administrative review, the GOO further explained that it is not necessary to obtain a license if the mill consumes less than 1,000 cubic meters of timber a year, stating that anything less than 1,000 cubic meters is not considered a commercial quantity.

See

page 2 of the June 2, 2004 Memorandum from Robert Copyak, Financial Analyst, AD/CVD Operations, Office 3, to Melissa G. Skinner, Director, Office of AD/CVD Enforcement VI, entitled, “Verification of Information Submitted In Questionnaire Responses by the Government of Ontario,” which was submitted as Exhibit ON-VER-1, Volume 20 of the GOO's October 3, 2005, questionnaire response.

The information on the record indicates that the GOO is willing to meet any amount of demand for public timber at a fixed, administratively set price. The allocation and harvest figures provided by the GOO indicate that tenure holders in Ontario are virtually unconstrained in the amount of Crown timber they can obtain from the GOO. During the POR, the GOO made available approximately 30 million cubic meters of public timber, yet loggers and mills in Ontario harvested only 70 percent of this annual allocation.

See

Exhibit ON-TNR-11 of the GOO's October 3, 2005, questionnaire response. Similarly, in each of the last four years, the harvest level never approached the amount allocated by the GOO. Rather, the harvest level ranged from as low as 56.6 percent to no more than 88.9 percent of the annual allocation.

Id.

With no constraints on the amount of Crown timber that sawmills can obtain, the price that loggers are willing to bid on private stumpage is effectively determined by the difference of the expected sale price of the log and their harvesting costs plus profit. Loggers who sell to tenure-holding mills cannot expect to charge more for their private logs than the cost of the logs that the mills can source from their public tenure. The largest 25 softwood sawmills, producing the vast majority of the lumber in Ontario, have Crown

tenure for which they pay government-set stumpage prices. As we previously explained, because the AAC in Ontario is not binding, mills with public tenure can always harvest more timber from their tenure and, therefore, are not driven to the private market by demand that cannot be met from their Crown tenure-holdings.

See Final Results of 1st Review Decision Memorandum

at Comments 20 and 21;

see also Final Results of 2nd Review Decision Memorandum

at Comment 16. Their willingness to pay for logs from other sources will be limited by their costs for obtaining timber from their own tenures. Therefore, the prices loggers bid for private stumpage are effectively determined by the public stumpage prices paid by these mills.

Furthermore, at the verification conducted during the investigation, GOO officials explained that the allocation of public timber is based on elaborate five-year plans and annual forecasts.

They then explained that harvest levels fluctuate but the overall harvest need only remain below the five-year target:

Ontario uses the term “available harvest area” (AHA) rather than “annual allowable cut” (AAC) for harvest planning purposes. AHAs are set for five years in the five-year forest management plans. The management unit's AHA is calculated based on adjusted net area (total area in the unit minus lakes and protected areas) and the ages and species of the stands. The officials stated that sustainable forestry is the goal, so considerations such as species preservation and wildlife habitat are taken into account. The officials explained that, in general, about 0.5 percent of the area of each management unit is harvested annually.”

See

page 9 of the February 15, 2002, Memorandum to Melissa Skinner, Director, Office of AD/CVD Enforcement VI, from Robert Copyak and David Salkeld, Case Analysts, Office of AD/CVD Enforcement VI, titled “Countervailing Duty Investigation of Certain Softwood Lumber Products from Canada: Verification of Questionnaire Responses Submitted by the Government of Ontario” and included in ON-VER-1 of the GOO's October 3, 2005 questionnaire response (GOO Investigation Verification Report).

The yearly forecast harvest amounts differ from the yearly actual harvest amounts. The officials explained that this yearly variation is normal because companies need only harvest less than the total AHA for the five-year period. The officials explained that a tenure holder may harvest more one year and less the next year (say in an effort to take advantage of high lumber prices), so long as the overall levels set out in the five-year plan are not exceeded. If there is a drastic change in available harvest area (due to a large fire, for example), then AHAs agreed to in the five-year forest management plans may be altered, with salvage areas being swapped for areas originally slated for harvest.

See

GOO Verification Report at page 10;

see also Final Results of 2nd Review Decision Memorandum at Comment 16

As noted above, the data indicate that the yearly “planned” allocation amounts far exceed the actual amounts harvested in each of the last four years. The GOO reported that the private timber harvest destined to softwood sawmills during the POR was 1,072,233 cubic meters.

See

Exhibit ON-STATS-1, Volume 2 of the GOO's October 3, 2005, questionnaire response. Thus, the amount of public timber allocated by the GOO for the POR was greater than the public and private harvest combined. In addition, the total amount of public timber harvested during the five-year planning period did not approach the amount allocated for the period.

See Id.

at ON-TNR-11.

With regard to the argument that the comparability of private prices and public prices indicates that tenure holders do not have leverage with regard to negotiating with private sellers, in the second administrative review we found that, given the fact that the public price is fixed, if anything, such comparability could indicate the opposite. The market for private standing timber in Ontario is determined by the vast supply of Crown timber because the allocation of timber by the GOO is such that tenure holders may obtain as much timber from the Crown as they choose. Because the allocation of Crown timber to tenure holders exceeds the tenure holders' demand, tenure holders would only be willing to purchase private timber at prices which result in a net outlay equivalent to the cost of public timber. Private land owners are, therefore, faced with the choice of selling at a price equivalent to the public price or foregoing a sale. Although the private land owners are “price takers” in one sense, this type of “price taking” is not the result of a functional competitive market. Rather, it is the result of a market dominated by a supplier that does not price or allocate its supply using market mechanisms. The fact that private timber from Ontario is purchased by parties in Quebec or the United States is not necessarily indicative of a functional market for timber in Ontario. It simply indicates that Ontario private prices are comparable to or lower than other available stumpage prices.

See Final Results of 2nd Review Decision Memorandum

at Comment 16.

For the above reasons, the Department finds that the transactions recorded in the Bearing Point survey are effectively determined by the Crown stumpage prices and are, hence, not suitable benchmarks for assessing adequacy of remuneration. No new information has been provided on the record to warrant reconsideration of this determination.

4. Province of Quebec

In the first and second administrative reviews, we concluded that prices for private standing timber in Quebec could not serve as benchmarks for determining whether the GOQ sells Crown timber for less than adequate remuneration because the incentives that tenure holders face vis-a-vis the private market are distorted. We based our conclusion on the following factors:

• Tenure-holding sawmills have an interest in maintaining a low value of standing trees in private forests, as this value provides the basis for calculating Crown timber prices (the Feedback Effect).

• Sawmills with access to Crown timber can avoid sourcing in the private forest because, among other things, the annual allowable cut on Crown land is not binding.

• Tenure-holding sawmills dominate the private market.

• Sawmills without access to Crown timber account for small harvest volume in the private forest.

See Preliminary Results of 1st Review

, 69 FR at 33215-33217,

Final Results of 1st Review Decision Memorandum

at Comments 22 through 33, Preliminary Results of 2nd Review, 70 FR at 33102, and

Final Results of 2nd Review Decision Memorandum

at Comments 18 and 19.

A review of the information on the record of this review has not led us to alter this finding. Similar to the first and second administrative reviews, the GOQ provided the aggregate sourcing patterns of Quebec's 1,000 softwood sawmills during 2004. The mills were divided into four categories: mills sourcing exclusively from public sources (purely public mills), mills sourcing exclusively from private sources (purely private mills), mills sourcing from public and private sources, and mills sourcing from public, private, and other (

e.g.

, imports) sources (public/private/other mills).

Analysis of the data provided shows that the purely private mills identified by the GOQ sourced 317,040 cubic meters of softwood timber which accounted for only 0.89 percent (

i.e.

, 317,040m

/ 35,642,392m

) of the volume of softwood harvested in the province.

See

GOQ's stumpage response at Exhibits QC-S-47-48, and GOQ's

May 8, 2006, supplemental stumpage response at Exhibit 123;

see also

the May 31, 2006, Memorandum to the File from Brian Ledgerwood, “Quebec Internal Price Memorandum” (Quebec Internal Price Memorandum). Further, record evidence indicates that the average consumption rate of the 120 purely private mills identified by the GOQ continues to be small, on average approximately 2,642 cubic meters, relative to the 148 dual-source mills, (

i.e.

, mills that source from public and private sources),

whose average consumption rate was approximately 169,422 cubic meters.

In this review, the GOQ claims that, due to changes to its Forestry Act, sawmills processing less than 2,000 cubic meters of timber per year no longer have to obtain permits and thus, are also not required to report log consumption information to the provincial government. As a result, there are 700 hundred small sawmills for which the GOQ claims it cannot provide any information regarding sourcing patterns.

See

GOQ's October 3, 2005, stumpage response at page QC-46.

As explained above, the GOQ no longer collects consumption information for sawmills consuming less than 2,000 cubic meters of timber per year. Information from the first and second reviews indicates that the purely private mill category is dominated by mills with very small operations. We note that in the first and second reviews, the GOQ indicated that these small sawmills source exclusively from the private forest.

See

e.g.

Preliminary Results of 2nd Review

, 70 FR at 33102. Thus, the average consumption of sawmills in the purely private category is likely even smaller than the data from the GOQ indicate.

In addition, evidence on the record of this review indicates that dual-source mills dominate the market for private standing timber. The 148 dual-source mills accounted for 90.76 percent of the private timber harvested in 2004 (

i.e.

, pub/priv = 45.82% + pub/priv/oth = 44.94%).

. At the same time, dual-source mills obtained only a small percentage of their total harvest during 2004 from private lands. For instance, public/private/other mills obtained 19.34 percent of their total harvest from the private forest while public/private mills sourced just 9.20 percent of their softwood from the private forest.

. Thus, the data continue to indicate that the public stumpage market is a much more important sourcing component for dual-source mills and, thus, continues to be the market on which these mills focus the majority of their interests and operations.

As in the first and second administrative reviews, record evidence indicates that the dominance of the dual-source mills is pronounced at the corporate level. In the GOQ's May 8, 2006, response at Exhibit 141, the GOQ provided actual consumption data for 185 of Quebec's softwood sawmills.

The data in the GOQ's May 8, 2006, response at Exhibit 141 indicate that in 2004 six corporations, whose mills source from both public and private sources, consumed approximately 55 percent of the total timber harvest, 63 percent of the public harvest, and 32 percent of the private harvest.

See

Table 2 of the Quebec Internal Price Memorandum. Further, sorting the data in Exhibit 141 by private timber consumption indicates that 20 corporations (14 of which operate dual-source mills) account for over 72 percent of the private timber harvest.

See

Table 3 of the Quebec Internal Price Memorandum. However, while these orporations consume the majority of private timber in Quebec, private-origin timber accounts, on a weighted-average basis, for 11 percent of their inputs while public timber accounts for 81 percent.

These 185 mills accounted for the vast majority (88.55 percent—

i.e.

, 29,482,951/33,294,432) of the softwood lumber processed in the Province during the POR.

See

GOQ's May 8, 2006 response at Exhibits 123 and 141). Thus, we find that the data in the GOQ's May 8, 2006 response at Exhibit 141 provide a reasonable summary of the consumption patterns of Quebec's softwood sawmills in operation during 2004.

In addition, information on the record of this review indicates that there have been no changes to Quebec's Forestry Act that would lead us to alter our previous findings that feedback effects inherent in the GOQ's administered stumpage system encourage tenure holders to maintain low prices for private timber. We also continue to find that sawmills with access to Crown timber can avoid sourcing in the private forest. Therefore, for purposes of these preliminary results, we find that private prices for standing timber in Quebec cannot serve as benchmarks within the meaning of 19 CFR 351.511(a)(2)(i) when determining whether the GOQ sells Crown timber for less than adequate remuneration, because these prices are distorted by a combination of the GOQ's administered stumpage system, the relative size of public and private markets, feedback effects between the private and public markets, and a non-binding AAC.

5. Provinces of Manitoba and Saskatchewan

With respect to Manitoba and Saskatchewan, the provincial governments did not supply private market timber prices upon which to base a first-tier benchmark arising from those provinces.

Private Stumpage Prices in New Brunswick and Nova Scotia May Serve as a First-Tier Benchmarks in the Subject Provinces

As in the first and second administrative reviews, the GONB and GONS submitted on the record of this review, private stumpage prices for New Brunswick and Nova Scotia (together, the Maritimes). These prices are contained in separate price surveys prepared by AGFOR, Inc. Consulting (AGFOR) for each of the Maritime governments.

See

New Brunswick AGFOR Report at Exhibit 4 of the GONB's October 3, 2005, questionnaire response.

See

Nova Scotia AGFOR Report at Exhibit 6 of the GONS's October 3, 2005, questionnaire response. These are the same private price surveys that were on the records of the first and second administrative reviews. In its initial questionnaire response, the GONS submitted a new report on private stumpage prices collected by Innovative Resource Elements (IRE) between July 1, 2004, and December 31, 2004, and January 1, 2005, and June 30, 2005.

See

Survey Results and Prices for Standing Timber Sales from Nova Scotia Private Woodlots for the period July 1 to December 31, 2004, prepared by IRE (August 3, 2005) (“2004 IRE Report”), at Exhibit 5 of the GONS's October 3, 2005, questionnaire response and Survey Results and Prices for Standing Timber Sales from Nova Scotia Private Woodlots for the period January 1 to June 30, 2005, prepared by IRE (November 21, 2005), at Exhibit 3 of the GONS's January 31, 2006, supplemental questionnaire response. Nova Scotia Primary Forest Products Marketing Board (NSFPMB) commissioned the study. IRE claims that it conducted the stumpage price study using a survey methodology created by AGFOR in 2004. The IRE reports collected price data similar to that collected by AGFOR in its previous Nova Scotia and New Brunswick reports.

In the first and second administrative reviews, we determined that private stumpage prices in the Maritimes constituted market-determined, in-country prices consistent with the first tier of the adequate remuneration hierarchy of 19 CFR 351.511(a)(2). Therefore, we used these prices to assess the adequacy of remuneration of the Crown stumpage provided by the GOA, GOM, GOO, GOQ, and GOS.

See, e.g.

, the “Private Stumpage Prices in New Brunswick and Nova Scotia” section and Comments 34, 35, 37, and 38 of the

Final Results of 1st Review Decision Memorandum; see also

Comments 20 through 25 of the

Final Results of 2nd Review Decision Memorandum.

As explained in the first and second administrative reviews, record evidence indicated that in establishing their Crown stumpage rates, the Maritimes consider the prevailing prices for stumpage in the private market and the calculations for the Crown stumpage rates are thus directly linked to actual market-based transactions in the private market.

See e.g.

,Preliminary Results of 2nd Review,

70 FR at 33103. In addition, in the first and second administrative reviews, we

found that the private supply of standing timber constitutes a significant portion of the overall market in the Maritimes.

See e.g., Preliminary Results of 2nd Review,

70 FR at 33103. During the POR of this administrative review, private supply accounts for 50 percent of the total harvest in New Brunswick and over 91 percent in Nova Scotia.

See

2003 Timber Utilization Survey (“TUS”) at Exhibit 1 of the GONB's October 3, 2005, questionnaire response and Registry of Buyers 2004 Calendar Year at Exhibit 1 of the GONS's October 3, 2005, submission.

Although interested parties have contested our use of Maritimes' private stumpage prices in this review, we find their comments do not contain any new evidence or argument that would warrant a reconsideration of our prior finding. For example, the argument that Maritimes' private stumpage prices do not reflect prevailing market conditions in the subject provinces is fully addressed in the first and second administrative reviews.

See Final Results of 1st Review Decision Memorandum

at Comment 38;

See also Final Results of 2nd Review Decision Memorandum

at Comments 20 to 25. Thus, we preliminarily determine that the Maritimes' private prices are market-determined prices in Canada, and are, therefore, usable under the first tier of our adequate remuneration hierarchy. Consistent with our approach in the first and second administrative reviews, we have used Maritimes' private prices to measure the adequacy of remuneration of the stumpage programs administered by the GOA, GOS, GOM, GOO, and GOQ.

In the first and second administrative reviews, we determined that Maritimes' private prices were not the most appropriate benchmark for British Columbia.

See e.g.

, “Benchmark Prices for B.C.” section of the

Final Results of 1st Review Decision Memorandum; See also

“Selection of Benchmark Price Used for British Columbia” section of the

Final Results of 2nd Review Decision Memorandum.

We have continued to adopt this approach in the current review.

See

“Maritimes Prices are not the most appropriate Benchmark for British Columbia” section of these preliminary results for further discussion.

With respect to New Brunswick, we continue to rely on the private stumpage price information contained in the New Brunswick AGFOR Report. However, regarding Nova Scotia, for purposes of these preliminary results we are basing our benchmark on data from the IRE Report. Like the Nova Scotia AGFOR Report, the IRE Report is based on a survey of stumpage fees charged on sales of standing timber in Nova Scotia's private forest. Further, record evidence indicates that the IRE Report followed a survey methodology designed by the same firm that produced the Nova Scotia AGFOR Report.

See

IRE 2004 Report at p. 9. Moreover, the IRE Report reflects private price data that correspond to the POR, as opposed to the data in the Nova Scotia Report, which tracked private stumpage prices charged during 1999.

Comparability of Maritimes Standing Timber and Standing Timber in Alberta, Manitoba, Ontario, Quebec, and Saskatchewan

The IRE and New Brunswick Reports contain prices for the general timber species category of eastern SPF.

SPF species are also the primary and most commercially significant species reported in the species groupings for Quebec, Ontario, Manitoba, Saskatchewan and Alberta, accounting for over 97 percent of the entire timber harvest across these provinces.

This category includes, among other species, white spruce, black spruce, red spruce, jack pine, and balsam fir, and represents the vast majority of the species harvested in the Maritimes.

98.5 percent for Quebec, 93.5 percent for Ontario, 99.89 percent for Saskatchewan, 99.64 percent for Manitoba, and 99.9 percent for Alberta.

In the first and second administrative reviews, we found that although there is some minor variation of the relative concentration of individual species across provinces, this does not affect comparability for benchmark purposes.

See, e.g., Preliminary Results of 1st Review,

69 FR at 33219; and “Private Stumpage Prices in New Brunswick and Nova Scotia” section of the

Final Results of 1st Review Decision Memorandum

and at Comment 38;

see also Preliminary Results of 2nd Review,

70 FR at 33104 and Comments 21 and 25 of the

Final Results of 2nd Review Decision Memorandum.

We further found that the provinces themselves do not generally differentiate between these species; rather, they tend to group all SPF species into one category for data collection and pricing,

e.g.

, Quebec charges one stumpage price for “SPF.”

See e.g.

, Comment 25 of the

Final Results of 2nd Review Decision Memorandum.

As in the past review, petitioners contend that it is not appropriate to measure the adequacy of the GOA's administered stumpage system using a Maritimes benchmark. In addition to reiterating arguments from the second administrative review, petitioners assert that new information concerning the regional and species make-up of Alberta's Crown harvest supports their contention that it is inappropriate to use a Maritimes benchmark to measure the adequacy of remuneration of the GOA's administered stumpage system. Using a report produced by the Alberta Forest Products Association that lists sawmill consumption in Alberta by region, petitioners estimate that nearly two-thirds of Alberta's softwood harvest comes from the southwestern region bordering the Rockies.

See e.g.

, page 14 of petitioners' May 1, 2006, pre-preliminary results filing. Petitioners argue that this new information disproves the GOA's previous claims that over 80 percent of the Alberta harvest comes from the norther portion of the province. Petitioners assert that the southwestern region of Alberta is in an eco zone that more closely resembles British Columbia and, thus, is not at all similar to the Maritimes.

Petitioners further argue that evidence submitted by the GOA indicates that lodgepole pine is the dominant species in Alberta, which is absent in any of the eastern provinces.

Id.

at page 18.

Petitioners argue that lodgepole pine is a Western SPF species that is inherently larger than other species growing in the province and is certainly much larger than any of the Eastern SPF species present in the Maritimes. Petitioners assert that the disparity in the size of lodgepole pine is particularly pronounced in southwestern Alberta.

Id.

at 17-18.

Petitioners argue that information from the GOA demonstrates that lodgepole pine accounts for 45 percent of Alberta's harvest.

In the first and second administrative reviews, the Department relied on survey data obtained by KPMG in determining that the average diameter at breast height (DBH) of standing timber in Alberta was 8 inches.

See, e.g., Preliminary Results of 2nd Review,

70 FR at 33104. In the current review, the GOA submitted an updated version of the survey in its initial questionnaire response.

See

the study conducted by Bearing Point, which was included as Exhibit AB-S-25 of the GOA's October 3, 2005, questionnaire response. This survey indicates that the average DBH of SPF species in Alberta is 8.04 inches. Petitioners contend that the DBH measurements contained in the Bearing Point survey were based on inventory data and, thus, include both mature and immature trees. As a result, petitioners argue that the average DBH reported in the study is understated due to the inclusion of young trees. Petitioners further claim that the Bearing Point study does not specify that any of the timber included in the survey was harvested for lumber production. Referencing data they submitted on the record of the second administrative review and netting out trees they claim are too small to produce lumber,

petitioners estimate that the average DBH of SPF trees that entered Alberta's sawmills was, in fact, 9.74 inches. They argue, therefore, that trees in Alberta are too large to be compared to trees in the Maritimes, which the Department has found to average 7.8 inches DBH.

See

e.g.

, petitioners' presentation attached to the April 18, 2006, memorandum to the file from Eric B. Greynolds, Program Manager, Office 3, Operations titled, “Ex Parte Meeting with Counsel to the Coalition for Fair Lumber Imports Concerning the Upcoming Preliminary Results'; see also page 18 and 19 of petitioners' May 1, 2006, filing.

On this basis, petitioners argue that the Department should measure the adequacy of remuneration of Alberta's administered stumpage program using log prices from Montana. At the very least, petitioners argue that the Department should use a Montana-based log benchmark to measure the adequacy of remuneration of lodgepole pine harvested from Alberta's Crown forest.

See

page 24 of petitioners' May 1, 2006, submission.

We disagree with petitioners' argument that differences due to forest conditions, ecosystems, climate, geography, species variations and differences in timber quality warrant refusing to use Maritimes'-based price data for measuring adequacy of remuneration with respect to the provinces located east of British Columbia. As explained in the second administrative review, in terms of species, the Maritimes benchmark consists of prices for the Eastern SPF species group, which includes jack pine, balsam fir, and black, red and white spruce. We have grouped these timber species together for benchmark purposes because the various species share similar characteristics that allow them to be commercially interchangeable in lumber applications (

i.e.

, the lodgepole pine species is considered commercially interchangeable with the pine species that comprise the Eastern SPF classification). Due to the fact that the precise mix of the species will vary in the SPF grouping, the interchangeability of the individual species that comprise the SPF species group eliminates the need to identify a species-specific benchmark for lodgepole pine in Alberta. As a result, the lack of lodgepole pine in the Maritimes does not compromise the adequacy of the Maritimes SPF benchmark for comparison to Alberta's timber in the benefit calculations.

See

Comment 21 of the

Final Results of 2nd Review Decision Memorandum.

In fact, petitioners themselves have claimed that different species within the SPF species category are interchangeable:

Any comparisons based on log prices should be species-specific. With the exception of the BC Coast, however, the large majority of Canadian timber falls into the spruce-pine-fir (“SPF”) category, which is generally recognized as commercially interchangeable.

See Preliminary Results of 2nd Review,

70 FR at 33104.

In different segments of this proceeding, petitioners have also argued that “adjustments for species within the SPF group * * * are not necessary.”

Id.

Furthermore, in these preliminary results we continue to find that record evidence demonstrates that SPF trees from the Maritimes and Alberta are comparable across their entire growing range, as evidenced by diameter.

As noted in the second administrative review, tree diameter is one of the most important characteristics in terms of lumber use.

Id.

In the current review, the data in the Bearing Point study and from the Maritimes continue to indicate that the average DBH in Alberta and New Brunswick is 8.04 and 7.8 inches, respectively.

We also continue to find that trees in the Maritimes are comparable to those in Quebec, Ontario, Manitoba, and Saskatchewan.

We disagree with petitioners' assertion that the Bearing Point survey relies on inventory data and, therefore, understates the average DBH in Alberta. The Bearing Point study clearly indicates that it was based on “coniferous timber

harvested

by Alberta softwood lumber producers between April 1, 2004 and March 31, 2005.”

See e.g.

, page 1 of Exhibit AB-S-25 of the GOA's October 3, 2005, questionnaire response, emphasis added. Further, we disagree with petitioners' claim that the Bearing Point study fails to specify whether the timber covered by the survey was harvested for lumber production. Again, the Bearing Point study clearly indicates that it surveyed ten of Alberta's largest

softwood lumber

producers, which accounted for 56 percent of the softwood harvest for FMA and CTL licensees during the POR.

Id.,

emphasis added.

This finding is consistent with the Department's previous determinations that Alberta's calculation of average DBH is reliable.

See, e.g.

, Comment 25 of the

Final Results of 2nd Review Decision Memorandum; see also, e.g.

, page 12 of the February 15, 2002, memorandum to Melissa G. Skinner, Director, Office of AD/CVD Enforcement VI, from Tipten Troidl and Darla Brown, Case Analysts, entitled, “Countervailing Duty Investigation (CVD) of Certain Softwood Lumber from Canada: Verification of the Questionnaire Responses Submitted by the Government of Alberta (GOA),” (GOA Investigation Verification Report), which states that the authors of the DBH report contacted large operators in the province who own sawmills and solicited the average DBH of the trees in Alberta “from which logs were harvested during the POI.” The public version of the GOA Investigation Verification Report is on file in the CRU.

Petitioners argue that, based on their estimation, the average DBH of softwood timber in Alberta is actually 9.74 inches. First, we note that the source of this estimation is not based on new information. Petitioners submitted this same information during the second administrative review. Regarding the source of information, the Department found it inconclusive given that it did not consistently demonstrate larger DBH measurements than those reported in the studies submitted by the GOA.

See

Comment 25 of the

Final Results of 2nd Review Decision Memorandum.

Further, as explained in the second administrative review, petitioners themselves have conceded that diameter differences do not significantly impact the price of logs for sizes up to 10 inches in diameter:

{F}or sawlog sizes up to the 10-inch diameter class—the vast bulk of relevant logs in both the U.S. and Canada, outside of the B.C. Coast—log prices do not substantially vary on a per-unit-basis, as long as the logs are of a sufficient size and quality to be sold to sawmills for milling into lumber.

Id.

In this review, petitioners also claim that over 45 percent of tree stems in southwestern Alberta have a diameter of 10 inches or greater.

See

page 23 of petitioners' May 1, 2006, submission. However, on this point, petitioners concede that there are no data available from the GOA to conduct such a precise analysis and, thus, have based this claim on the diameter study submitted in the second administrative review.

Id.

at 22. As stated above, in the second administrative review the Department found petitioners' study “inconclusive” and did not rely upon its findings in reaching its determination.

Furthermore, we note that the average DBH of 7.8 inches for the Maritimes is based on merchantable timber. Merchantable timber refers to standing timber that has reached a sufficient maturity level to be harvested. However, unlike the DBH data in the Bearing Point survey that is based on timber harvested by softwood

lumber

mills, the data used to derive the average DBH for the Maritimes makes no distinction between sawlog- and pulplog-sized timber.

Thus, the average DBH of logs entering sawmills in the Maritimes may be even closer to that of Alberta than is

currently indicated by the average DBHs calculated for the respective provinces.

Pulplogs, which are used in pulpmills, are generally smaller in diameter and less valuable than sawlogs, which are used by sawmills to make lumber.

Therefore, we continue to find that the differences which may exist regarding forest conditions, climate, geography, and ecosystems do not significantly impact diameter for the provinces east of British Columbia.

In sum, we preliminarily determine that Maritimes prices for Eastern SPF are comparable to Crown stumpage prices for the SPF species groupings in Quebec, Ontario, Manitoba, Saskatchewan, and Alberta. Accordingly, consistent with 19 CFR 351.511(a)(2)(i), we have compared these market-determined, in-country prices to the Crown stumpage prices in each of the provinces to determine whether the Crown prices were for less than adequate remuneration.

Application of Maritimes Prices

Having preliminarily found that the Maritimes' prices are in-country, market-determined prices, we next consider how to apply these prices in our benefit calculations.

1. Indexing

The IRE Report contains price data for Nova Scotia that corresponds to the POR. However, the New Brunswick Report contains price data for the period July 1, 2002, to November 30, 2002. In the second review, we indexed the data in the Nova Scotia and New Brunswick Reports using a lumber-specific index reported for the Atlantic Region by STATCAN.

See e.g., Preliminary Results of 2nd Review,

70 FR at 33104. However, new evidence on the record of this review indicates that the GONS does not rely exclusively on the STATCAN lumber index when indexing its provincial stumpage prices.

See

Appendix F of AGFOR's “Methodology to Survey and Report Standing Timber Prices in Nova Scotia,” which was submitted as Exhibit 1 of the GONS's January 31, 2006, supplemental questionnaire response. The response of the GONS indicates that the index is a combination of data from the STATCAN lumber index and an index derived from prices of lumber delivered in Boston, as published by Random Lengths, converted to Canadian dollars.

Id.

In light of this new information indicating that a Maritimes government is using the composite index, we preliminarily determine to use the composite index to convert the private price data in the New Brunswick Report to POR-dollars. For additional information, see the May 31, 2006, Maritimes Calculation Memorandum.

2. Costs That Must Be Paid in Order To Harvest Private Standing Timber in New Brunswick and Nova Scotia

In the first and second administrative reviews, we found that the pricing data for New Brunswick and Nova Scotia reflect the prices paid by harvesters for standing timber and include the value of the timber being purchased in addition to any landowner costs.

See e.g., Final Results of 1st Review Decision Memorandum

at Comment 39;

see also Final Results of 2nd Review Decision Memorandum

at Comments 36 through 38. We also found that harvesters in the Maritimes incur additional costs that must be paid in order to be able to acquire private timber. Specifically, we found that harvesters in New Brunswick are required to pay silviculture fees as well as administrative fees to the marketing board operating within the region. In Nova Scotia, in order to be able to acquire the standing timber, the registered buyer must either pay for or perform in-kind activities equal to C$3.00 for every cubic meter of private wood harvested.

Id.

For purposes of these preliminary results, we find there have been no new information or arguments from interested parties that would warrant reconsideration of these findings. Therefore, we added these costs to the indexed stumpage prices to obtain the average stumpage price for softwood logs from New Brunswick and Nova Scotia. For additional information, see the May 31, 2006, Maritimes Calculation Memorandum.

In the final results of the first and second administrative reviews, we also confirmed that harvesters of private standing timber in Nova Scotia and New Brunswick do not incur any other charges (

i.e.

, road building/maintenance costs, fire prevention costs, or land owner related costs).

3. Weighting of Studwood in the Nova Scotia Benchmark

The GONS does not collect harvest volume data by log type (

i.e.

, studwood log, sawlog, or treelength log). Thus, in the second administrative review, we weight-averaged the sawlog and studwood prices in Nova Scotia, as reported by AGFOR in a survey it conducted on behalf of the GONS, by using the actual harvest volumes reported by the harvesters. This approach was consistent with our use of volume data in the New Brunswick Report to derive average marketing board levies for New Brunswick.

See

Comment 34 of the

Final Results of 2nd Review Decision Memorandum.

However, in its January 31, 2006, supplemental questionnaire response at part G, the GONS provided a breakdown of studwood and sawlogs harvested in the province. Therefore, for the purposes of these preliminary results, we find it appropriate to weight studwood and sawlogs according to those percentages. For additional information, see the May 31, 2006, Maritimes Calculation Memorandum.

Benchmark Prices Used for British Columbia

Maritimes' Stumpage Prices Are Not the Most Appropriate Benchmarks for British Columbia

In the final results of the first review, we concluded that the Maritimes' private stumpage prices were not suitable as benchmarks for British Columbia because of the lack of commercial interchangeability between the species in British Columbia and the Eastern SPF species in the Maritimes.

See

“Maritimes Benchmarks Are Not the Most Appropriate for B.C.” section of the

Final Results of 1st Review Decision Memorandum; see also

“Selection of Benchmark Price Used for British Columbia” section of the

Final Results of 2nd Review Decision Memorandum.

We preliminarily determine that the record does not contain any new evidence which would warrant a reconsideration of our finding from the final results of the first review.

B.C. Log Prices Are Not an Appropriate Benchmark

In the final results of the first and second reviews, we found that stumpage and log markets in British Columbia were closely intertwined and, therefore, Crown stumpage prices affected both stumpage and log prices.

See

“B.C. Log Prices Are Not An Appropriate Benchmark” section of the

Final Results of 1st Review Decision Memorandum; see also Preliminary Results of 2nd Review,

70 FR at 33106, and “Selection of Benchmark Price Used for British Columbia” section and Comment 15 of the

Final Results of 2nd Review Decision Memorandum.

We further found that Crown logs were, in fact, sold in substantial quantities on the log market.

See e.g., Preliminary Results of 2nd Review,

70 FR at 33106. For example, we found that the great majority of wood sold in B.C. (apart from allocated Crown wood) was purchased by large integrated tenure-holding producers who purchase wood for their sawmills following standard purchase contracts that were structured as log or stumpage purchases. Thus, we determined that these producers were indifferent as to which form of wood,

i.e.

, either timber or logs, they purchased for use in softwood lumber production and that the decision to

purchase either timber or logs would instead ultimately depend on price.

In the final results of the first and second administrative reviews, we further determined that, because these companies simultaneously purchased and used both forms of wood, they must in principle view the cost of stumpage and logs as equivalent,

i.e.

, stumpage price plus the cost of harvesting should equate to the cost of a log. In addition, we explained that the fact that these producers used both timber and logs throughout the period of the first review to produce softwood lumber meant that stumpage-log price equivalence was maintained throughout that review period and that this, in turn, suggested that the timber and log prices were linked (

e.g.

, low (or high) timber prices means low (or high) log prices).

Id.

For these reasons, we determined that B.C. log prices are not market-determined prices independent from the effects of the underlying Crown stumpage prices and, therefore, cannot be used to assess the adequacy of remuneration of B.C.'s stumpage program. In addition, we noted that the log price data submitted by the GOBC did not distinguish between Crown logs and private logs and, thus, even if we found that purely private log prices were not affected by the Crown stumpage prices, it would be impossible to isolate such prices from the Crown log prices to establish a benchmark. See Comment 15 of the

Final Results of 2nd Review Decision Memorandum.

For purposes of these preliminary results, we find that the record does not contain any new evidence that would warrant a reconsideration of our finding from the final results of the first review.

U.S. Stumpage Prices Are Not the Most Appropriate Benchmark for British Columbia

In the first and second administrative reviews, we explained that we were cognizant of the fact that a NAFTA Panel, considering the B.C. benchmark employed in the underlying investigation, found that standing timber is not a good that is commonly traded across borders. See “World Market Prices” in

Final Results of 1st Review Decision Memorandum; see also Preliminary Results of 2nd Review,

70 FR at 33106, and “Selection of Benchmark Price Used for British Columbia” section of the

Final Results of 2nd Review Decision Memorandum.

We also explained, in considering U.S. stumpage prices as a benchmark under our regulatory hierarchy, that using those prices would require complex adjustments to the available data. We therefore turned our analysis to U.S. log prices.

See e.g., Preliminary Results of 2nd Review,

70 FR at 33106. For purposes of these preliminary results, we find that the record of this review does not contain any new evidence that would warrant a reconsideration of our finding from the final results of the first review.

U.S. Log Prices Are a More Appropriate Benchmark

In the final results of the first and second administrative reviews, we found that U.S. log prices may constitute third-tier benchmarks when determining the adequacy of remuneration of the GOBC's administered stumpage program (

i.e.

, a benchmark that is consistent with market principles under 19 CFR 351.511(a)(2)(iii)).

See

“U.S. Log Prices Are a More Appropriate Benchmark” in

Final Results of 1st Review Decision Memorandum; see also

Comment 28 of the Final

Results of 2nd Review Decision Memorandum.

In the final results of the first and second administrative reviews, we stated that a market principles analysis by its very nature depends on the available information concerning the market sector at issue, and must, therefore, be developed on a case-by-case basis. In this case, we found that using U.S. log prices is consistent with a market principles analysis, because (1) stumpage values are largely derived from the demand for logs produced from a given tree; (2) the timber species in the U.S. Pacific Northwest and British Columbia are very similar and, therefore, U.S. log prices, properly adjusted for market conditions in British Columbia, are representative of prices for timber in British Columbia; and (3) U.S. log prices are market determined.

See

e.g.

, “Selection of Benchmark Price Used for British Columbia” section and Comments 28 and 29 of the

Final Results of 2nd Review Decision Memorandum.

For purposes of these preliminary results, we find that the record of the current review does not contain any new evidence that would warrant a reconsideration of our finding from the final results of the first review. We also continue to make the same adjustments employed in the first and second administrative reviews to derive the market stumpage prices for British Columbia.

See

“Calculation of the “Derived Market Stumpage Price” section below.

Application of U.S. Log Prices

1. Selection of Data Sources

In the final results of the second administrative review, our U.S. log benchmark prices for the B.C. Interior consisted of prices from the Oregon Department of Forestry (covering the area east of the Cascade Mountains), Northwest Management Inc.”s Log Market Report (covering Eastern Washington, North Idaho, and Western Montana), the University of Montana's Montana Sawlog and Veneer Price Report (covering Western Montana), the Oregon Log Market Report (covering Eastern Oregon), and the Washington Log Market Report (covering Eastern Washington, Idaho, and Montana). In the final results of the second administrative review, our U.S. log benchmark prices for the B.C. Coast consisted of prices from Log Lines (covering the coastal, northwest, and southwest regions of Washington and Oregon), the Oregon Department of Forestry (covering coastal, northwest, and southwest regions of Oregon), Pacific Rim Wood Market Report (covering western Washington and Oregon), the Oregon Log Market Report (covering northwest and southwest Oregon), and the Washington Log Market Report (covering eastern Washington, Idaho, and Montana).

In the current administrative review, petitioners have reiterated arguments from the previous segment of the proceeding, asserting that the Department should limit its U.S. log benchmark to those regions that are contiguous to Coastal and Interior British Columbia. With respect to Interior British Columbia, petitioners contend that the Department should limit its U.S. log benchmark to the two data sources utilized in the first administrative review, Northwest Management Inc.'s Log Market Report (covering Eastern Washington, North Idaho, and Western Montana), the University of Montana's Montana Sawlog and Veneer Price Report (covering Western Montana). They contend that the use of other data sources results in the inclusion of logs sourced from areas whose ecosystems and species mix are drastically different from those found in the B.C. Interior. They also argue that logs harvested far from the B.C. border are less likely to be integrated with the B.C. Interior and, thus, less comparable than those logs harvested in regions contiguous to the province.

See

pages 2 through 5 of petitioners' May 1, 2006, filing.

At the very least, petitioners argue that the Department should refrain from using log price data for Eastern Oregon, as published by the Oregon Log Market Report, when measuring the adequacy of the GOBC's administered stumpage program in Interior British Columbia. Petitioners allege that the prices in the

report do not reflect actual sales, are not collected on a month-to-month basis as evidenced by the lack of price changes in certain regions during several consecutive months, are based on reports from voluntary respondents, and are based on reports from a limited number of lumber producers with a limited amount of production. See pages 5 through 11 of petitioners' May 1, 2006, filing;

see also

petitioners' presentation attached to the April 18, 2006, memorandum to the file from Eric B. Greynolds, Program Manager, Office 3, Operations, entitled, “Ex Parte Meeting with Counsel to the Coalition for Fair Lumber Imports Concerning the Upcoming Preliminary Results.” They further argue that harvesting activities in Eastern Oregon are less intense, as measured by harvest density, compared to both the B.C. Interior and the U.S. benchmark regions contiguous with the B.C. border. They argue the differences in harvesting density demonstrate that data from Eastern Oregon are less comparable than data from the states contiguous to B.C. border.

See

petitioners' May 11, 2006, submission. Petitioners also contend that in the second administrative review, the Department used criteria similar to that employed by petitioners in their evaluation of the Oregon Log Market Report to reject the use of a log-based price index advocated by petitioners for use in calculating the Maritimes benchmark. Petitioners contend that the application of the same rigorous assessment of the reliability and representativeness of the log-based price index would lead to the conclusion that the eastern Oregon log prices contained in the Oregon Log Market Report cannot be used in constructing a benchmark for the B.C. Interior.

Id.

We have previously addressed petitioners' arguments about the comparability of timber from regions that are not contiguous with the B.C. border. As explained in the second administrative review, the data contained in the reports reflect species harvested in the Pacific Northwest (PNW) that are representative of the dominant species harvested in British Columbia. For example, in the B.C. Interior, the three dominant species are lodgepole pine, spruce, and douglas fir. All of the U.S. log reports relating to the B.C. Interior contain U.S. log prices for each of these dominant species.

See

Comment 47 of the

Final Results of 2nd Review Decision Memorandum

We disagree with petitioners' claim that the data for eastern Oregon in the Oregon Log Market Report are unreliable due to data flaws and methodological errors. On April 21, 2006, staff from the Department of Commerce contacted the editor of the Oregon Log Market Report and asked him to explain the concerns raised by petitioners during their

ex parte

meetings with the Department, as well as answer questions posed by Department staff regarding the report.

See

the May 2, 2006, Memorandum to the File from Eric B. Greynolds, Program Manager, and Tipten Troidl, Case Analyst, Office 3, Operations, entitled, “Telephone Call to the Editor of the Oregon Log Market Report.” As indicated in the memorandum, the editor of the report stated that all prices in the Oregon Log Market Report reflect actual transaction prices, that his survey respondents include log buyers, sawmills, wood chippers, and log sellers, and that he collects price data from his respondents on a monthly basis.

Id.

We also disagree with petitioners' contention that the criteria employed in the second administrative review to reject the use of a log-based price index compel the Department to also discard the log price data for eastern Oregon in the Oregon Log Market Report. As noted above, evidence indicates that the data in the Oregon Log Market Report reflect transaction prices, which was not the case with respect to the source of petitioners' Maritime log-based price index in the second review. Furthermore, in the second administrative review, the Department was forced to choose between using price indices that were based on different products and data sets. As such, the Department was confronted with an either/or situation. In contrast, in calculating its U.S. log benchmark, the Department is seeking to construct the most representative and robust data set for comparable species in the PNW and, therefore, does not face an either/or situation. Petitioners' characterization of our approach in the second administrative review does not take this distinction into account.

On this basis, we preliminarily determine that it is appropriate to construct our U.S. log benchmarks for Coastal and Interior British Columbia, using the same data sources utilized in the second administrative review. For further information on data sources used,

see

the May 31, 2006, “Preliminary Results Calculation for the Province of British Columbia Calculation Memorandum (“British Columbia Calculation Memorandum”).

2. Derivation of U.S. Log Prices on a Per-Unit Basis for Use in Comparison to Log Prices on the B.C. Coast and Interior

a. Weighting of U.S. Log Price Sources

Consistent with our approach in the second administrative review, to make the benefit calculations for Coastal and Interior B.C., we first constructed a U.S. log price benchmark for each species harvested on the B.C. Coast and Interior, respectively. To construct the U.S. log price benchmarks, we calculated an annual average price for each species. We have done this, first, by simple-averaging log prices for each species reported in each U.S. log price report for the POR and, second, by taking a simple average of those species-specific annual average prices by source to arrive at a final species-specific annual average price.

See

Comment 48 of the

Final Results of 2nd Review Decision Memorandum

For purposes of these preliminary results, we find that the record does not contain any new evidence which would warrant a reconsideration of our approach from the final results of the second administrative review.

As explained in the second administrative review, this approach is necessary because we lack data regarding the volume of reported U.S. log sales that would allow us to calculate weighted-average prices.

See Preliminary Results of 2nd Review

, 70 FR at 33107;

see also

Comment 48 of the

Final Results of 2nd Review Decision Memorandum

b. Conversion of U.S. Log Prices Into Canadian Dollar (CAD)/Cubic Meter

The U.S. log price data was expressed in U.S. dollars (USD) per thousand board feet (mbf). Therefore, it was necessary to convert our benchmark data so that they were expressed in the same currency and unit of measure as the B.C. administered stumpage prices. In the final results of the first and second administrative reviews, we converted U.S. log price data for the B.C. Coast using a conversion factor of 6.76 USD/cubic meter. For the B.C. Interior, we used a conversion factor of 5.93 USD/cubic meter. We then converted the benchmark prices into Canadian currency based on the average of the daily USD/CAD daily exchange rate, as published by the Federal Reserve Bank of New York.

See

e.g.

, Comment 44 of the

Final Results of 2nd Review Decision Memorandum

. For purposes of these preliminary results, we find that the record does not contain any new evidence that would warrant a reconsideration of our approach from the final results of the first review. Therefore, we continue to apply the same conversion factors and exchange approach that was employed in the final

results of the first and second administrative reviews.

Calculation of Provincial Benefits

Adjustment to Administrative Stumpage Unit Price

As explained in the final results of the second administrative review, we employed a methodology for adjusting the unit prices of the Crown stumpage programs administered by the GOA, GOS, GOM, GOO, and GOQ. In making our adjustments, we focused on those costs that are assumed under the timber contract (

e.g.

, the Crown tenure agreement) and those costs that are necessary to access the standing timber for harvesting (but that may differ substantially depending on the location of the timber). Where such costs are incurred by harvesters in either the Maritimes or the subject provinces, we included them in our benefit calculations. We did not, however, make adjustments for costs that might be necessary to access the standing timber for harvesting but that do not differ substantially based on the location of the timber (

e.g.

, costs for tertiary road construction and harvesting). Because the Maritimes data reflect prices at the point of harvest, we also did not include post-harvest activities such as scaling and delivering logs to mills or market. Id. In this manner, we adjusted the unit stumpage prices of the GOA, GOS, GOM, GOO, and GOQ such that they were on the same “level” as the private stumpage prices we obtained from the Maritimes. See the “Calculation of Provincial Benefits” section of the

Final Results of 2nd Review Decision Memorandum

For purposes of these preliminary results, we find that the record does not contain any new evidence that would warrant a reconsideration of our approach from the final results of the second review. Therefore, to calculate the unit benefit conferred under the five provinces' administered stumpage programs, we subtracted from the species-specific benchmark prices the cost-adjusted weighted-average stumpage price per species. Next, we calculated the species-specific benefit by multiplying the species-specific unit benefit by the total softwood timber harvest volume for that species during the POR. We then summed the species-specific benefits to calculate the total stumpage benefit for each province.

1. Province of Alberta

a. Derivation of Administered Stumpage Unit Prices

To derive Alberta's administratively established stumpage rate, we divided the total timber dues charged to tenure holders during the POR for each species by the total softwood stumpage billed under each tenure for each species. In this manner, we obtained a weighted-average stumpage price per species that was paid by tenure holders during the POR.

b. Adjustments to Administered Stumpage Unit Price

Pursuant to the methodology established in the final results of the first and second administrative reviews, we have added the following costs to Alberta's administered stumpage unit price:

For a description of the derivation of the unit costs added to the GOA's administered stumpage price, see the May 31, 2006, Preliminary Calculations Memorandum for Alberta. The derivations of the unit costs for the GOS, GOM, GOO, and GOQ are also described in this calculation memorandum. The categories of costs added to the administered stumpage prices of the GOA, GOS, GOM, GOO, and GOQ are the same as those used in the final results of the second review.

See

the “Calculation of Provincial Benefits” section of the

Final Results of 2nd Review Decision Memorandum

• Costs for Primary and Secondary Roads (

e.g.

, Permanent Road Costs in Road Classes 1 Through 4).

• Basic Reforestation.

• Forest Management Planning.

• Holding and Protection.

• Environmental Protection.

• Forest Inventory.

• Reforestation Levy.

• Fire, Insect, and Disease Protection.

c. Calculation of the Benefit

To calculate the unit benefit under this program, we compared the species-specific benchmark prices (the Maritimes private stumpage prices described above) to the GOA's corresponding adjusted administered stumpage prices. In this manner, we calculated a unit benefit for each species group. Next, we calculated the species-specific unit benefit by the total species-specific softwood timber billed volume in Alberta during the POR.

Regarding the softwood timber billed volume used in the benefit calculations, the GOA claims that its stumpage classification system does not allow the province to isolate the wood volumes going strictly to sawmills and used to produce lumber. Thus, it is necessary to derive the volume of softwood Crown logs that entered and were processed by Alberta's sawmills during the POR (

i.e.

, logs used in the lumber production process). We performed a similar calculation in the first administrative review. However, upon identifying additional information discussed below, we determined that it is necessary to alter our approach to the calculations for Alberta.

The GOA argues that this volume amount harvested by non-sawmill-owning tenure holders should not be included in our calculations. However, by the GOA's own admission, this volume amount includes logs that were subsequently sold to sawmills.

See

e.g.

, page 8 of the GOA's May 2, 2005 supplemental questionnaire response. Further, with respect to this volume amount, the GOA provided no means by which we could identify the portion of the volume that went to sawmills and the portion that was exported or went to non-sawmills. Thus, because there is no way to break out this volume amount and because the GOA has offered no information on whether any subsidies attributable to this softwood timber did or did not pass through to any sawmills, we have, as a starting point, included the entire timber volume in question when determining the volume of Crown logs to include in the numerator of Alberta's provincial subsidy rate calculation.

In order to determine the volume of Crown logs that went to sawmills (

a.k.a

., “net-down” approach), we have slightly revised the methodology that was used in the first administrative review. Specifically, we have used the GOA's Section 80/81 timber data from Table 39, Exhibit AB-S-87 that has not been “netted down” as the basis for Alberta's benefit calculation. This data differs from the data set reported in the first review (Alberta Verification Exhibit, GOA-3, AR Table 43, Exhibit AB-S-70) because it represents the Section 80/81 basket category of timber which has not been “netted down” to exclude the volumes from tenure holders who do not own sawmills.

We subsequently added the volumes of certain non-lumber categories to the Crown Section 80/81 data to capture the universe of timber going to sawmills which corresponds to the provincial softwood billed volume identified in the PwC survey and reported by the GOA in Exhibit AB-S-107. The resulting aggregate Crown softwood billed volume was then “netted down” using the “percentage of survey billed volume as lumber” reported in the PwC survey results. This calculation enabled the Department to derive the Alberta's total Crown stumpage billed volume on a species-specific basis, which reflects the volume of provincial stumpage cut by tenure holders and sent to sawmills for processing into lumber and co-products. For further discussion, see the Preliminary Calculation

Memorandum.

Finally, we summed the species-specific benefits to calculate the total stumpage benefit for the province.

We note that this volume of timber is separate from the volume of timber included in the GOA's pass-through claim. For further information regarding the GOA's pass-through claim, see the “Pass Through” section of these preliminary results.

d. Calculation of Provincial and Country-Wide Rate

To calculate the province-specific subsidy rate, we divided the total stumpage benefit by Alberta's POR stumpage program denominator. For a discussion of the denominator used to derive the provincial rate for stumpage programs, see “Numerator and Denominator Used for Calculating the Stumpage Programs’ Net Subsidy Rates” in these preliminary results. As explained in “Aggregate Subsidy Rate Calculation,” we weight-averaged the benefit from this provincial subsidy program by Alberta's relative share of total exports of softwood lumber to the United States during the POR. The total countervailable subsidy for the provincial stumpage programs can be found in “Country-Wide Rate for Stumpage.”

2. Province of Manitoba

a. Adjustments to Administered Stumpage Unit Price

The GOM reported average, per-unit stumpage prices for the POR. Thus, our next step was to adjust the per-unit stumpage prices pursuant to the methodology described above in “Calculation of Provincial Benefits.” Specifically, we have added the following costs to Manitoba's administered stumpage unit price:

• Forest Renewal Charge.

• Forest Management License Silviculture.

• Costs for Permanent Roads (

e.g.

, Primary and Secondary Roads).

• Forest Inventory.

• Forest Management Planning.

• Environmental Protection.

• Fire Protection.

b. Calculation of the Benefit

To calculate the unit benefit conferred under the GOM's administered stumpage program, we subtracted from the species-specific benchmark prices the cost-adjusted weighted-average stumpage price per species. Next, we calculated the species-specific benefit by multiplying the species-specific unit benefit by the total softwood timber harvest volume for that species during the POR. We then summed the species-specific benefits to calculate the total stumpage benefit for the province.

c. Calculation of Provincial and Country-Wide Rate

To calculate the province-specific subsidy rate, we divided the total stumpage benefit for Manitoba by the POR stumpage program denominator. For a discussion of the denominator used to derive the provincial rate for stumpage programs,

see

“Numerator and Denominator Used for Calculating the Stumpage Programs’ Net Subsidy Rates.” As explained in “Aggregate Subsidy Rate Calculation,” we weight-averaged the benefit from this provincial subsidy program by Manitoba's relative share of total exports of softwood lumber to the United States during the POR. The total countervailable subsidy for the provincial stumpage programs can be found in “Country-Wide Rate for Stumpage.”

3. Province of Saskatchewan

a. Derivation of Administered Stumpage Unit Prices

To derive Saskatchewan's administratively established stumpage rate, we divided the total stumpage collections for each species by the corresponding volume of Crown softwood timber destined to sawmills. In this manner, we obtained a weighted-average stumpage price per species that was paid by tenure holders during the POR.

b. Adjustments to Administered Stumpage Unit Price

Next, we adjusted the administered stumpage unit prices pursuant to the methodology describe above in “Calculation of Provincial Benefits.” Specifically, we have added the following costs to Saskatchewan's administered stumpage unit price:

• Forest Management Fee.

• Processing Facilities License Fee.

• Forest Product Permit Application Fee.

• Forest Management Activities.

• Costs for Permanent Roads (

e.g.

, Primary and Secondary Roads).

c. Calculation of the Benefit

To calculate the unit benefit conferred under the GOS's administered stumpage program, we subtracted from the species-specific benchmark prices the cost-adjusted weighted-average stumpage price per species. Next, we calculated the species-specific benefit by multiplying the species-specific unit benefit by the total softwood timber harvest volume for that species during the POR. We then summed the species-specific benefits to calculate the total stumpage benefit for the province.

d. Calculation of Provincial and Country-Wide Rate

To calculate the province-specific subsidy rate, we divided the total stumpage benefit for Saskatchewan by the POR stumpage program denominator. For a discussion of the denominator used to derive the provincial rate for stumpage programs,

see

“Numerator and Denominator Used for Calculating the Stumpage Programs’ Net Subsidy Rates.” As explained in “Aggregate Subsidy Rate Calculation,” we weight-averaged the benefit from this provincial subsidy program by Ontario's relative share of total exports of softwood lumber to the United States during the POR. The total countervailable subsidy for the provincial stumpage programs can be found in “Country-Wide Rate for Stumpage.”

4. Province of Ontario

a. Derivation of Administered Stumpage Unit Prices

To derive Ontario's administratively established stumpage rate, we divided the total stumpage collections for each species by the corresponding volume of Crown softwood timber destined to sawmills. In this manner, we obtained a weighted-average stumpage price per species that was paid by tenure holders during the POR.

b. Adjustments to Administered Stumpage Unit Price

Next, we adjusted the administered stumpage unit prices pursuant to the methodology describe above in the “Calculation of Provincial Benefits” section of these preliminary results. Specifically, we have added the following costs to Ontario's administered stumpage unit price:

• Forest Management Planning.

• Construction and Maintenance of Primary and Secondary Roads.

• Fire Protection.

• First Nations and Management Fees. c. Calculation of the Benefit

To calculate the unit benefit conferred under the GOO's administered stumpage program, we subtracted from the species-specific benchmark prices the cost-adjusted weighted-average stumpage prices per species. Next, we calculated the species-specific benefit by multiplying the species-specific unit benefit by the total softwood timber harvest volume for that species during the POR. We then summed the species-specific benefits to calculate the total stumpage benefit for the province.

d. Calculation of Provincial and Country-Wide Rate

To calculate the province-specific subsidy rate, we divided the total stumpage benefit for Ontario by the POR stumpage program denominator. For a discussion of the denominator used to derive the provincial rate for stumpage programs,

see

“Numerator and Denominator Used for Calculating the Stumpage Programs’ Net Subsidy Rates.” As explained in “Aggregate Subsidy Rate Calculation,” we weight-averaged the benefit from this provincial subsidy program by Ontario's relative share of total exports of softwood lumber to the United States during the POR. The total countervailable subsidy for the provincial stumpage programs can be found in “Country-Wide Rate for Stumpage.”

5. Province of Quebec

a. Derivation of Administered Stumpage Unit Prices

To derive Quebec's administratively established stumpage rate, we divided the total stumpage collections for each species by the corresponding volume of Crown softwood timber destined to sawmills. In this manner, we obtained a weighted-average stumpage price per species that was paid by tenure holders during the POR.

b. Adjustments to Administered Stumpage Unit Price

• Forest Fund.

• Administrative Forest Planning.

• Non-Credited Silviculture.

• Construction and Maintenance of Primary and Secondary Roads.

• Fire and Insect Protection.

• Logging Camps.

• Silviculture Credits for Non-Mandatory Activities (Negative Adjustment).

c. Calculation of the Benefit

To calculate the unit benefit conferred under the GOQ's administered stumpage program, we subtracted from the species-specific benchmark prices the cost-adjusted weighted average stumpage prices per species. Next, we calculated the species-specific benefit by multiplying the species-specific unit benefit by the total softwood timber harvest volume fo

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