I. Introduction

The United States and Canada appeal certain issues of law and legal interpretations in the Panel Report United States – Final Dumping Determination on Softwood Lumber from Canada (the "Panel Report"). The Panel was established to consider a complaint by Canada concerning anti-dumping duties imposed by the United States on imports of certain softwood lumber products ("softwood lumber") from Canada. Before the Panel, Canada challenged a number of aspects of the Final Determination by the United States Department of Commerce ("USDOC") that led to the imposition of anti-dumping duties.

On 23 April 2001, USDOC initiated an anti-dumping investigation of imports of softwood lumber from Canada. Due to the large number of exporters of softwood lumber, USDOC limited its investigation to the six largest Canadian producers and exporters of that product, namely, Abitibi, Canfor, Slocan, Tembec, West Fraser, and Weyerhaeuser Canada. On 2 April 2002, USDOC published, in the United States Federal Register, a final anti-dumping duty order, which was subsequently amended on 22 May 2002. This order imposed anti-dumping duties on imports of softwood lumber from Canada, ranging from 2.18 per cent to 12.44 per cent. The final anti-dumping order contained a number of product exclusions. The factual aspects of this dispute are set out in greater detail in paragraphs 2.1 to 2.6 of the Panel Report.

The Panel considered claims by Canada that, in imposing anti-dumping duties on softwood lumber from Canada, the United States acted inconsistently with Articles 2, 2.1, 2.2, 2.2.1, 2.2.1.1, 2.2.2, 2.4, 2.4.2, 3, 5, 5.2, 5.3, 5.8, 6.10, 9, 9.3, and 18.1 of the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (the "Anti-Dumping Agreement"), as well as with Articles VI:I and VI:2 of the General Agreement on Tariffs and Trade 1994 (the "GATT 1994"). Canada asked the Panel to recommend that the Dispute Settlement Body (the "DSB") request the United States to bring its measure into conformity with its obligations under the Marrakesh Agreement Establishing the World Trade Organization (the "WTO Agreement"), to revoke the anti-dumping order in respect of softwood lumber from Canada, and to return the cash deposits collected pursuant to the investigation and determination of dumping.

The Panel Report was circulated to Members of the World Trade Organization (the "WTO") on 13 April 2004. In its Report, the Panel concluded that the United States had acted inconsistently with:

Article 2.4.2 of the [Anti-Dumping] Agreement in determining the existence of margins of dumping on the basis of a methodology incorporating the practice of "zeroing"[.]

The Panel further concluded that the United States had not acted inconsistently with:

(i) Article 5.2 of the [Anti-Dumping] Agreement in determining that the application contained such information as is required by Article 5.2;

(ii) Article 5.3 of the [Anti-Dumping] Agreement by determining that there was sufficient evidence of dumping to justify the initiation of the investigation;

(iii) Article 5.8 of the [Anti-Dumping] Agreement by not rejecting the application prior to initiation of the investigation, or by not terminating the investigation, due to the alleged insufficiency of the evidence on dumping;

(iv) Article 2.6 of the [Anti-Dumping] Agreement by determining there to be only a single like product and product under consideration;

(v) Article 2.4 of the [Anti-Dumping] Agreement by not granting an adjustment for differences in physical characteristics (differences in dimensions), as requested by some respondents;

(vi) Articles 2.2, 2.2.1, 2.2.1.1, 2.2.2 and 2.4 of the [Anti-Dumping] Agreement in its calculation of the amounts for financial expense for softwood lumber in the case of Abitibi;

(vii) Articles 2.2, 2.2.1, 2.2.1.1, 2.2.2 and 2.4 of the [Anti-Dumping] Agreement in its calculation of the amounts for general and administrative costs for softwood lumber in the case of Tembec;

(viii) Articles 2.2, 2.2.1, 2.2.1.1, 2.2.2 and 2.4 of the [Anti-Dumping] Agreement in its calculation of the amounts for general and administrative costs for softwood lumber in the case of Weyerhaeuser;

(ix) Articles 2.2, 2.2.1, 2.2.1.1 and 2.4 of the [Anti-Dumping] Agreement in its calculation of the amounts for by-product revenue from the sale of wood chips as offsets for Tembec and West Fraser;

(x) Article 2.4 of the [Anti-Dumping] Agreement by not granting Slocan an adjustment for the net revenue earned on its trading of softwood lumber futures contracts, or Articles 2.2, 2.2.1, 2.2.1.1, and 2.2.2 of the Anti-Dumping Agreement by not taking this net revenue into account when determining the constructed (normal) value;

(xi) Articles 1 and 18.1 of the [Anti-Dumping] Agreement, and Article VI of GATT 1994 with respect to Canada's claims referred to [in items (i)–(iv) above]; and

(xii) Articles 1, 9.3 and 18.1 of the [Anti-Dumping] Agreement, and Article VI of GATT 1994 with respect to Canada's claims referred to [in items (v)–(x) above].

The Panel found that, to the extent the United States had acted inconsistently with the provisions of the Anti-Dumping Agreement, it had nullified or impaired benefits accruing to Canada under that Agreement. The Panel recommended that the DSB request the United States to bring its measure into conformity with the Anti-Dumping Agreement, but denied Canada's request to make more specific suggestions regarding implementation.

On 13 May 2004, the United States notified the DSB, pursuant to paragraph 4 of Article 16 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (the "DSU"), of its intention to appeal certain issues of law covered in the Panel Report and certain legal interpretations developed by the Panel, and filed a Notice of Appeal pursuant to Rule 20 of the Working Procedures for Appellate Review (the "Working Procedures"). On 24 May 2004, the United States filed its appellant's submission. On 28 May 2004, Canada filed an other appellant's submission. On 7 June 2004, Canada and the United States each filed an appellee's submission. On the same day, the European Communities and Japan each filed a third participant's submission. On the same day, India notified the Appellate Body Secretariat of its intention to make a statement at the oral hearing as a third participant.

Arguments of the Participants and the Third Participants

Claim of Error by the United States – Appellant

The United States challenges the Panel's finding that the United States acted inconsistently with Article 2.4.2 of the Anti-Dumping Agreement in determining the existence of margins of dumping on the basis of a methodology incorporating the practice of zeroing (hereinafter "zeroing"). The United States argues that the Panel committed the following specific errors in its interpretation of Article 2.4.2.

First, according to the United States, Article 2.4.2 provides no guidance as to how results of multiple comparisons are to be aggregated in order to calculate an overall margin of dumping for the product under consideration. The United States submits that, in fact, "Article 2.4.2 itself does not require that the results of those multiple comparisons be aggregated at all."

The United States asserts, further, that, in finding that Article 2.4.2 addresses the issue of aggregating the results of multiple comparisons, the Panel failed to apply the standard of review set out in Article 17.6(ii) of the Anti-Dumping Agreement, which "requires panels to recognize that a given provision of the [Anti-Dumping] Agreement may be susceptible to multiple permissible interpretations, and to find a rejection of a producer's records in particular circumstances, and that Canada did not appeal that Panel finding. The United States also argues that Canada's argument on even-handedness is "internally inconsistent", because Canada argued, before the Panel, that the approach used by USDOC for West Fraser should have been used for Tembec, and the approach used for Tembec should have been used for West Fraser.

The United States further submits that Canada's argument that the Panel erred in finding USDOC's by-product valuation to be objective and even-handed is based on the "flawed premise"[1] that Tembec and West Fraser were similarly situated and that, therefore, USDOC should have valued each company's by-product offset using the same methodology. According to the United States, Canada offers no support for the proposition that West Fraser and Tembec were similarly situated. In the United States' view, the different corporate structures of Tembec and West Fraser, respectively, justified the use of different methodologies by USDOC, because "the different corporate structures raised different questions for purposes of valuing by-product offsets". applying 'zeroing' necessarily act inconsistently with Articles 3.1, 3.2 and 3.5 [of the] Anti-Dumping Agreement, because they examine the impact of non-dumped imports on domestic producers, when they are only entitled to examine the impact of dumped imports."

Issues Raised in this Appeal

The issues raised in this appeal are:

(a) whether the Panel erred in finding, in paragraphs 7.224 and 8.1(a)(i) of the Panel Report, that the United States acted inconsistently with Article 2.4.2 of the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (the "Anti-Dumping Agreement") in determining the existence of margins of dumping on the basis of a methodology incorporating the practice of "zeroing";

(b) whether the Panel erred in finding, in paragraphs 7.238–7.245 and 8.1(b)(vi) of the Panel Report, that the United States did not act inconsistently with Articles 2.2, 2.2.1, 2.2.1.1, and 2.4 of the Anti-Dumping Agreement in its calculation of the amount for financial expenses for softwood lumber in the case of Abitibi; and

(c) whether the Panel erred in finding, in paragraphs 7.319–7.326 and 8.1(b)(ix) of the Panel Report, that the United States did not act inconsistently with Articles 2.2, 2.2.1, 2.2.1.1, and 2.4 of the Anti-Dumping Agreement in its calculation of the amount for by-product revenue from the sale of wood chips in the case of Tembec.

Article 2.4.2 of the Anti-Dumping Agreement – The Practice of Zeroing

Introduction

We begin by identifying the precise scope of the appeal before us. First, we note that both Canada and the United States agree that this dispute relates to the consistency, with Article 2.4.2 of the Anti-Dumping Agreement, of a methodology incorporating the practice of zeroing (hereinafter "zeroing") as applied in the anti-dumping investigation at issue in this case. In other words, no methodology, as such, has been challenged in this appeal. Secondly, we understand that Canada's claim before the Panel was limited to the consistency of zeroing when used in calculating margins of dumping on the basis of a comparison of a weighted average normal value with a weighted average of prices of all comparable export transactions (the "weighted-average-to-weighted-average methodology") under Article 2.4.2 of the Anti-Dumping Agreement. Therefore, in this appeal, we are not required to, and do not address, the issue of whether zeroing can, or cannot, be used under the other methodologies prescribed in Article 2.4.2, namely, comparing normal value and export prices on a transaction-to-transaction basis (the "transaction-to-transaction methodology"), or comparing a normal value established on a weighted average basis to prices of individual export transactions (the "weighted-average-to-individual methodology). Thus, as we understand it, by zeroing, the investigating authority treats as zero the difference between the weighted average normal value and the weighted average export price in the case of those sub-groups where the weighted average normal value is less than the weighted average export price. Zeroing occurs only at the stage of aggregation of the results of the sub-groups in order to establish an overall margin of dumping for the product under investigation as a whole.

We now turn to the interpretations and findings of the Panel regarding the consistency of zeroing with Article 2.4.2 of the Anti-Dumping Agreement.

The Panel's Findings

The Panel found that zeroing as applied in this case is inconsistent with Article 2.4.2 of the Anti-Dumping Agreement, which provides:

Article 2

Determination of Dumping

...

2.4.2 Subject to the provisions governing fair comparison in paragraph 4, the existence of margins of dumping during the investigation phase shall normally be established on the basis of a comparison of a weighted average normal value with a weighted average of prices of all comparable export transactions or by a comparison of normal value and export prices on a transaction‑to‑transaction basis. A normal value established on a weighted average basis may be compared to prices of individual export transactions if the authorities find a pattern of export prices which differ significantly among different purchasers, regions or time periods, and if an explanation is provided as to why such differences cannot be taken into account appropriately by the use of a weighted average‑to‑weighted average or transaction‑to‑transaction comparison.

The methodology followed by USDOC in this case involved "multiple averaging", by which we mean the practice of investigating authorities of sub-dividing the product under investigation into sub-groups of comparable transactions and determining a weighted average normal value and a weighted average export price for the transactions in each sub-group. The Panel stated that "in practice, the issue of zeroing arises in the context of the weighted average-to-weighted average methodology only where the investigating authority engages in so-called 'multiple averaging'."

The Panel then turned to Article 2.4 of the Anti-Dumping Agreement, which provides in relevant part:

Article 2

Determination of Dumping

...

2.4 A fair comparison shall be made between the export price and the normal value. This comparison shall be made at the same level of trade, normally at the ex‑factory level, and in respect of sales made at as nearly as possible the same time. Due allowance shall be made in each case, on its merits, for differences which affect price comparability, including differences in conditions and terms of sale, taxation, levels of trade, quantities, physical characteristics, and any other differences which are also demonstrated to affect price

The Panel next turned to examine whether zeroing, as applied by USDOC in this case when aggregating the results of multiple comparisons, is permissible under Article 2.4.2. The Panel explained that it saw the calculation of margins of dumping for a product under investigation as a "coherent process", which starts with the determination of normal value, and continues with the establishment of the export price. The Panel further opined that Article 2.4.2 applies to the process of calculating a margin of dumping as a whole, and not merely to one stage of that process, namely, multiple averaging. Relying on the Appellate Body Report in EC – Bed Linen, the Panel emphasized that "Article 2.4.2 requires that all comparable export transactions have to be taken into account when the weighted average normal value is compared to the weighted average of prices of all comparable export transactions." The Panel noted that "[t]hrough the use of zeroing ... the entirety of the prices of some export transactions, i.e., those export transactions where the weighted-average-export-price is greater than the weighted-average-normal-value, in the second stage of the process, are not taken into account."

The Panel concluded that, when calculating margins of dumping for the product under investigation, the United States was required, by virtue of Article 2.4.2, to establish such margins "on the basis of a comparison of the weighted-average-normal-value with the weighted average of prices of all comparable export transactions, that is, for all transactions involving all types of

Article 2

Determination of Dumping

2.1 For the purpose of this Agreement, a product is to be considered as being dumped, i.e. introduced into the commerce of another country at less than its normal value, if the export price of the product exported from one country to another is less than the comparable price, in the ordinary course of trade, for the like product when destined for consumption in the exporting country. (emphasis added)

It is clear from the texts of these provisions that dumping is defined in relation to a product as a whole as defined by the investigating authority. Moreover, we note that the opening phrase of Article 2.1—"[f]or the purpose of this Agreement"—indicates that the definition of "dumping" as contained in Article 2.1 applies to the entire Agreement, which includes, of course, Article 2.4.2. "Dumping", within the meaning of the Anti-Dumping Agreement, can therefore be found to exist only for the product. .
Findings and Conclusions

For the reasons set out in this Report, the Appellate Body:

(d) upholds the Panel's finding, in paragraphs 7.224 and 8.1(a)(i) of the Panel Report, that the United States acted inconsistently with Article 2.4.2 of the Anti-Dumping Agreement in determining the existence of margins of dumping on the basis of a methodology incorporating the practice of "zeroing";

(e) reverses the Panel's finding, in paragraphs 7.238–7.245 and 8.1(b)(vi) of the Panel Report, that the United States did not act inconsistently with Articles 2.2, 2.2.1, 2.2.1.1, and 2.4 of the Anti-Dumping Agreement in its calculation of the amount for financial expense for softwood lumber for Abitibi, but does not make findings on whether the United States acted consistently or inconsistently with these provisions; and

(f) upholds the Panel's findings, in paragraphs 7.319–7.326 and 8.1(b)(ix) of the Panel Report, that that the United States did not act inconsistently with Articles 2.2, 2.2.1, 2.2.1.1, and 2.4 of the Anti-Dumping Agreement in its calculation of the amount for by-product revenue from the sale of wood chips as offsets in the case of Tembec.

The Appellate Body recommends that the Dispute Settlement Body request the United States to bring its measure into conformity with its obligations under the Anti-Dumping Agreement.

Signed in the original at Geneva this 22nd day of July 2004 by:

[1]United States' appellee's submission, para. 69.