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 State