[Federal Register Volume 64, Number 204 (Friday, October 22, 1999)]
[Notices]
[Pages 57040-57069]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-27570]
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DEPARTMENT OF COMMERCE
International Trade Administration
[C-122-834]
Final Negative Countervailing Duty Determination; Live Cattle
From Canada
AGENCY: Import Administration, International Trade Administration, U.S.
Department of Commerce.
EFFECTIVE DATE: October 22, 1999.
FOR FURTHER INFORMATION CONTACT: Zak Smith, Stephanie Hoffman, James
Breeden, or Melani Miller, AD/CVD Enforcement, Group I, Office 1,
Import Administration, U.S. Department of Commerce, 14th Street and
Constitution Avenue, NW, Washington, DC 20230; telephone: (202) 482-
0189, 482-4198, 482-1174, or 482-0116, respectively.
Final Determination
The Department of Commerce determines that countervailable
subsidies are not being provided to producers or exporters of live
cattle in Canada.
Petitioner
The petition in this investigation was filed on November 12, 1998,
by the Ranchers-Cattlemen Action Legal Foundation (R-Calf, referred to
hereafter as ``the petitioner'').
Case History
Since the publication of the preliminary determination in the
Federal Register on May 11, 1999 (64 FR 25278) (``Preliminary
Determination''), the following events have occurred:
We conducted verification in Canada of the questionnaire responses
from the Government of Canada (``GOC''), Government of Alberta
(``GOA''), Government of Manitoba (``GOM''), Government of Ontario
(``GOO'') and Government of Saskatchewan (``GOS'') from June 16 through
June 28 and August 5 through August 13, 1999. We aligned the final
determination in this investigation with the final determination in the
companion antidumping investigation (see Countervailing Duty
Investigation of Live Cattle From Canada; Notice of Alignment With
Final Antidumping Duty Determination, 64 FR 35127 (June 30, 1999)) and
we postponed the final determination of this investigation until
October 4, 1999 (see Notice of Postponement of Final Antidumping
Determination: Live Cattle from Canada, 64 FR 40351 (July 26, 1999)).
On October 4, 1999, the deadline for this final determination was set
for October 12, 1999. See Memorandum to Richard W. Moreland from
Valerie Ellis, ``Clarification and Correction of Extension of Final
Determination in the Antidumping Investigation of Live Cattle from
Canada.'' The petitioner and the respondents filed case briefs on
September 3 and we received rebuttal briefs from the petitioner and the
respondents on September 10, 1999. In addition, we invited parties to
submit factual information and/or argumentation regarding the role and
amount of compensation received by cattlemen leasing public grazing
lands in Alberta from energy companies leasing oil and gas rights on
these lands. We received submissions from both the petitioner and the
GOA on September 17, 1999, and rebuttal comments from each party on
September 22, 1999.
The Applicable Statute and Regulations
Unless otherwise indicated, all citations to the statute are
references to the provisions of the Tariff Act of 1930, as amended by
the Uruguay Round Agreements Act (``URAA'') effective January 1, 1995
(``the Act''). In addition, all citations to the Department of
Commerce's (``the Department's'') regulations are to the current
regulations codified at 19 CFR Part 351 (April 1998). Although Subpart
E of 19 CFR Part 351, published on November 25, 1998 (63 FR
65348)(``New CVD Regulations'') does not apply to this investigation,
Subpart E represents the Department's interpretation of the
requirements of the Act. See 19 CFR 351.702(b).
Scope of Investigation
The scope of this investigation covers live cattle from Canada. For
purposes of this investigation, the product covered is all live cattle
except imports of (1) bison, (2) dairy cows for the production of milk
for human consumption, and (3) purebred cattle and other cattle
specially imported for breeding purposes.
The merchandise subject to this investigation is classifiable as
statistical reporting numbers under 0102.90.40 of the Harmonized Tariff
Schedule of the United States (``HTSUS''), with the exception of
0102.90.40.10, 0102.90.40.72 and 0102.90.40.74. Although the HTSUS
subheadings are provided for convenience and customs purposes, the
written description of the merchandise under investigation is
dispositive.
Injury Test
Because Canada is a ``Subsidies Agreement Country'' within the
meaning of section 701(b) of the Act, the
[[Page 57041]]
International Trade Commission (``ITC'') is required to determine
whether imports of the subject merchandise from Canada materially
injure, or threaten material injury to, a U.S. industry. See section
701(a)(2) of the Act. On January 25, 1999, the ITC published its
preliminary determination finding that there is a reasonable indication
that an industry in the United States is being materially injured, or
threatened with material injury, by reason of imports from Canada of
the subject merchandise (see 64 FR 3716).
Period of Investigation
The period for which we are measuring subsidies (the ``POI'') is
the GOC's fiscal year, April 1, 1997 through March 31, 1998.
Subsidies Valuation Information
Allocation Period
We have used three years as the allocation period in this
investigation. Based on information provided by the petitioner, three
years is the average useful life (``AUL'') of productive assets for the
Canadian cattle industry. Parties are not contesting this AUL.
Subsidy Rate Calculation
Due to the extremely large number of cattle producers in Canada, we
have collected subsidy information on an industry-wide or ``aggregate''
basis (i.e., the total amount of benefits provided under a particular
program). Moreover, we have limited our investigation to the four
largest cattle producing provinces in Canada. Therefore, unless
otherwise noted, for each program found to be countervailable, we have
calculated the ad valorem subsidy rate by dividing the total amount of
the benefit attributed to cattle producers in the four relevant
provinces during the POI by the total sales of all cattle in the same
four provinces.
Benchmarks for Loans
In our Preliminary Determination, we used a previously verified
benchmark interest rate charged by Canadian commercial banks on loans
made to the farming sector for purposes of calculating the
countervailable benefits from the provincial and federal loan guarantee
programs and nonrecurring grants. See Live Swine From Canada;
Preliminary Results of Countervailing Duty Administrative Review, 63 FR
23723, 23726 (April 30, 1998) (``Live Swine From Canada 1998'').
For this final determination, we have revised the benchmark rates
used to evaluate the provincial loan guarantee programs. At
verification, we met with private bank officials in Alberta and
Saskatchewan who explained that the cattle associations participating
in the loan guarantee programs receive competitive financing because
the association loans are large-scale, short-term lending arrangements
that provide lenders substantial security against default due to the
highly structured nature of the associations. Furthermore, the private
bank officials indicated that commercial lending rates obtained by the
cattle associations differ among the provinces due to local economic
conditions. See Memorandum to Susan Kuhbach from Zak Smith and James
Breeden, ``Verification Report for Private Commercial Banks in the
Countervailing Duty Investigation of Live Cattle from Canada,'' dated
August 27, 1999 (``Private Commercial Bank Verification Report'').
Because we believe it is reasonable to assume that the cattle
associations will borrow in their home province, province-specific
benchmarks offer the best measure of a comparable commercial loan that
the associations could actually obtain in the market. See section
771(E)(ii) of the Act.
Based on our discussions with the private bank officials, we
calculated a benchmark rate for the loan guarantee programs of prime
plus .375 percent and prime plus one percent for Alberta and
Saskatchewan, respectively. With respect to Manitoba and Ontario, we
did not collect any province-specific information regarding lending
rates to cattle associations and, therefore, we have averaged the
benchmark rates computed for Alberta and Saskatchewan to calculate the
loan guarantee benchmark rate for these provinces.
For the remaining loan programs investigated in this proceeding, we
have continued to use the benchmark rate of prime plus 1.5 percent from
Live Swine from Canada 1998 because the recipients of these loans are
individual livestock producers and, therefore, the benchmark rate
applicable to the cattle associations does not represent a comparable
commercial loan. As discussed in Live Swine from Canada 1998, the
Department determined that prime plus 1.5 percent represents the
national average of the predominant lending rates on comparable long-
term, prime-based loans made to individual livestock producers in
Canada. Accordingly, we have applied this benchmark rate for purposes
of measuring the benefit on loans made to individual cattle producers.
We also note that we have continued to use the figures published by
the Bank of Canada to calculate the average prime rate during the POI.
Loan Guarantee Programs
For certain loan guarantee programs that we have found to be
countervailable, the respondents were unable to provide the specific
loan information required to perform a precise calculation of the
countervailable benefit attributable to cattle producers during the
POI. They were unable to provide the data because of the nature of the
underlying loan instrument (i.e., lines of credit which had no
predetermined time frame for the disbursal of principal or set
repayment schedule), the extremely large number of loans provided, and
the large number of transactions (withdrawals and payments) conducted
pursuant to those loans. Therefore, for these programs, we have
estimated the countervailable benefit by calculating the difference
between the interest actually paid in the POI and the interest that
would have been paid on a commercial loan absent a guarantee. See
Extruded Rubber Thread From Malaysia: Final Affirmative Countervailing
Duty Determination and Countervailing Duty Order, 57 FR 38472 (August
25, 1992). This approach does not yield a precise measure of the
benefit because the loan instruments being examined are effectively
lines of credit with balances and interest rates varying from month-to-
month. Nonetheless, we believe this methodology is reasonable under the
circumstances presented by this investigation.
Also, the respondents reported various fees that borrowers would
have paid in connection with the guaranteed loans. However, the
information they presented with respect to fees payable on commercial
loans was unclear. So, to avoid a comparison of nominal benchmark rates
with effective interest rates on the government-guaranteed loans, we
have generally not included the fees in calculating the amounts paid
under the government-guaranteed loans. Consequently, we are comparing
nominal rates to nominal rates. The one exception to this is the fee
specifically paid to FIMCLA for the guarantee, which is an allowable
offset under section 771(6)(A) of the Act.
I. Programs Determined To Be Countervailable
Loan and Loan Guarantee Programs
A. Farm Improvement and Marketing Cooperative Loans Act
(``FIMCLA'')
Under FIMCLA, the GOC provides guarantees on loans extended by
private commercial banks and other lending institutions to farmers
across Canada.
[[Page 57042]]
Created in 1987, the purpose of this program is to increase the
availability of loans for the improvement and development of farms, and
the marketing, processing and distribution of farm products by
cooperative associations. Pursuant to FIMCLA, any individual engaged in
farming in Canada and any farmer-owned cooperative are eligible to
receive loan guarantees covering 95 percent of the debt outstanding for
projects that are related to farm improvement or increased farm
production. The maximum amount of money that an individual can borrow
under this program is C$250,000. For marketing cooperatives, the
maximum amount is C$3,000,000. The GOC reported that beef and hog
farmers, which are categorized as one group by the FIMCLA
administration, received approximately 18 to 27 percent of all
guarantees between 1994 and 1998, while other users such as poultry,
fruit and vegetables, and dairy producers received less than ten
percent of the guarantees.
A loan guarantee is a financial contribution, as described in
section 771(5)(D)(i) of the Act, which provides a benefit to the
recipients equal to the difference between the amount the recipients of
the guarantee pay on the guaranteed loans and the amount the recipients
would pay for a comparable commercial loan absent the guarantee, after
adjusting for guarantee fees. Because the beef and pork industries
received a disproportionate share of benefits between 1994 and 1998, we
determine that the program is specific under section 771(5A)(D)(iii) of
the Act. Therefore, we determine that these loan guarantees are
countervailable subsidies to the extent that they lower the cost of
borrowing, within the meaning of section 771(5) of the Act.
Because of the large number of guarantees granted under this
program, we agreed to use a sample generated by the GOC of loans
guaranteed under the program for beef producers throughout Canada. At
verification, we examined the GOC's sampling methodology and have
determined that this sample yields an accurate reflection of all loans
provided to beef producers that receive FIMCLA guarantees.
To calculate the benefit conferred by this program, we used our
long-term fixed-rate or variable-rate loan methodology (depending on
the terms of the reported loans) to compute the total benefit on the
sampled loans. We then calculated the benefit per dollar loaned to beef
producers. This ratio was multiplied by the total value of guaranteed
loans outstanding to beef and hog producers in the POI to arrive at the
total benefit. We then divided the total benefit attributable to the
POI by Canada's total sales of live cattle and hogs during the POI. On
this basis, we determine the total subsidy from this program to be 0.04
percent ad valorem.
B. Alberta Feeder Associations Guarantee Program
The Alberta Feeder Associations Guarantee Act was established in
1938 to encourage banks to lend to cattle producers. The program is
administered by the Alberta Department of Agriculture, Food and Rural
Development. Under this program, up to 15 percent of the principal
amount of commercial loans taken out by feeder associations for the
acquisition of cattle is guaranteed. Eligibility for the guarantees is
limited to feeder associations located in Alberta. Sixty-two
associations received guarantees on loans which were outstanding during
the POI.
A loan guarantee is a financial contribution, as described in
section 771(5)(D)(i) of the Act, which provides a benefit to the
recipients equal to the difference between the amount the recipients of
the guarantee pay on the guaranteed loans and the amount the recipients
would pay for a comparable commercial loan absent the guarantee, after
adjusting for guarantee fees. Because eligibility is limited to feeder
associations, we determine that the program is specific under section
771(5A)(D)(i) of the Act. Therefore, we determine that these loan
guarantees are countervailable subsidies to the extent that they lower
the cost of borrowing, within the meaning of section 771(5) of the Act.
To calculate the benefit conferred by the loan guarantees, we
applied our short-term loan methodology and compared the amount of
interest actually paid during the POI by the associations to the amount
that would have been paid at the benchmark rate, as described in the
Subsidies Valuation Information section, above. We then divided the
associations' interest savings by the investigated provinces' total
sales of live cattle during the POI. On this basis, we determine the
total subsidy from this program to be 0.01 percent ad valorem.
C. Manitoba Cattle Feeder Associations Loan Guarantee Program
The Manitoba Cattle Feeder Associations Loan Guarantee Program was
established in 1991 to assist in the diversification of Manitoba farm
operations. The program is currently administered by the Manitoba
Agricultural Credit Corporation (``MACC''). The provincial government,
through MACC, guarantees 25 percent of the principal amount of loans
for the acquisition of livestock by feeder associations. Eligibility
for the guarantees is limited to feeder associations located in
Manitoba. Associations must be incorporated under the Cooperatives Act
of Manitoba, have a minimum of fifteen members, an elected board of
directors, and a registered brand for use on association cattle. Ten
associations received guarantees on loans which were outstanding during
the POI.
A loan guarantee is a financial contribution, as described in
section 771(5)(D)(i) of the Act, which provides a benefit to the
recipients equal to the difference between the amount the recipients of
the guarantee pay on the guaranteed loans and the amount the recipients
would pay for a comparable commercial loan absent the guarantee, after
adjusting for guarantee fees. Because eligibility is limited to feeder
associations, we determine that the program is specific under section
771(5A)(D)(i) of the Act. Therefore, we determine that these loan
guarantees are countervailable subsidies, to the extent that they lower
the cost of borrowing, within the meaning of section 771(5) of the Act.
To calculate the benefit conferred by the loan guarantees, we
applied our short-term loan methodology and compared the amount of
interest actually paid during the POI by the associations to the amount
that would have been paid at the benchmark rate, as described in the
Subsidies Valuation Information section, above. We then divided the
associations' interest savings by the investigated provinces' total
sales of live cattle during the POI. On this basis, we determine the
total subsidy from this program to be less than 0.01 percent ad
valorem.
D. Ontario Feeder Cattle Loan Guarantee Program
The Ontario Feeder Cattle Loan Program was established in 1990 to
help secure financing for cattle producers. The program is administered
by the Ontario Ministry of Agriculture, Food and Rural Affairs
(``OMAFRA''). OMAFRA provides a start-up grant of $10,000 to new feeder
associations and government guarantees covering 25 percent of the
amount borrowed by associations for the purchase and sale of cattle.
Eligibility for the guarantees is limited to feeder associations which
have at least twenty individuals who own or rent land in Ontario and
are not members of other feeder associations.
[[Page 57043]]
Eighteen associations received guarantees on loans which were
outstanding during the POI.
Loan guarantees and grants are financial contributions, as
described in section 771(5)(D)(i) of the Act. Loan guarantees provide a
benefit to the recipients equal to the difference between the amount
the recipients of the guarantee pay on the guaranteed loans and the
amount the recipients would pay for a comparable commercial loan absent
the guarantee, after adjusting for guarantee fees. In the case of
grants, the benefit to recipients is the amount of the grant. Because
eligibility for the loan guarantees and grants under this program is
limited to feeder associations, we determine that the program is
specific under section 771(5A)(D)(i) of the Act. Therefore, we
determine that these loan guarantees are countervailable subsidies, to
the extent that they lower the cost of borrowing, within the meaning of
section 771(5) of the Act. Also, the grants are countervailable
subsidies within the meaning of section 771(5) of the Act.
To calculate the benefit conferred by the loan guarantees, we
applied our short-term loan methodology and compared the amount of
interest actually paid during the POI by the associations to the amount
that would have been paid at the benchmark rate, as described in the
Subsidies Valuation Information section, above. We then divided the
associations' interest savings by the investigated provinces' total
sales during the POI. On this basis, we determine the total subsidy
from this program to be 0.01 percent ad valorem.
Additionally, we determine that the grants provided under this
program are non-recurring because the recipients could not expect to
receive them on an ongoing basis. However, because the grant amounts
were below 0.50 percent of the investigated provinces' sales in the
year of receipt in each of the relevant years, we expensed the benefit
from the grants. For the POI, we divided the grants received during the
POI by the investigated provinces' total sales of live cattle during
the POI. On this basis we determine the countervailable subsidy to be
less than 0.01 percent ad valorem.
To calculate the total benefit to cattle producers under this
program, we summed the benefit calculated for the loan guarantees and
grants. On this basis, we determine the total subsidy from this program
to be 0.01 percent ad valorem.
E. Saskatchewan Feeder Associations Loan Guarantee Program
The Saskatchewan Feeder Associations Loan Guarantee Program was
established in 1984 to facilitate the establishment of cattle feeder
associations in order to promote cattle feeding in Saskatchewan. The
program is administered by the Livestock and Veterinary Operations
Branch of the Saskatchewan Agriculture and Food Department. This agency
provides a government guarantee for 25 percent of the principal amount
on loans to feeder associations for the purchase of feeder heifers and
steers. Eligibility for the guarantees is limited to feeder
associations with at least twenty members over the age of eighteen, who
are not active in other feeder associations. One hundred and sixteen
associations received guarantees on loans which were outstanding during
the POI.
A loan guarantee is a financial contribution, as described in
section 771(5)(D)(i) of the Act, which provides a benefit to the
recipients equal to the difference between the amount the recipients of
the guarantee pay on the guaranteed loans and the amount the recipients
would pay for a comparable commercial loan absent the guarantee, after
adjusting for guarantee fees. Because eligibility for the guarantees is
limited to feeder associations, we determine that the program is
specific under section 771(5A)(D)(i) of the Act. Therefore, we
determine that these loan guarantees are countervailable subsidies, to
the extent that they lower the cost of borrowing, within the meaning of
section 771(5) of the Act.
To calculate the benefit conferred by the loan guarantees, we
applied our short-term loan methodology and compared the amount of
interest actually paid during the POI by the associations to the amount
that would have been paid at the benchmark rate, as described in the
Subsidies Valuation Information section, above. We then divided the
associations' interest savings by the investigated provinces' total
sales during the POI. On this basis, we determine the total subsidy
from this program to be 0.01 percent ad valorem.
Provision of Goods or Services
F. Prairie Farm Rehabilitation Community Pasture Program
The Prairie Farm Rehabilitation Administration (``PFRA'') was
created in the 1930s to rehabilitate drought and soil drifting areas in
the Provinces of Manitoba, Saskatchewan, and Alberta. The PFRA
established the Community Pasture Program to facilitate improved land
use through its rehabilitation, conservation, and management. The goal
of the Community Pasture Program is to utilize the resource primarily
for the summer grazing of cattle to encourage long-term production of
high quality cattle. In pursuit of its objectives, the PFRA operates 87
separate pastures encompassing approximately 2.2 million acres. At
these pastures, the PFRA offers grazing privileges and optional
breeding services for fees as established by PFRA. The fees are based
upon recovery of the costs associated with the grazing and breeding
services.
The provision of a good or service is a financial contribution as
described in section 771(5)(D)(iii) of the Act. To determine whether a
benefit is conferred in the provision of the service, it is necessary
to examine whether the provider receives adequate remuneration.
According to section 771(5)(E) of the Act, the adequacy of remuneration
with respect to a government's provision of a good or service ``* * *
shall be determined in relation to prevailing market conditions for the
good or service being provided or the goods being purchased in the
country which is subject to the investigation or review. Prevailing
market conditions include price, quality, availability, marketability,
transportation, and other conditions of purchase or sale.''
To determine whether the GOC received adequate remuneration, we
compared the prices charged for public pasture services to those
charged by private providers of pasture services, adjusted as described
below. Given the different nature of the services provided, a simple
comparison of the fees charged would not be appropriate. Specifically,
we adjusted the private price downward by deducting costs associated
with the timing of the sale of cull cows (these costs arise because on
private pastures, users are able to remove and cull those cows which do
not become pregnant earlier in the season when prices are higher. PFRA
patrons, however, have less access to their herds and are only allowed
to cull cows at the end of the season when prices are lower.
The GOC argued that there were other differences that should be
taken into account for such things as early weaning and timing of the
sale of calves (allegedly, PFRA patrons would prefer to wean and cull
calves earlier in the season when prices are higher, but PFRA access
rules only allow them to cull at the end of the season when prices are
lower), transportation to the pasture (allegedly, PFRA patrons live
[[Page 57044]]
further away from the pastures and, thus, incur greater transportation
expenses), and disease associated with commingled pastures. However, we
have not made adjustments for such costs because either the GOC did not
establish that such costs were faced solely by public pasture patrons
or because the GOC was unable to quantify them.
Comparing the public pasturing price to the adjusted private
pasturing price, we determine that the price for private pastures is
higher than the price for public pastures. This provides a benefit to
the recipients equal to the difference between the amount the
recipients pay for public pastures and the amount the recipients would
pay for comparable private pasturing.
Because use of Community Pastures is limited to Canadian farmers
involved in grazing livestock, we determine that the program is
specific under section 771(5A)(D)(i) of the Act. Therefore, we
determine that the provision of public pasture services is a
countervailable subsidy within the meaning of section 771(5) of the
Act.
To measure the benefit, we calculated the difference between the
price for public pasture service and the adjusted price for privately
provided pasture service. This difference was multiplied by the total
number of cow/calf pairs serviced by the PFRA during the POI. We
treated the resulting amount as a recurring benefit and divided it by
the investigated provinces' total sales during the POI. On this basis,
we determine the countervailable subsidy to be 0.02 percent ad valorem.
H. Saskatchewan Crown Lands Program
Agricultural Crown land managed by Saskatchewan Agriculture and
Food (``SAF'') is made available to all Saskatchewan agricultural
producers for lease. Activities carried out on the land include:
grazing, cultivation, community pastures, and additional multiple-use
activities.
Leases for grazing dispositions range from one to 33-year terms.
Beginning in 1997, SAF set rental rates using a formula which takes
account of the average price of cattle marketed over a period in the
previous year, the average pounds of beef produced from one animal unit
month (``AUM''), the AUM productivity rating of the land in question,
reduced stocking expectations, and a fair return for the use of the
land and resources. AUMs are defined as the amount of forage required
to feed one animal for one month while maintaining the vegetative state
of the land in good condition. Lessees are responsible for paying
taxes, developing and maintaining water facilities and fences, and
providing for public access to the land.
The provision of a good or service is a financial contribution as
described in section 771(5)(D)(iii) of the Act. As discussed above in
connection with the PFRA, a benefit is conferred in the provision of a
good or service when the prices charged for government-provided goods
or services are less than the prices charged by private suppliers. In
the case of the Saskatchewan Crown Lands Grazing Program, a simple
comparison of the fees charged would not be appropriate because the
grazing rights being offered by the GOS differ from those offered by
private suppliers. In this regard, the GOS has provided certain
quantifiable adjustments. Specifically, we adjusted the private price
downward by deducting costs for the construction of fences and water
dugouts, and the cost of paying property taxes. Although the GOS argued
that there were other differences that should be taken into account for
such things as multiple-use requirements, we have not made adjustments
for such costs because the GOS was unable to quantify them. Comparing
the public grazing lease rate to the adjusted private lease rate, we
determine that the price for private leases is higher than the price
for a public grazing lease.
Because the cattle industry is a predominant user of the
Saskatchewan Crown Lands Program, we determine that the program is
specific under section 771(5A)(D)(iii) of the Act. Therefore, we
determine that the provision of public grazing rights is a
countervailable subsidy within the meaning of section 771(5) of the
Act.
To measure the benefit, we calculated the difference between the
price per AUM for a public grazing lease and the adjusted price per AUM
for a private grazing lease. We multiplied this difference by the total
AUM provided by SAF. We treated the resulting amount as a recurring
benefit and divided it by the investigated provinces' total sales
during the POI. On this basis, we determine the countervailable subsidy
to be 0.02 percent ad valorem.
I. Manitoba Crown Lands Program
Agricultural Crown land is managed by Manitoba Agriculture Crown
Lands (``MACL'') whose primary objective is to administer the
disposition of Crown lands and to improve the lands' productivity.
Crown agricultural land is made available to farmers through
cultivation and grazing leases. Lease holders are required to pay an
amount-in-lieu of municipal taxes as well as to construct and maintain
fences and watering facilities. Also, the public has access to Crown
lands at all times without prior permission of the lessee for such
activities as wildlife hunting, forestry, winter sports, hiking, and
berry picking. During the POI, MACL administered 1.6 million acres of
grazing leases accounting for 707,699 AUMs.
Leases for grazing dispositions range from one to fifty year terms.
MACL sets rental rates each year by multiplying the number of AUMs the
leased land is capable of producing in an average year by an annual AUM
rental rate. The AUM rental rate is based on recovering the
administrative costs for the program using the previous year's actual
costs.
The provision of a good or service is a financial contribution as
described in section 771(5)(D)(iii) of the Act. As discussed above in
connection with the PFRA, a benefit is conferred in the provision of a
good or service when the prices charged for government-provided goods
or services are less than the prices charged by private suppliers. In
the case of the Manitoba Crown Lands Program, a simple comparison of
the fees charged would not be appropriate because the grazing rights
being offered by the GOM differ from those offered by private
suppliers. In this regard, the GOM has provided certain quantifiable
adjustments. Specifically, we adjusted the private price downward by
deducting costs for the construction of fences and watering facilities,
and the cost of paying an amount-in-lieu of municipal taxes. Although
the GOM argued that there were other differences that should be taken
into account for such things as multiple-use requirements, we are not
making these adjustments because the GOM was unable to quantify them.
Comparing the public grazing lease to the adjusted private lease price,
we determine that the price for private leases is higher than the price
for a public grazing lease.
Because livestock industries, including cattle, are predominant
users of the Manitoba Crown Lands Program, we determine that the
program is specific under section 771(5A)(D)(iii) of the Act.
Therefore, we determine that the provision of public grazing rights is
a countervailable subsidy within the meaning of section 771(5) of the
Act.
To measure the benefit, we calculated the difference between the
price per AUM for a public grazing lease and the adjusted price per AUM
for a private grazing lease. We multiplied this difference by the total
AUM provided by MACL. We treated the resulting amount as a recurring
benefit and divided it by the investigated provinces' total sales
[[Page 57045]]
during the POI. On this basis, we determine the countervailable subsidy
to be less than 0.01 percent ad valorem.
J. Alberta Crown Lands Basic Grazing Program
Over time, Alberta has developed a system for granting grazing
rights on public land. Grazing rights began to be issued on public
lands in the early 1930s. Today, through Alberta Agriculture and
Municipal Affairs, over 10.5 million acres of land are managed by the
GOA including a grazing component of approximately two million AUMs.
Leases for grazing rights range from one to twenty year terms, but,
in practice, all leases are renewed if the lessee is in good standing.
Alberta's Public Lands Act dictates how rental prices will be set.
Specifically, section 107 states that annual rent will be equal to a
percentage of the forage value of the leased land. When determining the
forage value of the land, the administering authority is required to
consider the grazing capacity of the land, the average gain in weight
of cattle on grass, and the average price per pound of cattle sold in
the principal livestock markets in Alberta during the preceding year.
Beyond paying the lease fee, lessees are also required to construct and
maintain capital improvements necessary for livestock and must comply
with all multiple-use and conservation restrictions imposed by the
government on the land. Lastly, lessees must pay school and municipal
taxes charged on the land being leased.
As noted above, Crown lands have various multiple-use elements,
from recreation to oil and gas operations, which are often in conflict
with one another. The legislation that manages these diverging
interests is the Surface Rights Act. Under Alberta law, the surface of
land in the province can be owned by either private entities or the
government, but all rights to the subsurface of the land have been
reserved to the government. On occasion, the GOA leases subsurface
rights to industrial operators (e.g., oil and gas companies) and the
Surface Rights Act lays the ground rules for resolving differences
between those who control the surface rights and those who lease the
subsurface rights.
Section 12(1) of the Surface Rights Act reads that, ``no operator
has a right of entry in respect of the surface of any land* * *until
the operator has obtained the consent of the owner and the occupant of
the surface of the land or has become entitled to right of entry by
reason of an order of the Board.* * *'' It appears from the record that
consent from the owner and occupant is usually contingent upon a
compensation package being agreed upon between the operator and the
owner and occupant. That is, the operator will agree to pay a certain
amount of compensation for damages, disruption, access, and other
factors to the owner and occupant. If the operator is unable to reach
an agreement with the owner and occupant, the operator can ask the
Surface Rights Board for a right of entry. In such cases, the Surface
Rights Board will issue a right of entry and determine the appropriate
amount of compensation. In determining the amount of compensation
payable, the Board may consider the market value of the land, the loss
of use by the owner or occupant of the area granted to the operator,
the adverse effect of the area granted to the operator on the remaining
land, the nuisance, inconvenience, and noise caused by the operations,
damage to the land granted to the operator, and any other factors the
Board considers relevant.
We determine that grazing leases granted under the Albert Crown
Lands Basic Grazing Program are being provided to ranchers grazing
livestock, a specific group, within the meaning of section
771(5A)(D)(i). Moreover, we determine that the provision of grazing
leases is a financial contribution as described in section
771(5)(D)(iii) of the Act (provision of a good or service). Therefore,
to determine whether these grazing leases result in a countervailable
subsidy it is necessary to examine whether they confer a benefit on the
recipients of the leases.
As discussed above in connection with the PFRA, a benefit is
conferred in the provision of a good or service when the government
receives less than adequate remuneration. Normally adequacy of
remuneration can be measured by reference to the prices being charged
for the good or service by private suppliers. In the case of grazing
rights provided by the GOA, however, a simple price comparison would
not be appropriate.
First, as discussed in connection with the grazing programs of
other provinces, certain adjustments must be made to reflect the
different costs imposed on the lessees of private and public land.
Specifically, we adjusted the average private price downward by
deducting costs for the construction of fences and water improvements,
the cost of paying property taxes, and a multiple-use cost associated
with limitations on forage (we have also taken into account multiple-
use income, as noted below). Although the GOA argued that there were
other differences that should be taken into account for such things as
differences in operating and capital costs, we have not made
adjustments for such costs because the GOA did not adequately support
these claimed adjustments. Comparing the public grazing lease price to
the adjusted private lease price, we determine that the price for
private leases is higher than the price for a public grazing lease.
Second, we believe the compensation paid by oil and gas operators
to lessees of private and public land to gain access to the oil and gas
resources must be accounted for. In response to our request for
information and argumentation about so-called ``Bill 31'(which will
amend the Public Lands Act and the Surface Rights Act), the GOA pointed
to provisions in the Surface Rights Act that appear to give owners and
lessees of private and public land equal rights to compensation. In
both cases, the oil and gas operator is to negotiate compensation
agreements with the owners and lessees before gaining access to the
land. If agreement cannot be reached, the operator appeals the matter
to the Surface Rights Board. In deciding the amount of compensation to
be awarded to the owners and lessees of private or public land, the
Surface Rights Board applies the same rules. Moreover, the GOA claims,
the amount of compensation received by any owner or lessee cannot be
considered excessive, because if the owner or lessee attempts to obtain
too large an amount, the oil and gas operator can simply apply to the
Surface Rights Board to set the correct amount of compensation.
Although the statutory provisions in the Surface Rights Act cited
by the GOA are consistent with the arguments it has put forward, other
information on the record suggests that the compensation received by
lessees of public land is excessive. Beginning in March 1997, the GOA
undertook a study to examine agricultural leases in the province. One
of the main issues examined in the study was compensation for ranchers
leasing grazing rights on public lands. The study resulted in a report
and, eventually, legislation (Bill 31). Although Bill 31 has not yet
been put into effect, it seems clear that one concern the legislation
seeks to address is that the province, as owner of the public land,
should receive some portion of the compensation now received by lessees
of the public land.
While this, in itself, does not necessarily mean that the
compensation currently received by lessees of public land is excessive
when compared to the compensation received by lessees of private land,
statements made at the time that Bill 31 was proposed and
[[Page 57046]]
debated, lead us to conclude that the compensation received by lessees
of private and public land is not equivalent. Specifically, the
government's spokesperson on behalf of the bill stated: ``It (Bill 31)
does another thing as well: it ensures that public land leasing
arrangements are more equitable with private land leasing arrangements.
Since the province is the landowner of public land in the right of all
Albertans, we were told by our colleagues and those making submissions
that the province should act like a landowner. This means that leasing
arrangements should be more comparable to the private sector''
(statement by Mr. Thurber, Alberta Hansard, April 14, 1999, page 1035).
Similarly, ``the intent of amendments to the Surface Rights Act are to
redistribute payments to the landowner (the province) and the
agriculture disposition holder (the lessee of public land) more in line
with private land arrangements' (statement by Mr. Thurber, Alberta
Hansard, May 3, 1999, page 1396).
These statements appear to support the conclusion that private
owners receive more in compensation than the GOA does as owner. There
is no indication in the record that the amount of compensation paid by
oil and gas operators for private lands exceeds the amount of
compensation paid for public lands. Therefore, we conclude that the
lessees of public land receive greater compensation than their
counterparts on private land.
If our conclusions are correct, then the differences in
compensation amounts to lessees of public and private land would not be
reflected in a comparison of fees for the two types of grazing rights.
This is because the relatively lower level of compensation received by
the lessees of private land will cause that fee to be lower than it
would be if they received the higher amount of compensation.
Therefore, to calculate the difference in compensation amounts that
is not reflected in a comparison of fees for the two types of grazing
rights, we have attempted to measure the remuneration that we believe
the GOA would have received, as owner of the public land, if its
leasing arrangements were ``in line with private land arrangements.''
We note that because such information regarding compensation is not
available on the record of this investigation, our calculation is an
estimate based upon the facts available.
Information that is on the record indicates that total compensation
earned by public lessees is approximately C$40 million per year. It
appears that this amount represents compensation for damages,
disruption, access, and other factors. Because the law indicates that
both private and public lessees are entitled to compensation for
damages and disruption we expect that a portion of this C$40 million
represents an amount of compensation that would be paid to any lessee
regardless of whether the land being leased was private or public.
Thus, it would be inappropriate to assume that the C$40 million figure
represents compensation that is only obtained by public lessees because
they are leasing public land.
Therefore, it is necessary to estimate the portion of the
compensation received by lessees of public land attributable to damages
and disruption (which would be the same for a private lessees) versus
compensation for access and other factors. In this respect, the GOA has
stated that the average compensation package determined by the Surface
Rights Board for both public and private lessees amounted to C$1,100
per year. Given the number of grazing leases on public land affected by
subsurface operations, the total amount attributable to compensation
for damages and disruption on public land would be approximately C$15.9
million per year. According to the rules followed by the Surface Rights
Board in establishing the amount of compensation, this amount would
represent the compensation for damages and disruption only. The
remainder of the compensation (C$24.1 million) would be for access and
other factors.
We recognize that this is a crude estimate of the amount of
compensation that could be expected to flow to the GOA if it received
the compensation that we believe currently flows to holders of public
land leases. For example, while the C$40 million amount is widely
reported, it is not clear where the estimate came from or how it was
calculated. Moreover, the amount we have selected, C$24.1 million, is
at the upper end of the possible range of estimates. (See statement by
Dr. Pannu, a member of the Alberta legislature, as reported in the
Alberta Hansard, May 11, 1999, page 1627: ``it's difficult at this
point to make a reliable assessment of what additional revenues these
changes in the leasing arrangements proposed in this bill will generate
for the public treasury. I have seen different figures. I think it
could be close to $13 million to $15 million or perhaps more * * *'')
We believe that a conservative estimate is appropriate in light of the
limited information available to the Department to ensure that a
negative final determination is warranted.
Therefore, because public lessees can expect to receive C$24.1
million more in compensation by renting public land as opposed to
private land, the public land is more valuable. However, as noted
above, we have concluded that the differences in compensation amounts
to lessees of public and private land are not reflected in a comparison
of fees for the two types of grazing rights. That is, the government is
not charging a higher price for its land to capture this value and,
thus, is not being adequately remunerated for its provision of public
land.
To measure the benefits received under the Alberta Crown Lands
Basic Grazing Program, we have combined the difference calculated by
comparing the grazing fees paid for public and private land with the
difference in compensation described above. We treated the resulting
amount as a recurring benefit and divided it by the investigated
provinces' total sales during the POI. On this basis, we determine the
countervailable subsidy to be 0.65 percent ad valorem.
Other Programs
K. Northern Ontario Heritage Fund Corporation Agriculture
Assistance
The Northern Ontario Heritage Fund Corporation (``NOHFC'') was
established in 1988 as a Crown corporation. Its purpose is to promote
and stimulate economic development in northern Ontario. NOHFC focuses
on funding infrastructure improvements and development opportunities in
northern Ontario. Assistance for these projects is available through
forgivable performance loans, incentive term loans, and loan
guarantees.
With respect to agricultural projects, all assistance provided by
NOHFC is in the form of forgivable performance loans. The types of
agricultural projects funded include capital projects, marketing
projects and research and development projects. Fifty percent of a
project's capital costs are eligible for funding, up to a maximum of
C$2.5 million. For marketing projects, fifty percent of the project
costs may receive funding, up to a maximum of C$500,000. For research
and development projects, 75 percent of the project costs may receive
funding, up to a maximum of C$500,000. The loans made available for
these projects are interest-free and normally forgiven after two to
three years. The extent of debt forgiveness is dependent upon the
project meeting its target of increasing the value of farm production
by an amount equal to the NOHFC contribution.
[[Page 57047]]
Debt forgiveness is a financial contribution as described in
section 771(5)(D)(i) of the Act, which provides a benefit to the
recipients equal to the amount of the debt forgiven. Because benefits
under this program are only available in northern Ontario, we determine
that the program is regionally specific under section 771(5A)(D)(iv) of
the Act. Therefore, we determine that this debt forgiveness is
countervailable within the meaning of section 771(5) of the Act.
We further determine that this debt forgiveness is non-recurring
because the recipients could not expect to receive it on an ongoing
basis. However, because the benefit to cattle producers in Ontario was
below 0.50 percent of the investigated provinces' sales in the year of
receipt in each of the relevant years, we expensed the debt forgiveness
in the year received. To calculate the benefit for the POI, we divided
the total amount of the forgiven debt by the investigated provinces'
total sales during the POI. On this basis, we determine the
countervailable subsidy to be less than 0.01 percent ad valorem.
Additionally, we determine that a countervailable subsidy is
conferred because no interest is charged on these loans. Under section
771(5)(E)(ii) of the Act, a benefit arises when loan recipients pay
less on government provided loans than they would pay on comparable
commercial loans. Pursuant to section 355.49(f) of the 1989 Proposed
Regulations, we have treated the balances outstanding during the POI as
interest-free, short-term loans. We calculated the benefit from these
loans by dividing the amount of interest due at the benchmark rate by
the investigated provinces' total sales during the POI. On this basis,
we determine the countervailable subsidy to be less than 0.01 percent
ad valorem.
To calculate the total benefit to cattle producers under this
program, we summed the benefit calculated for the forgiven debt and the
interest-free loans. On this basis, we determine the total subsidy from
this program to be less than 0.01 percent ad valorem.
L. Ontario Livestock, Poultry, and Honeybee Protection Act
This program, which is administered by the Ontario Ministry of
Agriculture, Food and Rural Affairs, provides compensation to livestock
producers whose animals are injured or killed by wolves or coyotes.
Producers apply for, and receive, compensation through the local
municipal government. The Ontario Ministry of Agriculture, Food and
Rural Affairs reimburses the municipality. Grants for damage to live
cattle cannot exceed C$1,000 per head. Although the Ministry of
Agriculture does not track the proportion of benefits under this
program going to dairy cattle or beef cattle producers, the GOO has
reported that beef cattle producers are believed to derive the majority
of the benefits from the program.
A grant is a financial contribution as described in section
771(5)(D)(i) of the Act, which provides a benefit to recipients in the
amount of the grant. Because this program is limited by law to
livestock producers, poultry farmers, and beekeepers, we determine that
the program is specific under section 771(5A)(D)(i) of the Act.
Therefore, we determine that these grants are countervailable within
the meaning of section 771(5) of the Act.
We treated the grants received as a recurring benefit because
livestock producers can expect to receive the grants every year. To
calculate the benefit, we divided the total amount of grants received
by the investigated provinces' total sales of live cattle during the
POI. On this basis, we determine the countervailable subsidy to be 0.01
percent ad valorem.
M. Ontario Rabies Indemnification Program
This program is administered by the Farm Assistance Branch of the
Ontario Ministry of Agriculture, Food and Rural Affairs. It is designed
to encourage farmers to report cases of rabies in livestock by
compensating livestock producers for damage caused by rabies. Farmers
may receive grants up to a maximum of C$1,000 per head of cattle under
this program. Sixty percent of the grants are funded by the GOO and 40
percent by the GOC.
A grant is a financial contribution as described in section
771(5)(D)(i) of the Act which provides a benefit to recipients in the
amount of the grant. Because the legislation establishing this program
expressly limits these grants to livestock producers, we determine that
the program is specific under section 771(5A)(D)(i) of the Act.
Therefore, we determine that these grants are countervailable within
the meaning of section 771(5) of the Act.
We treated the grants received as a recurring benefit because
farmers can expect to receive the grants every year. To calculate the
benefit, we divided the total amount of grants received by the
investigated provinces' total sales of live cattle during the POI. The
amount of the total amount of grants was taken from updated information
supplied to the Department at verification. On this basis, we determine
the countervailable subsidy to be less than 0.01 percent ad valorem.
N. Saskatchewan Livestock and Horticultural Facilities Incentives
Program
The purpose of this program is to promote the diversification of
Saskatchewan's rural economy by encouraging investment in livestock and
horticultural facilities. This program allows for an annual rebate of
education and health taxes paid on building materials and stationary
equipment used in livestock operations, as well as greenhouses, and
vegetable and raw fruit storage facilities.
A tax benefit is a financial contribution as described in section
771(5)(D)(ii) of the Act which provides a benefit to the recipient in
the amount of the tax savings. Because the legislation establishing
this program expressly limits the tax benefits to the livestock and
horticulture industries, we determine that the program is specific
under section 771(5A)(D)(i) of the Act. Therefore, we determine that
this tax benefit is countervailable within the meaning of section
771(5) of the Act.
In calculating the benefit, we treated the tax savings as a
recurring benefit and divided the tax savings received by the
investigated provinces' total sales during the POI. On this basis, we
determine the countervailable subsidy to be less than 0.01 percent ad
valorem.
II. Programs Determined To Be Not Countervailable
A. Canadian Wheat Board
Introduction
The Canadian Wheat Board (``CWB'') has the exclusive authority to
market Canadian feed and malting barley in export markets. In the
Canadian domestic market, the CWB has exclusive marketing authority
only with respect to malting barley. The petitioner alleges that the
CWB's pooling system (described below) sends distorted market signals
to Canadian farmers. Further, the petitioner argues that the system of
marketing feed barley in Canada imposes excessive costs on farmers,
with the result that less feed barley is exported than there otherwise
would be. Consequently, the petitioner alleges, more feed barley is
available on the domestic market, which artificially lowers prices paid
by Canadian cattle producers. Although the CWB system may not involve
the explicit export restriction present in Certain Softwood Lumber
Products from Canada, 57 FR 22570 (May 28, 1992) (``Lumber'') and
Leather from Argentina, 55 FR 40212 (October 2, 1990) (``Leather''), in
the
[[Page 57048]]
petitioner's view, the CWB's control over, and operations in, the feed
barley market have the same result as the export restrictions which the
Department found countervailable in those cases.
In the Preliminary Determination, we preliminarily concluded that,
even if the CWB controlled exports, it nonetheless did not provide a
benefit to Canadian producers of live cattle because Canadian domestic
prices were not lower than prices in the United States in the POI. In
making our price comparisons for the Preliminary Determination, we
compared U.S. prices for feed barley in Great Falls, Montana, with
several Canadian domestic prices. We preliminarily found that Canadian
domestic prices were comparable to U.S. prices.
Since the Preliminary Determination, we have conducted a thorough
analysis of all aspects of the Canadian feed barley market and its
relation to the cattle industry. We analyzed where barley is produced
and consumed within Canada, the total production of both feed and
malting varieties of barley, marketing options available to barley
farmers, exports of feed barley, the operations of the CWB, feed barley
prices within and outside the area in Canada under the control of the
CWB (i.e., the ``designated area''), and additional feed barley prices
in the United States. We find that the CWB has extensive control over
the feed barley export market and that its operations in that market
can, and do, have a major impact in the domestic feed barley market.
However, as in the Preliminary Determination, we find that the
operations of the CWB did not provide a benefit to the producers of
live cattle during the POI.
Canadian Barley Production
There are two primary agricultural areas in Canada: the prairies in
western Canada (Alberta, Saskatchewan and Manitoba), and southern
Ontario and Quebec. Eighty percent of Canadian farmland is in the
prairies. The large majority of Canadian grain is grown on the
prairies, although some grain is also grown in the southernmost
portions of Ontario and Quebec.
The growing conditions in western Canada and the eastern provinces
are very different, which leads to different growing patterns in each
area. The climate in the prairies is drier and cooler with a shorter
growing season; the predominant crops are barley, wheat, and oilseeds.
Conversely, because Ontario is warmer and receives more rainfall, the
climate there is more conducive to growing corn and soybeans. While
Ontario has some barley production, barley is not the predominant crop
in the area.
In the most recent crop year (1998/1999), Canada produced a total
of 12.7 million metric tons of barley. Over ninety percent of this
barley was grown in the prairies; 400,000 metric tons were grown in
Ontario. The percentage of prairie production by province was: 48
percent in Alberta, 37 percent in Saskatchewan, 14 percent in Manitoba,
and less than one percent in British Columbia. Although 70 percent of
Canadian barley is seeded as malting varieties (for which higher prices
can be obtained), only 30 percent is actually sold as malting barley.
The malting barley that is not sold for malting is consumed as feed
barley.
Almost half of all Canadian barley production occurs in Alberta, in
a north-south belt extending from Lethbridge in the south to Edmonton
in the north. From Edmonton, the barley growing area arcs in a
southeastwardly direction towards Winnipeg. A small portion of
southeastern Alberta and a much larger section of southern Saskatchewan
are less productive for growing barley because of less rainfall and
warmer temperatures.
In Ontario, the barley growing area is primarily located on the
peninsula that extends south between Lake Huron, on the west, and Lakes
Erie and Ontario, on the east. Some grain is also grown around Ottawa.
The primary crop grown in Ontario is corn; barley production occurs on
the fringe of the growing area where corn cannot grow because of cooler
temperatures or unfavorable soil conditions.
Canadian Cattle Production
Canadian beef cattle production is primarily concentrated in
western Canada (82 percent), with 12 percent in Ontario, and 5 percent
in Quebec. Western Canadian beef production by province is: 46 percent
in Alberta, 21 percent in Saskatchewan, 11 percent in Manitoba, and 5
percent in British Columbia. Similar to barley production, almost half
of all Canadian beef cattle production occurs in Alberta. Many farmers
throughout the prairies produce both cattle and barley. The primary
consumers of feed barley are feedlots, and the majority of Canadian
feedlots (approximately 70 percent) are located in southern Alberta,
between Lethbridge and Calgary.
CWB Organizational Principles and History
The CWB had its origins in the early 1900s. It was during this time
that two of the fundamental principles of the CWB and the marketing of
Canadian barley were established: single-desk selling and the
``pooling'' of costs and revenues. Since we are only concerned with
feed barley, single-desk selling in the context of this investigation
means that the CWB is the sole exporter of western Canadian feed
barley. This authority requires barley farmers to sell via a single
entity in export markets rather than competing against one another.
Barley farmers can compete with each other with respect to feed barley
sales in Canada--though not with respect to malting barley sales in
Canada. In theory, according to the CWB, the absence of multiple
sellers and the ability to sell at different prices in different
markets allows the single desk seller to obtain a higher overall price
for Canadian grain.
The pooling mechanism is perhaps the defining feature of the CWB's
operations. The CWB operates a separate ``pool'' for each of the four
crops under its authority (wheat, durum wheat, feed barley and
``designated'' or malting barley). Pooling means that the CWB pays
every farmer the same amount for a given quantity and quality of grain
based on the weighted-average price received for all the barley
marketed in the pool year, regardless of when in the crop year the
farmer sells to the CWB and regardless of the specific sales prices the
CWB realizes on the individual sales of that grain. (The payment
mechanism--involving initial, adjustment, interim and final payments--
is discussed below.) According to the CWB, the pooling mechanism is a
risk management tool designed to protect farmers from adverse price
fluctuations that may occur throughout the year.
Prior to 1974, the CWB controlled all sales of barley, including
domestic sales of feed barley. Responding to pressure from eastern
livestock producers who wanted access to western grain and western
grain producers who wanted to sell grain in the east, the GOC removed
domestic sales of feed barley from the CWB's jurisdiction in 1974. In
the same year, the GOC established the Reserve Stock Program,
apparently to ensure that western livestock producers would continue to
have a reliable source of feed barley. This program was terminated in
1979.
In 1984, the Western Grain Transportation Act (``WGTA'') came into
effect. Under this program, the GOC paid the difference between the
``crow rate'' (a ceiling on rail rates dating back to 1897) and an
unregulated rate. In 1985, the province of Alberta began the Crow
Benefit Offset Program to offset the higher local grain prices caused
by
[[Page 57049]]
the WGTA. The program essentially subsidized the purchase of barley by
livestock producers and may have resulted in an increase of livestock
production in the province. The WGTA subsidies continued until 1995.
On August 1, 1993, the GOC permitted non-CWB entities to export
barley, thereby creating the so-called ``Continental Barley Market''
(``CBM''). As a result of Canadian judicial intervention, the CBM
lasted only until September 10, 1993. During the CBM, exports of
Canadian feed barley to the United States increased dramatically
compared to prior periods. Whether this was due to the ability of
individual farmers to export or other factors (e.g., flooding in the
United States) has been subject to much dispute. Economists also differ
on the impact of the CBM on U.S. and Canadian prices, specifically,
whether the CBM resulted in the convergence of U.S. and Canadian
domestic feed prices. The petitioner suggests that the CBM is
indicative of the market that would exist in the absence of the CWB.
CWB Act
The current statutory authority for the CWB was enacted in 1935.
The CWB Act: (1) Codifies the CWB's exclusive control over feed and
malting barley exports; (2) establishes the governance structure and
mission of the CWB; and (3) delineates the relationship between the GOC
and CWB. Under section 45 of the CWB Act, ``no person shall export from
Canada [wheat or barley] owned by a person other than the Board.'' This
provision grants the CWB its export monopoly authority with respect to
all barley produced in Canada. Section 45 of the CWB Act also grants
the CWB authority over interprovincial trade in barley.
During the POI, the CWB was a Crown corporation governed by five
commissioners appointed by the GOC. Farmers were represented on an
advisory board that could only make recommendations to the
commissioners. Pursuant to section 7 of its statutory authority, the
CWB's mandate is to sell grain ``for such prices as it considers
reasonable with the object of promoting the sale of grain produced in
Canada in world markets.''
The CWB Act establishes the following three financial relationships
between the CWB and the GOC: (1) The GOC guarantees all approved
borrowings of the CWB, (2) the GOC guarantees the initial payment,
adjustments, and interim payments made to farmers (discussed further
below), and (3) the GOC guarantees credit extended to purchasers of CWB
grain. (See sections 6, 7 and 19 of the CWB Act.)
In addition to the financial ties between the GOC and the CWB, the
CWB Act promulgates other means by which the GOC may exert authority
over CWB operations. Section 18 of the CWB Act allows for GOC policy
directions via an order by the Governor-in-Council (``GIC''). Under
section 32, the amount of the initial payment must be approved by the
GOC. Finally, the CWB is required to provide a proprietary, detailed
annual reporting of the CWB's operations to the GIC.
1998 Amendment to the CWB Act
In 1996, the GOC established the Western Grain Marketing Panel
(``WGMP'') to review the marketing system of western Canadian grain. As
a result of the WGMP, an amendment to the CWB Act (``the amendment'')
was passed in June 1998 and became operational on December 31, 1998.
Parts of the amendment were implemented in June and December 1998,
while others have yet to be formally implemented. Below is a discussion
of certain key WGMP recommendations and the provisions that were passed
to implement these recommendations.
Change in legal status. As noted, under the old CWB Act, the CWB
was a Crown corporation. Pursuant to the amendment, it became a
``shared-governance'' corporation. The new governance structure created
by the amendment granted more direct control of the CWB to the farmers
through the Board of Directors. Specifically, ten members of the new
Board of Directors are elected by grain producers and the remaining
five members, including the president, are appointed by the GOC. The
new Board of Directors is responsible for managing the business and
affairs of the CWB and directing strategic planning. The old Advisory
Board was disbanded.
Removal of feed barley from CWB jurisdiction. The WGMP recommended
that the CWB should remain solely responsible for marketing malting
barley, but that farmers should be allowed to export feed barley
directly or sell it to the CWB. In 1997, the GOC held a plebiscite
asking farmers if they wanted to continue the current marketing system
or sell their barley without the CWB. Sixty-three percent of farmers
voted to maintain the current system. Thus, the CWB's exclusive control
over both feed and malting barley exports has continued.
Early closing of pools. Under the old CWB Act, the CWB could only
make final payments on pools in January following the end of the crop
year (e.g., January 1999 for the 1997-98 crop year). The amendment
grants the CWB the authority to close a pool early (i.e., prior to the
end of the crop year). The CWB wanted the ability to close a pool in
situations where export prices decline precipitously. Under these
circumstances, the CWB could terminate the existing pool once it became
apparent that prices were steadily declining. Farmers who delivered
their barley to the pool would receive the weighted-average price
received during the time the pool was open. After the old pool was
closed, a new pool could be established. The first pool would reflect
the higher prices in the beginning of the year, and the second pool
would reflect the lower prices at the end of the year. By ending a pool
early, the pool payment farmers receive for their grain would be more
reflective of their initial expectations. Ending pools early in a
falling market could also be used as a mechanism to ensure that the GOC
would not have to cover a pool deficit (i.e., reimbursing the CWB for
the difference between the payments made to farmers in the course of
the crop year and the actual revenues received on barley pool sales).
Cash Purchase Option. As recommended by the WGMP, the amendment
allows the CWB to make cash purchases from farmers and other
participants on the open market. The reason for this change is to allow
the CWB to purchase grain directly from farmers when the CWB has
selling opportunities but the CWB's estimates of the final pool payment
the farmer will receive--the Pool Return Outlooks and Estimated Pool
Returns (the PROs and EPRs, discussed below)--are not attracting
sufficient supplies to take advantage of those opportunities. However,
prior to the adoption of the amendment in 1998, the livestock industry
expressed concern that use of this provision by the CWB might raise
feed barley prices to the Canadian livestock industry. This provision
has not yet been proclaimed in force by Parliament. Therefore, the cash
purchase option has not yet been exercised by the CWB.
CWB Operations
The Canadian crop year is from August 1 to July 31. Barley is
normally planted in the spring. Harvesting begins the first or second
week of August and may continue through October, depending on the
weather. Once the grain is harvested, the farmer can begin to deliver
grain immediately through the acreage-based system, or through the
``delivery contract system'' throughout the year. Relatively small
amounts of
[[Page 57050]]
grain are delivered under the acreage-based system. The primary method
of sale and delivery to the CWB is through the delivery contract
system.
Under the delivery contract system, there are four contract series
throughout the year, each with a different deadline (for the 1997-98
crop year, the deadlines were: series A, October 31; series B, December
31; series C, February 27; and series D, May 29). On the contract, the
farmer identifies, inter alia, the station to which he normally
delivers (he can deliver anywhere he wants), the series for which he is
offering grain, and the net amount he expects to deliver. Because the
farmer will not know the exact weight of his barley until it is
delivered, the CWB allows an 85 percent tolerance.
After the CWB receives all contracts offered under a particular
series, it tabulates the offers and determines whether it will accept
all the grain. The factors that are taken into consideration in this
analysis are: the amount and types of grain offered, the sales
requirements identified up to that point, and any transportation
constraints. The acceptance rate for every series in the POI was 100
percent. In the last five years, the CWB has consistently accepted all
the barley offered to it, except for series C in the 1995-96 crop year,
when it only accepted fifty percent of the grain offered.
Once the series contracts have been offered and accepted, delivery
of the barley must be ``called'' by the CWB. A ``call'' or ``delivery
call'' is essentially an instruction issued by the CWB to farmers
telling them when and where to deliver their barley. The CWB must issue
a call before a farmer can deliver his grain.
A number of factors are analyzed by the CWB in determining when the
grain should be called into the handling system: the total amount
offered, immediate sales commitments, the quantity of grain already in
the handling system, where grain is located, any transportation
constraints, and outstanding delivery calls (if any). Any one call can
be less than 100 percent of the accepted series amount. However,
acceptance of a farmer's offer commits the CWB to call all the grain
accepted at some point before the end of the crop year. Once a call is
announced, farmers may deliver their grain.
Pursuant to section 24 of the CWB Act, farmers are legally
prevented from delivering to a grain elevator unless, inter alia, they
have a permit book, the grain was produced on the lands described in
the permit book, and the quantity of grain delivered does not exceed
the amount authorized by the CWB. When the farmer delivers the grain to
the elevator, the elevator manager grades it, and makes the initial
payment (discussed below) on behalf of the CWB to the farmer. The
delivery is recorded in the farmer's permit book and applied against
the contract the farmer established with the CWB to calculate the net
outstanding balance of grain due under that contract.
Every farmer that sells into the pool receives the payment for his
crop in installments. Upon delivery of the grain to the elevator, the
farmer receives the published initial payment adjusted for freight to
either Vancouver or St. Lawrence (the two primary export points), less
any grain company deductions for elevation and cleaning. The initial
payment set by the CWB is based on market projections, CWB-specific
sales prospects, and an evaluation of export prices. While there is no
fixed rule, initial payments historically have been set at 70-75
percent of the projected final return. As noted above, the initial
payment must be approved by the GOC.
During the year, the CWB may make adjusted or interim payments.
After the pool year is closed, the farmer normally receives a final
payment. The sum of these payments equals the ``pool payment,'' which
is the total return the farmer receives for barley delivered to the
CWB.
Once the barley has been called, delivered and stored, it must
eventually be moved to an export point. This is generally done by rail.
The allocation of the two Canadian railroads' resources is arranged by
a government/private sector committee called the Car Allocation Policy
Group (``CAPG''). This group sets policies and coordinates the movement
of barley and other grain through the system. CAPG has representatives
from grain companies, railways, farmers, small shippers, and the CWB.
It performs capacity planning for four-month and one-year periods. It
evaluates market demand information from shippers and supply
information from railroads to determine where and when the
transportation constraints will arise. During high usage periods, the
CAPG attempts to allocate resources equally; in other words, access is
not rationed by price. (See section 28 of the CWB Act, which enables
the CWB to ``provide for the allocation of railway cars.'')
Pricing Signals
Starting in late February to early March prior to the crop year
(e.g., February 1997 for the August 1,1997/July 31, 1998 crop year),
the CWB publishes, on a monthly basis, the Pool Return Outlook (PRO),
which is a range within which the CWB expects the final pool return to
fall. The monthly PROs are the main tool a farmer has in determining
how much barley to grow and in deciding whether to sell his grain
domestically, or to the CWB for export. Once the pool year is in
progress and sales have been completed, the CWB has a better idea of
the final pool return. In March of the crop year (e.g., March 1998 for
the August 1, 1997/July 31, 1998 crop year), the CWB announces the
Estimated Pool Return (EPR), which is a fixed number, not a range. EPRs
are issued again in June and September.
When determining the PROs and EPRs for feed barley, many factors
are examined, including: harvest conditions, foreign subsidies,
carryover stocks from the previous year, and the quality and quantity
of the U.S. corn crop. (The price of corn and barley are closely
related over time because both are used as livestock feed and both have
similar nutritional value for livestock. In the United States, corn is
the primary feed for cattle.) Both the PROs and EPRs generally reflect
prices in export markets rather than the domestic market.
The Producer Direct Sales Program
The Producer Direct Sales (``PDS'') Program allows farmers to
export barley on their own account to the U.S. market. Section 46 of
the CWB Act and section 14 of the CWB regulations provide the mechanism
by which the CWB grants export licenses under the PDS program to
individual farmers both inside and outside the designated area (i.e.,
the area under the control of the CWB).
Pursuant to section 46(d) of the CWB Act, the terms and conditions
for the granting of licenses can include:
* * * recovery from the applicant by the Board * * * of a sum
that, in the opinion of the Board, represents the pecuniary benefit
enuring to the applicant pursuant to the granting of the license,
arising solely by reason of the prohibition of exports of [the
covered products] without a license and the then existing
differences between prices of [the covered products] inside and
outside Canada.
We discussed this section of the CWB Act extensively at verification.
One literal interpretation of section 46(d) is that it requires that
any difference between the price the CWB offers a farmer and the price
the farmer can obtain by exporting his barley independently must be
paid to the CWB in return for the granting of the export license.
Obviously, such an interpretation would discourage the exportation of
barley by any entity other than the CWB. In practice, the CWB has
[[Page 57051]]
interpreted this provision to mean that the farmer wishing to export
independently must pay the difference between the total pool return and
a price set under the PDS program. Although the precise manner by which
the CWB determines this price is proprietary, in essence, the PDS price
is based upon the export opportunities of the CWB.
In order to export barley under the PDS program, farmers within the
designated area must (at least, on paper) deliver their grain to the
CWB--for which they will receive the normal pool payments--and then
repurchase that barley at the posted daily PDS price. In the 1997-1998
crop year, a very small percentage of Canadian feed barley exports went
through the PDS program.
Analysis of CWB Operations
The Canadian grain marketing system--of which the CWB is an
integral part--is highly regulated and institutionalized. Certain CWB
policies and programs indicate that the operations of the CWB, with
respect to feed barley, may have goals other than promoting the
interests of barley farmers. Moreover, while there may not be an overt
restraint on exports by the CWB, there are certain aspects of the CWB
pooling system and Canadian grain marketing system overall that could
have the same result as an overt restraint on exports.
As noted above, the CWB's mandate is to sell grain ``for such
prices as it considers reasonable with the object of promoting the sale
of grain produced in Canada in world markets.'' According to its annual
reports (see, for example, page 2 of the CWB's 1997-1998 Annual Report
in Exhibit CWB-34), the CWB's mission is to maximize returns to western
Canadian grain farmers. However, the CWB has also stated that it must
balance this objective with the need of processors to source grain at a
price that allows them to compete in the finished product market (see,
for example, page 17 of the CWB's 1995-1996 Annual Report in the
petitioner's November 6, 1998 submission at exhibit A-1 and
verification exhibit CWB-14). Arguably, this pricing policy with
respect to downstream processors, along with the CWB value-added
program discussed below, demonstrates that the operations of the CWB
may be guided by government policy objectives inconsistent with the
actions expected of a normal market actor.
Similarly, we verified that the CWB has a value-added program
intended to increase the domestic value-added of the cereal grains it
markets. Although the current objective of the value-added program
relates primarily to the milling and malting industries, the value-
added program is very broad and includes anything involved in
processing cereal grains. Some value-added programs have centered on
the livestock industry.
During the 1997-1998 crop year, the CWB held its second annual
``Moving Up Market'' conference. At this conference, the livestock
feeding industry was one area of focus. Brochures from the conference
and copies of the presentations given by two CWB officials and a
private sector representative from the hog industry were collected on
verification. Included in the presentation by the Chief Commissioner of
the CWB were the following statements:
The government in this province [Alberta] is encouraging the
processing of raw products into fully processed consumer goods to
capture the value which is added by processing rather than simply
exporting bulk agricultural goods.
The CWB shares the same desire to see Canadian processors using
as much of Prairie farmers' cereal grains as possible * * *.
The western Canadian livestock feeding industry secures
virtually all of its feed grain requirements from Prairie farmers.
In an open and competitive environment, this huge and growing market
for feed grains may eventually make the export of feed barley from
western Canada a thing of the past.
(See verification exhibit CWB-14.)
These statements indicate, at a minimum, that the CWB supports a
policy of increased domestic value-added for barley grown on the
prairies.
With respect to the CWB pooling mechanism, one CWB-commissioned
study notes that if prices in the export markets suddenly rise, the
PRO/EPRs, which are estimates of the average price to be received by
the CWB throughout the year, will not rise commensurately. (See The CWB
and Barley Marketing by Schmitz, et al., in verification exhibit CWB-
7.) As a result, farmers, who might otherwise attempt to take advantage
of the higher prices, might not offer their barley to the CWB to be
sold in the export market. Under these circumstances, the impact on the
market would be the same as an overt export restriction: more feed
barley will be supplied to the domestic market and domestic feed barley
prices will be potentially lower.
In general, some economists maintain that the heavily regulated
nature of the Canadian marketing system for grain has slowed
productivity in grain handling, increased marketing costs and reduced
farm returns. They argue that the CWB does not pursue improvements in
the marketing and handling system the same way that private entities
would in response to market forces. (See, for example, Carter and
Loyns, The Economics of Single Desk Selling of Western Canadian Grain,
attached as Exhibit 5k, to the R-Calf petition.) A 1995 study by KPMG
Management Consulting estimated that up to twenty percent of
operational costs could be saved annually through reduced regulation,
the introduction of transparent incentives, and improved accountability
(See Rapid Grain Flow-Transfoming Grain Logistics prepared for the
Western Grain Elevator Association, April 1995). If unnecessary or
additional costs are imposed on the farmer when he seeks to export, the
impact on the market would be the same as an overt export restriction:
more feed barley will be supplied to the domestic market and domestic
feed barley prices will be potentially lower.
Some economists also argue that the ``selection rate'' for malting
barley is lower in Canada relative to other countries. (The ``selection
rate'' is the percentage of malting barley that is actually sold as
malting barley; malting barley not selected for malting is sold as feed
barely.) As a result, more barley grown as malting barley is sold as
feed barley in both the domestic and export markets. (See, for example,
D. Demcey Johnson, Single Desk Selling of Canadian Barley, in the
petitioner's July 29,1999 submission at Exhibit 6.) Arguably, this
scenario might also depress feed prices in the domestic market. The CWB
argues that the determination of what qualifies as malting barley is
made by private entities and other public entities of the Canadian
government. However, while the record indicates that the CWB is not
directly involved in the selection of malting barley, the CWB does seek
to ensure that barley it sells as feed barley is not re-sold in another
market as malting barley.
Pricing Analysis
To determine if the operations of the CWB have provided a benefit
to the producers of live cattle in Canada during the POI, we made
numerous price comparisons between Canadian domestic prices, several
U.S. domestic prices (some of which are representative of the largest
feed barley consumer markets in the world), and the CWB export price to
the United States. Specifically, the benchmark prices we used were the
prices in Portland, an average price in the U.S. based on several
different price series, and CWB export prices to the United States. We
did not make any adjustments to the reported prices other than freight,
where appropriate.
[[Page 57052]]
First, we compared the domestic and export marketing options that
would be available to a barley farmer in Saskatoon, Saskatchewan in an
open market. We used a farmer in Saskatoon as representative of
Canadian barley farmers because Saskatoon is located in the center of
the Canadian barley growing area and because the best data we have for
freight adjustments pertain to Saskatoon. We compared domestic and
export opportunities, as represented by Lethbridge and Portland,
respectively. We used Portland prices because these prices are
representative of export prices to large, traditional global consumers
of feed barley (e.g., Saudi Arabia and Japan) (see September 22, 1999,
Memorandum to File, ``Portland and Pacific Northwest (PNW) prices'').
We adjusted both the domestic and export prices back to Saskatoon
by freight (rail freight for export, truck freight for domestic). See
October 12, 1999, Memorandum to Susan Kuhbach, ``Pricing Analysis for
the Canadian Wheat Board (CWB) for the Final Determination'' (``CWB
Analysis Memorandum'') and Final Calculations. We observed that, during
the POI the export prices in Portland were similar to those in
Lethbridge. Although Lethbridge prices have been lower historically,
especially in the 1995-1996 crop year, there is no consistent pattern
of the Portland prices significantly exceeding the Canadian price.
Beginning in November 1997, the Canadian domestic price has been
higher.
Second, we compared the CWB export price to the U.S. with the
domestic price in Lethbridge. We observed the same price relationships
described above during the POI and the prior two years.
Third, we compared the weighted average price in the designated
area with the average price of barley in the United States during the
POI without making any adjustments for freight. To calculate the
designated area price, we took various Canadian ``Off-Board'' prices in
the designated area (Lethbridge, Calgary, Saskatoon, Melfort and
Winnipeg) and weighted them by cattle production in the different
areas. We used cattle production as a proxy for barley consumption
because the majority of barley consumed in Canada is consumed by
cattle. For U.S. prices, we calculated a simple average of prices for
feed barley at various locations (Duluth, Bottineau, Cando, Churchs
Ferry, Rugby, Stanley, Great Falls, Golden Triangle, Northcentral, and
Portland). We used all U.S. pricing points on the record except
Minneapolis, East Coast (Norfolk Terminal) and PNW. We did not include
the Minneapolis price series as those prices are for malting barley.
East Coast prices were omitted because no data is reported for most
months during the POI. We did not have sufficient information to weight
average the U.S. prices by consumption. We observed that, during the
POI, the average price in the U.S. was usually lower than the average
price in the designated area.
Finally, we compared an average price in the two primary growing
areas in Canada with geographically comparable growing areas in the
United States which are approximately the same distance from export
ports. Specifically, we compared an average price in Alberta with an
average price in Montana, and an average price in Saskatchewan with an
average price in North Dakota. In both of these comparisons, we
observed that, during the POI (the only period for which we have all
the needed data), the Canadian price was often higher than the U.S.
price.
Thus, based on the above price comparisons, we determine that the
operations of the CWB did not provide a benefit to the producers of
live cattle during the POI. Therefore, we determine that the operations
of the CWB during the POI did not provide an indirect countervailable
subsidy.
Provision of Goods or Services
B. Saskatchewan Pasture Program
The Saskatchewan Pasture Program has been in place since 1922. It
is designed to provide supplemental grazing to Saskatchewan livestock
producers and to maintain grazing and other fragile lands in permanent
cover to promote soil stability. Saskatchewan Agriculture and Food
operates 56 provincial community pastures encompassing 804,000 acres.
At these pastures, the SAF offers grazing, breeding, and health
services for fees established by SAF. Fees are based upon recovery of
the costs associated with the grazing and breeding services of each
pasture.
The provision of a good or service is a financial contribution as
described in section 771(5)(D)(iii) of the Act. As discussed above in
connection with the PFRA, a benefit is conferred in the provision of a
good or service when the prices charged for government-provided goods
or services are less than the prices charged by private suppliers. In
the case of the Saskatchewan Pasture Program, a simple comparison of
the fees charged would not be appropriate because the pasture services
being offered by the SAF differ from those offered by private
providers. In this regard, the GOS has provided a quantifiable
adjustment. Specifically, we adjusted the private price downward by
deducting costs associated with the timing of the sale of cull cows.
Although the GOS argued that there were other differences that should
be taken into account for such things as commingling, pasture
condition, delivery and pickup periods, we have not made adjustments
for such costs because either the GOS did not establish that such costs
were faced solely by public pasture patrons or because the GOS was
unable to quantify them.
Comparing the public pasturing price to the adjusted private
pasturing price, we determine that the price for private pastures is
lower than the price for public pastures. Therefore, we determine that
the government is adequately remunerated for its provision of pasture
services. Thus, no countervailable subsidy exists.
C. Alberta Grazing Reserve Program
Like the federal government's PFRA Community Pasture Program,
Alberta developed community pastures (reserves) on which multiple
ranchers' herds can graze. Grazing reserves also provided multiple-use
opportunities to other users.
Traditionally, government employees supervised and managed the
animals on the reserves, and maintained and built range infrastructure.
However, as of April 1, 1999, the GOA ceased to perform management
activities on 32 of its 37 grazing reserves as a result of a
privatization initiative. Under the privatization initiative, livestock
management responsibilities were shifted to grazing associations and
new, negotiated fees have been established. However, during the POI,
the government operated 20 reserves, accounting for approximately
170,000 AUMs. The 17 remaining reserves were privately operated and
accounted for approximately 150,000 AUMs.
Priority in issuing permits for use of the reserves is given to
residents who operate a ranch or farm. The Minister of Lands and
Forests establishes the amount to be paid for stock grazing on each
pasture operated by the GOA. The GOA reported that the grazing revenues
obtained from this program exceed the cost of the grazing aspects of
the program and cover many of the multiple-use functions of the land.
The provision of a good or service is a financial contribution as
described in section 771(5)(D)(iii) of the Act. As discussed above in
connection with the PFRA, a benefit is conferred in the provision of a
good or service when the
[[Page 57053]]
prices charged for government-provided goods or services are less than
the prices charged by private suppliers. In the case of the Alberta
Grazing Reserve Program, we determine that the government is charging
more than the private providers of the same services. Specifically, the
fees charged by the private grazing associations to its members were
lower than those charged by the government. Based on the above, we
determine that the government is receiving adequate remuneration for
its provision of grazing services. Thus, no countervailable subsidy
exists.
We also examined whether the amount charged by the GOA to the
private grazing associations for the reserves they operate provided
adequate remuneration tot he GOA. We found that the fee charged is
comparable to the adjusted private grazing lease price discussed under
the ``Alberta Crown Lands Basic Grazing Program'' section above.
Therefore, we determine that the government is being adequately
remunerated for its provision of grazing land to grazing associations.
Thus, no countervailable subsidy exists.
Green Box Programs
Under section 771(5B)(F) of the Act, domestic support measures
provided with respect to the agricultural products listed in Annex 1 to
the 1994 WTO Agreement on Agriculture (``Agriculture Agreement'') shall
be treated as noncountervailable if the Department determines that the
measures conform fully with the provisions of Annex 2 of the
Agriculture Agreement. Our New CVD Regulations further state that we
will determine that a particular domestic support measure conforms
fully to the green box criteria in the Agriculture Agreement if we find
that the measure (1) is provided through a publicly-funded program
(including government revenue forgone) not involving transfers from
consumers; (2) does not have the effect of providing price support to
producers; and (3) meets the relevant policy-specific criteria and
conditions laid out in Annex 2 of the Agriculture Agreement. As was
noted above in the Applicable Statute and Regulations section, although
Subpart E of 19 CFR Part 351 of our New CVD Regulations does not apply
to this investigation, Subpart E represents the Department's
interpretation of the requirements of the Act and is, thus, referenced
here.
The GOC requested ``green box'' treatment for three programs in
this investigation: The Canada-Alberta Beef Industry Development Fund
(``CABIDF''), the Feed Freight Assistance Adjustment Fund (``FFAF''),
and the Saskatchewan Beef Development Fund (``SBDF''). Because the FFAF
was not used during the POI, we do not reach the issue of green box
treatment for FFAF. See the Programs Preliminarily Determined To Be Not
Used section, below. The claims made relating to CABIDF and SBDF are
discussed in detail below. A more detailed discussion of the
Department's analysis of this issue can be found in the Department's
Memorandum to Richard Moreland: ``Green Box Claims Made by the
Government of Canada,'' dated May 3, 1999, which is on file in the
Central Records Unit.
D. Canada-Alberta Beef Industry Development Fund
CABIDF, which was established by the GOC and the GOA in April 1997,
supports research, development, and related activities connected to the
beef industry in Alberta. It is administered by the Alberta Department
of Agriculture, Food, and Rural Development and run by the Alberta
Cattle Commission and the Alberta Agricultural Research Institute. To
receive funding through this program, applicants must submit a series
of research proposals that are evaluated on the basis of the project's
relationship to the Funds's research priorities (which are discussed in
the Preliminary Determination), its scientific merits, and the
usefulness of the project results to the beef industry, directly or
indirectly. Final proposals are evaluated for technical merit by a
scientific committee consisting of industry experts and scientists, and
are then approved or rejected based on these evaluations by CABIDF's
governing committee.
In order to determine whether CABIDF qualifies for green box
treatment under section 771(5B)(F) of the Act, we examined whether
CABIDF met the criteria specified in the Act and further detailed in
the Agriculture Agreement. With regard to the first criterion noted
above, in the original and supplemental questionnaire responses, the
GOC and the GOA stated that all monies used to fund this program came
directly from the government, whether on a provincial or on a federal
level. We verified that no funds for this program were received from
any entity other than federal and provincial governments during the
POI. The funds went directly to CABIDF applicants. No transfers from
consumers were involved.
As for the second criterion, none of the projects that have been
approved by CABIDF have the effect of providing price support to
producers.
With regard to the last criterion, the policy-specific criteria
that must be met in this case are those listed under paragraph 2, Annex
2 of the Agriculture Agreement. Paragraph 2 focuses on policies that
provide services or benefits to the agriculture or rural community. It
includes sub-paragraph (a), which covers projects for research,
including general research, research in connection with environmental
programs, and research programs relating to particular products (sub-
paragraph (a)).
According to its authorizing statute, the purpose of CABIDF is to
``provide financial contributions in the form of grants to enhance
research and industry development activities with the objective of
promoting and enhancing the competitiveness of the beef industry in
Alberta.'' Officials confirmed that each project approved through
CABIDF is approved solely because of its potential scientific research
value to the Alberta beef industry, and that projects approved are all
research-related projects. We verified that all of the projects that
have been funded by CABIDF since the program's inception in April 1997
have been related to scientific research activities for the beef
industry and the agriculture industry in general. All of the approved
projects consisted of grants, not revenue forgone, and we verified that
none were paid directly to producers or processors.
Based on our analysis, we find that CABIDF is eligible for green
box treatment under section 771(5B)(F) of the Act, and, thus, is not
countervailable.
E. Saskatchewan Beef Development Fund
SBDF, which is administered by the Agriculture Research Branch of
the Saskatchewan Ministry of Agriculture and Food, supports the
development and diversification of Saskatchewan's beef industry through
the funding of various projects related to production research,
technology transfer, and development and promotion of new products. The
ministry-appointed, producer-run governing board, the Saskatchewan Beef
Development Board, meets once a year to review and approve project
proposals that it deems to be of general benefit to the cattle and beef
industries. Priority is given to public research institutions
conducting research, development, and promotion activities that will be
generally available to the industry.
In order to determine whether SBDF qualifies for green box
treatment under section 771(5B)(F) of the Act, we examined whether the
SBDF met the criteria specified in the Act and further
[[Page 57054]]
laid out in the Agriculture Agreement, which were described in detail
above. With regard to the first criterion, in the original and
supplemental questionnaire responses, the GOS reported that all monies
used to fund this program came directly from the provincial government.
We verified that no funds for this program were received from any non-
public entity during the POI. The funds went directly to SBDF
applicants. No transfers from consumers were involved.
As for the second criterion, none of the projects that have been
approved by SBDF have the effect of providing price support to
producers.
Finally, with regard to the last criterion, the policy-specific
criteria that must be met in this case are also those which are listed
under paragraph 2, Annex 2 of the Agriculture Agreement. In particular,
the relevant criteria are contained in sub-paragraphs (a), (c), (d),
and (f) of paragraph 2, which focus on programs relating to research,
training services, extension and advisory services, and marketing and
promotion services.
The regulations governing SBDF state that the purpose of the
program is to provide for the enhancement of the Saskatchewan beef and
beef cattle industry through research, development, and promotional
activities that the board considers to be in the best interests of the
industry. We verified that each of the thirteen projects that received
funding distributions through the SBDF during the POI was either a
research or an extension and advisory program. All of the approved
projects consisted of grants, not revenue forgone, and we confirmed
that none were paid directly to producers or processors.
Based on our analysis, we find that SBDF is eligible for green box
treatment under section 771(5B)(F) of the Act and, thus, is not
countervailable.
Other Programs
F. Net Income Stabilization Account
The Net Income Stabilization Account (``NISA'') is designed to
stabilize an individual farm's overall financial performance through a
voluntary savings plan. Participants enroll all eligible commodities
grown on the farm. Farmers may then deposit a portion of the proceeds
from their sales of eligible NISA commodities (up to three percent of
net eligible sales) into individual savings accounts, receive matching
government deposits, and make additional, non-matchable deposits, up to
20 percent of net sales. The matching deposits come from both the
federal and provincial governments.
NISA provides stabilization assistance on a ``whole farm'' basis.
This means that a farmer's eligibility to receive assistance depends on
total farm profits, not the profits earned on individual commodities. A
producer can withdraw funds from a NISA account under a stabilization
or minimum income trigger. The stabilization trigger permits withdrawal
when the gross profit margin from the entire farming operation falls
below an historical average, based on the previous five years. If poor
market performance of some products is offset by increased revenues
from others, no withdrawal is triggered. The minimum income trigger
permits the producer to withdraw the amount by which income from the
farm falls short of a specific minimum income level.
In Live Swine From Canada; Final Results of Changed Circumstances
Countervailing Duty Administrative Review, and Partial Revocation, 61
FR 45402 (August 29, 1996), we found that NISA is not de jure specific.
Moreover, for hog producers, we found that NISA was not de facto
specific. Therefore, the issue in this investigation is whether NISA is
de facto specific with respect to cattle producers.
To make our determination, we have examined whether cattle
producers are dominant users of the program, or whether cattle
producers receive disproportionately large benefits under the program.
We found no evidence that cattle producers are dominant users or
receive disproportionate benefits from the NISA program. Specifically,
the GOC provided information on farmer withdrawals of NISA funds during
the POI and the two preceding years. Because NISA does not collect or
maintain information concerning withdrawals on a commodity-by-commodity
basis, the GOC reported farmer withdrawals by categorizing farms by the
source of the majority of their revenues. That is, a farm with over
fifty percent of its revenues from a particular commodity's sale, such
as cattle, was classified as a farm of that commodity. On this basis
the GOC reported that, during the POI, cattle farms accounted for 7.7
percent by value of total withdrawals from NISA.
We have also analyzed whether NISA is regionally specific because
certain commodities, including cattle, in certain provinces are not
eligible commodities under the program. In that regard, we determine
that NISA is not limited to a particular region. While certain
commodities are not eligible for matching funds within certain
provinces, the producers of these commodities elect not to participate
at their own choice, not because the program is limited to an
enterprise or industry located in a particular region.
Based on the above analysis, we determine that NISA assistance is
not limited to a specific enterprise or industry, or group of
enterprises or industries. Therefore, we determine that assistance
received by cattle producers under the NISA program is not
countervailable.
G. Alberta Public Grazing Lands Improvement Program
Established in 1970 and terminated in 1995, this program provided a
partial credit toward the payment of rent on a public grazing land
disposition if the lessee undertook certain pre-approved capital range
improvement projects. The leaseholder was required to pay for all the
costs incurred for these capital improvements, and was reimbursed for
25 to 50 percent of these costs through credits on the rental fees
otherwise due annually. All improvements belong to the government and,
once the improvements are created, the lessee is required to maintain
them at his or her own expense.
In order for a financial contribution to exist under this program,
the GOA must forego rental fees, or a portion thereof, that are
otherwise due as described in section 771(5)(D)(ii) of the Act.
However, in this case the reduction in the rental fees corresponds to
range improvements on behalf of the government. Furthermore, the
increased value of the land as a result of the improvements is captured
upon the next setting of rental fees. Based on the above analysis, we
determine that this program does not provide a financial contribution
and, therefore, we determine that the program is not countervailable.
H. Saskatchewan Crown Land Improvement Policy
The Crown Land Improvement Policy is designed to provide rental
adjustments when Crown land lease holders make capital improvements to
the land, such as clearing, bush removal, or breaking and reseeding. In
return for the lessee's funding of these improvements, Saskatchewan
Agriculture and Food (``SAF'') agrees not to increase the rental rate
for a certain period of time, depending on the length of the
improvement project or may reduce the basis for rent. SAF is willing to
reduce the rental rate or freeze the rate because during the
improvement project the actual stocking rate of the land is lower than
the potential, the improvements do not result in an immediate increase
in the
[[Page 57055]]
productive value of the land, and any improvements belong to the Crown.
In order for a financial contribution to exist under this program
the GOS must forego rental fees, or a portion thereof, that are
otherwise due as described in section 771(5)(D)(ii) of the Act.
However, in this case the reduction in the rental fees corresponds to a
reduction in the land's carrying capacity while improvements are
undertaken. The increased value of the land as a result of the
improvements is captured upon the next setting of rental fees. Based on
the above analysis, we determine that this program does not provide a
financial contribution and, therefore, we determine that the program is
not countervailable.
I. Saskatchewan Breeder Associations Loan Guarantee Program
The Saskatchewan Breeder Associations Loan Guarantee Program was
established in 1991 to facilitate the establishment of cattle breeder
associations, in an effort to promote cattle breeding in Saskatchewan.
The program is administered by the Livestock and Veterinary Operations
Branch of the Saskatchewan Agriculture and Food Department. This agency
provides a guarantee on 25 percent of the principal amount of loans to
breeder associations for the purchase of certain breeding cattle.
Eligibility is limited to breeder associations which consist of at
least twenty individuals who are residents of Saskatchewan and over the
age of eighteen. One hundred and seven associations received guarantees
on loans which were outstanding during the POI.
Breeding livestock is not covered by the order of this
investigation. Therefore, we determine that this program does not
provide a countervailable subsidy to the subject merchandise because
any potential subsidy would benefit merchandise other than that covered
by this investigation.
III. Programs Determined To Be Not Used
Based upon the information provided in the responses, we determine
that the producers of the subject merchandise under investigation did
not apply for or receive benefits under the following programs during
the POI.
A. Feed Freight Assistance Adjustment Fund
Of the four responding provinces in this investigation, only one,
Ontario, participated in the Feed Freight Assistance Adjustment Fund
program. Specifically, in the year prior to the POI, the first year of
the FFAF, a grant was provided to Ontario producers. However, because
the benefit was below 0.5 percent of the investigated provinces' total
sales, we expensed this grant in the year received. Thus, cattle
producers received no benefit during the POI from grants received prior
to the POI. We verified that, during the POI, Ontario did not receive
benefits under FFAF. Therefore, we determine that the FFAF program was
not used during the POI.
B. Canadian Adaptation and Rural Development (CARDS) Program in
Saskatchewan
C. Western Diversification Program
IV. Programs Determined To Be Terminated
A. Ontario Export Sales Aid Program
V. Other Programs Reviewed
The GOC demonstrated that, for the following programs, any benefit
to the subject merchandise would be so small that there would be no
impact on the overall subsidy rate, regardless of a determination of
countervailability. In light of this, we do not consider it necessary
to determine whether benefits conferred under these programs to the
subject merchandise are countervailable.
A. Ontario Bear Damage to Livestock Compensation Program
B. Ontario Livestock Programs for Purebred Dairy Cattle, Beef, and
Sheep Sales Assistance Policy/Swine Assistance Policy
C. Ontario Artificial Insemination of Livestock Act
Interested Party Comments
Canadian Wheat Board
Comment 1: Indirect Subsidies
The petitioner argues that, according to Georgetown Steel Corp. v.
United States, 801 F.2nd 1308, 1315 (Fed. Cir. 1986), a subsidy is
defined as any action that distorts or subverts the market process and
results in a misallocation of resources. In determining the existence
of a countervailable subsidy, according to Section 771(5)(C) of the
Act, it is irrelevant whether the subsidy was provided directly or
indirectly.
The petitioner further contends that the SAA and Department
precedent make clear that the Department intends to countervail
indirect subsidies, such as export restraints. As such, the GOC need
not compel Canadian barley growers to supply the cattle industry.
According to the petitioner, it is sufficient that feed barley is
produced and sold only to cattle and other livestock producers.
Specific end-use market control over exports, and the resulting
depression of domestic prices, is sufficient to direct lower-priced
feed barley to Canadian cattle producers. The provision of goods,
albeit by a private party, may be countervailed when the price of those
goods is the result of a government program distorting the market.
The GOC argues that the URAA added a definition of
``countervailable subsidy'' to U.S. law which requires that a
``financial contribution'' and a resulting benefit be conferred before
a ``subsidy'' can be said to exist. Further, a financial contribution
may be only one of four specifically enumerated forms of government
action, including the ``provision of goods,'' which is the allegation
in this case. This requirement may result from private action in
situations in which the government ``entrusts or directs a private
entity to make a financial contribution'' such as the provision of
goods. The GOC argues that neither the GOC nor the CWB entrusted or
directed Canadian barley producers to do anything. To the contrary,
barley producers have complete discretion over decisions concerning
whether to offer barley to the CWB, to sell it to domestic cattle or
other livestock producers, to use it as feed on one's own farm, or, for
that matter, to do nothing with it at all. Indeed, according to the
GOC, barley producers remain free to produce another product, or to
change their line of business altogether. According to the GOC, since
the CWB is neither providing goods to cattle producers nor entrusting
or directing any private entity to do so, no financial contribution
exists in this instance and, thus, no subsidy.
Department's Position: It is our position that indirect subsidies,
such as export restraints, are potentially countervailable. In the
preamble of the New CVD Regulations, we stated that while export
restraints ``may be imposed to limit parties'' ability to export, they
can also, in certain circumstances, lead those parties to provide the
restrained good to domestic purchasers for less than adequate
remuneration'' (at 65351). Thus, the provision of a good, whether
provided directly or indirectly, for less than adequate remuneration
constitutes a financial contribution under section 771(5)(D) of the
Act. In this case, although we have found no benefit during the POI,
record evidence indicates that the CWB is not immune to the interests
of cattle producers in its policy determinations.
[[Page 57056]]
Comment 2: CWB Control, Inefficiency, and Market Distortions
The petitioner states that the CWB is legally and operationally in
a position to control the barley market, restrain exports, oversupply
the domestic market, and thereby reduce the costs incurred by Canadian
cattlemen. The petitioner argues that, whether or not the CWB's control
amounts to a direct and utter restriction on exports, the Canadian
marketing and handling system, of which the CWB is a key institution,
prevents exports which otherwise would have occurred because it creates
a disincentive for Canadian barley farmers to offer feed barley for
export.
Specifically, the petitioner suggests that the CWB system creates
inefficiencies and increased marketing costs, which causes less barley
to be exported than would be in the absence of the CWB. The petitioner
provides economic studies which show that the CWB's control limits the
ability of the Canadian market to arbitrage with export markets. The
petitioner further argues that theory and empirical evidence show that
the CWB's control of exports lowers domestic feed barley prices.
The petitioner argues that the ``direct and discernible effect'' on
prices caused by the CWB's control is that export price signals to
barley farmers (the PROs and EPRs) are distorted. Thus, because barley
producers perceive export demand to be at price levels far below actual
export prices, less barley is offered to the CWB and more is available
on the domestic market at lower prices. The effect of the CWB barley
export control is made evident in the long-term, substantial disparity
between domestic and export prices. The petitioner further argues that
this price differential was not affected by the cessation of rail
freight subsidies and that the effects of U.S. Export Enhancement
Program (EEP) and E.U. subsidies are independent from the question
whether the CWB's restraints on exports have distorted barley prices in
Canada.
The GOC states that the CWB system itself does not create a
disincentive to offer barley as the petitioner alleges. Regarding the
argument that the CWB system is inefficient, the GOC points to other
studies on the record that refute this conclusion. The GOC also points
to the fact that the allegedly inflated distribution costs that lead to
inefficiencies relate to activities outside of the CWB's jurisdiction.
Nonetheless, the GOC claims, any effect of an alleged inefficiency
cannot be equated with an export restriction and cannot give rise to a
subsidy.
The GOC further states that record evidence shows that PROs and
EPRs do, in fact, provide adequate pricing signals to barley farmers.
There is nothing on the record to suggest that the pricing signals
during the POI did not reflect the market realities in export markets.
Furthermore, any alleged price differentials are caused by the removal
of freight subsidies and U.S. EEP and E.U. subsidies, distortions which
are outside of the CWB's control, according to the GOC.
Department's Position: As discussed above, we agree that certain
aspects of the CWB system can be market-distorting and can have the
same result as an overt export restraint. For example, Canadian barley
farmers are not able to respond to sudden increases in export prices
because of the rigidity of the CWB's pricing system for barley.
Regarding the alleged inefficiency of the system arising from increased
marketing costs, the evidence on the record is not necessarily
conclusive. Nonetheless, as described in the CWB section above, we did
not find significant price differentials between prices inside the
designated area and U.S. prices, some of which reflect prices to the
major consumers of feed barley in world markets. Thus, we determine
that Canadian cattlemen did not receive a benefit during the POI.
Comment 3: Canadian Barley Producers as a Private Entity
The GOC states that Canadian barley producers cannot qualify as a
``private entity'' under any normal meaning of the term. Thus, the
Department cannot conclude that they were ``entrusted or directed'' to
provide an indirect subsidy.
The petitioner states that both Lumber and Leather, as well as
Department practice, have shown that the term ``private entity'' is and
has been interpreted to encompass inducement of more than one private
entity.
Department's Position: Although we have found that the CWB system
did not provide a benefit to Canadian cattlemen during the POI, we
believe that barley farmers may be considered a private entity. We
further note that both the SAA (at 926) and the preamble to the New CVD
Regulations (at 65350) make clear that the Department considers the
phrase ``private entity'' to include groups of entities or persons.
Comment 4: Cross-Border Comparisons
The petitioner states that the Department erred in its preliminary
analysis of prices by relying on a comparison of Canadian domestic
prices to only U.S. interior prices in Great Falls. According to the
petitioner, a rational exporter would not ship to Great Falls, which is
a surplus barley area, but would seek out the highest export prices
(i.e., the U.S. PNW/Portland, Saudi Arabia or Japan). Moreover, in
prior cases such as Lumber, the Department has relied on prices from
the most important export markets for comparison purposes. Without this
type of cross-border comparison, the petitioner argues, it would be
impossible to measure benefits conferred on the domestic industry.
The GOC argues that cross-border comparisons should not be used at
all in this analysis. Any analysis should be made by looking at
prevailing market conditions for the good or service being provided in
the country subject to the investigation, Canada. The proper inquiry is
the price cattlemen would otherwise pay in Canada, not alternate
markets.
Department's Position: We agree with the petitioner that a
comparison of only Great Falls and Canadian domestic prices does not
necessarily answer the question of whether domestic feed barley prices
in Canada are lower than prices outside of Canada. A thorough analysis
should also account for other U.S. and world market prices. As
described in the CWB section above, we made several price comparisons,
some of which are similar to those suggested by the petitioner, and
found no price differential.
We disagree with the GOC that cross-border comparisons are
inappropriate to test whether Canadian domestic feed barley prices are
artificially low. When confronted with an adequate remuneration issue,
the Department will normally seek to measure the adequacy of
remuneration by comparing the government price to market-determined
prices within the country. However, in certain circumstances, market
prices may not exist in the country or it may be difficult to find a
``market'' price that is independent of market distortions caused by
government action. With respect to export restriction programs in
particular, international prices are not necessarily the benchmarks we
use to determine if a benefit exists; in such cases, international
prices are merely the starting point of our analysis. See Lumber.
The only domestic barley prices on the record that may be
independent of the CWB's influence are prices for barley grown in
Ontario. However, we verified that the Ontario barley market is very
different from that in the
[[Page 57057]]
designated area because the barley market in Ontario is very thin and
is subject to significant price fluctuations. Additionally, to the
extent that cattle are raised in Ontario, they are primarily fed corn
rather than barley. Thus, we do not believe Ontario provides a reliable
comparison price.
Because there is not an appropriate market price within Canada, we
used other prices against which to compare barley prices in the
designated area. Given that these price comparisons did not yield
significant, consistent price differentials through the POI, further
analysis of whether Canadian domestic feed barley prices are lower than
they would be absent the CWB is unnecessary.
Comment 5: The CWB's Producer Direct Sales (``PDS'') Program
The petitioner argues that the PDS program eliminates any economic
or rational incentive to export unless the exporter can obtain an
export price that is substantially higher than the Canadian domestic
price and the PDS price. Thus, it acts as a substantial restraint on
exports.
The GOC argues that the PDS program is a safety valve for producers
to allow them to pursue higher returns that they find through export
spot opportunities. Furthermore, the CWB actively assists producers in
pursuing this option.
Department's Position: Based on our analysis, the PDS program does
not encourage farmers to export independently. In theory, the PDS
program allows barley farmers to export for their own account. However,
as a practical matter, in order to benefit from the PDS program,
farmers essentially have to find extraordinary sales opportunities
because the PDS price is set relatively high and consistently higher
than the CWB pool return. Thus, it is unlikely that a barley farmer
would be able to find sales opportunities sufficiently attractive to
make the PDS program a worthwhile endeavor. Nevertheless, as noted
above, we have concluded that, even assuming a restraint on exports,
the operations of the CWB did not provide a benefit to Canadian
cattlemen during the POI.
Comment 6: Freight Adjustments
The GOC states that any comparisons of barley prices must account
for freight. Although the petitioner did attempt to make a freight
adjustment in a few of its price comparisons, the adjustments were
``absurdly low'' and, after proper adjustments for freight are made,
the price differentials alleged by the petitioner disappear.
The petitioner provides several price comparisons which show a
significant, long-term price differential between prices in the
designated area and prices in export markets. In a few of these
comparisons, the petitioner made an adjustment for freight based upon
freight costs from Calgary to Vancouver. According to the petitioner,
even after one accounts for freight, there is still a significant price
differential.
Department's Position: Freight is a key element in the price of
Canadian feed barley; all feed barley prices throughout the designated
area track the price in Lethbridge. To reflect this market reality, for
example, feed barley futures contracts traded on the Winnipeg Commodity
Exchange are designed with ``regional discounts'' which account for the
location of barley and the cost of shipping that barley to Lethbridge
(as well as local supply and demand factors). See CWB Verification
Report at 16. Therefore, any comparison of prices at different
geographic locations must account for freight costs.
Although the petitioner adjusted an average price in the designated
area for freight, the adjustments did not adequately reflect the real
cost of transporting grain grown throughout the designated area to
Vancouver. Specifically, the petitioner used the freight rate from
Calgary to Vancouver to adjust an average price based on prices
throughout the designated area. The train route from Calgary to
Vancouver is shorter than all other points in the designated area and,
therefore, freight costs from this point are likely to be lower than
everywhere else. Record evidence shows that freight costs to Vancouver
from other points in the designated area can be substantially more than
the cost of freight from Calgary.
Therefore, in making our point-to-point price comparisons, we made
freight adjustments which corresponded with the specific location of
the barley price used in the comparison (i.e., Saskatoon or
Lethbridge). After adjusting for freight in our point-to-point
comparisons, we found no consistent pattern of price differentials when
comparing the prices of feed barley sold in the designated area and the
prices of feed barley outside of Canada.
Comment 7: Export Price Benchmarks
The petitioner argues that the Department should use several
pricing series to represent export prices: (1) Canadian export
statistics, (2) U.S. Portland and PNW prices, (3) PDS prices, and (4)
U.S. import statistics. With respect to Canadian export statistics, the
petitioner first notes that Canadian ``exports'' to the U.S. are in
fact U.S. import statistics prepared by the U.S. Census Bureau and
argues that the Department should not disregard the U.S. import data as
it did in the Preliminary Determination in calculating Canadian export
prices to the U.S. Furthermore, the petitioner argues that this data
provides a better basis for computing overall available export
opportunities than the actual transaction data reported by the CWB by
virtue of the additional charges incurred by the CWB on the transaction
data and because any reporting errors in the U.S. import data due to
freight would be minor.
The petitioner further suggests that U.S. prices in Portland or the
PNW should be used over prices in Great Falls (as was done in the
Preliminary Determination) because, as stated in comment 4 above, a
rational exporter would not ship to Great Falls, but to the market that
provides the highest price. Moreover, according to the petitioner,
record evidence indicates that Portland prices may be indicative of the
best export opportunity available.
Finally, the petitioner suggests that PDS prices could be used as
an export price because the PDS prices represent the best determination
of the CWB as to its own export opportunity price. In addition, the
petitioner states that because PDS prices are posted daily at all
elevators, they are not affected by freight charges and, thus, do not
need to be adjusted for freight costs.
The GOC argues that each of the petitioner's export price
suggestions suffers from numerous factual and legal shortcomings.
First, the Canadian export statistics and U.S. import statistics are
unreliable because they reflect shipments, not sales, and thus cannot
be compared with Canadian domestic sales prices. Moreover, as
established at verification, some values reported in the U.S. import
statistics do, in fact, include freight. Second, there is no evidence
on the record to suggest that Portland or PNW prices are the prices
that Canadian cattlemen would pay in the absence of the CWB. Moreover,
when proper freight adjustments are made to this price series, the
differential disappears. Third, PDS prices do not reflect conditions in
Canada or the price that Canadian cattlemen would pay, and there is no
evidence that significant quantities of barley could be sold at PDS
prices. In addition, the petitioner is incorrect in stating that PDS
prices would not need to be adjusted for freight because they are
posted at all elevators. PDS prices are based in Vancouver and St.
Lawrence and, thus,
[[Page 57058]]
would have to be adjusted for freight when comparing them to prices
within the designated area. Fourth, with respect to U.S. import
statistics, it is not reasonable to assert that these statistics are
more reliable than actual CWB transaction data, especially in light of
the known deficiencies with the U.S. data.
Department's Position: As described in the CWB section above, we
made several price comparisons. In doing so, we used prices from a
variety of sources (including the petitioner's second suggestion to use
Portland prices), making appropriate adjustments for freight when
necessary. For further discussion of the prices selected for our
comparisons, see CWB Analysis Memorandum.
With respect to PDS prices, although they are posted at every
elevator throughout the designated area, PDS prices are based in
Vancouver or St. Lawrence and the amount a farmer would have to pay to
``repurchase'' his barley from the pool would be net of freight from
that location to either Vancouver or St. Lawrence. Thus, to compare
accurately PDS prices with prices in the designated area, PDS prices
need to be adjusted for freight. We note that if one were to employ the
petitioner's suggestion and compare PDS prices to designated area
prices, after adjusting for freight, there is not a consistent price
differential. See Final Calculations.
With respect to the petitioner's first and fourth pricing
suggestions, the evidence on the record makes clear that there are
problems with both the Canadian export statistics and U.S. import
statistics. For example, the import/export statistics reflect
shipments, not sales, and thus, cannot reliably be compared with
domestic sales prices. In addition, the Canadian export statistics to
Japan include values for both feed and malting barley. We further note
that although the export/import statistics are reported f.o.b. at the
port, the particular port is unknown so there is no means to adjust
those figures precisely for freight to make an appropriate comparison
with domestic prices.
Furthermore, we determine that the actual CWB export sale
transactions to the U.S. that we verified are more reliable than prices
derived from secondary sources such as U.S. import statistics. We
conducted a thorough verification of the CWB's export sales and
confirmed that all prices were reported accurately and that all freight
adjustments were reasonable. In addition, record evidence demonstrates
that, in certain instances, freight is improperly included in the
values reported in the U.S. statistics. For these reasons, we did not
rely on derived prices from the volume and value figures reported in
the export/import statistics.
Comment 8: Use of Actual Versus Bid or Offer Prices
The petitioner suggests that, in determining the proper domestic
pricing series to use for comparison purposes, the Department should
rely on pricing series based on ``bid'' or ``offer'' prices as well as
pricing series that measure actual transactions. (``Bid'' prices are
the prices at which elevators are willing to purchase barley from the
producer; ``offer'' prices are the prices at which the elevator is
willing to sell (or offer) barley to consumers. The difference between
bid and offer prices is the elevator margin.) Moreover, the Department
should not exclude particular pricing series on the grounds that they
include elevation charges. According to the petitioner, if there is a
high level of competition among elevators, some may absorb elevation
charges and others may not. Since there is no means to adjust for these
differentials, there would be no reason to exclude certain price series
that are based on commercial elevator offer prices.
The GOC, while it does not object to the use of pricing series
based on bids or offers, believes that the other pricing series,
especially those based on cash or transaction prices, are equally or
more reliable and should not be discarded in favor of bid or offer
prices.
Department's Position: We have used both price series based on
actual transactions and those based on bid or offer prices in our
calculations to determine a domestic price for comparison purposes.
Further, we agree with the petitioner that there is no means on the
record to adjust precisely for elevation charges. See CWB Analysis
Memorandum.
Comment 9: Reliance on Lethbridge as a Domestic Pricing Point
The petitioner states that the Department should not rely too
heavily on Lethbridge prices in calculating Canadian domestic prices
for the final determination. The petitioner argues that, since
Lethbridge is a net import market for barley, Lethbridge prices would
be indicative of the high-water mark, not of overall price levels in
the designated area.
The GOC argues that, since barley transactions are carried out by
private barley producers and not by the GOC, there is no real
``government barley price'' in Canada to which any comparison can be
done. However, if prevailing prices in the designated area are
construed as a government price, Lethbridge prices are the most obvious
to use as a domestic point since Lethbridge is the point in Western
Canada from which all other feed barley is priced.
Department's Position: Although we agree with the petitioner that
we should not rely exclusively on Lethbridge prices as the measure of
the domestic prices for barley in Canada, we agree with the GOC that
Lethbridge is an important pricing point in the designated area.
Therefore, we have used, but not relied exclusively upon, Lethbridge
prices in our various comparisons.
As discussed in the CWB section above, in the first comparison, we
adjusted the Lethbridge price downward to account for truck freight
from Saskatoon. In the second comparison, we relied entirely on
Lethbridge because certain CWB export sales were reported only on a
Lethbridge basis, which made Lethbridge the only useable Canadian
comparison price. In the third and fourth comparisons, we combined the
Lethbridge price with other Canadian prices to calculate average
prices. Thus, in the last two comparisons, we accounted for barley
prices throughout the designated area.
Comment 10: Prices of Western Canadian Barley Sold in Ontario
The petitioner states that an analysis of domestic prices within
the designated area should not include the Ontario locations of Thunder
Bay and Georgian Bay because these points are not within the designated
area.
The GOC argues that, although the Ontario pricing points to which
the petitioner refers are physically located outside of the designated
area, prices in these locations represent prices of Western Canadian
barley and can be properly included in the analysis.
Department's Position: For the final determination, we have
modified the average price for the designated area to exclude Ontario
prices. Although the GOC is correct in stating that Ontario prices for
Thunder Bay and Georgian Bay are for barley produced in the designated
area and shipped to Ontario, these prices would include freight to
Ontario. Thus, the inclusion of these prices in the average designated
area price that we calculated for use in one of our price comparisons
would not be appropriate.
[[Page 57059]]
Comment 11: Use of Facts Available To Determine Export Prices to Japan
The petitioner argues that the Department should use adverse facts
available when determining the export price to Japan because the CWB
failed to provide pricing information that it maintains as the sole
exporter of Canadian barley.
The GOC states that, to its knowledge, it has submitted information
that has been satisfactory to the Department. Moreover, the GOC asserts
that the information it has submitted has allowed the Department to
sufficiently address the major issues at hand.
Department's Position: Although we would have preferred to obtain
CWB third country pricing data, we have determined that, for the
purposes of this investigation, there is sufficient pricing information
on the record to make appropriate price comparisons based upon
published pricing surveys at specific locations. Thus, the use of
adverse facts available based upon deficient secondary sources is not
warranted.
Comment 12: Countervailability of Provincial Loan Guarantee Programs
The GOA, GOS, GOM and GOO contend that their respective loan
guarantee programs do not provide a countervailable benefit as defined
in Section 771(5)(E)(iii) of the statute because the programs do not
lower the cost of borrowing. Respondents state that the Department
confirmed at verification that it is the highly structured nature and
security requirements of the associations participating in the loan
guarantee programs, and not the guarantees, that determine the interest
rates charged to participants. Specifically, respondents argue that the
guarantee is commercially insignificant when compared to other aspects
of the program such as the substantial security provided to lenders by
the associations, the local monitoring undertaken by each associations'
staff and the branding requirements with respect to the cattle
purchased by association members.
The petitioner argues that, contrary to respondents' assertion, the
verification record does not establish that the loan guarantee programs
are not countervailable. Absent the loan guarantee programs, individual
cattle producers would be seeking to obtain loans rather than large
cattle associations. These small cattle operations would face
dramatically higher interest rates and stringent loan terms. This is
evidenced by the Saskatchewan Agricultural Value-Added Loan Fund, where
borrowers pay prime plus 4 percent. The petitioner urges the Department
to use this as the benchmark for the provincial loan guarantee
programs.
In the event that the Department uses information obtained from
banks at verification to derive the benchmark rate, the petitioner
contends that the Department should, at a minimum, apply a benchmark
rate of prime plus 2.25 percent for purposes of the final
determination. Petitioner asserts that this interest rate, derived from
comments made by Saskatchewan commercial lenders at verification, more
accurately reflects the cost of borrowing for association members than
the benchmark rate used at the Preliminary Determination.
Department's Position: At verification, private bank officials
explained that several attributes of the associations were considered
in setting the interest rate on association loans. Specifically, bank
officials mentioned that the administrative and managerial features of
the associations provide lenders with substantial security against
default. We agree that these attributes would make these loans
attractive to lending institutions, even absent the guarantees.
Nevertheless, the provincial governments do provide the guarantees on
these loans. As discussed in the ``Programs Determined To Be
Countervailable'' section, the guarantees are financial contributions
and specific to cattle producers. Therefore, we have analyzed whether
the guarantees confer a benefit by measuring the difference between the
amount the associations pay on the guaranteed loans and the amount they
would pay for a comparable commercial loan absent the guarantee.
Regarding the petitioner's claim, we disagree that we should use
interest rates that would be paid by individual farmers as a benchmark
for loans taken out by associations. This is because loans to
individual cattle producers do not represent ``comparable commercial
loans'' to loans taken out by associations. Thus, we have not
incorporated the lending rates available under the Saskatchewan
Agricultural Value-Added Loan Fund into our analysis. Moreover, we
verified that this program does not currently exist and that cattle
producers never participated in it. Consequently, loan rates
established by that program are not relevant to this investigation.
Comment 13: Alberta Feeder Association Loan Guarantee
First, the GOA contends that the Department failed to take into
account the marginal nature of the government guarantee. The GOA
explains that the program only guarantees 15 percent of the total
amount of the loan and, therefore, it is not credible for such a small
guarantee to have the economic impact reflected in the Department's
preliminary benchmark rate.
Second, the GOA argues that the Department should incorporate the
discounted lending rates obtained by Alberta feeder associations from
bank marketing efforts into its calculation of the provincial benchmark
rate. The GOA notes that the identical interest rate was offered to a
variety of borrowers throughout Canada during the POI and, therefore,
the Department should not treat these lending arrangements as a
subsidy.
Finally, the GOA contends that because the benchmark rates obtained
at verification are fixed rates, the Department should adjust the
floating rate feeder association loans to the equivalent fixed rate.
The GOA states that the Department confirmed at verification that
lenders offer borrowers a choice of fixed or variable rate loans, and
that banks set the two rates so they present equivalent financial risk
to the loans. Consequently, the GOA argues, the Department can adjust
the variable interest rates on loans that are guaranteed to what they
would be if they had been taken out as fixed rate loans and compare
them to the fixed rate benchmark.
Department's Position: As discussed in the Subsidies Valuation
Information section, we have revised the benchmark interest rate used
at the Preliminary Determination with respect to the provincial loan
guarantee programs and have calculated province-specific benchmark
rates based on verified information. The Alberta benchmark rate was
calculated by averaging the verified range of lending rates the
associations could obtain in the market absent the government
guarantee. Accordingly, the benchmark rate we derived from the
information collected at verification captures the marginal nature of
the guarantee. In addition, our revised benchmark included the
discounted lending rates the feeder associations received from bank
marketing efforts because the association membership was eligible for
these rates regardless of the government guarantee.
With respect to the GOA's assertion that we should adjust variable
rate association loans to the equivalent fixed rate, it is not clear
from the verification record that the benchmark information we
collected was expressed in terms of fixed rates only. Therefore, we
have not
[[Page 57060]]
made an upward adjustment to the floating rate loans for our final
results.
Comment 14: The Base Prime Rates Should Be Adjusted To Reflect Bank
Prime Rates
The petitioner argues that the Department should upwardly adjust
the prime rate used in the Preliminary Determination to reflect the
commercial prime rate available to borrowers during the POI. Petitioner
states that the Department verified that the base-lending rate used to
calculate the interest charged on association loans is the bank prime
rate, which is typically the Bank of Canada prime rate plus a spread of
.25 percent to .5 percent. Therefore, for purposes of the final
determination the Department should add the average of this range, or
.375 percent, to the prime rate used in the Preliminary Determination.
The GOC, GOA and GOS each comment that the petitioner is mistaken
and that the rate the Department used in its Preliminary Determination
was the commercial prime rate of interest charged by private Canadian
banks. Respondents note that this information was discussed and
confirmed at verification.
Department's Position: As noted by the respondents, we verified
that the prime rate used as the base-lending rate in our calculations
at the Preliminary Determination was ``bank prime,'' or the prime rate
charged by private commercial banks in Canada. Accordingly, we have not
adjusted the prime rate for purposes of our final results.
Comment 15: Exclusion of Saskatchewan Breeder Association Loan
Guarantee Program
The GOS argues that because the Department specifically excluded
breeding livestock from the scope of this investigation, the Department
should exclude the Saskatchewan Breeder Association Loan Guarantee
program from further consideration. The respondent notes that the
Department verified that this program is available only in connection
with the purchase of breeding stock. Furthermore, the respondent notes
that in previous determinations related to livestock the Department has
declined to countervail programs related to breeding livestock because
breeding stock was not covered by the order. See Live Swine from
Canada; Preliminary Results of Countervailing Duty Administrative
Reviews, 55 FR 20812, 20817 (May 21, 1990) (``Live Swine from Canada
1990'').
The petitioner contends that the respondent's argument fails to
recognize that participants in the Saskatchewan Breeder Association
Loan Guarantee program can sell the calves born to breeding livestock
purchased with loans made available under this program. Because calves
need not be sold for breeding purposes and may be placed directly into
the production cycle, the benefits from this program accrue to all
cattle producers. In addition, the petitioner argues that the
respondent's reference to Live Swine from Canada 1990 should be
disregarded by the Department because the program in question was
limited to veterinary care provided directly to breeding stock.
Department's Position: We agree with the GOS and have not
countervailed this program because breeding livestock is not covered by
the scope of this investigation. As noted by the GOS, we verified that
loans from this program are limited to the purchase of breeding stock.
As in Live Swine from Canada 1990, any benefits would thus be tied to
breeding stock only. While we agree with the petitioner that the
program in question is different from that examined in Live Swine from
Canada 1990, the fact remains that in both cases the alleged benefits
from each program go directly to non-subject merchandise and, thus, are
not covered by the scope of the respective investigations.
Comment 16: Specificity of FIMCLA
The GOC argues that the FIMCLA program is not specific because the
value of the benefits received by the hog and cattle industries are in
proportion to these producers share of the Canadian agricultural
economy. The GOC notes that in the Preliminary Determination, the
Department compared the number of FIMCLA loan guarantees obtained by
the cattle and hog industries to the total number of FIMCLA loan
guarantees approved during the POI, without reference to any benchmark
of proportionality. The GOC contends that this analysis is flawed for
two reasons.
First, the GOC argues that it is Department practice to compare the
benefits received by a particular enterprise with some objective
benchmark in order to determine proportionality. See Certain Steel
Products from Korea, 58 FR 37338, 37343 (July 9, 1993) (``Korean
Steel''). Second, the GOC contends that the Department recently
emphasized that it looks to the value, not the number, of guaranteed
loans for purposes of assessing disproportionality of loan guarantees.
See Stainless Steel Plate from South Africa, 64 FR 15553, 15564 (March
31, 1999).
The GOC states that use of the farm cash receipts statistics
submitted to the Department would permit the Department to address
these flaws. The GOC explains that this data demonstrates that, during
the POI, the share of FIMCLA benefits received by the cattle and hog
industries was significantly less than the share of farm cash receipts
generated by those industries. Accordingly, the Department should find
that FIMCLA is not specific and, therefore, not countervailable.
The petitioner counters that the GOC's argument is flawed for
various reasons and that the Department should continue to find the
FIMCLA program de facto specific in accordance with section
771(5A)(D)(iii) of the Act. With respect to the GOC's argument for an
objective benchmark, the petitioner contends that only in unusual
circumstances will the Department resort to examining de facto
specificity by determining whether the benefits received by a
particular enterprise or industry or group were disproportionate in
relation to the economy as a whole. In support of its argument, the
petitioner cites 19 CFR 351.525 of the New CVD Regulations, which
discusses that the type of subsidy under investigation in Korean Steel,
governmental use of the economy-wide banking system to direct credit to
steel producers, required a broader analysis. (See Countervailing
Duties; Final Rule, 63 FR 65348, 65359 (November 25, 1998). The
petitioner argues that unlike Korean Steel, the FIMCLA program targets
only one sector of the Canadian economy rather than the entire economy.
Therefore, use of an external reference point is not warranted in this
situation. Rather, the Department should continue with its standard
methodology of examining the level of benefits received by one industry
in comparison to other industries participating in the program.
The petitioner further argues that, in case an outside reference
point is applied, the use of farm cash receipts is not reasonable. The
petitioner notes that to the extent the farm cash receipts simply
reflect the effects of subsidization, it would not be surprising that
the amount of subsidies would parallel the dispersion of income.
Moreover, long-term loans should not be measured on this basis because
the GOC has reported this information for only one year, which was a
calender year and not the POI.
Finally, the petitioner contends that the starting point of the
Department's analysis of specificity is the number of users. (See
Countervailing Duties; Final Rule, 63 FR 65348, 65359 (November 25,
1998)). Using this methodology, the beef and hog industries have
historically
[[Page 57061]]
received between 25 and 30 percent of the FIMCLA loan guarantees and,
as such, the Department's Preliminary Determination regarding FIMCLA
should be upheld.
Department's Position: We disagree with the GOC in part.
Disproportionality is fact-specific and determined on a case-by-case
basis. As noted by the petitioner, the nature of the subsidy being
investigated in Korean Steel was unusual and required a special
analytical framework. Our typical specificity analysis examines
disproportionality by reference to actual users of the program. In
other words, we compare the share of the subsidy received by producers
of the subject merchandise to the shares received by other industries
using the program. See Final Negative Countervailing Duty Determination
and Final Negative Critical Circumstances Determination: Certain
Laminated Hardwood Trailer Flooring (LHF) from Canada, 62 FR 5201, 5209
(February 4, 1997). Consistent with our usual practice, we have
compared the level of benefits received by the beef and hog sectors
under the FIMCLA program to the assistance received by the other
agricultural industries participating in the program.
We agree, however, with the GOC that our disproportionality
analysis should focus on the level of benefits provided rather than on
the number of subsidies given to different industries. Therefore, we
have revised our analysis to compare the value of the loan guarantees
provided to industries participating in the FIMCLA program. Based on
this comparison, we continue to find that the beef and hog industries
received a disproportionate amount of assistance under the FIMCLA
program during the POI. Accordingly, we confirm our preliminary finding
that the FIMCLA program is de facto specific to the beef and hog
sectors in accordance with section 771(5A)(D)(iii) of the Act.
Provision of Goods or Services
Comment 17: PFRA
The GOC argues that the Act does not permit the Department to
countervail the public pastures provided under the PFRA if the price
charged by the government for their use is consistent with the
prevailing market. PFRA rates are comparable to the private pasture
rates reported for Manitoba and Saskatchewan, according to the GOC,
when the factors that diminish the value of public pastures are taken
into account. The GOC argues that PFRA pastures have the following
disadvantages: cows are commingled, cattle owners' access to their
cattle is restricted, the PFRA forage is of poorer quality, certain
specialty services are not provided, and public pastures are subject to
multiple use. Because of such factors, according to the GOC, many of
the surveyed ranchers indicated that they prefer private land over PFRA
pastures and that many PFRA patrons move to private land when it
becomes available.
The GOC requests that adjustments be made to private pasture rates
to account for the differences between the two types of pasture
services. The GOC notes that it has provided information on adjustments
for three differences relating to: (1) The timing of the sale of cull
cows, (2) early weaning and timing of the sale of calves, and (3)
transportation to the pasture. The GOC urges the Department to make
these adjustments and contends that when the adjustments are made, the
Department will conclude that PFRA pasture services are not provided
for less than adequate remuneration.
Lastly, while the GOC was only able to quantify the factors
mentioned above, the GOC states that the Department should also
consider other factors (disease associated with commingled pastures and
the failure to provide specialized services offered by private
pastures) that diminish the value of PFRA pastures.
The petitioner urges the Department to examine closely the
differences in the public and private pastures alleged by the GOC.
Specifically, according to the petitioner, the GOC has not established
that cattle producers using private pastures have greater flexibility
than public pasture users with respect to the timing of cattle removal.
According to the petitioner, the timing of cattle removal on public
pastures is not as rigid as portrayed by the GOC because roundup dates
on public pastures are not necessarily set at the same time for all
lessees and can be negotiated with the Pasture Manager. To support its
argument, the petitioner cites to the PFRA Rules and Regulations, which
state that when round up dates are not set the resulting date will be
``a matter of mutual agreement between the patrons and the Pasture
Manager and will depend upon pasture operation at the time.'' Thus,
according to the petitioner, the GOC has not established that cattle
producers cannot remove cattle from public pastures on request.
Moreover, the petitioner claims that the GOC has failed to support
the amount of the adjustment for culled cows. Specifically, the GOC has
not established that producers cull one cow in ten on private pastures
or that owners place older cows on public pastures.
Lastly, the petitioner states that the GOC has not supported its
claim that private pastures provide grazing within 25 miles from the
patron's farm or that transportation costs between private and public
pastures are materially different.
The petitioner also challenges the GOC's reliance on a survey
conducted for the purposes of this investigation to substantiate the
need for these adjustments. According to the petitioner, the Department
should not make adjustments that reflect the personal preferences of a
limited survey of cattlemen. The petitioner argues that the personal
preferences of the surveyed ranchers are not sufficient to establish
that the PFRA pastures do not have an advantage over private pastures.
Department's Position: In accordance with section 771(5)(E) of the
Act, when comparing the prices charged for public pasture services to
those charged by private providers we have attempted to ensure that the
prices compared are for nearly identical services. That is, when
feasible, we have taken into account prevailing market conditions which
include price, quality, availability, marketability, transportation,
and other conditions of purchase or sale. In this regard, when it
appears that a difference exists between a public good or service and a
benchmark good or service, we will consider making an adjustment when
the difference is quantifiable and is clearly demonstrated by evidence
on the record. See Lumber at 22595.
In this case, we agree that the GOC has identified and supported
certain adjustments that should be made. Specifically, we adjusted for
the difference in costs associated with the timing of the sale of cull
cows on private and public pastures. Since ranchers using private
pastures have access to their herds and, hence, can cull cows in mid-
summer, they receive a different service and a price adjustment is
warranted. While the GOC argued that this adjustment should be larger,
the information on the record did not fully substantiate the
calculations suggested by the GOC. For example, while the GOC suggested
that old cows would be culled in mid-summer, while cow prices are at
their peak, we agree with the petitioner that there is no evidence that
a patron would actually pay to have an old cow pastured for a season if
the cow was already planned to be culled. Finally, while the petitioner
has argued that PFRA patrons may be able to manage their herds and
benefit from the early sale of culled cows and calves in the same
manner as private pasture patrons, we found at
[[Page 57062]]
verification that the PFRA roundup and drop off procedures are quite
rigid and do not generally allow for the management that the petitioner
suggests.
With respect to the transportation adjustment urged by the GOC, the
record does contain evidence that nearly ten percent of community
pasture patrons incur high transportation costs because they live
further than 50 miles from their respective pastures. However, the GOC
did not provide evidence that this was unique to users of public
pastures. Regarding the requested adjustment for differences in weaning
and the timing of the sale of calves, the GOC did not provide evidence
indicating that the majority of private pasture patrons choose to wean
their calves early or that they actually sell calves at different times
than community pasture patrons. Finally, as in the Preliminary
Determination and as noted above, we have not made adjustments for
costs that the GOC was unable to quantify.
With respect to the petitioner's challenge of the GOC's survey,
while the number of people surveyed was limited, we determine that the
survey conducted by the GOC provides an objective and representative
measure of the costs faced by patrons of private pastures in Canada.
Comment 18: Appropriate Benchmark for Provincial Public Lease and
Pasturing Rates
With respect to all three provinces which offer Crown lands for
grazing and pasturing, the petitioner argues that the Department should
rely on an average of the private rates for full-service pasturing in
Manitoba and Saskatchewan and the private lease rate for land reported
by the GOA as a representative benchmark. According to the petitioner,
the statute specifically requires the Department to determine the
adequacy of remuneration based on prevailing conditions ``in the
country.''
The GOA contends that, not only is there no justification for using
the hybrid number the petitioner has developed on areas outside of
Alberta, but that the petitioner's data do not meet the criteria
outlined in the Department's regulations at 19 CFR 351.511(a) for a
proper benchmark because they simply do not represent the value of
comparable land. The GOA further states that the Department is obliged
by the Act and its regulations to use a benchmark that represents the
prevailing market value of the good or service being evaluated.
According to the GOA, the goods are public grazing leases in the
various provinces and the only ``prevailing market value'' for a good
with such inherently local value is a local, provincial benchmark.
Department's Position: As stated in the Final Affirmative
Countervailing Duty Determination: Certain Stainless Steel Wire Rod
From Italy, 63 FR 40474, 40481 (July 29, 1998), ``the adequacy of
remuneration is normally determined in relation to local prevailing
market conditions as defined by section 771(5)(E) of the Act to
include, ``* * * price, quality, availability, marketability,
transportation, and other conditions of purchase or sale.''
Consequently, the lease rates for private land in each province, when
accurate and available, are an appropriate starting point for
comparison to the respective lease rates for public land in each
province.
Comment 19: Use of Facts Available With Respect to Alberta Crown Lands
Basic Grazing Program
The petitioner argues that the Department should reject the GOA's
entire response with respect to the leasing of Crown lands and instead
apply adverse facts available because the GOA failed to report
benefits, in the form of excess compensation from oil and gas
companies, from the leasing of such lands.
The GOC and the GOA argue that the petitioner's comments on this
issue and the petitioner's August 25, 1999, submission which first
raised Bill 31 should be stricken from the record because the
petitioner's submission was untimely. Specifically, the GOA cites to
the Department's regulations at 19 CFR 351.301(b)(1) pointing out that
the deadline for submission of factual information related to the GOA
was June 9, 1999, which was seven days prior to the Alberta
verification.
Department's Position: We disagree with the respondents that the
petitioner's information regarding Bill 31 and the compensation system
for lessees of public and private land should be stricken from the
record. Although it was initially submitted after the deadline, we
subsequently requested the information under section 351.301(c)(2)(i)
of our regulations. Moreover, we believe this bill was highly relevant
to the information sought in the our questionnaire. Bill 31 amends,
among other acts, Alberta's Public Lands Act and the Surface Rights
Act, the legislation underlying one of the programs being investigated
in this proceeding (the Alberta Crown Lands Basic Grazing Program).
Although the change in the Act may have occurred after the period of
investigation and may not yet be in effect, our questionnaire
specifically requested that the GOA describe any anticipated changes in
the program and asked for documentation substantiating the GOA's
answer.
We believe that disclosure of Bill 31 would have given the
Department a fuller understanding of the lease system in effect during
the POI. In particular, information regarding the passage of Bill 31
includes statements implying that cattlemen who graze their livestock
on public lands in Alberta receive excessive compensation from oil and
gas operators who lease the subsurface rights. As the petitioner
originally alleged, and we sought to investigate, the question of
whether the GOA was adequately remunerated for its provision of Crown
lands has been a central issue throughout this case. Therefore, as
stated above, we believe this information was highly relevant to our
enquiry.
In light of this, the petitioner has argued that the Department
should reject all of the GOA's response with respect to the Alberta
Crown Lands Basic Grazing Program. However, we do not believe the
criteria for making such a determination have been met. In particular,
section 782(e) of the Act states that we shall not decline to consider
information that is necessary to the determination if the information
is timely, verifiable, not so incomplete that it cannot serve as a
reliable basis for a determination, can be used without undue
difficulties, and the interested party has demonstrated that it acted
to the best of its ability. All of the information presented by the
GOA, other than information regarding the Surface Rights Act and Bill
31, complies with these criteria and, thus, it would be inappropriate
for us to disregard the information in making our determination.
However, with respect to the impact the Surface Rights Act and Bill
31 have on our adequacy of remuneration determination, we are using the
facts otherwise available. The use of facts available is supported
under section 776(a) of the Act because the necessary information is
not available on the record. Although interested parties were given the
opportunity and did submit information on this issue, the approaching
deadline for determination did not provide us the opportunity to make
the additional inquiries necessary for us to make a determination that
does not rely on the facts available. In choosing the appropriate facts
available, the petitioner has argued that we should use an inference
that is adverse to the interests of the GOA. However, we do not agree
that the GOA failed to cooperate by not acting to the best of its
[[Page 57063]]
ability. While the GOA did not provide information that we believe was
relevant to our determination, its conclusion that the information was
not relevant, particularly in light of the fact that Bill 31 is not yet
in effect, does not imply that the GOA did not act to the best of its
ability and, thus, failed to cooperate. We also note that when the
Department specifically asked parties to submit information regarding
Bill 31, the GOA did so. Therefore, an adverse inference in this
instance would not be appropriate when determining the appropriate
facts available.
Comment 20: Oil and Gas Compensation and the Adequacy of Remuneration
The petitioner argues that if the Department continues to accept
the response of the GOA, the Department should include the benefit from
oil and gas compensation when determining the countervailability of the
program. According to the petitioner, the application of Alberta's
Surface Rights Act and Public Lands Act results in lessees of public
land profiting from excess compensation paid by oil and gas companies
for access to leased land. In support of its argument, the petitioner
cites to the legislative history of Bill 31 and articles published at
the time of its passage. The petitioner argues that the approximately
C$40 million of compensation received annually, as cited in the
articles, exceeds any actual compensation for damages to lessee
property or disruption suffered from oil and gas operations.
Furthermore, the petitioner argues that the GOA has not submitted any
evidence that private lessees receive the same amount of compensation
as public lessees. In fact, the petitioner asserts that oil and gas
companies compensate public lessees as they would compensate private
landowners, not lessees.
The GOA contends that the petitioner's characterization of the
application of Alberta's Surface Rights Act and Public Lands Act,
especially in relation to Bill 31, is misinformed and based on public
misperceptions about surface compensation rights in Alberta. According
to the GOA, the Alberta Surface Rights Act gives equal rights to all
owners and occupants of both public and private land to obtain
compensation from industrial operators for the damages caused when
industrial operations interfere with existing land use. The GOA
contends that public lessees do not have any advantage over private
lessees with respect to obtaining compensation and, thus, no adjustment
is necessary when comparing public rates for the leasing of land to
private rates for the leasing of land. The GOA also states that Alberta
law does not permit cattle ranchers on public grazing leases to charge
access fees to anyone. Specifically, the GOA notes that the Surface
Rights Act reads, ``an operator who proposes to exercise a right of
entry on land, other than land owned by the Crown * * * shall pay * * *
an entry fee. * * *'' The GOA also notes that, under the Surface Rights
Act, any compensation paid to a tenant is for loss of use and other
damages to the leasehold operations and does not include any payment
for the value of the land itself or for access to that land. Lastly,
the GOA argues that there is no basis for crediting the petitioner's
C$40 million figure as fact because none of the many quotations that
cite it give a source for the number and Alberta officials have been
unable to find any source for it.
Department's Position: As noted in the program write-up, we found
that, under the current application of the Surface Rights Act, lessees
of public land benefit from the provision of the land at less than
adequate remuneration. Specifically, public lessees appear to receive
more compensation from oil and gas companies for use and access to the
land than they would if leasing the same land from a private provider.
Hence, public land is more valuable to a lessee than private land and
this value is not reflected in the rate charged by the government.
Therefore, the government is not adequately remunerated for the
provision of the land.
Comment 21: Appropriate Benchmark for Alberta's Public Lease Rates
The petitioner argues that the Department should look to other
provinces if the private lease rate data provided for a specific
province is inadequate. In this regard, the petitioner argues that the
GOA has not established that the lease rate it reported for private
land is a ``full-service'' rate that requires an adjustment for
development costs, such as fences and water. To the contrary, according
to the petitioner, there is evidence that the private lease rate is not
a ``full-service'' rate. The petitioner notes that the lease rate for
private land reported by the GOA is much lower than the rate for
private full-service pasturing reported by the GOC for Manitoba and
Saskatchewan.
Moreover, the petitioner contends that the GOA's reported lease
rate for private land is based on a limited survey (the Custom Rates
Survey) which could only account for .04 percent of Alberta's cattle
population.
The GOA argues that the data from the Whole Farm Data Base, which
represents a far larger sample of private leases than the Custom Rates
Survey used in the Preliminary Determination, demonstrate that the
private rental rate reported in the Custom Rates Survey is higher than
the norm in Alberta. Regardless of which survey information the
Department feels is the most appropriate, however, the GOA argues that
all of the Alberta-specific numbers were generated from longstanding
government surveys and, thus, provide a far more reliable benchmark
than any non-Alberta data.
Department's Position: With respect to the two studies reported by
the GOA, we note that both the Custom Rates Survey and the Whole Farm
Enterprise Analysis were both conducted prior to the initiation of this
investigation and, while limited in the number of those surveyed, we
determine that they are objective and representative of the costs faced
by lessees of private and public land in Alberta. Therefore, we have
averaged the lease rates for private land from the Custom Rates Survey
and the Whole Farm Enterprise Analysis for purposes of identifying an
appropriate benchmark.
We agree with the petitioner that the lease rate for private land
reported by the GOA is lower than the rate for full-service private
pasturing in Manitoba and Saskatchewan, as reported by the GOC.
However, we do not believe the comparison is on point. The two rates
which the petitioner has compared are prices for two very different
things. The lease rate for private land is a price for the provision of
a specific good: land. The rate for full-service private pasturing is a
price for the provision of a type of service: pasturing. Therefore, the
comparison suggested by the petitioner does not undermine the
reliability of the lease rate for private land reported by the GOA.
Comment 22: Appropriate Adjustments to Benchmark for Alberta's Public
Lease Rates
The GOA argues that the Department correctly adjusted the benchmark
rate for taxes and developmental costs in the Preliminary
Determination, and that both testimony from government experts and the
results of the GOA's survey, which was confirmed at verification,
indicate that lease holders of private land do not incur these
developmental costs. Thus, in order to develop a fair comparison
between public and private leases, the GOA argues that these
adjustments should continue to be made.
In addition, the GOA posits that the Department should make
additional adjustments. First, the GOA notes that
[[Page 57064]]
lessees of public land are only allowed to forage up to 50 percent of
the land due to the multiple-use restraints placed on Crown lands. This
requirement means that to get the same amount of forage, the lessees
must fence in more land and develop additional dugouts, all of which
contribute to added costs. According to the GOA, this was supported at
verification, where it was demonstrated that lease holders on private
land can utilize a far higher percentage of their leased forage for
cattle grazing than can lease holders on public land. To further
support its argument, the GOA notes that the Whole Farm Data Base
indicated that grazing leases for public land support fewer AUMs per
acre than grazing leases for private land. Second, the GOA argues that
the Whole Farm Data Base also established significant differences
between operating costs incurred by lessees of private and public
lands. Again, the GOA argues that an adjustment should be made for this
difference as well.
The petitioner argues that the Department should reject the GOA's
proposed adjustments in their entirety. First, the petitioner states
that adjustments for multiple-use costs of leasing land are unjustified
unless the Department adjusts for multiple-use income such as
compensation related to oil and gas exploration and extraction (see
Comment 20: Oil and Gas Compensation and the Adequacy of Remuneration,
above). Second, the petitioner contends that the GOA has not
established that a lessee of public land must fence and water at least
50 percent more land to graze the same number of cattle since the GOA
has not established that private lessees are not required to preserve
forage for other users as well. Finally, the petitioner argues that the
Department should not adjust for operating and capital costs because,
even if grazing lessees on public land incur more operating and capital
costs than private lessees, these costs have not been shown to be
directly related to conditions only on public pasture. According to the
petitioner, the cost differences could arise because the lessees of
public land are less adept managers or less prudent buyers than private
lessees.
Department's Position: In order to make the comparison required by
section 771(5)(E) of the Act, we found it necessary to adjust the lease
rate for private land downward to account for differences between the
leases of public and private land. Specifically, we adjusted for
differences in costs associated with the paying of taxes, construction
of fences, construction of water dugouts, and a multiple-use cost for
limits on forage. While the respondent has argued that the multiple-use
cost adjustment should include expenses for additional fencing and
water facilities, we note that there is no evidence supporting the
contention that an additional dugout is necessary other than an
anecdotal statement that ``cattle will not travel more than one-half
mile for water.'' However, contrary to the petitioner's claim, there is
evidence on the record supporting the contention that additional acres
must be used by a public land lessee to obtain the same amount of
forage as a private land lessee and, thus, additional fencing would be
required. Specifically, public land lessees may only forage 50 percent
of their land, which results in fewer AUM being available per acre than
a lessee of private land has at his or her disposal.
With respect to additional adjustments for differences in operating
and capital costs, while we did make some of these adjustments in the
Preliminary Determination, we have not done so for this final
determination. While the GOA was able to quantify them, the GOA did not
provide adequate explanation as to why differences exist for such
expense. Nor did the GOA adequately demonstrate that the difference is
solely attributable to the fact that one group of farmers leases public
land while another group leases private land. Therefore, we have not
made adjustments for these costs. Finally, as in the Preliminary
Determination and as noted above, we have not made adjustments for
costs that the GOA was unable to quantify.
Lastly, with respect to the petitioner's argument that the
Department should only make adjustments for multiple-use costs if we
take into account multiple-use income, such as excess compensation from
oil and gas companies, as noted in Comment 24, we have taken into
account the application of the Surface Rights Act and the resulting
differences in compensation between private and public lessees when
examining the adequacy of remuneration.
Comment 23: Alberta Grazing Reserves
The petitioner argues that the Department should not use the rates
charged by privatized reserves as a benchmark for the full-service
rates for Alberta's public grazing reserves. In the petitioner's view,
such a comparison would be inappropriate because the privatized reserve
rates may be subsidized through a ``sublease.'' With respect to this
``sublease,'' the petitioner argues that, as facts available, the
Department should compare the average rate charged by the GOA to
privatized reserves for government land to the unadjusted average rate
noted above in order to ascertain the subsidy provided to the
privatized reserves.
The petitioner also argues that rather than calculating an average
rate for full-service public grazing reserves in Alberta, the
Department should calculate five average full-service rates for
Alberta's public grazing reserves based upon the four regions of
Alberta's Traditional Community Pasture program and the Special Areas
pastures.
The GOA argues that evidence on the record demonstrates that
Alberta's privatized reserves are charging their clientele lower prices
than the government was charging when the reserves were in government
hands. According to the GOA, this evidence confirms that the
government-run reserves have been charging rates consistent with the
commercial market. The GOA argues further that the government's charge
to the privatized reserves for use of government land is not
subsidized. According to the GOA the rates qualify as being market-
determined because they were developed through arm's-length
negotiations and the rates are also consistent with properly adjusted
private grazing lease benchmarks.
Department's Position: We have examined the possibility of whether
the rates for private pasturing may be subsidized through the
government's provision of land at less than adequate remuneration to
the operators of the privatized reserves. In doing so, we have looked
at the rental fees charged by the government to the privatized reserves
(less maintenance fees). The resulting average rental charge was higher
than the adjusted rate for leases on private land derived from our
examination of the Alberta Crown Lands Basic Grazing Program.
Therefore, we determine that the government is adequately remunerated
for its provision of land to the privatized reserves.
With respect to the petitioner's argument that we should calculate
five separate full-service public pasture rates, we note that such a
task is unnecessary as the range of prices charged by the government
for the public pastures are all lower than the private pasturing rate
reported by the GOA.
Comment 24: Specificity of the Provision of Crown Lands in Manitoba and
Saskatchewan
Both the GOS and the GOM argue that the provision of Crown lands in
the two provinces is neither de jure nor de facto
[[Page 57065]]
specific. According to the GOM and the GOS, Crown lands are available
to all agriculture and objective criteria and conditions are used to
determine agricultural producers' eligibility for the various uses of
Crown lands. Both governments note that not all land is suitable for
agriculture and that determinations on suitability are made by
professional agrologists. Based on the above, the two governments
contend that the provision of Crown lands is not specific because Crown
lands are available to the entire agricultural sector.
The petitioner argues that the provision of Crown lands in both
provinces is specific. With respect to Manitoba, the petitioner notes
that the Manitoba Crown Lands Act expressly limits access to farmers
through forage and cropping leases. According to the petitioner,
because forage leases are provided for the grazing of livestock,
including cattle, the law expressly limits forage leases to the
livestock industry. Additionally, the petitioner argues that all leases
are limited to a group of enterprises or industries in accordance with
the Act and the Department's precedent.
With respect to Saskatchewan, the petitioner notes that
Saskatchewan's Provincial Lands Act makes leases available only for
purposes of grain farming, cattle grazing, or perennial hay production.
As for Saskatchewan's pasture program, the petitioner notes that the
Saskatchewan Provincial Community Pasture Regulations define livestock
as cattle or sheep only. Thus, according to the petitioner, the laws
and regulations governing Saskatchewan's Crown lands expressly limit
access to grazing leases and community pastures to the cattle industry
specifically, or a group of enterprises or industries, including the
cattle industry.
Department's Position: While the respondents have argued that both
the Saskatchewan Crown Lands Program and the Manitoba Crown Lands
Program are not specific, we have found otherwise. The programs are
limited by law and regulation to certain subsets of agricultural
producers. Moreover, both provinces' programs are specific as a matter
of fact in accordance with section 771(5A)(D) of the Act.
The GOS reported that, during the POI, approximately 800,000 acres
of Crown lands were leased for cultivation and 5.4 million acres were
leased for grazing. The GOM reported that, during the POI, 21,716 acres
of Crown lands were leased for cultivation and approximately 1.6
million acres were leased for grazing. Based on the above, we find that
those industries which utilize grazing leases, livestock industries
such as cattle, are predominant users of both programs and, thus, the
programs are de facto specific.
Comment 25: Use of Facts Available With Respect to Manitoba Crown Lands
Program
The petitioner argues that while the GOM did submit the underlying
data from Manitoba Agriculture's 1997 survey at verification, it failed
to do so prior to verification despite Department requests. The
petitioner further argues that, in light of this, the GOM failed to
establish that the Department should make adjustments to the lease
rates for private land. Consequently, the petitioner urges the
Department to reject the GOM's response with respect to this program
and to rely on alternative lease rates for private land as ``facts
otherwise available.''
The GOM argues that it fully cooperated with the Department and
never withheld information. The GOM contends that it could not
``provide copies of any reports or summaries related to this study''
because there were no formal reports and, thus, none were available to
provide. In support of its position, the GOM cites to the Department's
verification report which states, ``because results of the survey were
never published or distributed, no reports of the data were prepared or
published * * *. However, they have the computer tabulated results from
the survey and provided a spreadsheet of those results.'' Therefore,
according to the GOM, nothing was withheld from the Department.
Department's Position: We have found the GOM to be fully
cooperative throughout this proceeding. The underlying data, which
supports the lease rates for private land reported by the GOM, was
reviewed and taken as an exhibit at verification. The data was not in
the form of a report or a summary related to the study, which is what
we asked for in our supplemental questionnaire. Rather, as noted in the
verification report, no reports of the data were prepared or published
and, thus, the GOM did not ignore a request for information when it
responded to our supplemental questionnaire.
Comment 26: Appropriate Benchmark for Manitoba's Public Lease Rates
The GOM argues that the Department did not use the correct
benchmark in its Preliminary Determination because it blended core and
fringe private lease rates. Instead, the GOM states that the Department
should use the lease rate for private fringe lands only. The GOM notes
that at verification, the Department found that the fringe areas are
typical of the areas where most (85 percent) Crown lands are located
and, thus, the fringe areas are more directly comparable.
If the Department uses the information submitted by the GOM, the
petitioner argues that the Department should not accept the GOM's claim
that the rental rate for private fringe land, as reported in the 1997
survey, is more comparable to the rate charged for Crown lands.
According to the petitioner, the claim is an assertion, not supported
in the record. Furthermore, the petitioner contends that the location
of the land is immaterial because if Crown lands are located in the
fringe area, then the number of AUMs the Minister could permit to graze
on the land would presumably be less than in the core area. Thus, the
Department should continue to use the average lease rate for private
land in the fringe and core areas, as was done in the Preliminary
Determination.
Department's Position: We agree with the GOM that the majority of
Crown lands are located in fringe areas. At verification we reviewed
maps and vegetation inventories that supported the GOM's claim with
respect to fringe and core areas. However, we do not agree that the
lease rate for public grazing land should be compared solely to the
private fringe area rate because not all of the GOM's Crown lands are
located in fringe areas. Instead, we have used a weighted average lease
rate for private land based on both core and fringe area rates.
Comment 27: Appropriate Adjustments to Benchmark for Manitoba's Public
Lease Rates
The petitioner states that the Department should only adjust lease
rates for private land downward if the GOM establishes that the lease
rates for private land include additional services that are not covered
by lease rates for public land. In the petitioner's view, the GOM
failed to do this. The petitioner notes, for example, that a majority
of the private land lessees questioned for the 1997 survey indicated
that they are required to pay for fence and water system maintenance
and yet, the GOM is requesting an adjustment for these items.
The GOM responds by noting that the Department reviewed in detail
at verification, in three provinces, the various reasons why lessees
are willing to improve public Crown lands available for lease, and why
the adjustments made by the Department are appropriate. The GOM also
notes
[[Page 57066]]
that the 1997 survey asked lessees whether they were required to pay
for the repairs and maintenance on the fence and/or watering system,
not the installation of fences or watering systems, which is what the
adjustment is attempting to capture.
Department's Position: Based on our review of the information, we
are persuaded that it is necessary to adjust the lease rate for private
land downward to account for differences between the leases on private
and public land. Lease rates for private land are generally for land
which is fenced, has a water system, and where the owner of the land
pays local taxes. Conversely, the lessees of public land are expected
to construct fences and watering systems and pay local taxes. Thus, we
adjusted for differences in costs associated with the paying of taxes,
construction of fences and construction of water dugouts. While the
petitioner notes that the 1997 survey indicates that lessees of private
land are required to pay for fence and water system maintenance, we
agree with the GOM that the claimed adjustment is for fence and water
system construction, not maintenance.
Comment 28: Appropriate Benchmark for Saskatchewan's Public Lease Rates
With respect to Saskatchewan's Crown lands, the petitioner argues
that the no-service lease rate for private land reported by the GOC
does not include additional costs such as fencing, water provision, and
taxes. Thus, it is inappropriate as a benchmark rate. Nonetheless, if
it is used as a benchmark, it should not be adjusted.
The GOS contends that ``no-service'' refers only to livestock
management and does not mean that rates for leases on private land do
not cover additional costs. The GOS contends that the petitioner is
merely attempting to confuse the issue by suggesting that the
Department compare the cost of both renting land and pasturing cattle
with the cost of simply renting land.
Department's Position: We agree with the GOS that the GOC's survey
refers to whether pasture services are provided and not whether taxes
are paid by the landlord or whether some of the land is already fenced
with dugouts. Therefore, the no-service rate is an appropriate
benchmark and adjustments for these differences are appropriate.
Comment 29: Appropriate Adjustments to Benchmark for Saskatchewan's
Public Lease Rates
The petitioner argues that the adjustments to the lease rate for
private grazing land reported by the GOS are unreasonable because they
are higher than the difference between the no-service and full-service
pasturing rates in Saskatchewan, and higher than the estimated
adjustment costs in Manitoba. Therefore, according to the petitioner,
any adjustment for alleged costs included in lease rates for private
land should be capped at the difference between the no-service and
full-service pasturing rates. When comparing the lease rate for public
land to an adjusted full-service lease rate for private pasturing, the
petitioner notes that a benefit is found.
The GOS states that because a private no-service lease still
includes various responsibilities of the private landlord, which are
not included in a Crown lands lease, adjustments are necessary in order
to assure the ``comparability'' contemplated by the Department's
regulations.
Department's Position: We adjusted the lease rate for private land
downward to account for costs associated with the paying of taxes,
construction of fences and construction of water dugouts. However,
while the respondent has argued that we should make a full adjustment
for these expenses, we note that the no-service rate being relied upon
as a benchmark does not always include the provision of fences. At
verification, we learned that no-service ``was identified as the simple
rental of land, which may or may not be fenced.'' See Page Eight of the
Memorandum to Susan Kuhbach from James Breeden and Zak Smith,
``Verification Report for the Government of Canada in the
Countervailing Duty Investigation of Live Cattle from Canada,'' dated
August 27, 1999. While we acknowledge that the overwhelming evidence in
this investigation indicates that leased private land has fences, in
this case, because the rate being relied upon is a ``no-service'' rate
and the record indicates that this particular rate does not always
include the provision of fences, we have not made a full adjustment for
fencing costs. Rather, we have made a partial adjustment by dividing
the fence expense in half.
While we agree with the petitioner that the adjustments to the
lease rate for private land are greater than the difference between the
no-service private pasturing rate and the full-service private
pasturing rate in Saskatchewan, and greater than the claimed
adjustments in Manitoba, we do not agree that this comparison is
appropriate. First, the petitioner is comparing pasturing rates and
land leasing rates, two different things. Second, the petitioner is
comparing experiences in two different provinces. There is no reason to
expect that local tax rates will be similar across provinces or that
the cost of construction materials and/or labor will not vary amongst
provinces, especially when there is evidence to the contrary. In that
regard, we note that the information on these adjustments is fully
supported by the record evidence and verification. Specifically, the
GOS provided supporting source documentation for each adjustment in the
form of audited financial statements, invoices, and contracts.
Comment 30: Saskatchewan's Community Pastures
The GOS argues that while it previously suggested that full-service
private pastures were most similar to the GOS' community pastures, it
now believes that partial-service private pastures provide a better
comparison. According to the GOS, Saskatchewan's community pastures do
not offer the same range of services as full-service private pastures
and instead more closely resemble partial-service private pastures
which have shared responsibility and work between the customer and the
land owner.
The GOS cites to several factors in support of its argument. First,
the GOS contends that the full-service rate provided by the PFRA study
does not include any commingled herds, while its community pastures are
commingled. Second, the GOS contends that the majority of private
pastures used to generate the full-service rate consist of improved
pasture, while community pastures are generally less productive native
range. Third, the GOS asserts that while a full-service pasture will
move cattle to more productive land and offer supplemental feed when
forage becomes less productive, such services are not offered by
community pastures. Fourth, the GOS states that in full-service private
pastures calves are often weaned early, placed on higher quality feed,
and that producers have general control over the breeding program.
According to the GOS, such options are not available on community
pastures. Lastly, the GOS argues that, full-service private pastures
allow producers to deliver and pick up cattle at their convenience.
According to the GOS such flexibility allows private users to cull cows
(usually ten percent of a herd) which are not bred by mid-summer, a
time when culled cows yield a higher price than at the end of the
season. According to the GOS we should adjust for this difference
because community pastures require pickup and delivery on a fixed
schedule and do not allow pickup mid-summer.
[[Page 57067]]
The petitioner argues that the GOS has not established that
partial-service pastures are more comparable to community pastures.
According to the petitioner, the GOC survey data, upon which the GOS is
relying, does not provide information indicating which rate, if any,
includes improved pasture or convenient owner access to herds for the
control of calves, breeding, and removal times. The petitioner contends
that because the GOS has failed to establish that full-service private
pastures offer materially different services than the GOS' community
pastures, the Department should continue to compare the full-service
private pasture rate to the community pasture rate.
With respect to possible adjustments to the full-service rate, the
petitioner argues that the GOS has failed to quantify the value of the
alleged costs associated with commingling and access, failed to
establish that on private pastures cows are culled in July (mid-
summer), and has failed to establish that ten percent of cows are
culled each year.
Department's Position: We agree with the petitioner that the GOC
survey data do not provide information indicating that partial-service
private pasturing is more similar to GOS community pasturing than full-
service pasturing. As noted in the verification report, with respect to
the GOC survey, ``full-service was identified as situations where the
cows are cared for during the entire season and the customer only needs
to drop off his or her cows and pick them up. Partial-service was
identified as shared responsibility and work between the customer and
the land owner.'' Thus, while it may be true that full-service private
pasturing in Saskatchewan offers more services than GOS community
pasturing, there is no information on the record that would indicate
that partial-service private pasturing offers a better comparison to
the pasturing services offered by the GOS.
We have made certain downward adjustments to the full-service
private pasture rate to account for differences between full-service
pasturing offered on private land and public pasturing. Specifically,
we adjusted for the difference in costs associated with the timing of
the sale of cull cows. While the GOS argued that this adjustment should
be larger, the information on the record did not fully substantiate the
calculations suggested by the GOS. For example, the GOS relied upon the
GOC's statement that ten percent of cows are culled each year to
support its argument for making an adjustment to account for
differences in access to those cows which do not become pregnant.
However, there is no evidence to support the assumption that the ten
percent of cows culled each year are only those cows which do not
become pregnant. Rather, it is reasonable to believe that some of these
cows are culled on the basis of age alone and were never planned to be
bred. In that regard, there is no evidence that a patron would actually
pay to have an old cow pastured for a season if the cow was already
planned to be culled. Finally, as in the Preliminary Determination and
as noted above, we have not made adjustments for costs that the GOS was
unable to quantify.
Other Comments
Comment 31: Allocation of Benefits By Total Sales Value Of Cattle
The GOC argues that the Department's regulations require it to
distribute the benefits from those programs found to be countervailable
across all products that have received the alleged benefits (19 CFR
351.525). The respondent contends that the Department's calculation of
the denominator in the Preliminary Determination did not comply with
this standard because certain programs that were found to be
countervailable and included in the numerator did not correspond to any
component included in the denominator. In support of its argument, the
respondent refers to Industrial Phosphoric Acid from Israel, in which
the Department reaffirmed the necessity that the ``calculation of a
subsidy reflect the same universe of goods. Otherwise, the rate
calculated will either over or understate the subsidy attributable to
the subject merchandise.'' See Industrial Phosphoric Acid from Israel,
63 FR 13626, 13630 (March 20, 1998). Because the benefits in this
investigation have been attributed to five commercially distinct
products (calves, feeder cattle, backgrounded cattle, slaughter cattle,
cull cows and bulls), the respondent argues that the sales value of all
five of these products must be included in the denominator for purposes
of correctly attributing benefits to the subject merchandise.
The petitioner argues that respondents have not demonstrated that
benefits from particular programs impact any one of the ``distinct''
cattle production stages it identifies, or should only be allocated to
that phase. Furthermore, petitioner explains that the use of total
Canadian cattle sales during the POI will likely count the same animal
more than once because cattle are moved through the different
production stages within the same year, thereby capturing multiple
sales of the same animal. Therefore, the sales figures advocated by
respondents are inflated. The petitioner contends that the Department
should continue to allocate subsidies over finished cattle or,
alternatively, compute the subsidy rate on a production, or volume,
basis rather than a value basis.
Department's Position: Contrary to respondent's assertions, the
attribution approach applied in this investigation accurately measures
the countervailable benefits conferred and is consistent with the
countervailing duty statute. Although we recognize that there are
distinct commercial segments within the cattle industry, the respondent
incorrectly implies that the total value of the animal is equal to the
sum of transactions specific to the animal as it moves through the
different stages of the production cycle, thereby inflating the
universe of sales to which the benefits apply. This flaw in the
respondent's argument is illustrated by the petitioner's assertion that
using total cattle sales will likely result in the double counting of
certain animals due to the nature of the production cycle. Therefore,
in order to avoid overvaluing the denominator, we have continued to
apply the methodology used in our Preliminary Determination in which we
calculated total sales value by adding domestic slaughter and
international export statistics.
Based on information collected at verification, we have also
included an amount for on-farm consumption to this figure. As a result,
we have allocated the countervailable benefits received by cattle at
each stage of the production cycle over the sales value of ``finished''
cattle, or animals that have completed the production cycle. We believe
this attribution method most accurately captures a comparable universe
of goods as discussed in Industrial Phosphoric Acid from Israel.
Comment 32: NISA and Regional Specificity
The petitioner argues that NISA benefits provide a regional subsidy
because producers' geographic location determines eligibility under the
program. The petitioner notes that cattle and calves are eligible
commodities for NISA benefits in a select number of provinces and to
the extent that a producer is eligible for the NISA program based on
its geographic location, the program is regionally specific. According
to the petitioner it is most important to note that, while Alberta
cattle are not eligible commodities under the program, Alberta is the
largest provincial
[[Page 57068]]
producer. Based on this fact, the petitioner contends that NISA is
targeted to cattle producers in other regions where cattle production
is less intensive. According to the petitioner, the rationale for why
cattle are not eligible commodities in certain provinces is not
relevant to an examination of specificity. Instead, for the petitioner,
the key questions is whether ranchers in over half of Canada receive
NISA benefits for their livestock. As this is not the case, the
petitioner contends that the Department should recognize the specific
nature of the program.
The GOC argues that the Department's precedent demonstrates that a
``program is determined to be regional, and, therefore, limited only
when its funding is specifically authorized by the central government
to benefit only some regions within its jurisdiction.* * *'' See
Certain Granite Products from Spain, 53 FR 24340 (June 28, 1988). Thus,
according to the GOC, only when the granting authority has excluded
certain regions from participating in programs will regional
specificity be found. The GOC notes that, while the petitioner has said
that a producer's geographic location determines its eligibility under
NISA,'' NISA operates in all provinces and no provinces are excluded
(noting that Yukon and the Northwest Territories can join if they so
choose).
The GOC further notes that a large number and wide variety of
commodities are covered by NISA and the fact that not every producer
commodity group in every province participates in NISA does not
transform NISA into a regional subsidy. First, the GOC argues that
farmers in all of the provinces participate and the lack of
participation by some provinces as to certain commodities does not
alter the fact that all provinces are eligible and that producers in
all provinces receive benefits. With respect to those provinces
(Alberta, British Columbia, and Quebec) for which cattle are not
eligible commodities, the GOC notes that other agricultural commodities
in each of these provinces are covered by NISA. Lastly, the GOC argues
that to avoid any further re-investigation of NISA, the Department
should make clear in the final determination that the program is non-
specific not only to cattle but as to all other agricultural
commodities.
Department's Position: Section 771(5A)(D)(iv) of the Act reads,
``where a subsidy is limited to an enterprise or industry located
within a designated geographical region within the jurisdiction of the
authority providing the subsidy, the subsidy is specific.'' We have
found that NISA operates in all Canadian provinces. That is, NISA
benefits are not limited to an enterprise or industry located within a
specific geographical region within Canada. First, NISA is a whole-farm
program in which any farmer that produces an eligible commodity can
participate. The number of eligible commodities is exhaustive and
demonstrates that the benefits are not limited to a particular
enterprise or industry. Furthermore, the eligibility of commodities is
dependent on a particular commodity associations desire to participate.
Thus, no commodities are excluded by federal or provincial government
action. Second, the farmers that may participate in NISA are not
located within a specific geographical region. Rather, producers in all
provinces receive benefits, regardless of their location. Eligibility
for NISA participation is based upon the commodities that a farmer
produces, not his or her geographic location. Therefore, as noted in
the Preliminary Determination, benefits provided through the NISA
program are not limited to a particular region. While certain
commodities are not eligible for matching funds within certain
provinces, it is because the producers of these commodities choose not
to participate, not because the program is limited to an enterprise or
industry located in a particular region.
With respect to the GOC's comment that we should find NISA non-
counteravailable for all products, we note that our investigation of
NISA only related to whether cattle receive a counteravailable subsidy.
We have not examined whether the program is counteravailable to other
commodities.
Comment 33: Saskatchewan Livestock and Horticultural Facilities
Incentives Program
The GOS argues that the Livestock and Horticultural Facilities
Incentives Program (``LHFIP'') is an adjustment to, and is integrally
linked with, the provincial sales tax. According to the GOS, the
provincial sales tax (the Education and Health Tax (``E&H Tax''))
offers a standard tax exemption to all agricultural production. Thus,
the GOS argues that LHFIP is not limited only to the livestock and
horticultural industries and, therefore, is not counteravailable. The
GOS contends that the LHFIP was introduced as part of a series of
adjustments to the E&H Tax, and is intended to put livestock operations
on the same footing as other agricultural operations with respect to
the E&H Tax exemption for agricultural inputs and the lack of an
exemption for certain construction materials.
Citing to the New CVD Regulations, the GOS argues that all of the
Department's conditions for integral linkage are met. According to the
GOS, the LHFIP has the same purpose and same effective benefit as the
E&H Tax legislation and was linked with the E&H Tax at inception.
Lastly, the GOS notes that the functioning of the LHFIP is
analogous to a VAT rebate program that the Department found
noncountervailable in Standard Chrysanthemums From the Netherlands;
Final Results of Countervailing Duty Administrative Reviews, 61 FR
47886 (September 11, 1996).
Department's Position: In examining the legislation and regulations
governing both the LHFIP and the E&H Tax, we find that, even if the two
programs were found to be integrally linked under the regulations
governing this case, the program would still be specific, and, thus,
countervailable. According to the laws and regulations for the E&H Tax
and the GOS itself, although most agricultural inputs to production
(such as machinery, fertilizer, seed, chemicals, and livestock) are
exempt from the E&H Tax, the E&H Tax continues to be levied on certain
construction materials and equipment for all agricultural products that
could be used for both agricultural and non-agricultural purposes.
Although the LHFIP created an exemption from the E&H Tax for livestock
and horticultural producers, the tax on these types of construction
materials is apparently still levied on other agricultural producers
not related to livestock and horticulture production. Thus, even if the
programs were integrally linked, because the legislation administering
these programs expressly makes them available to only certain
industries, they would still be specific. Therefore, any determination
on the integral linkage of these programs is not necessary.
Verification
In accordance with section 782(i) of the Act, we verified the
information used in making our final determination. We followed
standard verification procedures, including meeting with government
officials, and examining relevant accounting records and original
source documents. Our verification results are outlined in detail in
the public versions of the verification reports, which are on file in
the Central Records Unit of the Department of Commerce, Room B-099.
[[Page 57069]]
Summary
The total net countervailable subsidy rate for all producers or
exporters of live cattle in Canada is 0.77 percent, ad valorem, which
is de minimis. Therefore, we determine that countervailable subsidies
are not being provided to producers or exporters of live cattle in
Canada.
Return or Destruction of Proprietary Information
This notice will serve as the only reminder to parties subject to
Administrative Protective Order (``APO'') of their responsibility
concerning the return or destruction of proprietary information
disclosed under APO in accordance with 19 CFR 355.34(d). Failure to
comply is a violation of the APO.
This determination is published pursuant to section 705(d) and
777(i) of the Act.
Dated: October 12, 1999.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 99-27570 Filed 10-21-99; 8:45 am]
BILLING CODE 3510-DS-P