US Says Transactions Disregarded Test Necessary in Canadian Lumber Case

Responding to motions for judgment filed by the government of Canada and Canadian lumber exporters led by a mandatory respondent, the U.S. pushed back Aug. 22 against claims that, among other things, it had wrongly included a legacy contract in the calculation of the respondent’s costs and found a “bookkeeping convenience” to be evidence of less-than-fair-value transactions between its affiliates (see 2404110063) (Government of Canada v. United States, CIT Consol. # 23-00187).

It also opposed the arguments of a trade coalition that the Commerce Department should have, first, reduced the respondents’ U.S. prices by the countervailing duties paid on the imports of subject merchandise and, second, calculated a general and administrative costs ratio for mandatory respondent Canfor based on the financial information of Canadian Forest Products, the entity that actually produced the company’s like product in Canada.

First, Canfor argued that Commerce had wrongly used the transactions disregarded test to raise the prices of wood chip byproduct Canfor sold to affiliates to the level of market prices.

To analyze whether the wood chip sales to affiliates, made to offset Canfor’s costs, “were at arm’s length,” the department analyzed the prices at which two of Canfor’s mills sold wood chips to unaffiliated parties,” the government explained. But “in line with its practice of relying on a respondent’s own unaffiliated purchases or sales where available,” Commerce found that the sales to unaffiliated parties “were representative of a market price for purposes of the transaction disregarded analysis, it said.

Canfor claimed that those sales to unaffiliated parties weren’t representative because they were made under an unusual circumstance -- a longstanding contract, entered into in 2012, by which its two mills were obligated to sell all of their chips at a pre-set price. But that didn’t mean those sales prices couldn’t be representative, as “the contract in question permitted periodic adjustments to the wood chip prices by reference to industry publications during the period of review,” the government said.

Canfor also pushed back against the transactions disregarded test’s use for electricity received by one of its mills, saying that an affiliate merely serves “as a middleman,” acting “as a payment intermediary” and document handler for the mill’s electricity purchases. It claimed that there were no actual transactions occurring, preventing accurate application of the transactions disregarded test.

But Commerce still applies the transactions disregarded test even when an affiliate serves only as a document handler and payment intermediary, the U.S. said.

“This ensures that the adjusted market price reflects an affiliate’s cost of providing services,” it said.

Turning to the claims raised by domestic producers, the governments said that trade coalition Committee Overseeing Action for Lumber International Trade Investigations or Negotiations’ (COALITION) argument that Commerce should have reduced the U.S. prices of the review respondents because their CVD were equivalent to “costs” goes against statute and has been rejected by the trade court in the past.

And COALITION’s claim that the department should have calculated Canfor’s G&A costs using Canadian Forest Products’ information doesn’t explain how doing so would cover the G&A costs that Canfor Corporation incurs as the holding company for all Canfor companies, including Canadian Forest Products, it said. It said evidence placed on the record by the exporter demonstrates that these expenses “related to production and sales of softwood lumber” and didn’t appear in Canadian Forest Products’ financial information.

It rejected the trade coalition’s argument that Commerce had relied on the finances of “‘CFP Legal,’ a made-up entity.”

The case has previously seen controversy over multiple Canadian exporters’ since-successful attempts to intervene as plaintiffs (see 2311280056 and 2312210084). Court of International Trade Judge Jennifer Choe-Groves ruled Feb. 15 that U.S. opposition to the interventions “holds little sway” because “for decades, the Government has consented to intervention and only started to oppose intervention for the first time in this case” (see 2402150062).