FTC Pre-Hearing Brief In The Matter of Certain Softwood Lumber Products From Canada Concerning (Nov. 1986) (Department of Commerce

PRE-BEARING BRIEF BY THE
FEDERAL TRADE COMMISSION
'BEFORE THE 	UNITED STATES
DEPARTMENT 	OF COMMERCE
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.' Inv . 	No. 	C-122-602···
Total Pages:,64 	~. 	.
This 	submission 	contains
confidentia~ information
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November 	26,·l986
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In 	the Matter 	of:
CERTAIN SOFTWOOD LCMBER
PRODUCTS 	FROM CANADA

•
TABLE 	OF 	CONTENTS
PAGE
IN.TRODUCTION 	AND 	SUMMARy................................. 	1
ARGUMENT. • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 	4
I. 	A Major 	Purpose 	of 	the 	Countervailing 	Duty 	Law
Is 	To 	Promote 	Free 	Trade 	to 	the 	Benefit 	of
United 	States 	Consumers 	and 	Businesses.............. 	4
II. 	Congress 	Intended 	That 	Countervailing 	Duties
Be 	Imposed 	Only 	When 	the 	Alleged 	Foreign 	Subsidy
Produces 	an 	Unfair 	Distortion 	of 	Trade 	and
Provides 	an 	Unfair 	Competitive 	Advantage
to 	Canadian 	Producers............................... 	7
A.
B.
C.
D.
E.
Statutory 	Language .........................•...
Legislative 	History ••.••••••.•••••.•••••••••••.
Judicial 	Interpretation •••••••••••••.•..•..•.••
Petitioner's 	Allegations •.••••.•••..••.••..••.•
Summary ••••••••••••••••••••••••••••••••••••••••
7
8
10
12
12
III. 	The 	Absence 	of 	an 	Efficient 	Auction 	for 	Stumpage
Rights 	Is 	Likeli To 	Have 	no 	Effect 	on 	the 	Price 	or
Quantity 	of 	Exports 	of 	Softwood 	Lumber 	Products
to 	the 	United 	States................................ 	13
A. 	The 	Canadian 	Stumpage 	Fee 	System
Does 	Not 	Increase 	Canadian 	Timber
Production..................................... 	15
B.
C.
D.
Because 	the 	Canadian 	Stumpage
System 	Does 	Not 	Increase 	Canadian
Timber 	Production, 	it 	Does 	Not
Increase 	Lumber 	Exports 	to 	the
United 	States 	and 	Does 	Not 	Affect 	the
Price 	of 	Lumber 	in 	the 	United 	States •••.•.•••..
The 	Effect 	of 	the 	Low 	Stumpage 	Fee
Is 	Merely 	To 	Increase 	the 	Profits
of 	Canadian 	Loggers .•..•.•.•.•.••.•.•.•.•.•....
The 	Profits 	Earned 	by 	Canadian
Loggers 	as 	a 	Result 	of 	the
Canadian 	Stumpage 	Fee 	System Do
Not 	Provide 	an 	Unfair 	Competitive
Advantage 	as 	Might 	a 	Subsidy •••••••••••.•.•••..
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18
20
22

•
E. 	Use 	of 	the 	Canadian 	Stumpage 	Fee 	System
Does 	Not 	Have 	the 	Same 	Effect 	as 	an
Expansion 	in 	the 	Quantity 	of 	Timber
Made 	Available 	for 	Harvesting 	by 	the
Canadian 	Governments •.••••••••.•.••.........•.. 	24
F. 	Inefficiencies 	in 	the 	Auction 	System
Employed 	by 	the 	United 	States 	Forest 	Service
Should 	Not 	Provide 	the 	Justification 	for
Countervailing 	Duties.......................... 	27
G. 	Conclusion: 	The 	Canadian 	Stumpage
Fee 	System Does 	Not 	Distort 	Trading
Patterns 	or 	Create 	an 	Unfair
Competitive 	Advantage.......................... 	29
IV. 	Expenditure 	of 	Public 	Funds 	on 	the 	Reforestation
of 	Government-Owned 	Timber 	Land 	Does 	Not
Necessarily 	Constitute 	a 	Subsidy 	of 	the
Canadian 	Lumbe'r 	Industry •.•••. ,. . • . • . • . • • . . . • • . • • • • • • 	31
A. 	Government 	Reforestation 	Expenditures
Should 	Be 	Compared 	with 	the 	Expenditures
that 	Would 	Be 	Made 	by 	a 	Private 	Landowner...... 	32
B. 	The 	Petition 	Does,Not 	Present 	Evidence
that 	the 	Canadian 	Governments 	Are
Subsidizing 	Their 	Lumber 	Industry 	Through
, Reforestation 	Activities....................... 	.34
CONCLUSION. . • • • • . • . • • • . • . • • . . • • . • • . • . • • . • • . . • • • • . . . • • • . . . 	36
APPENDIX: 	The 	Effects 	of 	the 	Canadian 	Stumpage 	Fee
System As 	Compared 	To 	an 	Auction 	System
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Pre-Hearing 	Brief 	by 	the 	Federal 	Trade 	Commission
on 	the 	Countervailing 	Duty 	Investigation 	of 	Certain
Softwood 	Lumber 	Products 	from 	Canada
INTRODUCTION 	AND 	SUMMARY
On 	May 	19, 	1986, 	the 	Coalition 	for 	Fair 	Lumber 	Imports, 	a
group 	of 	United 	States 	softwood 	lumber 	manufacturers 	and
associations 	representing 	United 	States 	lumber 	manufacturers,
filed 	a 	countervailing 	duty 	petition 	with 	the 	Department 	of
Commerce 	("Department") 	and 	the 	International 	Trade 	Commission.
The 	petition 	alleges 	that 	the 	Canadian 	softwood 	lumber 	industry
receives 	benefits 	from 	the 	Canadian 	federal 	and 	provincial
governments 	that 	constitute 	subsidies 	within 	the 	meaning 	of
Section 	701 	of 	the 	Tariff 	Act 	of 	1930, 	as 	amended, 	19 	U.S.C. 	§
1671. 	The 	major 	alleged 	sUbsidy 	concerns 	the 	level 	of 	fees
("stumpage 	fees"}l 	set 	by 	the 	Canadian 	provincial 	governments 	for
the 	rights 	to 	harvest 	softwood 	timber 	("stumpage 	rights") 	on
government 	land. 	The 	petition 	alleges 	that 	the 	sale 	of 	softwood
stumpage 	to 	lumber 	companies 	at 	preferential 	rates 	confers
countervailable 	benefits 	on 	Canadian 	softwood 	lumber 	producers.
A secondary 	allegation 	is 	that 	the 	Canadian 	federal 	and
provincial 	governments 	subsidize 	their 	lumber 	industry 	by 	using
1 	We 	define 	"stumpage" 	as 	standing 	timber.

government 	funds 	to 	pay 	for 	reforestation 	of 	public 	timber
lands. 2 	The 	Department 	preliminarily determined 	that 	provincial
stumpage 	programs 	confer 	a 	net 	subsidy 	of 	14.542 	percent 	ad
valorem, 	51 	Fed. 	Reg. 	37,453, 	37,458 	(October 	22, 	1986), 	and 	that
reforestation 	programs ~o not 	confer 	countervailable 	benefits.
Id. 	at 	37,463.
The 	purpose 	of 	this 	brief 	is 	to 	offer 	a 	legal 	and 	economic
analysis 	for 	application 	of 	the 	countervailing 	duty 	statute. 	In
Section 	I, 	we 	argue 	that 	the 	countervailing 	duty 	law 	should 	be
applied 	to 	reduce 	impediments 	to 	world 	trade 	and 	to 	preserve 	the
benefits 	of 	competition 	for 	United 	States 	consumers 	and
businesses 	while 	protecting 	firms 	from 	unfair 	practices. 	In
Section 	II, 	we 	argue.that 	not 	every 	governmental 	payment 	o~ other
benefit 	conferred 	on 	private 	parties 	is 	a 	countervailable
2 	The 	petition 	alleges 	that, 	in 	addition 	to 	stumpage 	fee 	and
reforestation 	subsidies, 	there 	are 	a 	variety 	of 	other
subsidies 	to 	the 	Canadian 	timber 	industry. 	For 	example,
petitioners 	allege 	that 	the 	Canadian 	federal 	and 	provincial
governments 	subsidize 	their 	timber 	industry 	by 	purchasing
equity 	rights, 	providing 	grants 	and 	low-interest 	or
interest-free 	loans 	to 	lumber 	producers, 	and 	providing
preferential 	investment 	tax 	credits 	for 	the 	lumber
industry. 	(See 	Petition, 	at 	88-93). 	Petitioners 	allege, 	in
addition, 	that 	the 	Canadian 	government 	subsidizes 	its 	timber
industry 	by 	paying'for 	several 	transportation 	programs.
(See 	Petition, 	at 	87-88). 	Moreover, 	on August 	11, 	1986,
petitioners 	filed 	an 	amendment 	to 	their 	petition 	alleging
the 	existence 	of 	fourteen 	additional 	sUbsidy 	programs
ranging 	from 	government 	funded 	research 	projects 	to
preferential 	freight 	rates. 	Given 	the 	principal 	role
attributed 	by 	the 	petitioners 	to 	the 	alleged 	stumpage 	and
reforestation 	subsidies, 	we 	do 	not 	consider, 	in 	this 	brief,
these 	other 	alleged 	subsidies. 	The 	analysis 	in 	this 	brief
is 	limited 	to 	the 	alleged 	subsidies 	arising 	out 	of: 	(1) 	the
Canadian 	provincial 	stumpage 	fee 	system 	(we 	refer 	to 	these
stumpage 	fee 	systems 	as 	a 	"system" 	because 	they 	are 	similar
in 	most 	significant 	respects, 	except 	where 	we 	note 	to 	the
contrary); 	and 	(2) 	government 	payments 	for 	reforestation.
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•
subsidy, 	and 	that 	countervailing 	duties 	should 	be 	imposed 	only 	on
practices 	that 	distort 	trade 	and 	alter 	the 	operation 	of
comparative 	advantage.
Section 	III 	considers 	whether 	the 	alleged 	sUbsidy 	on
stumpage 	distorts 	trade 	patterns 	and 	alters 	the 	operation 	of
comparative 	advantage. 	We 	examine 	whether 	the 	Canadian 	stumpage
fee 	system 	increases 	the 	quantity 	of 	timber 	harvested 	in 	Canada
or 	the 	quantity 	of 	softwood 	lumber 	products 	exported 	to 	the
United 	States. 	We 	conclude 	that, 	while 	the 	Canadian 	stumpage 	fee
system may 	increase 	the 	profits 	of 	Canadian 	lumber 	firms, 	it 	does
not 	result 	in more 	timber 	being 	harvested 	in 	Canada 	than 	would
occur 	if 	an 	efficient 	auction 	system was 	used 	instead 	of 	the
current 	system. 	This 	is 	because 	the 	quantity 	of 	timber 	available
from 	government 	land 	is 	administratively 	determined. 	As 	a
result, 	the 	price 	paid 	for 	logs 	by 	sawmills 	does 	not 	fall 	and 	the
quantity 	of 	lumber 	products 	exported 	to 	the 	United 	States 	does
not 	rise 	due 	to 	the 	stumpage 	system. 	We 	further 	note 	that 	if 	the
Canadian 	system 	results 	in 	more 	timber 	being 	harvested 	than
occurs 	under 	the 	type 	of 	auction 	employed 	by 	the 	United 	States
Forest 	Service, 	it 	is 	because 	of 	inefficiencies 	in 	the 	Forest
Service 	auction 	system, 	and 	these 	should 	not 	provide 	the 	basis
for 	countervailing 	duties. 	Accordingly, 	we 	conclude 	that 	the
Canadian 	system of 	allocating 	and 	charging 	for 	the 	rights 	to 	cut
timber 	land 	is 	not 	trade 	distorting 	within 	the 	meaning 	of 	the
countervailing 	duty 	law 	and 	should 	not 	be 	treated 	as 	a
countervailable 	subsidy.
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In 	Section 	IV, 	we 	suggest 	that 	in 	evaluating 	whether 	the
reforestation 	practices 	of 	the 	Canadian 	federal 	and 	provincial
governments 	provide 	a 	subsidy 	to 	the 	Canadian 	softwood "lumber
industry, 	it 	is 	necessary 	to 	compare 	the 	reforestation
expenditures 	of 	the 	Canadian 	governments 	with 	the 	expenditures
that 	would 	be 	made 	by 	a 	private 	owner 	of 	the 	same 	land. 	In
addition, 	we 	suggest 	that 	before 	concluding 	that 	any 	current
reforestation grants 	provided 	by 	the 	Canadian 	governments 	are
countervailable, 	it 	must 	be 	demonstrated 	that 	these 	grants 	are
increasing 	current 	timber 	harvests.
ARGUMENT
I. 	A Major 	Purpose 	of 	the 	Countervailing 	Duty
Law 	Is 	To 	Promote 	Free 	Trade 	to 	the 	Benefit
of 	United 	States 	Consumers 	and 	Businesses.
In 	passing 	the 	Trade Act 	of 	1974 	("1974 	Act"),3 	Congress 	was
mindful 	of 	the 	potentially 	adverse 	effects 	on 	United 	States
business 	of 	retaliatory 	tariffs 	imposed 	by 	foreign 	governments 	on
United 	States 	exports. 	It 	determined 	that 	"barriers 	to 	(and
other 	distortions 	of) 	international 	trade" 	were 	adversely
affecting 	United 	States 	exports 	and 	authorized 	the 	President 	to
negotiate 	international 	agreements 	to 	harmonize, 	reduce, 	or
eliminate 	the 	barriers 	and 	distortions. 	19 	U.S.C. 	§ 	2112(a).
Congress 	thus 	intended 	the 	1974 	Act 	"to 	expand 	opportunities 	for
the 	commerce 	of 	the 	United 	States 	in 	international 	trade" 	by
improving 	the 	rules 	of 	international 	trade. 	19 	U.S.C. 	§ 	2502.
The 	United 	States 	subsequently 	negotiated, 	as 	part 	of 	the 	Tokyo
3 	Pub. 	L. 	No. 	93-618, 	88 	Stat. 	1978 	(1974).
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4
tound 	of 	Multilateral 	Trade 	Negotiations, 	the 	Agreement 	on
Interpretation 	and 	Application 	of 	Articles VI, 	XVI, 	and 	XXIII 	of
th. 	General Agreement 	on 	Tariffs 	and 	Trade 	("Countervailing 	Duty
A,r •• ment"). 	As 	part 	of 	this 	negotiation, 	the 	United 	States
_,reed 	to 	make 	it 	more 	difficult 	to 	impose 	countervailing 	duties
by 	adding 	the 	requirement 	that 	such 	duties 	will 	be 	imposed 	only
if 	a 	domestic 	industry 	is 	injured 	by 	reason 	of 	the 	subsidized
imports.
The 	countervailing 	duty 	provisions 	in 	the 	Trade 	Agreements
Act 	of 	1979 	("1979 	Act"),4 	which 	govern 	this 	proceeding, 	had 	the
apecific 	purpose 	of 	implementing 	"the 	international 	agreements
relating 	to 	new 	disciplines 	on 	trade 	distorting 	subsidies 	and
dumping 	practices 	and 	procedures 	for 	taking 	countervailing 	and
antidumping 	measures."S 	In 	passing 	the 	1979 	Act, 	Congress
foresaw 	benefits 	to 	United 	States 	exports 	if 	the 	agreements 	the
1979 	Act 	implemented 	were 	fairly 	carried 	out:
These 	rules 	could 	be 	important 	in 	reducing 	the
number 	of 	foreign 	sUbsidy 	practices, 	and 	thus 	the
need 	for 	countervailing 	duties. 	Furthermore, 	if
vigorously 	enforced 	by 	the 	United 	States 	and
fairly 	carried 	out 	by 	all 	parties, 	these
provisions 	should 	expand 	the 	competitive
opportunities 	of 	U.S. 	exporters 	who 	curren 6l y 	face
subsidized 	competition 	in 	foreign 	markets.
Pub. 	L. 	No. 	96-39, 	93 	Stat. 	144 	(1979); 	see 	19 	U.S.C. 	§5
1671-1677g, 	2501 	et. 	~. 	--
5 	H.R. 	Rep. 	No. 	317, 	96th 	Cong., 	1st 	Sess. 	at 	2 	(1979) 	("H.R.
Rep. 	No. 	96-317").
6 	S. 	Rep. 	No. 	249, 	96th 	Cong., 	1st Sess. 	at 	38 	(1979) 	("S.
Rep. 	No. 	96-249") 	(emphasis 	added).
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Both 	the 	language 	and 	legislative 	history 	of 	the 	1979 	Act 	confirm
that 	Congress 	did 	not 	intend 	the 	countervailing 	duty 	laws 	to 	be
narrowly 	protectionist. 	Rather, 	the 	purposes 	of 	the 	1979 	Act 	are
"to 	foster 	the 	growth 	and 	maintenance 	of 	an 	open 	world 	trading
system; 	to 	expand 	opportunities 	for 	the 	commerce 	of 	the 	United
States 	in 	international 	trade; 	and 	to 	improve 	the 	rules 	of
international 	trade 	and 	to 	provide 	for 	the 	enforcement 	of 	such
rules." 	19 	U.S.C. 	~ 	2502(2), 	(3), 	(4).7
Congress 	realized 	in 	1979 	that, 	because 	of 	the 	precedential
value 	of 	countervailing 	duty 	decisions 	by 	this 	country, 	such
decisions 	could 	themselves 	have 	a 	significant 	impact 	on 	United
states 	exports. 	If 	the 	Department 	finds 	that 	a 	practice 	of 	a
foreign 	government 	is 	a 	subsidy, 	and 	if 	comparable 	practices
exist 	in 	the 	United 	States, 	our 	exports 	may 	be 	impaired 	because
of 	retaliatory 	countervailing 	duties 	based 	on 	our 	precedent.
This 	potential 	impairment 	of 	the 	export 	sector 	of 	the 	United
States 	economy 	is 	relevant 	in 	determining 	whether 	Congress
intended 	particular 	foreign 	practices 	to 	lead 	to 	the 	imposition
of 	countervailing 	duties 	on 	imported 	goods.
In 	sum, 	Congress 	has 	sought 	through 	the 	countervailing 	duty
laws 	to 	discipline 	only 	those 	firms 	that 	are 	selling 	in 	the
United 	States 	market 	on 	the 	basis 	of 	an 	unfair 	advantage
conferred 	upon 	them 	by 	their 	government 	(or 	by 	other 	sources).
Congress 	intended 	United 	States 	consumers 	to 	receive 	the
substantial 	benefits 	that 	flow 	from 	unrestricted 	access 	to
7 	See 	also 	S. 	Rep. 	No. 	96-249, 	supra, 	at 	31; 	H.R. 	Rep. 	No. 	96-
317, 	supra, 	at 	38.
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toreign 	firms 	that 	compete 	in 	United 	States 	markets 	on 	the 	basis
of 	comparative 	advantage 	or 	relative 	efficiency. 	We 	suggest 	that
in 	administering 	the 	countervailing 	duty 	law, 	the 	Department
Ihould 	be 	guided 	by 	the 	legislative 	purpose 	of 	promoting 	and
maintaining 	free 	trade 	among 	nations 	to 	the 	greatest 	possible
extent.
II. 	Congress 	Intended 	That 	Countervailing 	Duties 	Be
Imposed 	Only When 	the 	Alleged 	Foreign 	Subsidy 	Produces
an 	Unfair 	Distortion 	of 	Trade 	and 	Provides 	an 	Unfair
Competitive 	Advantage 	to 	Canadian 	Producers.
We 	examine, 	in 	this 	section, 	the 	language, 	legislative
history, 	and 	judicial 	interpretation 	of 	the 	countervailing 	duty
statute 	to 	discern 	Congress's 	intent 	concerning 	the 	type 	of
governmental 	practices 	or 	programs 	that 	should 	be 	characterized
as 	a 	subsidy 	justifying 	a 	countervailing 	duty. 	We 	conclude 	that
Congress 	intended 	that 	countervailing 	duties 	should 	be 	imposed
only 	to 	offset 	an 	unfair 	competitive 	advantage 	that 	causes 	a
distortion 	of 	international 	trade. 	Sound 	economic 	analysis 	can
help 	determine 	which 	governmental 	practices 	or 	programs 	create
such 	trade 	distortions 	and 	thereby 	alter 	the 	operation 	of
comparative 	advantage.
A. 	Statutory 	Language.
Section 	303 	of 	the 	Tariff 	Act 	of 	1930, 	as 	amended, 	19 	U.S.C.
§ 	1303, 	provides 	for 	the 	imposition 	of 	countervailing 	duties 	in
the 	"net 	amount 	of 	such 	bounty 	or 	grant" 	paid 	or 	bestowed 	on 	"the
manufacture 	or 	production 	or 	export" 	of 	any 	imported 	product. 	In
discussing 	the 	statutory 	purpose 	of 	this 	provision, 	the 	Supreme
Court 	explained 	that 	"[t]he 	countervailing 	duty 	was 	intended 	to
offset 	the 	unfair 	competitive 	advantage 	that 	foreign 	producers
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would 	otherwise 	enjoy 	from 	export 	subsidies 	paid 	by 	their
90vernments." 	Zenith 	Radio 	Corp. 	v. 	United 	States, 	437 	U.s. 	443,
455-56 	(1978) 	(citations 	omi tted) 	(emphas is 	added). 	When
Congress 	enacted 	the 	1979 	Act, 	which 	applies 	to 	this 	proceeding,
it 	endorsed 	then-existing 	countervailing 	duty 	law 	by 	expressly
providing 	in 	the 	new 	legislation 	that 	"the 	term 	'subsidy' 	has 	the
.ame 	meaning 	as 	the 	term 	'bounty 	or 	grant' 	as 	that 	term 	is 	used
in 	section 	1303" 	of 	the 	1930 	Act. 	Trade 	Agreements 	Act 	of 	1979,
S 	771(5), 	as 	afuended, 	19 	U.S.C. 	§ 	l677(5~.8 	It 	is 	now 	well
settled 	that 	the 	1979 	Act 	incorporated 	previous 	countervailing
duty 	law. 	Cabot 	Corp. 	v. 	United 	States, 	620 	F. 	Supp. 	722, 	730
(C.I.T. 	1985), 	appeal 	dismissed, 	788 	F.2d 	1539 	(Fed. 	Cir. 	1986)
("same 	analysis 	applies 	regardless 	of 	which 	statute 	controls, 	and
the 	law 	defining 	the 	term 	bounty 	or 	grant 	informs 	the
interpretation 	of 	the 	term 	subsidy"); 	Bethlehem Steel 	Corp. 	v.
United 	States, 	590 	F. 	Supp. 	1237, 	1240 	(C.I.T. 	1984) 	("primary
purpose 	of 	the 	definition 	of 	subsidy 	in 	section 	771(5) 	••• 	is 	to
make 	it 	plain 	that 	the 	term 	'subsidy' 	has 	the 	same 	meaning 	as 	the
term 	'bounty 	or 	grant' 	and 	that 	there 	is 	a 	complete 	harmony 	and
continuity 	between 	the 	two 	provisions").
B. 	Legislative 	History.
The 	legislative 	history 	of 	the 	countervailing 	duty 	statute
confirms 	that 	the 	purpose 	of 	the 	countervailing 	duty 	law 	is 	to
compensate 	for 	an 	unfair 	competitive 	advantage 	that 	causes 	a
distortion 	of 	trade. 	In 	discussing 	the 	1979 	Act, 	the 	House 	Ways
8 	Congress 	was 	aware 	of 	the 	Supreme 	Court 	decision 	in
Zenith. 	H.R. 	Rep. 	No. 	96-317, 	supra, 	at 	21.
-8-

and 	Means 	Committee 	was 	concerned 	about 	"the 	use 	of 	practices
which 	can 	distort 	trade 	or 	create 	unfair 	competition 	or 	trade
discrimination, 	such 	as 	sUbsidies."9 	The 	committee 	echoed 	the
Supreme 	Court's 	emphasis 	in 	Zenith 	on 	"competitive 	advantage,"
reporting 	that 	the 	statute 	is 	intended 	to 	provide 	"greater
discipline 	over 	the 	use 	of 	foreign 	subsidies 	that 	confer 	unfair
competitive 	advantages 	upon 	the 	products 	of 	the 	subsidizing
country. "10
The 	congressional 	debates 	also 	provide 	support 	for 	the 	view
that 	Congress' 	concern 	was 	limited 	to 	those 	foreign 	practices
that 	distort 	trade 	and 	provide 	unfair 	competitive 	advantages. 	At
the 	outset 	of 	a 	colloquy 	with 	Senator 	Ribicoff 	concerning 	the
amendments 	to 	the 	countervailing 	duty 	statute, 	Senator 	Heinz, 	who
was 	a 	leader 	in 	supporting 	the 	1979 	statutory 	amendments, 	stated:
We 	have 	an 	international 	economy 	and 	cannot
wall 	ourselves 	off 	from 	it. 	Nor 	should 	we
want 	to 	-- 	for 	trade 	invariably 	means 	jobs
and 	profits 	for 	Americans.
At 	the 	same 	time, 	however, 	in 	our 	pursuit 	of
trade 	expansion, 	we 	should 	not 	abandon 	our
free 	market 	principles 	and 	our 	reliance 	on
competition 	and 	the 	law 	of 	comparative
advi~tage as 	arbiters 	of 	the 	marketplace 	••
9 	H.R. 	Rep. 	No. 	96-317, 	supra, 	at 	11 	(emphasis 	added).
10 	Id. 	at 	43 	(emphasis 	added)~ cf. 	S. 	Rep. 	No. 	96-249, 	supra,
at 	37 	(Senate 	Finance 	Committee 	stated 	that 	"[s]ubsidies 	are
bounties 	or 	grants 	bestowed 	(usually 	by 	governments) 	on 	the
production, 	manufacture 	or 	export 	of 	products, 	often 	with
the 	effect 	of 	providing 	some 	competitive 	advantages 	in
relation 	to 	products 	of 	another 	country") 	(emphasis 	added).
11 	125 	Congo 	Rec. 	5.10,306 	(daily 	ed. 	July 	23, 	1979).
-9-
-------------_._.. - __ 	--

After 	describing 	the 	abandonment 	by 	other 	countries 	of 	free-
market 	principles 	and 	reliance 	on 	competition, 	Senator 	Heinz
continued:
It 	is 	precisely 	these 	unfair 	and, 	from 	the
standpoint 	of 	classical 	economic 	theory,
trade-restricti~~ practices 	I 	seek 	to
control 	• 	• 	• 	•
In 	the 	same 	debates, 	Senator 	Danforth 	explained 	that 	the
countervailing 	duty 	and 	antidumping 	provisions 	were 	aimed 	at
"adverse 	distortions 	of 	free 	trade."13
C. 	Judicial 	Interpretation.
The 	Court 	of 	International 	Trade 	repeatedly 	has 	recognized
the 	principle 	that 	the 	countervailing 	duty 	law 	is 	aimed 	at
practices 	that 	alter 	a 	country's 	comparative 	advantage 	and
distort 	international 	trade 	flows 	by 	promoting 	export 	activity 	in
the 	country 	conferring 	a 	sUbsidy. 	In 	British 	Steel 	Corp •. v.
United 	States, 	the 	Court 	of 	International Trade 	explained 	that
"the 	countervailing 	duty 	law 	concerns 	itself 	not 	with 	the
government's 	purpose 	or 	intent 	in 	a 	particular 	program, 	but
whether 	the 	government's 	funds 	give 	the 	country's 	exports 	an
unfair 	competitive 	advantage." 	605 	F. 	Supp. 	286, 	294 	(C.I.T.
12 	Id.
13 	Id. 	at 	S.10317.
-10-

1985 	(citations 	omitted) .14 	In 	Cabot 	Corp. 	v. 	United 	States,
supra, 	620F. 	Supp. 	at 	729, 	732, 	the 	court 	confirmed 	that 	a
benefit 	bestowing 	a 	"competitive 	advantage" 	is 	the 	essence 	of 	a
subsidy. 	"The 	determination 	of 	whether 	a 	bounty 	or 	grant 	has
been 	bestowed 	must 	••• 	be 	made 	upon 	the 	facts 	of 	each 	case.
Since 	the 	enactment 	of 	section 	1303 	courts 	have 	recognized 	that
they 	must 	examine 	the 	actual 	results 	or 	effects 	of 	assistance
provided 	by 	foreign 	governments 	and 	not 	the 	purposes 	or
intentions." 	Id. 	at 	730 	(citations 	omitted). 	Accord,
Continental 	Steel 	Corp. 	v. 	United 	States, 	614 	F. 	Supp. 	548, 	553
(C.I.T. 	1985), 	vacated 	in 	part 	and 	reversed 	in 	part 	sub 	nom. 	on
other 	grounds, 	Georgetown 	Steel 	Corp. 	v. 	United 	States~ 8 	Int'l
Trade 	Rep. 	Dec. 	(BNA) 	1161 	(CAFC 	Sept. 	18, 	1986) 	("only 	purpose
of 	the 	countervailing 	duty 	law 	is 	to 	extract 	the 	subsidies
contained 	in merchandise 	entering 	the 	commerce 	of 	the 	United
States 	in 	order 	to 	protect 	domestic 	industry 	from 	their 	effect");
Bethlehem Steel 	Corp. 	v. 	United 	States, 	supra, 	590 	F. 	Supp. 	at
1241 	("fundamental 	purpose 	of 	the 	countervailing 	duty 	law 	is 	to
provide 	a 	special 	duty 	to 	eliminate 	the 	advantage 	an 	imported
14 	While 	there 	is 	dictum 	in 	British 	Steel 	saying 	that 	the
countervailing 	duty 	law 	is 	not 	designed 	to 	eliminate 	trade
distortions, 	that 	case 	involved 	review 	of 	a 	specific
Department 	finding 	that 	British 	Steel 	received 	government
funding 	on 	terms 	inconsistent 	with 	commercial
considerations. 	When 	read 	in 	context, 	it 	is 	clear 	that 	by
disavowing 	a 	trade 	distortion 	theory, 	the 	court 	actually 	was
rejecting 	the 	allegations 	made 	by 	British 	Steel 	that 	the
government 	funding 	actually 	was 	alleviating 	a 	form 	of 	trade
distortion 	and 	that 	the 	"rationality" 	of 	the 	government
funding 	must 	be 	considered 	in 	determining 	whether 	such
funding 	is 	provided 	on 	terms 	inconsistent 	with 	commercial
considerations. 	See 	ide 	at 	292-93.
-11-

L
product 	may 	obtain 	from 	forms 	of 	assistance 	termed 	'subsidies'"};
ASG 	Industries, 	Inc. 	v. 	united 	States, 	467 	F. 	Supp. 	1200 	(Cust.
Ct. 	1979) 	(purpose 	of 	the 	countervailing 	duty 	law 	is 	"to 	prevent
unequal 	competition 	in 	our 	markets 	to 	prevent 	foreign 	goods
from 	competing 	with 	domestic 	goods 	at 	a 	lower 	price 	than 	they
would 	otherwise 	be 	sold").
D. 	Petitioner's 	Allegations.
Perhaps 	recognizing 	that 	trade 	distortion 	is 	integral 	to 	a
subsidy 	within 	the 	meaning 	of 	the 	countervailing 	duty 	law,
petitioners 	have 	alleged 	that 	the 	Canadian 	stumpage 	system 	has
such 	a 	trade 	distorting 	effect. 	Petition, 	at 	23, 	99-100. 	In
addition, 	petitioners 	have 	conceded 	that 	the 	Department 	is 	the
appropriate 	forum 	in 	which 	to 	address 	this 	issue. lS 	We 	therefore
urge 	the 	Department 	to 	consider 	whether 	the 	subsidies 	alleged 	by
petitioners 	have 	the 	requisite 	trade 	distorting 	effect.
E. 	Summary.
As 	we 	have 	seen 	above, 	the 	principle 	that 	the 	countervailing
duty 	law 	is 	aimed 	at 	practices 	that 	provide 	an 	unfair 	competitive
advantage 	and 	distort 	international 	trade 	flows 	by 	promoting
export 	activity 	is 	securely 	grounded 	in 	the 	countervailing 	duty
statute, 	its 	legislative 	history, 	and 	jUdicial 	authority. 	In
order 	for 	a 	governmental 	practice 	to 	confer 	such 	benefits 	that 	it
would 	constitute 	a 	subsidy, 	the 	practice 	must 	have 	an 	effect 	that
IS 	Certain Softwood 	Lumber 	Products 	from 	Canada, 	Inv. 	No. 	701-
TA-274 	(Preliminary), 	Conference 	Transcript 	(June 	10, 	1986),
at 	23, 	72 	("FTC's 	arguments 	••• 	run 	to 	the 	question 	of 	the
existence 	of 	a 	sUbsidy, 	and 	would 	be 	an 	issue 	more 	properly
presented 	to 	another 	agency, 	the 	Department 	of 	Commerce.")
-12-

generates 	trade 	distortion 	i.e., 	a 	shift 	in 	trade 	flows. 	It
.....
~
appears 	that 	the 	crux 	of 	a 	countervailable 	sUbsidy 	within 	the
meaning 	of 	the 	1979 	Act, 	therefore, 	is 	that 	a 	foreign 	practice
must 	confer 	a 	benefit 	that 	makes 	it 	profitable 	for 	a 	foreign 	firm
to 	sell 	a 	greater 	amount 	of 	output 	into 	the 	United 	States
market. 	This 	view 	is 	consistent 	with 	sound 	economic 	analysis,
which 	holds 	that 	a 	subsidy 	justifying 	a 	countervailing 	duty 	must
alter 	the 	operation 	of 	comparative 	advantage. 	International
trade 	conducted 	according 	to 	comparative 	advantage 	results 	in 	the
most 	efficient 	utilization 	of 	resources.
The 	following 	section 	explains 	that 	the 	Canadian 	stumpage
fee 	system does 	not 	confer 	competitive 	benefits 	or 	distort
trade. 	Accordingly, 	we 	suggest 	that 	the 	Canadian 	system 	should
not 	be 	characterized 	as 	a 	sUbsidy 	within 	the -meaning 	of 	our
countervailing 	duty 	law.
III. 	The 	Absence 	of 	an 	Efficient 	Auction 	for 	Stumpage 	Rights
Is 	Likely To Have 	no 	Effect 	on 	the 	Price 	or 	Quantity 	of
Exports 	of 	Softwood 	Lumber 	Products 	to 	the 	United 	States.
As 	discussed 	above, 	not 	every 	governmental 	payment 	or 	other
benefit 	conferred 	on 	private 	parties 	is 	a 	countervailable
sUbsidy. 	Rather, 	only 	those 	payments 	that 	provide 	foreign
competitors 	with 	an 	unfair 	competitive 	advantage 	and 	distort
trade 	and 	resource 	allocation 	should 	be 	subject 	to 	countervailing
duties. 	If 	an 	alleged 	subsidy 	does 	not 	increase 	the 	supply 	of
imports 	at 	any 	particular 	price, 	then 	the 	subsidy 	will 	not 	cause
the 	domestic 	price 	of 	the 	product 	or 	the 	output 	of 	the 	domestic
-13-

industry 	to 	be 	lower 	than 	they 	would 	otherwise 	have 	been. 16 	As 	a
result, 	there 	will 	be 	no 	diminution 	in 	the 	competitive 	position
of 	the 	United 	States 	industry.
Economic 	analysis 	suggests 	that 	the 	system 	the 	Canadian
provincial 	governments 	use 	to 	allocate 	and 	set 	the 	price 	of
stumpage 	rights 	-- 	the 	Canadian 	stumpage 	fees 	-- 	does 	not 	result
in 	more 	Canadian 	lumber 	being 	produced 	or 	imported 	into 	the
United 	States 	than 	would 	occur 	if 	the 	Canadian 	governments 	used
an 	efficient 	competitive 	auction 	system 	with 	a 	lump-sum 	payment
scheme. 	The 	Canadian 	stumpage 	fee 	system 	therefore 	does 	not
provide 	Canadian 	firms 	with 	an 	unfair 	competitive 	advantage 	or
distort 	trade 	patterns. 	This 	is 	because 	the 	quantity 	of 	timber
on 	public 	lands 	in 	Canada 	that 	is 	put 	up 	for 	harvest 	each 	year 	is
set 	by 	a 	government 	decision, 	just 	as 	it 	is 	in 	the 	United
Staste. 	It 	is 	not 	determined 	by 	market 	forces 	and, 	t~erefore,
does 	not 	depend 	upon 	the 	amount 	of 	timber 	that 	might 	be
profitably 	harvested 	at 	a 	particular 	stumpage 	fee.
While 	the 	Canadian 	stumpage 	fee 	system 	does 	not 	result 	in
more 	timber 	being 	harvested 	than 	would 	an 	efficient 	auction
system, 	it 	may 	result 	in 	more 	cutting 	than 	under 	the 	variant 	of
an 	auction 	system 	employed 	by 	the 	United 	States 	Forest 	Service.
However, 	if 	this 	occurs, 	it 	is 	because 	of 	the 	inefficiencies
involved 	in 	the 	auction 	system operated 	by 	the 	Forest 	Service.
16 	The 	imported 	and 	domestic 	products 	will 	sell 	in 	the 	domestic
market 	at 	a 	single 	price 	determined 	by 	total 	supply 	(imports
plus 	domestic 	output) 	and 	domestic 	demand. 	Domestic 	supply
and 	domestic 	demand 	are 	not 	affected 	by 	a 	foreign
governmental 	payment. 	Therefore, 	if 	the 	supply 	of 	imports
is 	not 	increased, 	the 	domestic 	price 	must 	be 	unchanged.
-14-

The 	correct 	way 	to 	solve 	this 	problem, 	if 	it 	exists, 	is 	to
improve 	the 	auction 	system 	as 	it 	operates 	in 	this 	country, 	not 	to
countervail 	against 	the 	Canadian 	industry 	because 	it 	operates 	in
a 	more 	efficient 	system.
Below we 	provide 	a 	more 	detailed 	discussion 	of 	this
analysis, 	which 	leads 	us 	to 	conclude 	that 	the 	Canadian 	stumpage
fee 	system does 	not 	constitute 	a 	subsidy 	that 	should 	be
countervailable 	under 	United 	States 	trade 	law.
A. 	The 	Canadian 	Stumpage 	Fee 	System Does
Not 	Increase 	Canadian 	Timber 	Production.
The 	Canadian 	stumpage 	fee 	system 	does 	not 	result 	in 	more
Canadian 	lumber 	being 	imported 	into 	the 	United 	States 	than 	if 	the
Canadian 	governments 	used 	an 	efficient 	competitive 	auction. 	This
is 	true 	because 	the 	stumpage 	fee 	system does 	not 	increase 	the
quantity 	of 	logs 	harvested 	in 	Canada.
In 	general, 	the 	quantity 	of 	logs 	harvested 	is 	the 	same 	under
the 	current 	Canadian 	system 	as 	it 	would 	be 	if 	an 	efficient
competitive 	auction 	were 	employed. 17 	An 	efficient 	competitive
auction 	would 	provide 	that 	the 	payment 	for 	harvesting 	rights 	is 	a
lump-sum payment 	independent 	of 	the 	quantity 	of 	timber 	actually
17 	This 	will 	be 	true 	provided 	that, 	under 	the 	Canadian 	stumpage
fee 	system, 	the 	logging 	firm 	makes 	a 	lump-sum 	payment 	for
the 	right 	to 	harvest 	a 	tract 	of 	timber 	land 	that 	does 	not
depend 	on 	the 	quantity 	of 	timber 	actually 	removed 	from 	the
forest. 	As 	discussed 	in 	the 	Appendix 	at 	pp. 	12-14, 	if 	the
Canadian 	system charges 	for 	stumpage 	on 	a 	per-unit 	basis,
this 	can 	reduce 	the 	quantity 	of 	timber 	harvested 	below 	that
which 	would 	be 	harvested 	using 	an 	efficient 	auction 	system.
-15-

removed 	from 	the 	forest. 18 	Such 	an 	auction 	is 	efficient 	because
it 	creates 	incentives 	for 	the 	owner 	of 	the 	harvesting 	rights 	to
cut 	all 	of 	the 	timber 	on 	that 	tract 	for 	which 	the 	price 	exceeds
the 	cost 	of 	harvesting. 	Since 	the 	government 	has 	decided 	to 	make
a 	tract 	available 	for 	harvesting, 	it 	presumably 	has 	determined
that 	it 	wishes 	the 	economical 	timber 	on 	that 	tract 	harvested. 19
As 	a 	result, 	a 	system 	that 	causes 	all 	timber 	that 	can
economically 	be 	harvested 	to 	be 	taken 	from 	the 	tract 	is
presumably 	best 	able 	to 	satisfy 	the 	government's 	goal 	in 	managing
its 	timber 	resources.
Although 	the 	price 	charged 	for 	the 	right 	to 	harvest 	a 	tract
of 	forest 	land 	may 	be 	lower 	under 	the 	Canadian 	stumpage 	fee
system, 	a 	Canadian 	logger's 'ability 	to 	harvest 	more 	land 	is
limited 	by 	the 	supply 	made 	available 	by 	the 	Canadian
governments. 	When 	the 	amount 	of 	la~d made 	available 	by 	the
Ca~adian governments 	is 	determined 	without 	regard 	to 	the 	price
charged 	for 	cutting 	on 	public 	land, 	the 	number 	of 	trees 	cut 	is
independent 	of 	that 	price, 	and 	a 	price 	lower 	than 	the 	market 	value 	of
stumpage 	rights 	will 	not 	result 	in 	additional 	harvesting.
18 	The 	lump-sum payment 	would 	not 	need 	to 	all 	be 	made 	at 	a
single 	point 	in 	time. 	Rather, 	the 	key 	feature 	of 	the
payment 	scheme 	is 	that 	the 	size 	of 	the 	payment 	must 	be
determined 	prior 	to 	the 	beginning 	of 	harvesting 	and 	must 	not
depend 	on 	the 	quantity 	of 	timber 	actually 	removed.
19 	Under 	the 	fixed-payment 	auction 	system, 	the 	logger 	will
remove 	all 	timber 	for 	which 	the 	price 	is 	greater 	than 	the
marginal 	private 	cost 	of 	harvesting 	and 	transporting 	the
timber 	to 	the 	market. 	The 	marginal 	private 	cost 	will 	not
include 	lump-sum 	payments 	to 	the 	landowner 	for 	the 	stumpage
rights, 	and, 	hence, 	the 	marginal 	private 	cost 	will 	equal 	the
marginal 	social 	cost, 	assuming 	that 	any 	timber 	that 	would 	be
left 	unharvested 	on 	a 	harvested 	tract 	has 	no 	social 	value.
-16-

The 	Canadian 	governments 	determine 	the 	amount 	of 	land 	to 	be
harvested 	and 	then 	use 	the 	stumpage 	fee 	system 	to 	allocate 	the
land 	and 	to 	collect 	stumpage 	fees. 20 	This 	governmental
limitation 	on 	the 	available 	land 	for 	timber 	harvesting 	is 	not
unlike 	the 	system 	in 	the 	United 	States. 21 	Here, 	the 	USFS
determines 	what 	land 	should 	be 	cut 	and 	then 	holds 	competitive
auctions 	to 	allocate 	the 	stumpage 	rights 	and 	to 	determine 	the
stumpage 	fees. 	Because 	the 	land 	to 	be 	harvested 	is' determined 	by
an 	administrative 	process, 	the 	quantity 	will 	not 	vary 	with 	the
system 	used 	to 	allocate 	the 	lands 	to 	specific 	purchasers 	or 	with
the 	price 	paid 	under 	that 	system. 	All 	of 	the 	land 	made 	available
20 	If 	the 	Canadian 	loggers 	could 	get 	as 	much 	timber 	land 	as
they 	desired 	at 	a 	below-market 	government 	rate, 	they 	would
not 	be 	willing 	to 	purchase 	other 	timber 	at 	higher 	prices.
However, 	petitioners 	cite 	evidence 	that 	Canadian 	mills
located 	in 	Quebec 	purchase 	stumpage 	in Maine 	for 	several
times 	the 	price 	of 	government 	stumpage 	in 	Quebec. 	Similarly
they 	cite 	claims 	that 	stumpage 	on 	private 	lands 	in 	British
Columbia 	sells 	for 	considerably 	more 	than 	the 	price 	of
provincial 	stumpage. 	See 	Petition, 	at 	63-65.
21 	As 	Ken 	Drushka 	states 	in 	chapter 	5 	of 	his 	book 	Stumped,
which 	is 	included 	as 	Exhibit 	8 of 	the 	Petition, 	"our 	forests
both 	in B.C. 	and 	the 	U.S. 	are 	administered 	by 	the 	name 	of
'even-flow 	sustained 	yield.'" 	(As 	quoted 	in 	the
Congressional 	Record 	(October 	10, 	1985), 	p. 	513031, 	column
2). 	"Sustained 	yield 	policies 	further 	compromise 	the 	free
market. 	Restricting 	yearly 	harvests 	to 	an 	allowable 	cut 	in
a 	particular 	sustained 	yield 	unit 	means 	that 	there 	is 	a
point 	above 	which 	the 	supply 	cannot 	be 	increased 	no 	matter
what 	price 	buyers 	are 	willing 	to 	pay." 	Id. 	~ also
western Transition 	(Economic 	Council 	on 	Canada, 	1984), 	at
47-49 	(hereinafter 	"Western Transition").
-17-

will 	be 	harvested 	under 	either 	system. 22 	Thus, 	the 	total
quantity 	of 	logs 	going 	to 	market 	in 	any 	period .is, 	in 	general,
unaffected 	by 	the 	stumpage 	fee 	system 	employed. 23
B. 	Because 	the 	Canadian 	Stumpage 	System
Does 	Not 	Increase 	Canadian 	Timber
Production, 	it 	Does 	Not 	Increase
Lumber 	Exports 	to 	the 	United 	States
and 	Does 	Not 	Affect 	the 	Price
of 	Lumber 	in 	the 	United 	States.
Since 	the 	quantity 	of 	timber 	harvested 	is 	unaffected 	because
the 	Canadian 	governments 	use 	their 	stumpage 	fee 	system 	rather
than 	an 	efficient 	auction, 	use 	of 	the 	Canadian 	system 	rather 	than
an 	auction 	will 	not 	affect 	the 	quantity 	of 	finished 	lumber 	that
is 	exported 	to 	the 	United 	States. 	First, 	sawmills 	will 	pay 	a
price 	for 	logs 	that 	is 	determined 	by 	their 	demand 	for 	1 0gs 24 	and
by 	the 	supply 	of 	logs 	from 	both 	government 	and 	private 	land.
Because 	the 	quantity 	of 	logs 	being 	harvested 	is 	not 	increased 	as
22 	In 	order 	for 	this 	to 	be 	strictly 	true, 	the 	revenue 	that 	can
be 	realized 	by 	selling 	the 	logs 	on 	any 	tract 	must 	be 	greater
than 	the 	costs 	of 	building 	any 	roads 	needed 	to 	gain 	access
to 	the 	timber, 	the 	costs 	of 	actually 	cutting 	the 	trees, 	and
the 	costs 	of 	transporting 	the 	logs 	to 	market. 	If, 	for 	some
tracts 	made 	available 	by 	the 	government, 	the 	costs 	of
. logging 	exceed 	the 	revenues 	that 	can 	be 	earned 	by 	selling
the 	timber 	on 	the 	tract, 	these 	tracts 	will 	not 	be 	harvested
under 	either 	a 	competitive 	auction 	or 	under 	the 	Canadian
stumpage 	fee 	system. 	As 	is 	explained 	in 	the 	Appendix 	at 	pp.
4-7, 	not 	all 	tracts 	may 	be 	cut 	in 	this 	more 	general 	case.
However, 	all 	tracts 	that 	would 	be 	cut 	under 	the 	Canadian
stumpage 	system 	would 	also 	be 	cut 	under 	a 	competitive
auction 	system.
23 	For 	three 	reasons 	discussed 	in 	more 	detail 	in 	the 	Appendix
at 	pp. 	10-14, 	the 	quantity 	of 	logs 	harvested 	in 	Canada 	might
even 	increase 	if 	the 	Canadian 	provincial 	governments 	were 	to
adopt 	an 	auction 	system 	for 	allocating 	stumpage 	rights.
24 	The 	demand 	for 	logs 	is 	a 	derived 	demand 	which 	depends 	on 	the
demand 	for 	the 	lumber 	and 	other 	products 	that 	can 	be 	made
from 	the 	logs.
-18-

a 	result 	of 	the 	Canadian 	stumpage 	fee 	system, 	the 	price 	that
sawmills 	must 	pay 	for 	logs 	is 	not 	reduced. 	The 	fact 	that 	loggers
are 	permitted 	to 	harvest 	a 	tract 	of 	timber 	land 	at 	an
advantageous 	price 	does 	not 	affect 	the 	market 	price 	at 	which
those 	logs 	are 	later 	resold. 	25
Further, 	without 	a 	change 	in 	the 	price 	paid 	for 	logs, 	the
costs 	of 	the 	sawmill 	will 	not 	change 	as 	a 	result 	of 	the 	stumpage
fee 	system. 	Therefore, 	the 	quantity 	and 	price 	of 	lumber 	produced
in 	Canada 	are 	the 	same 	as 	if 	the 	Canadians 	employed 	a 	competitive
auction 	system 	for 	stumpage.
Because 	the 	price 	and 	quantity 	of 	lumber 	is 	not 	affected 	by
the 	stumpage 	fee 	system, 	the 	quantity 	of 	lumber 	Canadian 	firms
will 	choose 	to 	export 	to 	the 	United 	States, 	and 	the 	price 	they
will 	charge 	for 	that 	lumber, 	will 	not 	be 	altered 	by 	the 	system.
The 	choice 	between 	selling 	for 	export 	and 	selling 	for 	use 	within
Canada 	will 	depend 	on 	the 	prices 	that 	can 	be 	obtained 	by 	selling
in 	each 	country, 	and 	this 	in 	turn 	will 	depend 	on 	the 	demand 	for
25 	The 	price 	also 	would 	not 	be 	affected 	when 	a 	vertically
integrated 	firm 	uses 	a 	log 	it 	has 	harvested. 	In 	using 	such
a 	log, 	the 	firms 	would 	incur 	an 	opportunity 	cost 	equal 	to
the 	price 	it 	would 	have 	received 	if 	it 	sold 	the 	log 	to
another 	sawmill. 	It 	would 	not 	make 	sense 	for 	the 	firm 	to
put 	a 	log 	to 	an 	inefficient 	internal 	use 	when 	it 	could 	sell
the 	log 	for 	a 	greater 	amount 	on 	the 	open 	market. 	The
sawmill's 	production 	of 	lumber 	will 	be 	the 	same 	as 	if 	it 	was
purchasing 	all 	of 	its 	logs 	from 	independent 	logging 	firms.
The 	International 	Trade 	Commission 	made 	a 	similar
observation 	in 	Conditions 	Relating 	to 	the 	Importation 	of
Softwood 	Lumber 	into 	the 	United 	States, 	Inv. 	No. 	332-210,
USITC 	Publication 	1765 	(Oct. 	1985) 	at 	80.
-19-

and 	supply 	of 	lumber 	in 	each 	country. 	These 	demand 	and 	supply
functions 	do 	not 	depend 	on 	the 	stumpage 	fee 	system 	employed.
C. 	The 	Effect 	of 	the 	Low 	Stumpage 	Fee 	Is 	Merely
To 	Increase 	the 	Profits 	of 	Canadian 	Loggers.
If 	the 	low 	stumpage 	fee 	does 	not 	influence 	the 	quantity 	of
logs 	produced, 	what 	effects 	does 	it 	have? 	The 	answer 	is 	that 	it
merely 	reduces 	the 	total 	costs 	and 	increases 	the 	profits 	of
Canadian 	loggers. 	In 	effect, 	Canadian 	logging 	firms 	are
permitted 	to 	realize 	part 	of 	the 	economic 	rents 	resulting 	from
harvesting 	timber. 26 	If 	the 	harvesting 	rights 	were 	sold 	under 	a
competitive 	auction, 	these 	rents 	would 	go 	to 	the 	government 	in
the 	form 	of 	increased 	stumpage 	fee 	payments.
The 	petition 	itself 	contains 	information 	suggesting 	that 	the
low 	stumpage 	fees 	~re 	resulting 	in 	high 	profits 	for 	the 	Canadian
logging 	firms 	rather 	than 	in 	an 'increase 	in" the 	quantity 	of 	logs
harvested 	or 	in 	a 	decline 	in 	the 	price 	of 	logs. 	Petitioners
report 	that 	firms 	located 	in 	Quebec 	are 	purchasing 	Maine 	stumpage
rights 	at 	an 	average 	price 	of 	$60.33 	per 	thousand 	board 	feet 	at
26 	As 	is 	explained 	in 	the 	Appendix 	at 	pp. 	4-5 	the 	payment 	to
the 	government 	is 	an 	economic 	rent, 	and 	not 	a 	cost. 	The
total 	economic 	rent 	resulting 	from 	the 	harvesting 	of 	a 	tract
of 	timber 	land 	is 	the 	difference 	between 	the 	price 	for 	which
the 	logs 	on 	the 	tract 	can 	be 	sold 	and 	the 	cost, 	not
including 	a 	payment 	to 	the 	government, 	incurred 	in
harvesting 	the 	logs 	and 	transporting 	them 	to 	market. 	This
rent 	is 	the 	maximum 	a 	logger 	would 	pay 	for 	the 	right 	to
harvest 	a 	tract 	of 	timber. 	In 	a 	competitive 	auction 	system,
such 	as 	that 	in 	the 	United 	States, 	this 	rent 	would 	accrue 	to
the 	government. 	If 	the 	stumpage 	fee 	system 	in 	Canada
results 	in 	payments 	less 	than 	those 	generated 	by 	an 	auction,
a 	portion 	of 	the 	rent 	would 	be 	captured 	by 	the 	logging
firms. 	However, 	rather 	than 	being 	retained 	by 	the 	firms 	as
increased 	profits, 	it 	could 	be 	dissipated 	by 	rent-seeking
behavior. 	See 	Appendix 	at 	pp. 	14-15.
-20-

the 	same 	time 	that 	the 	charge 	for 	harvesting 	timber 	located 	on
government 	lands 	in 	Quebec 	was 	only 	$11.96 	per 	thousand 	board
feet. 27 	Similarly, 	the 	petitioners 	also 	refer 	to 	considerably
higher 	prices 	being 	paid 	for 	timber 	on 	private 	lands 	in 	British
Columbia 	than 	is 	paid 	for 	stumpage 	on 	pUblic 	lands. 28 	A profit-
maximizing 	firm 	would 	buy 	stumpage 	from 	private 	landowners 	or
from 	landowners 	in 	the 	United 	States 	at 	prices 	that 	exceed 	those
charged 	under 	the 	Canadian 	stumpage 	fee 	system 	only 	if 	it 	cannot
obtain 	additional 	timber 	at 	the 	lower 	price 	charged 	for
harvesting 	timber 	on 	government 	land 	and 	if 	the 	prices 	for 	which
the 	more 	costly 	logs 	can 	be 	sold 	are 	sufficient 	to 	cover 	their
costs. 	That 	Canadian 	firms 	do 	purchase 	this 	higher 	priced
s'tumpage 	is 	evidence 	that 	the 	pr ices 	charged 	under 	the 	Canadian
stumpage 	fee 	system 	are 	well 	below 	market 	prices: 	that 	the
Canadian 	governments 	do 	not 	capture 	all 	of 	the 	economic 	rents 	in
the 	sale 	of 	stumpage 	rights: 	and, 	hence, 	that 	the 	rents 	not
captured 	by 	the 	stumpage 	fees 	must 	be 	appearing 	as 	increased
profits 	for 	those 	firms 	given 	access 	to 	government 	forest 	land. 29
Additional 	evidence 	that 	the 	low 	stumpage 	fees 	under 	the
Canadian 	stumpage 	system 	are 	resulting 	in 	increased 	profits 	can
be 	found 	in 	the 	prices 	Canadian 	logging 	firms 	pay 	to 	acquire 	the
future 	cutting 	rights 	of 	other 	logging 	concerns. 	If 	the 	firms
27 	See 	Petition, 	at 	63-64.
28 	See 	Petition, 	at 	65-66 	and 	exhibits 	26 	and 	27.
29 	This 	analysis 	assumes 	that 	the 	average 	yields 	and 	costs 	of
harvesting 	timber 	on 	government 	lands 	are 	not 	significantly
different 	than 	those 	for 	private 	land.
-21-

,
;~ -
acquiring 	such 	rights 	expected 	the 	price 	at 	which 	they 	would 	sell
the 	harvested 	timber 	to 	just 	cover 	the 	costs 	of 	harvesting 	plus
the 	payment 	for 	stumpage 	rights, 	they 	would 	not 	pay 	anything 	for
the 	future 	stumpage 	rights. 	However,
[a] 	survey 	conducted 	in 	early 	1981 	concluded
that 	the 	usual 	price 	paid 	for 	[future
harvesting 	rights] 	in 	British 	Columbia 	over
the 	previous 	couple 	of 	years 	ranged 	from 	~25
per 	m3 ••• 	in 	the 	~nterior to 	$30 	per 	m
• 	on 	the 	coast. 3
That 	logging 	firms 	are 	willing 	to 	pay 	these 	amounts 	to 	acquire
future 	harvesting 	rights 	is 	evidence 	that 	they 	expect 	to 	obtain
substantial 	profits 	when 	they 	cut 	the 	timber. 31
D. 	The 	Profits 	Earned 	by 	Canadian 	Loggers 	as
a 	Result 	of 	the 	Canadian 	Stumpage 	Fee
System Do 	Not 	Provide 	an 	Unfair 	Competitive
Advantage 	as 	Might 	a 	Subsidy.
The 	high 	profits 	earned 	by 	Canadian 	loggers 	under 	the
stumpage 	system do 	not 	have 	the 	same 	trade 	distorting 	effects 	as
a 	sUbsidy 	granted 	on 	either 	timber 	or 	lumber 	production, 	contrary
to 	petitioner's 	claim, 	at 	page 	24 	of 	the 	petition, 	that 	the
Canadian 	stumpage 	system 	is 	no 	different 	from 	a 	system 	in 	which 	a
competitive 	price 	is 	charged 	for 	stumpage 	and 	then 	a 	sUbsidy 	of
so much 	per 	log 	harvested 	is 	granted.
30 	Ken 	Drushka, 	Stumped, 	as 	quoted 	in 	the 	Congressional 	Record
(October 	10, 	1985), 	p. 	513032, 	column 	2 	(Exhibit 	8 	of 	the
Petition).
31 	Technically, 	the 	payments 	are 	equal 	to 	the 	discounted 	future
value 	of 	the 	anticipated 	profit 	stream 	that 	will 	be
generated 	by 	cutting 	the 	timber 	for 	which 	the 	harvesting
rights 	are 	being 	purchased.
-22-

I...
?>.'.
In 	order 	to 	analyze 	this 	contention, 	it 	is 	useful 	to 	examine
a 	slightly 	more 	complicated 	situation 	than 	we 	have 	considered
previously. 	Up 	to 	now, 	we 	have 	assumed 	that 	all 	tracts 	of 	timber
offered 	by 	the 	government 	are 	logged. 	That 	is, 	we 	have 	assumed
that 	the 	revenue 	for 	which 	the 	logs 	on 	each 	tract 	can 	be 	sold 	is
greater 	than 	the 	costs 	of 	harvesting 	those 	logs 	-- 	not 	including
any 	economic 	rent 	paid 	to 	the 	government. 	However, 	for 	some
tracts 	made 	available 	by 	the -government, 	the 	revenue 	from 	selling
the 	logs 	may 	be 	less 	than 	the 	cost 	of 	cutting 	and 	transporting
them. 	This 	may 	be 	true, 	for 	example, 	because 	of 	the 	location 	or
accessibility 	of 	the 	tract. 	These 	tracts 	would 	remain
unharvested 	whether 	the 	tracts 	are 	offered 	under 	an 	efficient
competitive 	auction 	system or 	under 	the 	Canadian 	stumpage 	fee
system. 32
However, 	if 	the 	government 	offered 	a 	payment 	for 	each 	log
harvested, 	it 	might 	become 	profitable 	to 	harvest 	some 	tracts 	that
would 	not 	otherwise 	be 	profitable. 	With 	a 	government 	payment, 	it
will 	be profitable 	to 	cut 	any 	tracts 	where 	the 	revenue 	from
selling 	the 	timber 	plus 	the 	payment 	from 	the 	government 	exceeds
the 	cost 	of 	cutting. 	If 	some 	tracts 	are 	profitable 	to 	cut 	with
the 	government 	payment 	but 	not 	without 	it, 	then 	a 	per 	unit
subsidy 	will 	increase 	the 	quantity 	of 	trees 	cut. 	This, 	in 	turn,
will 	lead 	to 	lower 	prices 	for 	trees 	and 	lumber, 	to 	a 	larger
quantity 	of 	lumber 	being 	produced, 	and 	to 	a 	larger 	quantity 	of
32 	See 	the 	Appendix 	at 	pp. 	4-7 	for 	a 	more 	detailed 	discussion
or-this 	conclusion.
-23-

lumber 	being 	exported 	to 	the 	United 	States. 33 	Thus, 	payment 	of 	a
per 	unit 	subsidy 	can 	provide 	foreign 	firms 	with 	an 	unfair
competitive 	advantage 	and 	cause 	distortions 	to 	trading 	patterns,
and 	hence 	cause 	injury 	to 	an American 	industry. 	However, 	this 	is
not 	the 	way 	the 	Canadian 	stumpage 	fee 	system operates. 34
E. 	Use 	of 	the 	Canadian 	Stumpage 	Fee 	System
Does 	Not 	Have 	the 	Same 	Effect 	as 	an 	Expansion
in 	the 	Quantity 	of 	Timber 	Made 	Available 	for
Harvesting 	by 	the 	Canadian 	Governments.
In 	attempting 	to 	understand 	the 	effects 	of 	the 	Canadian
stumpage 	fee 	system, 	it 	is 	important 	to 	differentiate 	between 	the
effects 	of 	the 	stumpage 	system 	and 	the 	effects 	of 	the 	decisions
of 	the 	Canadian 	governments 	concerning 	the 	quantity 	of 	timber
33 	See 	the 	Appendix 	at 	pp. 	7-8 	for 	a 	more 	detailed 	presentation
~this analysis.
34 	There 	is, 	in 	fact, 	another 	difference 	between 	the 	current
Canadian 	stumpage 	fee 	system 	and 	a 	competitive 	auction
combined 	with 	a 	per 	unit 	sUbsidy. 	If 	it 	is 	known 	that 	the
subsidy 	will 	be 	paid 	before 	the 	auction 	is 	held, 	this 	will
cause 	the 	competitive 	bids 	to 	be 	increased 	to 	reflect 	the
value 	of 	the 	promised 	subsidy. 	As 	a 	result, 	the 	logging
firms 	will 	not 	earn 	any 	above 	normal 	profits 	due 	to 	the
subsidy. 	Thus, 	the 	approach 	that 	petitioners 	depict 	as
being 	analogous 	to 	the 	current 	Canadian 	system would 	not
transfer 	any 	economic 	rents 	to 	the 	logging 	firms. 	Rather,
all 	rents 	would 	be 	captured 	by 	the 	government, 	just 	as 	if 	a
competitive 	auction 	were 	held 	without 	a 	sUbsidy.
-24-

~ ..
·.
~
that 	will 	be 	permitted 	to 	be 	cut 	in 	any 	period 	of 	time. 35 	While
the 	Canadian 	stumpage 	fee 	system does 	not 	provide 	Canadian 	lumber
firms 	with 	an 	unfair 	competitive 	advantage, 	it 	is 	possible 	that
decisions 	to 	increase 	the 	amount 	of 	land 	made 	available 	for
harvesting 	could 	provide 	such 	an 	unfair 	advantage. 	This 	unfair
advantage 	could 	occur 	if 	the 	Canadian 	governments 	made 	more 	land
available 	than 	would 	a 	similarly 	situated 	private 	landowner. 36
However, 	use 	of 	the 	Canadian 	stumpage 	fee 	system does 	not
provide 	any 	evidence 	that 	the 	quantity 	of 	land 	made 	available 	for
harvest 	by 	the 	Canadian 	governments 	is 	greater 	than 	a 	private
landowner 	with 	the 	same 	timber 	resources 	would 	make 	available. 	A
private 	landowner 	would 	harvest 	a 	tract 	when 	it 	is 	economically
35 	In 	responding 	to 	the 	analysis 	of 	the 	Federal 	Trade
Commission 	and 	that 	of 	the 	Canadian 	respondents 	in 	this
proceeding, 	both 	of 	which 	demonstrate 	that 	the 	stumpage 	fee
systems 	employed 	by 	the 	Canadian 	governments 	do 	not 	distort
trade 	patterns 	or 	create 	an 	unfair 	competitive 	advantage 	for
Canadian 	lumber 	producers, 	Petitioners 	confuse 	the 	effects
of 	these 	two 	separate 	factors. 	See 	Post-Conference 	Brief 	on
Behalf 	of 	Petitioner 	The 	U.S. 	Coalition 	for 	Fair 	Lumber
Imports, 	Before 	the 	U.S. 	International 	Trade 	Commission,
Investigation No. 	731-TA-274 	(Preliminary), 	June 	12, 	1986,
at 	43-48.
36 	Such 	an 	expansion 	in 	the 	quantity 	of 	timber 	harvested 	would
occur 	unless 	all 	of 	the 	additional 	land 	made 	available 	for
harvesting 	was 	either 	so 	expensive 	to 	harvest 	or 	so 	lacking
in 	valuable 	timber 	that 	the 	revenues 	from 	sale 	of 	the 	timber
on 	these 	tracts 	would 	be 	less 	than 	the 	cost 	of 	harvesting
that 	timber. 	See 	Appendix 	at 	p. 	10.
-25-

efficient 	to 	do 	so.37 	There 	is 	evidence, 	however, 	that 	the
Canadian 	governments 	hold 	timber 	for 	a 	period 	that 	exceeds 	the
efficient 	time 	frame 	and 	allow 	harvesting 	"too 	late" 	to 	maximize
efficiency.38 	This 	provides 	evidence 	that 	the 	quantity 	of 	timber
land 	that 	the 	Canadian 	governments 	make 	available 	for 	harvesting
is 	less 	than 	the 	quantity 	that 	a 	similarly 	situated 	private
landowner 	would 	make 	available.
Even 	if 	the 	Canadian 	governments 	were 	sUbsidizing 	their
industry 	by 	making 	excessive 	quantities 	of 	timber 	land 	available
for 	cutting, 	the 	tariff 	that 	would 	countervail 	against 	this
practice 	is 	not 	equal 	to 	the 	tariff 	sought 	by 	petitioners 	-- 	the
difference 	between 	the 	price 	of 	stumpage 	rights 	in 	the 	United
States 	and 	the 	price 	that 	must 	be 	paid 	for 	stumpage 	rights 	to
harvest 	comparable 	timber 	under 	the 	Canadian 	system. 	Rather, 	the
correct 	countervailing 	duty 	would 	be 	equal 	to 	the 	amount 	by 	which
the 	price 	that 	must 	be 	paid 	for 	the 	efficient 	quantity 	of
Canadian 	lumber 	imports 	has 	been 	reduced 	because 	of 	the 	expansion
in 	the 	supply 	available. 39 	Thus, 	even 	if 	the 	Canadian
governments 	are 	subsidizing 	their 	lumber 	industry 	by 	their
decisions 	concerning 	the 	quantity 	of 	timber 	to 	make 	available 	for
37 	The 	private 	landowner 	would 	determine 	a 	schedule 	for
harvesting 	the 	timber 	so 	as 	to 	maximize 	the 	net 	present
value 	of 	the 	timber 	resource 	owned. 	For 	a 	discussion 	of 	the
economics 	of 	timber, 	see 	William 	F. 	Hyde, 	Timber 	Supply,
Land 	Allocation, 	and 	Economic 	Efficiency, 	Resources 	for 	the
Future 	(1980), 	particularly 	chapter 	3 	(hereinafter 	"Hyde").
38 	See 	Western 	Transition, 	supra, 	at 	48-51.
39 	See 	the 	Appendix 	at 	p. 	16 	and 	especially 	note 	9 	for 	a
further 	discussion 	of 	this 	point.
-26-

harvest, 	the 	correct 	solution 	to 	this 	problem 	is 	quite 	different
than 	what 	is 	suggested 	by 	Petitioners.
F. 	Inefficiencies 	in 	the 	Auction 	System
Employed 	by 	the 	United 	states 	Forest
Service 	Should 	Not 	Provide 	the
Justification 	for 	Countervailing 	Duties.
Our 	analysis 	to 	this 	point 	has 	assumed 	that 	the 	auction
system 	to 	which 	we 	are 	comparing 	the 	Canadian 	stumpage 	fee 	system
is 	an 	efficient 	one 	in 	which 	a 	lump-sum 	payment 	is 	required 	for
the 	right 	to 	harvest 	a 	tract 	of 	timber 	land. 	That 	is, 	the
payment 	is 	independent 	of 	the 	quantity 	of 	timber 	actually 	removed
from 	the 	forest. 	Such 	an 	efficient 	auction 	will 	maximize 	the
quantity 	of 	timber 	removed 	from 	a 	tract 	and 	therefore 	achieve 	the
government's 	objectives 	of 	getting 	harvested 	the 	timber 	the
government 	wants 	to 	have 	harvested.
However, 	there 	are 	other 	ways 	of 	organizing 	the 	payment 	for
stumpage 	rights, 	and 	some 	of 	these 	may 	not 	create 	incentives 	for
efficient 	harvesting. 	For 	example, 	if 	the 	total 	stumpage 	fee
that 	is 	paid 	for 	a 	tract 	varies.with 	the 	quantity 	of 	timber
actually 	harvested, 	firms 	will 	have 	incentives 	to 	leave 	some
economical 	timber 	in 	the 	forest. 	Instead 	of 	removing 	all 	timber
for 	which 	the 	costs 	of 	harvest 	and 	transportation 	are 	lower 	than
the 	revenue 	received 	when 	the 	timber 	is 	sold, 	loggers 	will 	want
to 	harvest 	only 	those 	trees 	for 	which 	the 	revenue 	from 	sale 	would
be 	greater 	than 	the 	costs 	of 	harvest 	and 	transportation 	plus 	the
-27-

~:
S_,
incremental 	payment 	to 	the 	government 	for 	stumpage 	rights. 40
Since 	the 	government 	presumably 	wishes 	all 	of 	the 	timber 	on 	the
tract 	to 	be 	cut, 	this 	reduction 	in 	quantity harvested 	is
undesirable.
To 	the 	extent 	that 	the 	auction 	system 	employed 	by 	the 	United
States 	Forest Service 	("USFS") 	does 	not 	provide 	for 	a 	fixed
payment 	for 	the 	right 	to 	harvest 	a 	particular 	tract 	of 	land, 	the
output 	from 	government 	lands 	may 	be 	inefficiently 	reduced. 41
Indeed, 	output 	could 	be 	higher 	under 	the 	Canadian 	stumpage 	fee
40 	For 	a 	discussion 	of 	this 	and 	other 	inefficiencies 	resulting
from 	a 	stumpage 	fee 	payment 	based 	on 	the 	actual 	quantity of
timber 	harvested, 	see 	Dennis 	D. 	Muraoka 	and 	Richard 	B.
Watson, 	"Improving 	the 	Efficiency 	of 	Federal 	Timber 	Sales
Procedures," 	Natural 	Resources 	Journal 	(October 	1983),
pp. 	815-25. 	The 	government 	may, 	of 	course, 	attempt 	to
counteract 	this 	incentive 	by 	the 	requirements 	it 	includes 	in
the 	harvesting 	contract. 	For 	example, 	it 	may 	require 	that
all 	of 	the 	timber 	on 	the 	tract 	be 	harvested.
41 	The 	USFS 	attempts 	to 	require 	that 	all 	economical 	timber 	is
harvested 	by 	specifying 	the 	quantity 	of 	timber 	to 	be
harvested 	in 	the 	timber 	contract 	and 	reserving 	the 	right 	to
sue 	for 	failure 	to 	satisfy 	the 	contract. 	(Telephone
conversation 	with 	William Ryburn, 	USFS, 	September 	9,
1986). 	In 	addition, 	the 	Forest Service 	has 	proposed 	rules
that 	would 	require 	payment 	of 	the 	full 	amount 	of 	the 	bid 	for
the 	harvesting 	rights 	even 	if 	cutting 	does 	not 	occur. 	(See
Federal 	Register, 	January 	17,1985, 	pp. 	2591-94). 	However,
enactment 	of 	these 	regulations 	has 	been 	postponed. 	(See
Federal 	Register, 	October 	11, 	1985, 	pp. 	41498-501). 	---
-28-

system 	than 	under 	the 	USFS 	auction 	system. 42 	However, 	to 	the
extent 	that 	this 	is 	true, 	it 	is 	because 	of 	the 	inefficiency 	of
the 	USFS 	price 	scheme 	rather 	than 	because 	the 	Canadian 	stumpage
fee 	system 	results 	in 	excessive 	harvesting. 	That 	is, 	if 	the
Canadian 	stumpage 	fee 	system 	results 	in 	more 	cutting 	than 	the
USFS 	auction 	the 	Canadian 	system 	is 	more 	efficient 	in 	producing
the 	quantity 	of 	timber 	the 	government 	wishes 	harvested.
If 	the 	Canadian 	stumpage 	fee 	system 	results 	in 	more
harvesting 	than 	the 	USFS 	auction 	system 	because 	it 	is 	a 	more
efficient 	system, 	it 	does 	not 	seem 	to 	be 	appropriate 	to
countervail 	against 	Canadian 	lumber 	imports. 	Rather, 	the 	correct
solution 	to 	this 	problem would 	appear 	to 	be 	alteration 	in 	the
auction 	system 	employed 	by 	the 	Forest 	Service 	in 	order 	to 	make 	it
. 	.
operate 	more 	efficiently.43
G. 	Conclusion: 	The 	Canadian 	Stumpage 	Fee
System Does Not 	Distort 	Trading 	Patterns
or 	Create 	an 	Unfair 	Competitive 	Advantage.
In 	conclusion, 	based 	on 	our 	understanding 	of 	the 	Canadian
stumpage 	fee 	system, 	it 	does 	not 	appear 	that 	an 	unfair
42 	On 	tracts 	for 	which 	the 	per 	unit 	payment 	under 	the 	Canadian
stumpage 	fee 	system 	is 	lower 	than 	the 	per 	unit 	payment
derived 	from 	a 	competitive 	auction, 	there 	will 	be 	incentives
to 	cut 	less 	timber 	under 	the 	auction 	system 	than 	under 	the
Canadian 	system. 	However, 	if 	there 	are 	tracts 	on 	which 	the
per 	unit 	payment 	under 	a 	competitive 	auction 	is 	below 	the
minimum 	price 	acceptable 	under 	the 	Canadian 	system, 	there
will 	be 	incentives 	to 	cut 	more 	timber 	from 	these 	tracts
under 	an 	auction 	system. 	Which 	system produces 	the 	greatest
quantity 	of 	timber 	will 	be 	depend 	on 	the 	relative 	importance
of 	these 	two 	effects.
43 	The 	imposition 	of 	countervailing 	duties 	on 	Canadian 	lumber
imports 	could 	provide 	a 	precedent 	for 	countries 	with
inefficient 	industries 	to 	impose 	duties 	on 	exports 	from
United 	States 	firms 	that 	operate 	efficiently.
-29-

competitive 	advantage 	for 	Canadian 	lumber 	producers 	is 	created 	or
that 	trading 	patterns 	for 	lumber 	between 	the 	United 	states 	and
Canada 	are 	distorted 	by 	reason 	of 	the 	methods 	by 	which 	the
Canadian 	provincial 	governments 	allocate 	the 	timber 	land 	they
have 	administratively-determined 	should 	be 	harvested 	or 	by 	the
tees 	they 	charge 	for 	the 	right 	to 	harvest 	timber 	lands. 44 	An
unfair 	competitive 	advantage 	would 	arise 	only 	if 	the 	Canadian
atumpage 	fee 	system 	resulted 	in 	a 	greater 	quantity 	of 	logs 	being
cut 	than 	would 	be 	cut 	under 	an 	efficient 	competitive 	auction
system. 	However, 	this 	does 	not 	appear 	to 	be 	the 	case. 	We
conclude 	that 	the 	Canadian 	stumpage 	fee 	system 	results 	in 	the
same 	level 	of 	cutting 	as 	would 	an 	efficient 	competitive 	auction
44 	While 	there 	is 	no 	direct 	unfair 	competitive 	advantage
created 	by 	the 	Canadian 	stumpage 	fee 	system, 	there 	are 	two
conditions 	under 	which 	the 	Canadian 	system 	could 	conceivably
indirectly 	cause 	an 	increase 	in 	the 	quantity 	of 	timber 	being
harvested. 	They 	are 	described 	in 	the 	Appendix, 	at 	pp. 	14-
16. 	However, 	these 	indirect 	effects 	do 	not 	seem 	to 	be 	what
concerns 	petitioners.
-30-

~.
system. 45 As 	a 	result, 	the 	quantity 	of 	lumber 	imported 	into 	the
United 	States, 	and 	the 	price 	for 	which 	that 	lumber 	is 	sold, 	is
unaffected 	by 	the 	Canadian 	system 	and 	the 	competitiveness 	of
domestic 	lumber 	and 	logging 	industries 	are 	not 	adversely
affected. 	Further, 	to 	the 	extent 	that 	the 	output 	of 	Canadian
forests 	is 	higher 	than 	it 	would 	be 	under 	the 	auction 	system
utilized 	by 	the 	United 	States 	Forest 	Service, 	this 	is 	because 	the
auction 	system 	used 	by 	the 	Forest 	Service 	is 	inefficient. 	This
should 	not 	be 	used 	to 	justify countervailing 	duties.
IV. 	Expenditure 	of 	Public 	Funds 	on 	the 	Reforestation 	of
Government-Owned 	Timber 	Land 	Does 	Not 	Necessarily
Constitute 	a 	Subsidy 	of 	the 	Canadian 	Lumber 	Industry.
In 	addition 	to 	alleging 	that 	the 	Canadian 	stumpage 	fee
system 	provides 	a 	countervailable 	subsidy 	to 	Canadian 	lumber
producers, 	petitioners 	also 	claim 	that 	the 	Canadian 	federal 	and
provincial 	governments 	subsidize 	their 	lumber 	industry 	by 	using
government 	funds 	to 	pay 	for 	the 	reforestation 	of 	timber 	lands.
Under 	four- 	and 	five-year 	Forest 	Resource
Development Agreements, 	the 	Canadian 	federal
45 	Petitioners 	briefly 	allude 	to 	a 	requirement 	that 	logging
. concerns 	operating 	under 	certain 	versions 	of 	the 	Canadian
stumpage 	fee 	system 	cut 	a 	minimum quantity 	of 	timber 	each
year 	and 	within 	each 	five 	year 	period 	or 	lose 	the 	right 	to
future 	harvesting 	rights. 	(See 	Petition, 	at 	44). 	If, 	in
order 	to 	maintain 	future 	rights 	that 	are 	expected 	to 	be
profitable, 	this 	requirement 	is 	leading 	logging 	firms 	at
present 	to 	harvest 	trees 	where 	the 	revenue 	received 	from
sales 	is 	less 	than 	the 	costs 	of 	cutting 	the 	timber 	-- 	not
including 	any 	payment 	that 	must 	be 	made 	to 	the 	Canadian
government 	-- 	this 	aspect 	of 	the 	Canadian 	stumpage 	fee
system could 	be 	resulting 	in 	an 	unfair 	distortion 	of 	trade
and 	injury 	to 	the 	lumber 	industry 	in 	the 	United 	States. 	We
have 	seen 	no 	evidence 	that 	such 	uneconomic. cutting 	is 	in
fact 	occurring. 	However, 	the 	Department 	may 	wish 	to 	further
investigate 	this 	aspect 	of 	the 	Canadian 	system.
-31-

~'.
and 	provincial 	governments 	directly 	finance
reforestation 	on 	lands 	that, 	but 	for 	the
provision 	of 	timber 	at 	preferential 	rates
below 	a 	fair 	market 	value 	throughout 	the 	last
decade, 	would 	have 	been 	reforested 	with 	funds
from 	stumpage 	payments.
Petition, 	p. 	81.
In 	considering 	the 	alleged 	subsidy 	involved 	in 	government
payments 	for 	reforestation 	on 	government-owned 	lands, 	it 	is
necessary 	to 	consider 	whether, 	as 	a 	result 	of 	the 	practice 	in
question, 	the 	quantity 	of 	Canadian 	timber 	being 	currently
harvested 	is 	increased. 	Only 	if 	timber 	output 	is 	increased 	by
the 	practice 	can 	there 	be 	an 	increase 	in 	the 	quantity 	of 	lumber
exported 	to 	the 	United 	States 	and 	a 	decline 	in 	the 	price 	of
lumber 	in 	this 	country.
A. 	Government 	Reforestation 	Expenditures 	Should
. Be 	Compared 	with 	the 	Expendi~ures that
Would 	Be 	Made 	by 	a 	Private 	Landowner.
The 	fact 	that 	the 	government 	is 	spending 	its 	funds 	to 	pay
for 	reforestation 	of 	government-owned 	lands 	is 	not, 	in 	itself,
evidence 	that 	a 	SUbsidy 	is 	involved. 46 	The 	question 	is 	whether
46 	To 	the 	extent 	that 	government 	funds 	are 	used 	to 	pay 	for
reforestation 	of 	privately-owned 	lands, 	the 	proper 	standard
of 	comparison 	would 	be 	the 	level 	of 	output 	that 	would 	occur
if 	the 	government 	did 	not 	pay 	for 	reforestation. 	If 	the
government 	payments 	result 	in 	an 	increase 	in 	the 	current
output 	from 	the 	private 	forest 	land, 	these 	payments 	would
clearly 	appear 	to 	be 	a 	countervailable 	subsidy. 	As
discussed 	below, 	however, 	it 	does 	not 	appear 	that 	an
increase 	in 	current 	reforestation 	efforts 	will 	lead 	to 	an
increase 	in 	current 	output. 	Thus, 	it 	is 	not 	clear 	that 	a
subsidy 	of 	reforestation 	on 	private 	lands 	should 	be
considered 	to 	be 	a 	currently 	countervailable 	SUbsidy.
-32-

output 	is 	increased 	by 	this 	particular 	governmental 	practice, 	and
this 	requires 	a 	determination 	of 	the 	relevant 	output 	for
comparison 	with 	current 	output. 	Since 	the 	government 	owns 	the
land 	on 	which 	the 	reforestation 	is 	being 	conducted, 	government
reforestation 	investments 	increase 	the 	future 	value 	of 	government
land 	and 	national 	wealth. 	Spending 	funds 	on 	reforestation
currently 	will 	increase 	the 	quantity 	and 	quality 	of 	the 	timber
that 	can 	be 	harvested 	from 	that 	land 	in 	the 	future. 	In 	this
sense, 	government 	investment 	may 	be 	likened 	to 	the 	wealth-
enhancing 	investment 	decision 	of 	a 	private 	landowner.
This 	suggests 	that 	the 	proper 	standard 	for 	comparison 	is 	the
level 	of 	investment 	that 	would 	be 	undertaken 	by 	a 	private
landowner. 47 	If 	the 	Canadian 	governments 	are 	investing 	no 	more
. 	.
in 	refor~statiqn than 	would 	a 	private 	landowner, 	the 	output 	of
the 	forest 	land, 	now 	and 	in 	the 	future, 	will 	be 	no 	greater 	under
government 	ownership 	than 	it 	would 	be 	under 	private 	ownership,
and 	therefore 	no 	subsidy 	should 	be 	found 	to 	exist. 	Only 	if 	the
Canadian 	governments 	are 	spending 	more 	than 	would 	a 	private 	owner
is 	it 	possible 	that 	the 	government 	is 	subsidizing 	its 	timber
industry.
47 	So 	long 	as 	there 	are 	no 	external 	costs 	or 	benefits 	resulting
from 	dedication 	of 	land 	to 	timber 	production, 	private
decision-makers 	will 	invest 	in 	reforestation 	at 	a 	rate 	that
is 	optimal 	from 	society's 	point 	of 	view. 	Musgrave 	&
Musgrave, 	Public 	Finance 	in 	Theory 	& Practice, 	6-7 	(1973).
-33-

B. 	The 	Petition 	Does 	Not 	Present 	Evidence 	that
the 	Canadian Governments 	Are 	SUbsidizing 	Their
Lumber 	Industry 	Through 	Reforestation 	Activities.
The 	allegations 	contained 	in 	the 	petition 	are 	clearly
~. 	insufficient 	to 	demonstrate 	that 	the 	reforestation 	expenditures
~
1 	being 	made 	by 	the 	Canadian 	governments 	are 	inefficient, 	i.e., 	are
~
t~ 	greater 	than 	the 	levels 	that 	would 	be 	undertaken 	by 	a 	private
~ 	landowner. 	In 	selecting 	the 	level 	of 	reforestation 	investment 	to
f
f 	undertake, 	the 	private 	landowner 	would 	maximize 	the 	present 	value
of 	the 	future 	proceeds 	from 	sale 	of 	the 	rights 	to 	harvest 	the
timber 	on 	a 	tract 	minus 	the 	present 	investment 	in
reforestation. 48 	Consequently, 	investment 	in 	reforestation 	could
exceed 	revenues 	realized 	by 	the 	Canadian 	governments 	on 	the 	sale
of 	the 	current 	timber 	because 	(I) 	the 	real 	price 	of 	timber 	may 	be
expected 	to 	rise 	in .the 	future,49 	or 	(2) 	the 	Canadian 	governments
may 	not 	be 	capturing 	all 	of 	the 	economic 	rents 	from 	timber 	sales.
48 	For 	a 	discussion 	of 	the 	conditions 	for 	optimal 	investment 	in
timber, 	see 	Hyde, 	supra, 	particularly 	chapter 	3. 	Of 	course,
a 	private 	landowner 	would 	sell 	the 	rights 	to 	harvest 	in 	such
a 	way 	that 	he 	captured 	all 	of 	the 	proceeds 	from 	sale 	of 	the
harvesting 	rights. 	He 	would 	not 	utilize 	a 	system 	like 	the
Canadian 	stumpage 	fee 	system which 	allows 	harvesters 	to
capture 	a 	portion 	of 	these 	proceeds. 	However, 	even 	though
the 	Canadian 	governments 	do 	not 	capture 	all 	of 	the 	returns
to 	their 	reforestation 	investments, 	their 	investments 	will
not 	differ 	from 	what 	a 	private 	landowner 	would 	undertake, 	as
long 	as 	they 	maximize 	the 	social 	return 	to 	their 	investments
in 	reforestation.
49 	The 	real 	price 	of 	stumpage 	has 	risen 	in 	North 	America 	over
the 	past 	150 	years 	and 	it 	has 	been 	suggested 	that 	this 	trend
is 	likely 	to 	continue 	into 	the 	future. 	See 	Hyde, 	supra, 	at
68. 	See 	also 	the 	projected 	future 	increases 	in 	real
stumpage 	prices 	reported 	in 	Christopher 	D. 	Risbrudt 	and 	Paul
v. 	Ellefson, 	"An 	Economic 	Evaluation 	of 	the 	1979 	Forestry
Incentives 	Program," 	University 	of 	Minnesota 	Agricultural
Experiment Station, 	Station 	Bulletin 	550 	(1983).
-34-

Even 	if 	the 	Department 	were 	to 	determine 	that 	the 	Canadian
governments 	were 	engaging 	in 	excessive 	reforestation, 	this 	would
not 	demonstrate 	that 	currently 	imposing 	a 	countervailing 	duty 	is
appropriate. 	Such 	a 	duty 	would 	be 	appropriate 	only 	if 	the
actions 	of 	the 	Canadian 	governments 	are 	leading 	to 	an 	increase 	in
-35-

the 	quantity 	of 	timber 	currently 	being 	harvested. SO 	If 	the
reforestation 	being 	done 	by 	the 	Canadians 	is 	merely 	increasing
future 	timber 	harvests, 	but 	is 	not 	increasing 	current 	harvesting,
no 	current 	unfair 	competitive 	advantage 	is 	created.
50 	If 	a 	private 	landowner 	is 	maximizing 	the 	net 	present 	value
of 	his 	or 	her 	timber 	resources, 	a 	decision 	to 	increase 	his
or 	her 	reforestation 	efforts 	will 	not 	lead 	to 	an 	increase 	in
current 	harvest 	rates. 	The 	additional 	reforestation 	is 	an
investment 	that 	will 	yield 	its 	return 	only 	when 	the 	newly
planted 	trees 	have 	grown 	to" maturity. 	Unless 	the
expectation 	of 	larger 	output 	in 	the 	future 	causes 	the
optimal 	growing 	periods 	to 	be 	shortened 	with 	the 	result 	that
more 	timber 	is 	harvested 	currently, 	the 	current 	level 	of
reforestation 	will 	have 	no 	effect 	on 	current 	harvests. 	And,
given 	that 	it 	takes 	many 	years 	for 	trees 	to 	grow 	to
maturity, 	it 	is 	likely 	that 	any 	effect 	of 	future 	output
levels 	on 	optimal 	current 	harvests 	will 	be 	very 	small.
However, 	if, 	rather 	than 	maximizin~ the 	net 	present 	value 	of
his 	timber 	resources, 	the 	landowner 	practiced-some 	forms-of
sustained 	yield 	management 	on 	his 	or 	her 	timber 	land, 	an
increase" in 	current 	reforestation 	could 	lead 	to 	an 	increase
in 	current 	harvesting. 	See 	Hyde, 	supra, 	at 	18-19.
Under 	United 	States 	Forest 	Service 	regulations, 	the 	mInImum
acceptable 	payments 	for 	stumpage 	rights 	on 	Forest Service
lands 	must 	be 	high 	enough 	to 	cover 	"the 	cost 	of 	regeneration
made 	necessary 	by 	the 	sale." 	(Forest Service 	Manual 	2421.6
(Oct. 	1977) 	(emphasis 	added). 	This 	requirement 	can 	result
in 	some 	tracts 	of 	land 	that 	are 	made 	available 	for
harvesting 	being 	left 	uncut, 	even 	though 	the 	revenues 	that
could 	be 	realized 	by 	selling 	the 	timber 	on 	the 	tract 	exceeds
the 	cost 	of 	harvesting 	that 	timber. 	This 	would 	occur 	with
tracts 	for 	which 	the 	difference 	between 	the 	price 	at 	which
the 	timber 	can 	be 	sold 	and 	the 	cost 	of 	harvesting 	the 	timber
is 	less 	than 	the 	cost 	of 	reforestation. 	While 	the 	absence
of 	such 	a 	requirement 	on 	the 	part 	of 	the 	Canadian
governments 	may 	seem 	to 	provide 	their 	lumber 	manufacturers
with 	an 	unfair 	competitive 	advantage, 	the 	more 	appropriate
conclusion 	appears 	to 	be 	that 	United 	States 	producers 	are
disadvantaged 	by 	the 	regulation. 	As 	we 	have 	seen 	above, 	a
private 	landowner 	seeking 	to 	maximize 	the 	value 	of 	the
timber 	on 	his 	or 	her 	land 	would 	not 	impose 	such 	a 	regulation
on 	himself 	or 	herself. 	While 	the 	regulation may 	be 	designed
to 	further 	our 	nation's 	objectives 	in 	terms 	of 	conservation
or 	some 	other 	use 	of 	timber 	land, 	it 	would 	not 	be 	efficient
to 	require 	other 	countries 	to 	impose 	a 	similar 	regulation 	on
their 	timber 	harvesting 	operations.
-36-

In 	conclusion, 	before 	it 	can 	be 	found 	that 	the 	Canadian
governments 	currently 	are 	sUbsidizing 	their 	timber 	industry
through 	reforestation 	investments, 	t~o facts 	must 	be
demonstrated. 	First, 	it 	must 	be 	demonstrated 	that 	the 	level 	of
reforestation 	being 	undertaken 	is 	greater 	than 	would 	be 	done 	by 	a
private 	landowner. 	Second, 	it 	must 	be 	shown 	that 	this 	increase
in 	current 	reforestation 	is 	leading 	to 	an 	increase 	in 	current
cutting 	of 	timber 	from 	government 	lands.
CONCLUSION
For 	the 	reasons 	stated 	above, 	we 	submit 	that 	the 	Canadian
stumpage 	fee 	system 	does 	not 	constitute 	a 	countervailable 	subsidy
to 	the 	Canadian 	softwood 	lumber 	industry. 	We 	further 	suggest
-37-

that 	petitioners 	have 	not 	demonstrated 	that 	Canadian 	government
payments 	for 	reforestation 	provide 	a.countervailable 	sUbsidy.
Respectfully 	submitted
on 	behalf 	of
the 	Federal 	Trade 	Commission,
David 	T. 	Scheffman
Director
Bureau 	of 	Economics
Keith 	B. 	Anderson
Special Assistant.
to 	the 	Director
Bureau 	of 	Economics
Sarah 	J. 	Goodfriend
Economist
Bureau 	of 	Economics
William 	C. 	MacLeod
Director
Bureau 	of 	Consumer
Protection
Amanda 	B. 	Pederson
Deputy 	Director
Bureau 	of 	Consumer
Protection
November 	26, 	1986
-38-
Jeffrey 	I. 	Zuckerman
Director
Bureau 	of 	Competition
<!:-.......{J:J1J- J
Edward 	F. 	Glyn~, J~
Assistant 	Director
(International
Antitrust)
Bureau 	of 	Competition
~A~Steven B. 	Felrman
Attorney
Bureau 	of 	Competition

APPENDIX
THE EFFECTS OF THE CANADIAN STUMPAGE FEE SYSTEM
AS COMPARED TO AN EFFICIENT AUCTION SYSTEM
by
Keith B. Anderson l
1 	Keith 	Anderson 	is 	Special 	Assistant 	to 	the 	Director, 	Bureau 	of
Economics, Federal Trade Commission. 	From 1982 to 1986, he was Assistant
Director for Regulatory Analysis in the FTC's Bureau of Economics. 	In this
role he supervised all of the economic work on international trade done by
the 	Federal 	Trade 	Commission. 	He 	received 	the 	MA. 	in 	Economics 	and
completed all of the course work for the PhD at Cornell University.

In this appendix we provide a graphical presentation of the workings of
an 	auction 	system 	and 	of 	the 	Canadian 	stumpage 	fee 	system. 	We
demonstrate 	that, 	in 	general, 	the 	same 	tracts 	will 	be 	harvested 	where 	the
Canadian system is 	used 	to allocate harvesting rights and 	to determine the
price 	received 	for 	these 	rights as when an efficient auction is utilized for
these 	purposes. 1 	The 	effects 	of 	a 	true 	production 	subsidy 	are 	then
considered, 	along 	with 	the 	effects 	of 	an 	uneconomic 	expansion 	of 	the
quantity of timber land made available for harvest. 	We then consider why
the Canadian system may actually result in less timber being harvested than
if 	the 	Canadian 	governments 	were 	to 	employ 	an 	efficient auction 	system.
Finally, while the Canadian stumpage fee system does not directly cause the
quantity 	of 	timber 	harvested 	to 	be 	any 	higher 	than 	it. would 	be 	with 	an
auction 	system, 	we 	consider 	some 	hypothetical 	situations 	under 	which 	the
Canadian 	system 	may 	indirectly 	result 	in 	an 	expansion 	in 	the 	quantity 	of
timber harvested.
A. 	The Demand for and Supply of Timber
To begin our analysis, consider Figure 	I, which shows the demand for
and supply of timber. 	The demand curve (labelled D in Figure 1) shows the
quantity of logs that users will purchase at each price. 	The demand for logs
is a function of the demand for the products, such as lumber and paper, that
1 By 	an 	efficient 	auction 	systeml 	we 	mean 	a 	system 	that 	involves 	a
lump-sum payment for the right to harvest a tract of timber land. 	Such an
auction system is efficient in that it will result in the greatest quantity of
the timber the government wishes to be harvested actually being cut.
_1IIIIiIooOo;;_~ 	~.~._.__ 	_ .

,f
"
Prte
of Tmber
figure 1
2
D
Quantity
of Tmber
Harvested

can be produced from a log. 	The demand curve slopes downward because as
they have to pa y declines.
The supply curve of logs (S in Figure 1) represents the price that must
from 	those 	logs expands 	and 	the 	price at which 	the increased quantity of
As 	a 	result, 	firms 	who 	use 	logs 	to	those 	products 	can 	be 	sold 	falls.
the quantity of logs 	harvested 	expands, the quantity 	of 	products produced
manufacture these other products will 	purchase more logs only if the price
be received if a particular quantity of timber is to be harvested. 	A logger
will be willing to harvest an additional unit of timber only if the price he
receives 	is 	at 	least 	as 	great 	as 	the 	costs 	he 	incurs 	in 	cutting 	the 	timber
and transporting it to the sawmill.
The costs of harvesting the trees on a 	tract do not 	include, however,
any payment to the government for the right to cut the trees. 	The payment
to the government is an economic ·rent, and not a cost. 	This is because. the
availability of the land for harvesting does not depend on the price received
by the government. 	The trees have grown on 	the tract either naturally or
as 	a 	result 	of 	planting 	that 	was 	done 	20 	or 	more 	years 	ago. 	The
government 	has 	decided 	that 	now 	is 	the 	optimal 	time 	to 	cut 	the 	trees.
Therefore, the trees are available for harvest provided loggers are willing to
cut 	them. 	The 	same 	trees 	are 	available 	if 	a 	high 	price 	is 	paid 	for 	the
harvesting rights as if a lower price is paid. 	So long as any positive price
is paid, the trees will be made available for harvest. 	This is quite different
from 	the cost 	the 	logger 	must pay for other 	things such 	as gasoline. 	The
amount paid for gasoline is a true cost: If the price is not paid, the gasoline
will not be made available.
3

The 	supply 	curve 	Slopes 	upward 	because, 	as 	the 	quantity 	of 	logs
harvested 	increases, 	the 	cost 	of 	harvesting additional 	logs increases. 	Some
tracts 	are 	more 	difficult 	to 	harvest 	than 	others. 	.Also, 	some 	tracts 	are
further from the sawmill, and it is therefore more expensive to transport the
logs to the mill. 2 	If only a few logs are needed, only those tracts with the
lowest 	cost 	of 	harvesting 	and 	transportation 	will 	be 	harvested. 	As 	the
quantity to be harvested increases, tracts that are more expensive to harvest
will need to be cut. 	However, loggers will be willing to do so only if the
price they receive is high enough to cover the higher costs incurred.
Once the demand and supply of timber are known, the equilibrium price
and quantity can be determined. 	The equilibrium occurs at the intersection
of the supply and demand curves. 	In Figure 	I, the equilibrium price is p.
and 	the 	equilibrium quantity 	is Q.. 	At any quantity 	below Q., the price
buyers would· be willing to pay for an ad,ditional unit of logs is greater than
the cost of cutting them. 	It is t~erefore ·profitable for the logger to supply
those 	logs. 	At 	a quantity greater than Q., the cost of harvesting 	the last
unit 	of 	logs 	is 	greater 	than 	the 	price 	buyers 	would 	be 	willing 	to 	pay.
Therefore these units are not harvested.
B. 	The Level of Economic Rents
We 	can 	now 	identify 	the 	level of economic rents associated 	with any
tract 	of 	land. 	For 	example, 	consider 	the 	tract 	that 	will 	produce 	unit 	of
timber Q A in 	Figure 	1. 	Since this unit of 	timber can 	be sold 	for 	p. and
2 In 	addition, some tracts may not contain as many trees as others or
may contain less valuable species.
4

I
I	(
since the cost of harvesting the timber 0:-- read off of the supply curve 	is
CA, the rent associated with the harvesting of unit QA is p" minus CA. 	For
any 	other 	unit of 	timber 	to 	the 	left 	of Q" in 	Figure 	I 	there 	is a similar
positive economic rent equal to the difference between the price p" and the
cost of producing that unit of timber. 	For units of timber to the right of
Q", there 	is no economic ren t beca use 	the cost of harvesting 	the timber is
greater than the price for which it could be sold. 	Thus, the total economic
rent from harvesting timber is the shaded area between the supply schedule
and the horizontal line at pO.
C. 	The 	Harvesting 	Decision 	and 	the 	pistribution 	of 	the 	Rents 	When 	An
Auction Is Employed
Under 	an 	efficient 	auction 	system, 	logging 	firms 	enter 	bids 	for 	the
right to harvest any tract of land offered by the government which they are
interested 	in 	harvesting.	, 	. 	If 	harvesting 	a 	tract 	will 	generate 	a 	positive
',":
.-S".
,'... "
economic rent, loggers will be willing to bid on the tract. 	On such a tract
the 	logger 	can 	pay a 	positive 	price 	for 	the 	harvesting rights and 	still 	not
lose money by cutting the timber. 	However, no firm will bid on any tract
where the cost of harvesting is greater than the revenue earned by selling
the timber on that tract -- that is, any tract to the right of Q" in Figure 1.
Even 	if 	the 	firm 	received 	such 	a 	tract 	as a 	gift, it would 	lose money 	by
harvesting the timber on that tract. 	As a result, under an auction system,
bids 	will 	be 	entered 	on 	all 	tracts 	to 	the 	left 	of 	Q. 	in 	Figure 	I 	and 	this
quantity of timber will be cut.
5

If there is competition for 	the harvesting rights on various trllCI~. ,tit
competition will cause the price paid to rise to equal the economic rent 	A~
a result. under an auction system. all of the economic rents will be paid 	In
the government in the form of payments for stumpage rights.
D. 	The 	Harvesting 	Decision 	and 	the 	Allocation 	of 	Rents 	Under 	th~
Canadian Stumoage Fee System
While 	there 	are 	a 	number 	of 	variants 	of 	the 	Canadian 	stumpage 	fee
system. the key characteristics of the system appear to be as follows. 	The
rights 	to 	harvest 	a 	particular 	tract 	are 	determined 	administratively 	rather
than competitively. 	That is. through an administrative process. a particular
firm is granted the rights to harvest whatever timber is to be cut within a
particular 	area. 	Also. 	the 	price 	that 	the 	firm 	will 	pay 	for 	the 	right 	to
harvest 	this 	timber 	is 	determined 	by 	an 	administrative 	process. 	The 	key
claim of petitioners is that this payment is less.than the payment that would
be made 'under a competitive auction. 	That is. while the payment is greater
than 	zero, 	it 	is 	less 	than 	the 	total 	economic 	rent 	generated 	by 	harvesting
the 	timber on a 	particular tract of land. 	The logging firm is thus able to
keep some of the economic rent.
Under 	a 	system 	like 	that 	just 	described, 	a 	logging 	firm 	will 	be
interested 	in 	harvesting 	any 	tract 	of 	land 	on 	which 	there 	is 	a 	positive
economic rent. since the firm 	is allowed 	to keep some of that rent. 	Thus,
the firm 	will earn a positive profit by harvesting such tracts. 	However, no
logging firm will be interested in harvesting any tract on which the costs of
harvesting 	exceed 	the 	revenue 	that 	can 	be 	received 	by selling 	the 	timber.
The firm would lose money by harvesting any such tract and will therefore
not 	do 	so. 	As 	a 	result, 	all 	tracts 	to 	the 	left 	of 	Q* 	in 	Figure 	I 	will 	be
6

harvested and none of the tracts to the right of Q. will be harvested. 	This
is 	the same 	result as 	with an auction system. 	In 	general, the quantity of
timber 	harvested 	under 	a 	Canadian 	auction 	system 	is 	the 	same 	as 	the
quantity 	that 	would 	be 	harvested 	if 	an 	efficient 	auction 	system 	were
employed.
While 	a 	competitive 	auction 	system 	results 	in 	the 	same 	quantity 	of
timber being cut as the Canadian stumpage system, the two systems do not
generate 	the 	same 	distribution 	of 	the 	economic 	rents 	resulting 	from 	the
harvesting of timber. 	As we have already seen, a competitive auction will
result 	in 	all 	of 	the economic 	rents 	being received 	by 	the 	government, 	i.e.,
the landowner. 	Under the Canadian system, however, the logging firms are
permitted to keep part of the rents. 	As a result, the revenues going to the
government 	in 	the 	form 	of 	stumpage 	payments 	are 	smaller 	under 	the
Canadian system than 	w.ith 	a competitive auction. 	However, this does 	not
result in any change in the quantity of timber ha-rvested.
E. 	The Effects of a Per-Unit Subsidy on the Quantity of Timber Harvested
It is useful to compare the effect of the Canadian stumpage fee system
on the quantity of timber harvested with the effect of a per-unit production
subsidy 	granted 	to 	Canadian 	loggers. 	While 	there 	is 	no 	allegation 	in 	the
present case 	that 	such 	a subsidy is 	paid, 	petitioners assert that 	use of 	the
Canadian 	stumpage 	fee 	system 	rather 	than 	a 	competitive 	auction 	has 	the
same effect as a per-unit subsidy.
If the Canadian governments were to grant a subsidy per unit of timber
harvested, 	this 	would 	cause 	the 	supply 	curve 	to 	shift 	downward 	by 	the
7

II
r
t
!,
I
I	,,
!
amount of the subsidy. 	Figure 2 provides an 	illustration of the effect of
such a subsidy. 	In this figure, it is assumed that the net cost of harvesting
tract' QA 	becomes C A' 	rather 	than 	C A after 	the 	su bsid y is 	paid. 	That is,
the subsidy is equal to CA minus CA '.
The 	willingness 	of 	the 	government 	to 	pay such 	a 	subsidy 	causes 	the
supply curve to shift downward from 5 to 5'. 	This occurs because logging
firms are now willing to supply timber for a lower price. 	Instead of being
willing to supply a unit of timber only if the price paid is great enough to
cover 	the costs of 	harvesting, 	loggers will 	be 	willing 	to supply so long as
the 	price 	plus 	the 	subsidy 	payment 	are 	great 	enough 	to 	cover 	the 	costs.
Payment 	of a 	per-unit subsidy 	causes 	the quantity of timber 	harvested 	to
increase from Q. to Q.' in Figure 2. 	In addition the price of timber falls
Thus, 	payment of a 	per-unit suqsidy 	increases the Quantity of timber
harvested. 	While the cost of harvesting units of timber between Q. and Q.'
is greater than the price that purchasers will pay for the timber, the cost is
below 	the 	price 	plus 	the 	subsidy 	payment. 	It 	is 	therefore 	profitable 	to
harvest these tracts when a subsidy is paid.
Therefore, use of the Canadian stumpage fee systems does not have the
same effect as 	the 	payment of a 	per-unit production subsidy. 	A per-unit
subsidy 	shifts 	the 	supply 	curve 	of 	timber 	downward 	with 	the 	result 	that
more timber is harvested and the equilibrium price of timber is lower. 	The
Canadian 	stumpage 	fee 	system, 	on 	the 	other 	hand, 	does 	not 	expand 	the
quantity harvested, nor does it affect the equilibrium price of timber.
8

Pri:e of
Tinber
p'"
... '	p.
CI
A
figure 2
9
D
Quantity
of Tmber
HlrVested

what 	petitioners 	claim 	is 	causing 	problems 	for 	the 	United 	States 	lumber
the quantity of timber land made available for harvest. 	Again, this is not
industry. 	However, 	if 	as 	part 	of 	such 	an 	expansion, 	the 	Canadian
Consider now what would happen if the Canadian governments expanded
The Effects of an Increase in the Supoly of Land Made Available for
Harvesting
F.
governments 	were 	to 	make 	available 	additional 	tracts 	on 	which 	the
.!t;. 	harvesting costs were relatively low, the supply curve would shift outward as
more timber is now available for which the harvesting costs are below any
particular price. 	For example, in Figure 2, an increase in the quantity of
land made available for harvesting increases the quantity of timber that can
be harvested for a cost of C A from Q A to QA'.
As in the case of a per-unit subsidy, an expansion in the quantity of
land 	made 	a"ailable 	for 	harvesting 	can 	cause 	the 	Quantity 	of 	timber
harvested to expand and the price of timber to fall. 	This is in contrast to
the 	effect of the Canadian stumpage fee system, which does not cause the
quantity to expand.
10
us to conclude that the same quantity of timber will be harvested under the
Canadian stumpage system as with an efficient competitive auction, there are
Why the Canadian System May Result in Less Timber Being Harvested
While our general characterization of the Canadian stumpage system led
G.
fewer 	logs 	being 	harvested. 	First. 	with 	some 	versions 	of 	the 	Canadian
stumpage fee system, the government establishes a fixed fee for. harvesting a
several reasons for believing that the Canadian system may actually result in

tract rather than having a fee 	that depends on the economic rent that will
be generated by harvesting that tract. 	In such a case, the government may
set 	the 	stumpage 	fee 	too 	high 	and 	impose 	a 	fixed 	fee 	that 	exceeds 	the
economic 	rent 	that 	could 	be 	earned 	by 	harvesting 	the 	tract. 	Tracts 	for
which 	this occurs 	will 	not 	be harvested 	but will 	remain standing. 	With 	a
competitive auction system, on the other hand, some firm would enter a bid
which is lower than the fee required under the Canadian system but which
would 	make 	the 	harvesting 	of 	the 	tract 	profitable.
competitive auction system, the tract would be cut. 3
Thus, 	under 	a
Second, the Canadian stumpage fee system may be more likely than an
auction 	to 	allocate 	harvesting 	rights 	to 	inefficient 	firms.· 	It 	may 	not 	be
profitable for the firm with the harvesting rights to cut a tract, although a
more efficient firm would find harvesting profitable. 	Again, this can result
3 	We 	note 	that 	the 	United 	States 	Forest 	Service 	also 	establishes 	a
"minimum price in the bidding for harvesting rights on Forest Service lands.
This creates the possibility that some tracts will not be harvested under the
auction 	system as applied 	by 	the 	Forest Service. 	However, 	in 	general, the
purpose of the minimum price appears to be to insure that the government
receives 	the 	value 	of 	the 	timber 	being 	auctioned 	and 	not 	to 	limit 	the
Quantity of timber being cut. 	If the minimum bid values are set correctly,
there would always be bids that meet the minimum and all of the land made
available would be sold. 	If the USFS systematically overstated the value of
the 	timber 	on 	its 	lands, 	the 	quantity 	of 	land 	harvested 	could 	be 	reduced.
However, such a situation is not an inherent part of an auction system and
would represent a distortion in the United States application of the auction
system.
One 	exception 	to 	this 	general 	statement 	is 	the 	requirement 	that
minimum 	bids 	must 	be 	great 	enough 	to 	cover 	the 	cost 	of 	reforesting 	the
tract 	being 	auctioned. 	ill 	United 	States 	Forest 	Service 	Manual, 	Section
2421.6 (October 1977) 	This can cause some tracts that are made available to
go 	unsold. 	However, 	again, 	this 	requirement 	is 	specific 	to 	the 	auction
system 	used 	in 	this 	country. 	It 	is 	not 	necessary 	that 	an 	auction 	system
contain such a minimum bid requirement.
.. To the extent that an 	inefficient firm 	can sell 	its harvesting rights
to other, more efficient firms, this problem would be reduced or eliminated
by such sales.
I I

in the cutting of fewer trees.
Third, 	the 	Canadian 	governments 	are 	likely 	to 	incur 	administrative
expenses 	in 	making a 	tract available 	for cutting. 	For example, it may 	be
necessary 	for 	the 	government 	to 	survey 	the 	tract 	and 	to 	develo"p 	a
harvesting 	plan. 	If 	the 	funds 	available 	to 	pay 	for 	such 	administrative
expenses depend on the revenues collected from the sale of stumpage rights,
the Canadians may be able to prepare fewer sites for 	harvesting than if a
competitive auction raised additional funds. s
Finally, 	the analysis 	up 	to this point 	has 	implicitly assumed that the
fee for logging a tract of timber land is determined before the timber is cut
and 	does not depend on the quantity of timber actually removed from 	the
tract. 	(The payment would, of course, depend on the purchaser's estimate of
the 	value 	of 	the 	timber 	located 	on 	the 	tract.) 	However, 	this 	does 	not
appear to be true, at least as regards timber harvested from lan~ owned- by
the British Columbia 	provincial government. 	In. a manner methodologically
similar 	to 	the 	system 	used 	by 	the 	United 	States 	Forest 	Service, 	British
Columbia determines the appraised value of a tract of timber land. 	However,
instead 	of 	COllecting 	this 	appraised 	value 	in 	a 	lump 	sum 	amount, 	British
Columbia charges loggers the average appraised value of stumpage for each
species 	on 	the 	tract 	on 	a 	per-log 	harvested 	basis. 	Tha t 	is, 	the 	tota I
appraised stumpage value is divided by the Quantity of timber on the tract,
and the logger pays this average fee for each unit of timber removed. 	As a
5 We 	have heard 	reports that the quantity of land offered for cutting
on United States Forest Service lands has been reduced below allowable cut
levels in some years because the Forest Service has not had sufficient funds
to prepare all of the available tracts for marketing. 	(Telephone conversation
with Steve Ruddell, U.S. Forest Service,· East Lansing, Michigan, August 	14,
1986.)
12

result, some trees for which the price of the logs would exceed the costs of
cutting, and 	which 	therefore 	would 	be cut under a lump sum scheme, will
not be cut. 	For these logs, the average appraised value is greater than the
difference between the log price and the cutting and hauling costs. 	Because
the 	logging 	firm 	would 	have 	to 	pay 	this 	average 	appraised 	value 	if 	it
removed these trees from the forest, it is not profitable to remove them. 6
Similar problems may exist with the versions of the Canadian stumpage
system 	employed 	in 	the 	other 	provinces 	where 	a 	fixed 	fee 	is 	charged 	per
unit 	of 	timber. 	This would 	be 	true 	if 	this 	fixed 	fee 	is levied on 	timber
actually removed from the forest rather than on an estimate of the quantity
of 	timber 	present 	on 	a 	tract 	which 	is 	to 	be 	cut. 	Based 	on 	petitioners'
description of the stumpage fee systems in Ontario, Quebec, and Alberta, the
quantity to which the fixed fee is applied is not clear. 	However, it appears
that 	the 	fixed 	fee 	may 	well 	be 	collected 	on 	the 	basis 	of 	timber 	actually
removed from the forest. 7
6 lli 	Western 	Transition 	(Economic 	Council 	of 	Canada, 	1984) 	at 	55.
We 	note, 	however, 	that 	the 	magnitude 	of 	this 	effect 	would 	be 	limited 	by
requirements 	that 	loggers 	cut a certain 	percentage of 	the 	allowable 	cut 	in
any year and within any five year period.
7 ill Petition, at 45-48. 	We note that similar problems may exist with
the 	auction 	system 	as 	it 	is employed 	by 	the 	United 	States 	Forest 	Service.
That is, rather than operate an efficient auction system where the payment
for 	the 	stumpage 	rights 	to 	a 	tract 	of 	timber 	land 	do 	not 	vary 	with 	the
quantity of timber actually removed, the USFS apparently collects stumpage
payments by collecting a certain amount per board foot of timber removed.
The 	inefficiency 	of 	this 	practice 	was 	noted 	in 	Dennis 	D. 	Muraoka 	and
Richard 	B. 	Watson, 	"Improving 	the 	Efficiency 	of 	Federal 	Timber 	Sales
Procedures," Natural Resources Journal, 23 (October 1983), pp. 815-25. 	There
ha ve been proposals to alter the payment scheme for Forest Service auctions
in 	ways 	that 	would 	eliminate 	these 	inefficiencies. 	lli 	Federal 	Register,
January 	17, 	1985, 	pp. 	2591-2594 	and 	Dennis 	D. 	Muraoka 	and 	Richard 	B.
Watson, 	"Improving 	the 	Efficiency 	of 	Federal 	Timber Sale 	Procedures: 	An
Update," Natural 	Resources Journal, 26 (Winter 	1986), pp. 69-76. 	However,
these proposals have yet to be implemented. 	lli Federal Register, October
11,1985, pp. 41498-41501.
13

Thus, given the quantity of timber land made available for harvest by
the 	Canadian 	provincial governments, 	less 	timber 	may 	be 	harvested 	if the
Canadian stumpage fee system is used to allocate the harvesting rights and
to 	determine 	the 	fees 	the 	government 	receives' for 	those 	harvesting 	rights
than 	if 	a 	lump-sum 	fee 	determined 	by 	a 	competitive 	auction 	were 	used.
Rather than increasing the quantity of timber harvested and thereby creating
an 	unfair 	competitive 	advantage 	for 	the 	Canadian 	lumber 	industry, 	the
Canadian 	system 	may, 	in 	fact, 	reduce 	the 	output of 	the Canadian 	lumber
industry and thereby reduce the quantity of exports to the United States.
H. 	Conditions Under Which the Canadian Stumoage Fee System Could Lead
to an Increase in the Quantity of timber Harvested
While 	there 	is 	no diJ'ect unfair competitive advantage created 	by 	the
Canadian 	stumpage 	fee 	systems, 	there are 	two conditions 	under 	which 	the
Canadian 	fee systems could conceivably ·indirectly cause an increase in the
quantity 	of 	timber 	being 	harvested. 	First, 	the 	Canadian 	stumpage 	fee
systems 	could 	lead 	to 	an 	increase 	in 	the 	quantity 	of 	Canadian 	timber
harvested if the timber companies successfully lobbied the Canadian federal
or 	provincial 	governments 	to 	expand 	the 	quantity 	of 	cutting 	permitted
because 	of 	the 	increased 	economic 	rents 	they 	would 	earn 	by 	cutting
additional trees at the low stumpage fee.
At 	least 	one 	of 	the 	petitioners' 	exhibits 	suggests 	that 	this 	kind 	of
behavior has occurred in the past. 	According to Peter Griffiths,
"[M]any 	mills 	overbuilt 	their 	capacity 	in 	relation 	to 	the 	actual
timber supply, as a means of consolidating their domination of the
resource. 	The 	British 	Columbia 	Forest 	Service 	was 	forced 	to
exceed allowable cuts under pressure from politicians afraid of mill
closures 	and 	lost 	jobs 	in 	their 	constituencies." 	(Equity, 	April
1984, as contained in exhibit 12 to the Petition)
14

This 	statement, 	if 	true, 	could 	imply 	that 	the 	low 	stumpage 	fees 	have, 	at
least in the past, resulted in an increase in the quantity of timber harvested.
Such 	behavior would 	not 	be profitable under a 	competitive auction system
where 	loggers 	earn 	only 	a 	normal 	profit 	level. 	Evidence 	that 	sawmill
.'!..-,."
capacity 	is 	being 	expanded 	beyond 	the 	level 	necessary 	to 	process 	current
allowable 	cuts 	in 	order 	to 	convince 	Canadian 	federal 	or 	provincial
governments 	to 	expand 	the 	allowable 	cut 	could 	suggest 	that 	the 	low
stumpage 	fee 	charged 	by 	the 	Canadians 	could 	be 	indirectly 	injuring 	the
United States timber industry.8
The second condition 	under 	which 	the Canadian stumpage fee system
could 	lead 	to 	an 	increase 	in 	the 	quantity 	of 	timber 	harvested 	is 	if 	the
Canadian stumpage system reduces the risk that Canadian timber firms will
be unable. to meet their debt obligations and thereby reduces the price the
firms 	must 	pay 	for 	debt 	capital. . If 	this' were 	to occur, Canadian 	loggers
might have lower costs than if the Canadian governments were to utilize an
auction system and, as a 	result, some tracts might be profitable 	to harvest
even 	though they would not be profitable to harvest under the higher costs
Canadian loggers would have with a competitive auction.9
8 In 	evaluating 	claims 	of 	this 	kind 	of 	"rent 	seeking" 	behavior, 	it 	is
important 	to 	differentiate 	between 	building 	new 	capacity 	to 	justify
expansions in cutting and urging that cutting levels be maintained so as to
utilize 	existing 	capacity 	and 	to 	avoid 	unemployment. 	While 	the 	former
behavior is only rational when the firm can obtain economic rents by cutting
timber, 	the 	latter 	is 	rational 	even 	if 	no 	return 	above 	a 	normal 	profit 	is
earned by harvesting timber.
9 It should be noted that the higher profits loggers earn as a result of
low 	stumpage 	fees 	could 	be 	dissipated 	by 	rent-seeking 	behavior. 	To 	the
extent 	that 	this 	occurs, 	there 	would 	be 	no 	reduction 	in 	the 	risk 	of
bankruptcy, and therefore no reduction in capital costs.
15

We have' no evidence that either of these conditions currently exists 1D
the context of the production of lumber by Canadian firms. 	At this point
they 	are 	only 	hypothetical 	possibilities, 	However, 	the 	Department 	of
Commerce may wish to e-xamine these issues further,
If 	the 	quantity 	of 	Canadian 	timber 	harvested 	is 	being 	expanded 	by
either of these situations, the correct duty to countervail against the unfair
competitive advantage obtained by the Canadian lumber industry is not the
duty 	sought 	by 	petitioners 	the 	difference 	between 	the 	price 	paid 	for
stumpage rights under a competitive auction system in the United States and
the 	price 	paid 	under 	the 	Canadian 	stumpage 	fee 	systems. 	Rather, 	the
correct duty would be equal to the. amount by which the price that must be
paid 	to bring forth 	the efficient quantity of Canadian lumber imports' has
been 	reduced 	by 	the 	practice. 10 	It 	is 	likely 	that 	this 	duty 	would 	be
substantially less than the duty sought by petitioners.
10 This tariff can be illustrated by referring to Figure 3. 	The efficient
import 	supply 	curve 	.- 	i.e., 	the 	supply 	curve 	absent 	any 	subsidies •• 	is S.
Therefore, 	the 	efficient 	quantity 	of 	imports 	into 	this 	country 	is 	Q., 	If,
however, subsidies shift the import supply curve 	to S', the correct duty to
countervail against these subsidies is equal to p. minus P'. 	Imposing such a
duty 	would 	cause 	the equilibrium 	price and 	quantity 	to 	be equal 	to 	their
values in the absence of any subsidy. 	That is, equilibrium price and quantity
would be p. and Q. respectively.
16

Praof
Lumber
p'
Figure 3
17
D
Quantity of
Canadian Lumber
nported IntD The
United States

t.
CERTIFICATE 	OF 	SERVICE
I 	hereby 	certify 	that 	on 	this 	26th 	day 	of 	November 	1986, 	I
have 	served 	the 	foregoing 	Pre-Hearing 	Brief 	by 	causing 	the
original 	and 	20 	copies 	to 	be 	hand-delivered 	to 	the 	Deputy
Assistant 	Secretary 	for 	Import Administration,
Attention: 	Import 	Administration, 	Central 	Records 	Unit, 	and 	a
copy 	to 	be 	mailed 	first 	class, 	postage 	prepaid 	to 	the 	following:
Lawrence 	A. 	Schneider, 	Esq.
Arnold 	& Porter
1200 	New Hampshire 	Avenue, 	N.W.
Washington, 	D.C. 	20036
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Dewey, 	Ballantine, 	Bushby,
Palmer 	& Wood
l77~ 	Pennsylvania Avenue, 	N.W.
Washington, 	D.C. 	20006
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Bushby, 	Rehm 	& Leonard, 	P.C.
1330 	Connecticut Avenue, 	N.W.
Suite 	200
Washington, 	D.C. 	20046
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& Holman
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