[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