ARCHIVED - Anti-dumping and Countervailing Program

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OTTAWA, March 30, 2006
4214-10
4218-20

STATEMENT OF REASONS

Concerning the making of a final determination of dumping and subsidizing respecting

UNPROCESSED GRAIN CORN, EXCLUDING SEED CORN (FOR REPRODUCTIVE PURPOSES), SWEET CORN, AND POPPING CORN, ORIGINATING IN OR EXPORTED FROM THE UNITED STATES OF AMERICA

DECISION

On March 15, 2006, pursuant to subsection 41(1)(a) of the Special Import Measures Act, the President of the Canada Border Services Agency made a final determination of dumping and subsidizing respecting unprocessed grain corn, excluding seed corn (for reproductive purposes), sweet corn, and popping corn, originating in or exported from the United States of America.

Table of Contents

Summary of Events
Period of Investigation (POI)
Interested Parties

Product Definition
Additional Product Information
The Canadian Market
Investigation Process
Dumping Investigation
Summary Results of Dumping Investigation
Representations Regarding Dumping
Subsidy Investigation
Results of the Subsidy Investigation
Representations Concerning the Subsidy Investigation
Other Representations
Decision
Future Action
Retroactive Duty on Massive Importations
Publication
Information
Appendix I
Appendix II
Appendix III
Appendix IV

Summary of Events

1. On September 16, 2005, pursuant to subsection 31(1) of the Special Import Measures Act (SIMA), the President of the Canada Border Services Agency (CBSA) (President) initiated ¹  an investigation respecting the dumping and subsidizing of grain corn in all forms, originating in or exported from the United States of America (USA).
   
   
2. Upon receiving notice of the initiation of the investigation, the Canadian International Trade Tribunal (CITT) started its preliminary injury inquiry. On November 15, 2005, the CITT concluded its preliminary inquiry and found that unprocessed grain corn constitutes a class of goods separate from processed grain corn.
   
   
3. The CITT concluded that the evidence does not disclose a reasonable indication that the dumping and subsidizing of processed grain corn have caused injury or retardation or are threatening to cause injury to the domestic industry.
4. The CITT determined that there is evidence that discloses a reasonable indication that the dumping and subsidizing of unprocessed grain corn have caused injury to the domestic industry.
   
   
5. On December 15, 2005, pursuant to subsection 38(1) of SIMA, the President made a preliminary determination ²  of dumping and subsidizing respecting unprocessed grain corn, excluding seed corn (for reproductive purposes), sweet corn, and popping corn, originating in or exported from the USA. On the same date, pursuant to paragraph 35(2)(a) of SIMA, the President terminated the dumping and subsidizing investigation respecting processed grain corn, as a result of the CITT's decision.
   
   
6. The CBSA continued its investigation with respect to unprocessed grain corn. The President is satisfied that unprocessed grain corn from the USA has been dumped and subsidized and that the margin of dumping and amount of subsidy are not insignificant. Consequently, on March 15, 2006, the President made a final determination of dumping and subsidizing pursuant to subsection 41(1)(a) of SIMA.
   
   
7. The CITT's inquiry into the question of injury to the Canadian industry is continuing. Provisional duty will continue to be imposed on the subject goods until the CITT renders its decision. The CITT will issue its finding by April 18, 2006.
   
   

Period of Investigation (POI)

8. The investigation covered all subject goods released into Canada during the period from September 1, 2003 to August 31, 2005, inclusive.

Interested Parties

Complainant

9. The complaint was filed on behalf of a collective of Canadian corn grower associations known as the Canadian Corn Producers (CCP). The collective is comprised of the members of the following organizations:

Exporters

10. At the time of the initiation of the investigation, 523 potential exporters of the subject goods were identified. Information obtained during the preliminary investigation, as well as the CITT's decision respecting processed grain corn, have resulted in the number of potential exporters being reduced to 383.

Importers

11. At the time of the initiation of the investigation, 369 potential importers of the subject goods were identified. Information obtained during the preliminary investigation, as well as the CITT's decision respecting processed grain corn, have resulted in the number of potential importers being reduced to 144.

Product Definition

12. Subsequent to the CITT's preliminary injury inquiry and the termination of the investigation with respect to processed grain corn, the subject goods are defined as:
    
    
    Unprocessed grain corn, excluding seed corn (for reproductive purposes), sweet corn, and popping corn, originating in or exported from the United States of America.

Additional Product Information

13. Unprocessed grain corn includes whole kernel grain corn and grain corn that has been milled to a limited degree such that the milled grain corn preserves all the constituent parts of whole kernel corn. Furthermore, grain corn mixed with other grains and oilseed (such as millet), which can be separated from the grain corn after importation, is also considered subject goods. Further details regarding the products that remain subject and products that are excluded from this investigation are contained in Appendix I.
    
    
14. For the purpose of this investigation, production is defined as the growth, harvest and drying of grain corn to approximately 15.5% moisture content. As such, the subject goods do not include high moisture, silage or forage corn. High moisture corn is harvested with moisture content around 24 to 26% and is stored in oxygen-limiting silos or bins without being dried. Silage/forage corn does not have the kernel separated from the husk. The plant is chopped in its entirety, including the stalk, the leaves, and the husk. Silage/forage and high moisture corn are used for animal feed almost exclusively on the farm where they are grown and are not normally traded or used for industrial purposes.

Classification of Imports

The subject goods are normally classified under the following Harmonized System classifications numbers of the Canadian Customs Tariff:

1005.90.00.11	US No. 1 yellow dent corn
1005.90.00.12	US No. 2 yellow dent corn
1005.90.00.13	US No. 3 yellow dent corn
1005.90.00.14	US No. 4 yellow dent corn
1005.90.00.19	Other
1005.90.00.99	Other (including white dent corn)
1104.23.00.00	Corn which is sliced (corn which is hulled or kibbled is not subject, but also falls within this tariff number)

The Canadian Market

16. The CCP provided market information regarding unprocessed grain corn in the complaint. Information concerning Canadian production was obtained from the OCPA, FPCCQ, and Statistics Canada. With respect to import and export information, a comparison of the Customs Commercial System (CCS) import information with Statistics Canada import data indicated a correlation in value for duty amount for the 2002 and 2003 crop-years. However, there were discrepancies in the quantities reported. The CBSA's analysis of the CCS information revealed that the information regarding volume was flawed in many cases. Therefore, for the purpose of estimating the apparent Canadian market, the CBSA has used the Statistics Canada data.
    
    
17. The following table represents the apparent Canadian market for the 2002, 2003 and 2004 crop-years:

Apparent Canadian Market - Grain Corn (Crop-Years)

Crop-Year	2002		2003		2004 estimate
Unprocessed Grain Corn	Volume (bushels in millions)	Value (CDN $ in millions)	Volume (bushels in millions)	Value (CDN $ in millions)	Volume (bushels in millions)	Value (CDN $ in millions)
Carry-In	50.4	$204.6	60.3	$205.0	66.5	$248.0
Total Production	352.5	$1,413.5	364.0	$1,368.6	346.8	$991.9
Imports	158.5	$567.4	79.2	$262.2	85.0	$229.5
Total Available	561.4	$2,185.5	503.5	$1,835.8	498.3	$1,469.4
Exports	12.1	$48.5	14.0	$52.6	15.0	$42.9
Carry out	60.3	$205.0	66.5	$248.0	53.9	$148.2
Total Canadian Market	489.0	$1,960.9	423.0	$1,590.5	429.4	$1,228.1

18. The information relating to import and export volumes have not been refined since initiation as there was a limited number of responses from exporters and importers.

Investigation Process

19. At the time of the initiation of the investigation, given the large number of exporters, the CBSA chose to determine the margin of dumping based on a selection of 35 exporters and 25 importers representing 75% of the value of imports into Canada, respectively, during the POI.
    
    
20. A dumping Request for Information (RFI) was sent to the 35 selected exporters and 25 selected importers at the initiation of the investigation. The selected exporters were given instructions that, if the recipient was not the producer of the subject goods, the RFI should be forwarded to the producer.
    
    
21. As well, all other exporters and importers of subject goods were notified of the initiation of the investigation and were advised that they could request an RFI from the CBSA and participate in the dumping investigation.
    
    
22. A subsidy RFI was sent to the Government of the United States of America (USGov).

Dumping Investigation

23. Normal values are generally based on the domestic selling prices of the goods in the country of export, pursuant to section 15 of SIMA and the related Special Import Measures Regulations (SIMR), or on the total cost of the goods (cost of production, administrative, selling and all other costs) plus an amount for profit, pursuant to paragraph 19(b) of SIMA and the related SIMR.
    
    
24. Pursuant to section 24 of SIMA, the export price of goods shipped to Canada is generally the lesser of the exporter's selling price or the importer's purchase price. When the export price is less than the normal value, the difference is the margin of dumping.
    
    
25. The CBSA requested that selected exporters provide sales and costing information necessary to determine the normal values and export prices of the subject goods. Selected importers were requested to provide pricing information regarding their imports.
    
    
26. At the time of the preliminary determination, responses were received within the requested time frame from one exporter and nine importers. Additional responses from one exporter and one importer were received after the established deadline. As the two exporters are related to each other as well as to their respective importers, further information was requested from the relevant parties, for the final determination.
    
    
27. Additional information submitted for the purpose of the final determination was either late or incomplete. Accordingly, for the final determination, normal values and export prices were determined pursuant to section 29 of SIMA. As such, it should be noted that normal values and export prices were determined in such a manner as the Minister specifies. In this regard the CBSA respected, to the extent possible, the methodologies set forth in sections 15 through 28 of SIMA and the relevant sections of SIMR to determine normal values and export prices.
    
    
28. For the purposes of making the preliminary determination, the CBSA used the most recent data available from the Economic Research Service (ERS) of the United States Department of Agriculture (USDA) to determine normal values based on all costs and an amount for profit. The data has been up-dated using the information provided by the Office of U.S. Trade on January 30, 2006, in response to the CBSA's request for supplemental information.
    
    
29. A single normal value was calculated for each crop year for each of the farm resource regions. As explained in the Statement of Reasons of December 30, 2005, concerning the making of the preliminary determination, the USDA's ERS publishes the production costs by farm resource region and the monthly price received in the USA for corn. This information demonstrates that, for the majority of months during the POI, the production cost per bushel of corn exceeded the monthly price per bushel received for corn in most of the farm resource regions identified. In calculating the average selling price for the crop year, only the profitable monthly prices received for corn were used
    
    
30. The monthly prices received for corn during the POI are reflected in the following table:

Month	2003	2004	2005
January		$2.39	$2.12
February		$2.61	$1.95
March		$2.75	$2.02
April		$2.89	$2.00
May		$2.87	$1.99
June		$2.79	$2.03
July		$2.51	$2.11
August		$2.34	$1.89
September	$2.20	$2.20
October	$2.12	$2.15
November	$2.20	$2.05
December	$2.31	$2.04

The total cost for the farm resource regions are reflected in the following table:

Farm Resource Region	2003	2004
Heartland	$2.20	$2.08
Northern Crescent	$2.56	$2.50
Northern Great Plains	$2.65	$2.71
Prairie Gateway	$2.72	$2.44
Eastern Uplands	$3.17	$2.92
Southern Seaboard	$2.78	$2.71
USA	$2.35	$2.20

31. The production costs include expenses related to the opportunity cost of land, which are not cash expenses. These costs represent an opportunity cost of the land if the farmer were to rent the land to someone else for agricultural purposes. Moreover, this cost is not a genuine "cash" cost that normally appears in a grower's accounts. However, it is noted that these opportunity costs include mortgage costs and leasing costs that need to be taken into account appropriately in the total cost of the goods.
    
    
32. The Office of U.S. Trade provided information on the percentage of wholly-owned land versus leased land, for the POI. Based on this information, the opportunity cost of land was reduced to take into account the percentage of the total number of wholly-owned acres, with no mortgage debt and no lease, developed for corn production.

Farm Resource Region	2003	2004
Heartland	$0.11	$0.10
Northern Crescent	$0.15	$0.12
Northern Great Plains	$0.09	$0.09
Prairie Gateway	$0.07	$0.06
Eastern Uplands	$0.19	$0.13
Southern Seaboard	$0.10	$0.12
USA	$0.12	$0.10

33. The resulting revised production costs per bushel used in the determination of normal values, are set out in the following table.

Farm Resource Region	2003	2004
Heartland	$2.09	$1.98
Northern Crescent	$2.42	$2.38
Northern Great Plains	$2.55	$2.61
Prairie Gateway	$2.65	$2.38
Eastern Uplands	$2.98	$2.79
Southern Seaboard	$2.67	$2.59
USA	$2.23	$2.10

34. When an exporter was located in a state that was part of more than one farm resource region, the CBSA calculated the monthly average profitable prices received for corn and the average production costs for the corresponding farm resource regions (e.g. the state of Colorado includes the Northern Great Plains, Prairie Gate Way and Basin and Range regions). For the farm resource regions not listed, the USA figures were used.
    
    
35. The above data relates solely to the farm level. Given that the exports to Canada are primarily made at the level of the grain elevators, the cost of handling, storage, insurance, shipping, administrative and sales expenses incurred in the operation of grain elevators, plus a reasonable amount for profit for the grain elevators was added.
    
    
36. The CBSA established the mark-up of the country grain elevator to be US$0.12 per bushel in crop-year 2003 and US$0.14 by bushel in crop-year 2004. In response to the CBSA's request for supplemental information, the Office of U.S. Trade provided the data to estimate a reasonable mark-up for country grain elevators on January 30, 2006.
    
    
37. The profit margin of exporting grain elevator operators was established by comparing the selling price for each shipment as indicated in the CBSA's CCS system with the monthly prices received by the growers advanced by the mark-up of the country grain elevator. More than 20% of grain corn export sales to Canada (in bushels) were made at a loss during the POI. These sales were excluded for the purposes of calculating the profit margin for grain elevator operators.
    
    
38. The gross profit margins for each CCS transaction for the two crop years were then weighted by the quantities shipped to Canada, resulting in a profit margin of US$0.28 per bushel for the crop-year 2003 and US$0.40 per bushel for the crop-year 2004. The gross profit margins are not net figures since certain operating costs incurred in preparing the goods for sale are included. There is no publicly available information to allow for the measurement of these costs. The CBSA is of the opinion that the gross margins are sufficiently high to cover any additional operating costs incurred by the exporting elevators as well as generate a reasonable amount for profit.
    
    
39. Based on the preceding information, the following normal values were determined.

Farm Resource Regions	2003	2004
Heartland	$2.90	$2.61
Northern Crescent	$3.14	$3.03
Northern Great Plains	$3.18	$3.27
Prairie Gateway	$2.66	$3.03
Eastern Uplands	$3.73	$3.46
Southern Seaboard	$3.38	$3.25
Basin and Range	$3.01	$2.69

40. As previously mentioned sufficient information was not available or furnished to enable the determination of export price as provided in sections 24 and 25 of SIMA. For purposes of the final determination, the export price was determined by ministerial specification, that is, the declared selling price to the Canadian importer on Customs documentation, adjusted by deducting therefrom all costs, charges, expenses, duties and taxes described in subparagraphs 24(a)(i) to (iii) of SIMA, where this information was included with the Customs documentation.
    
    
41. By comparing the normal value and export price of each shipment, it was determined that 99% of the goods shipped to Canada by the selected exporters were dumped. The margins of dumping ranged from 0.005 to 214%, expressed as a percentage of export prices. The weighted average margin of dumping was 26%, expressed as a percentage of the total export price of the goods. This margin is equivalent to an amount of dumping of US$0.60 per bushel.
    
    
42. For those exporters who were not included in the selected group, the margin of dumping calculated for the subject goods was 26%, determined pursuant to subsection 30.3(3) of SIMA and subsection 25.2(2)(c) of SIMR. This represents the weighted average margin of dumping calculated for the selected exporters. The CBSA concluded that determining the margin of dumping for the non-selected exporters using the above methodology was reasonable. The results of the dumping investigation are summarized in Appendix II.

Summary Results of Dumping Investigation

43. In making a final determination of dumping in relation to goods imported from a country in the investigation, the President must be satisfied that the subject goods have been dumped and that the margin of dumping is not insignificant. Subsection 2(1) of SIMA defines "insignificant" as being less than 2% of the export price of the goods. The overall weighted average margin of dumping was 26%, expressed as a percentage of the weighted average export price of the goods. The President is satisfied that the subject goods have been dumped and that the margin of dumping is not insignificant.

Representations Regarding Dumping

44. Subsequent to the preliminary determination, the CBSA received representations from the complainants, Animal Nutrition Association of Canada, Canadian Cattleman's Association, Canadian Pork Council, Archer Daniels Midland Company, CASCO Inc., Commercial Alcohols Inc., Spirits Canada, Frito Lay Inc. and Maple Leaf Foods Inc. The representations related to the CBSA's determination of normal value, export price and margins of dumping are summarized below. It must be noted that the consideration of these representations is made in the context that the normal values and export prices were determined pursuant to section 29 of SIMA, that is, in such manner as the Minister specifies.

1. Normal Value and Export Price Determination

45. The CBSA received representations from Archer Daniels Midland Company and CASCO Inc. stating that normal values and export prices should be determined as provided in sections 15 to 28 of SIMA. As well, some parties such as Commercial Alcohols Inc. claimed that the normal value should also have been adjusted to take into consideration the various provisions of the SIMR. For example, the normal value should take into consideration the difference between the time of purchase of the grain corn by the elevators and the time of delivery to the Canadian importers. As well, the CBSA received representations from the complainants, Archer Daniels Midland Company and Frito Lay Inc., stating that the reliability testing of sales transactions between related companies should be made in accordance with section 25 of SIMA.

CBSA Response

46. As previously stated, the importers and exporters which were requested to provide a response to the RFI did not provide the information necessary to determine the normal values and export prices of the subject goods as provided in sections 15 to 28 of SIMA and the related SIMR. As well, importers that were requested to provide information with regard to the reliability test contemplated in section 25 of SIMA did not provide the information. Consequently for the purposes of the final determination, the CBSA determined the normal value and export price pursuant to section 29 of SIMA, that is, in such a manner as the Minister specifies. As in the case of the estimate made at the time of the preliminary determination, the CBSA utilized the data of the ERS of the USDA and information contained on Customs documentation.

2. Normal Value Adjustments

• Trade Level

47. The CBSA received representations from the Animal Nutrition Association of Canada, Canadian Cattleman's Association and Canadian Pork Council, Commercial Alcohols Inc. and Maple Leaf Foods Inc., stating that the CBSA assumed incorrectly that all exports were made by the elevators, as some of the exports were also made directly by farmers.

CBSA Response

48. As was explained at the initiation of the investigation, given the large number of parties involved, the CBSA determined the margin of dumping in relation to the largest percentage of goods that could reasonably be investigated. The selected exporters represented more than 70% of the goods exported to Canada during the POI. With the exception of Frito Lay Inc., which is not a farmer, all of the selected exporters are elevators. Taking this into consideration, as well as the U.S. traditional flow of grain from the farm to export market, that is, from on-farm storage to country elevator to sub-terminal or export elevator to foreign destination, the CBSA determined the normal value at the export grain elevator level.
    
    
49. While other known exporters, some of which may be farmers, were advised that they could provide information on a voluntary basis, the CBSA did not receive complete responses from any exporter and, as such, sufficient information was not provided or was not available to enable the CBSA to determine whether a trade level adjustment is warranted, and if so, the magnitude of the adjustment.

• Transportation Costs from the Farm to the Country Elevator

50. The CBSA received representations from the Animal Nutrition Association of Canada, Canadian Cattleman's Association and Canadian Pork Council, Commercial Alcohols Inc., Maple Leaf Foods Inc., CASCO Inc. and Spirits Canada, indicating that the transportation costs used in the calculations of the normal values at the time of the preliminary determination were inflated, that the CBSA was double counting the transportation cost and that the monthly prices received for corn include freight from the farms to the country elevators. The CBSA also received representations from the complainants stating that freight costs should be added to the costs of production.

CBSA Response

51. The CBSA confirmed with the Office of the Chief Economist of USDA that the prices received for selected agricultural commodities including corn, as published by the USDA - National Agricultural Statistics Service, include the transportation cost from the farm to the elevator. Consequently, no transportation costs from the farm to the elevator were added to the monthly prices received for corn when determining the normal value for purposes of the final determination.

• Amount for Profit (Gross Margin)

52. The CBSA received representations from the Animal Nutrition Association of Canada, Canadian Cattleman's Association and Canadian Pork Council, Commercial Alcohols Inc., CASCO Inc. and Maple Leaf Foods Inc., stating that the amount for profit was exaggerated because a large number of unprofitable sales were excluded from the calculation of the profit or gross margin. As well, Commercial Alcohols Inc. claimed that the calculation method used by the CBSA for the total costs of production has resulted in an overestimation of the grain elevators' acquisition cost of the grain corn from the farm.

CBSA Response

53. As previously mentioned, the normal values were calculated pursuant to section 29 of SIMA using a "cost plus approach". In this case, the amount for profits was based on the exporters' sales to Canada disregarding such sales that were made at a loss, given that the total volume of sales made at a loss exceeded 20% of the total volume of like goods sold during the period.
    
    
54. In calculating the aggregate of all costs and an amount for profits, where the exporter is not the producer of the goods, as is the case in this investigation, the amount for administrative, selling and all other costs and the amount for profits include the amounts incurred/earned by the producer and any subsequent vendor in respect of sales of those goods to the exporter. Therefore, in calculating the exporter's acquisition costs of grain corn, the CBSA did not take into consideration the monthly prices received for corn that were less than the total costs of production of the farmers.

• Amount for Profit (Gross Margin)

55. The representations also indicated that when calculating the profit at the farm level, the CBSA should not compare US monthly average prices with annual regional costs of production because it is a mismatch and that does not take into account the variability of prices and costs between farmers and regions.

CBSA Response

56. The CBSA is aware of the variability in the cost of production among producers and regions but as previously indicated, sufficient information has not been furnished or was not available to enable the determination of normal value based on actual costs and selling prices of the exporters pursuant to sections 15 to 19. The CBSA based the calculations of normal values on figures published by the ERS.
    
    
57. However, the CBSA is of the opinion that comparing monthly national average prices and annual regional costs of production is still valid. By comparing the monthly national average prices and the annual regional costs of production, the CBSA took into account the fact that the national price corrects the price mismatch caused by the distance separating the place of production and the consumer market. Monthly prices by state vary because prices contain an element that reflects the distance separating the place of production and the consumer market, meaning that a producer far from his market will get a lesser price in order to compensate for transportation costs. On the other hand, the regional costs take into account the farmlands' yield. As such, a bushel of grain corn costs less to produce in a high yield farm resource region.
    
    
58. Furthermore, in order to compare regional prices and regional costs, the CBSA would have to calculate a weighted average selling price by farm resource region based on the selling prices by state. The CBSA does not have the necessary information to do the weighting by farm resource region.

• Amount for Profit (Gross Margin)

59. It was further stated by Commercial Alcohols Inc. that if it is necessary to calculate averages, the averages should be weighted. Furthermore, Maple Leaf Foods Inc. stated that the CBSA should not compare individual export prices with average selling prices when estimating the elevator mark-up. The CBSA received representations from the complainants supporting the methodology used by the CBSA.

CBSA Response

60. The data obtained from the ERS data includes a weighting element. For instance, the ERS collects data regarding costs from sampled farms. Each farm sampled represents a known number of farms with similar attributes so that ERS weights the data for each farm by the number of farms it represents and that provides a basis for calculating estimates for the target population ³ . Consequently, the CBSA, without having the details of the weighting done by ERS, could not do an additional weighting without distorting the estimates.

61. In calculating an amount for profit for the exporting elevators as well as the margins of dumping, the CBSA used the actual declared selling prices to the Canadian importer on customs documentation, given that the information was available to the CBSA. Therefore, there was no need to calculate average export prices.

• Opportunity Cost for Labour

62. The CBSA received representations from the Animal Nutrition Association of Canada, Canadian Cattleman's Association and Canadian Pork Council that the CBSA should not have included the opportunity cost for unpaid labour in the total costs used for the calculation of normal values, as this cost is a non-cash item. The USGov on January 30, 2006, in response to the CBSA's request for supplemental information has also raised this point. The CBSA also received representations from the complainants stating that the opportunity cost of unpaid labour should not be excluded from the total costs in determining the normal value because the unpaid labour cost is a conservative proxy for the actual cost of such labour.

CBSA Response

63. The CBSA considers it appropriate not to exclude the opportunity cost of unpaid labour in determining the cost of production. Where the farmer/family members are not performing this work, outside labour would generally have to be hired. Unpaid labour is an economic cost in producing grain corn and should be included as it is a cost attributable to the production of grain corn in accordance with SIMR 11. The CBSA chose the opportunity cost for unpaid labour established by ERS as a valid method for valuing unpaid labour.

• Zeroing

64. The CBSA received representations from CASCO Inc. stating that by removing unprofitable sales from the calculations of normal values, the CBSA had ignored its zeroing policy.

CBSA Response

65. The CBSA policy regarding "zeroing" does not apply to calculation of normal value or profit margin but, rather, to the calculation of the margin of dumping only.

Subsidy Investigation

67. In accordance with SIMA, a subsidy exists if there is a financial contribution by a government of a country other than Canada that confers a benefit on persons engaged in the production, manufacture, growth, processing, purchase, distribution, transportation, sale, export or import of goods. A subsidy also exists in respect of any form of income or price support within the meaning of Article XVI of the General Agreement on Tariffs and Trade, 1994, being part of Annex 1A to the World Trade Organization (WTO) Agreement, that confers a benefit.
    
    
68. Pursuant to subsection 2(1.6) of SIMA, a financial contribution exists where:
    1. practices of the government involve the direct transfer of funds or liabilities or the contingent transfer of funds or liabilities;
    2. amounts that would otherwise be owing and due to the government are exempted or deducted or amounts that are owing and due to the government are forgiven or not collected;
    3. the government provides goods or services, other than general governmental infrastructure, or purchases goods; or
    4. the government permits or directs a non-governmental body to do any thing referred to in any of paragraphs (a) to (c) where the right or obligation to do the thing is normally vested in the government and the manner in which the non-governmental body does the thing does not differ in a meaningful way from the manner in which the government would do it.

68. If a subsidy is found to exist, it may be subject to countervailing measures if it is specific. A subsidy is considered to be specific when it is limited, in law, to a particular enterprise or is a prohibited subsidy. An "enterprise" is defined under SIMA as also including a group of enterprises, an industry and a group of industries. A "prohibited subsidy" includes an export subsidy which is contingent, in whole or in part, on export performance or a subsidy or portion of a subsidy that is contingent, in whole or in part, on the use of goods that are produced or that originate in the country of export.
    
    
69. Notwithstanding that a subsidy is not specific in law, a subsidy may also be considered specific having regard as to whether:
    1. there is exclusive use of the subsidy by a limited number of enterprises;
    2. there is predominant use of the subsidy by a particular enterprise;
    3. disproportionately large amounts of the subsidy are granted to a limited number of enterprises; and
    4. the manner in which discretion is exercised by the granting authority indicates that the subsidy is not generally available.

70. For purposes of a countervailing duty investigation, the CBSA refers to a subsidy that has been found to be specific as an "actionable subsidy" meaning that it is subject to countervailing measures if the imported goods under investigation have benefited from the subsidy.
    
    
71. In reviewing the information provided in the complainant's submission, the CBSA developed the following list of programs and incentives involving producers of grain corn in the USA:
    1. Direct and Counter-Cyclical Payments
    2. Non-recourse Marketing Assistance Loans and Loan Deficiency Payments
    3. Federal Crop Insurance Program

72. Appendix III provides further details regarding the subsidy programs that were identified at the time of the initiation of the investigation.
    
    
73. The CBSA forwarded a questionnaire relating to the named programs to the USGov in order to establish whether there had been financial contributions made by any level of government and, if so, to establish if a benefit had been conferred on persons engaged in the production, manufacture, processing, purchase, distribution, transportation, sale, export or import of the subject goods, and whether any resulting subsidy was specific in nature.
    
    
74. In subsidy investigations, it is generally the CBSA's policy to determine if a subsidy is specific in relation to all economic sectors within the jurisdiction of the granting authority. However, as an administrative policy, the CBSA will determine if an agricultural subsidy is specific in relation to the agricultural sector as a whole, based on the criteria and conditions for non-specificity and the determination of specificity, which are provided for in subsections 2(7.1) to (7.4) of SIMA.

Results of the Subsidy Investigation

75. In order to determine the amount of subsidy, an RFI was sent to the USGov. A response was received from the USGov on October 25, 2005, and the information submitted was deemed to be substantially complete and usable for this investigation.
    
    
76. Subsequent to the preliminary determination, the USGov made representations concerning the CBSA's calculations concerning the estimate of the amount of subsidy. Meetings with USGov officials were held in Washington, DC, on February 15 and 16, 2006, in order to discuss the representations, to verify information submitted and obtain a clearer understanding of the administration of the subsidy programs under investigation.

CBSA Findings

77. The CBSA has determined that the following programs constitute actionable subsidies:
    1. Direct and Counter-Cyclical Payments
    2. Non-recourse Marketing Assistance Loans and Loan Deficiency Payments
    3. Federal Crop Insurance Program

78. Appendix IV contains the rationale applied by the CBSA in reaching this decision.

Amount of Subsidy

79. The amounts of subsidy for the above programs were calculated for both the 2003 and 2004 crop-years. The programs, in aggregate, provided an amount of subsidy of US$0.25 per bushel in the 2003 crop-year and US$0.63 per bushel in the 2004 crop-year. Appendix IV contains a summary of the amounts of subsidy.

Summary of Results - Subsidy

80. The subsidy portion of the investigation was conducted on an aggregate basis. As such, in respect of each program found to be an actionable subsidy, for each crop-year of the POI, the total amount of the benefit provided to persons engaged in the production, manufacture, growth, processing, purchase, distribution, transportation, sale, export or import of corn (numerator), was divided by the total volume of corn produced for the crop-year in question (denominator). This results in a single countrywide determination of the amount of subsidy which was calculated on a per unit (bushel) basis.
    
    
81. When making a final determination of subsidizing pursuant to subsection 41(1) of SIMA, the President must be satisfied that the subject goods have been subsidized and that the amount of subsidy on the goods of a country is not insignificant. According to subsection 2(1) of SIMA, an amount of subsidy less than 2% of the export price is defined as insignificant.
    
    
82. The CBSA's analysis reveals amounts of subsidy equal to 9.2% and 26.5% of the average export price of the goods shipped to Canada in the 2003 (US$2.50) and 2004 (US$2.25)
83. crop-years, respectively. The amount of subsidy for the entire POI (2003 and 2004 crop-years) is equal to 18% of the export price of the goods shipped to Canada or US$0.45 per bushel. As such, the amount of subsidy is not insignificant, and consequently, the legislative requirements are satisfied for making a final determination of subsidy respecting imports of subject goods from the USA.
    
    
84. For purposes of the preliminary determination of subsidizing, the President has responsibility for determining whether the actual or potential volume of subsidized goods is negligible. After a preliminary determination of subsidizing, the CITT assumes this responsibility. In accordance with subsection 42(4.1) of SIMA, the CITT is required to terminate its inquiry in respect of any goods if the CITT determines that the volume of subsidized goods from a country is negligible.

Representations Concerning the Subsidy Investigation

84. Subsequent to the preliminary determination, the CBSA received representations from the USGov, the Association of Canadian Distillers, Maple Leaf Foods Inc., Commercial Alcohols, Inc., CASCO Inc. and the CCP relating to a number of issues, which are discussed below.

1. Inappropriate Reliance on a Factual Event Outside the POI

85. The USGov and the Association of Canadian Distillers made representations regarding the CBSA's decision at the time of the preliminary determination to incorporate the USGov's announcement of October 22, 2005, concerning the counter-cyclical payment for the 2005 crop-year into the amount of provisional countervailing duty to be collected on imports during the provisional period.
    
    
86. The Association of Canadian Distillers stated that the CBSA cannot establish a POI and then base a conclusion on an event outside of this period, and as such it was inappropriate for the CBSA to include the announcement made after the POI for the assessment of provisional duties.
    
    
87. The USGov indicated in its brief that it had not announced a counter-cyclical payment rate of US$0.40 per bushel on October 22, 2005; rather, it announced the first partial payment under the program and simply indicated the maximum possible amount that could be paid under this program. It further stated that since the payments are based on the national average farm price, it is not possible to predict the final payment amount until end of the crop-year.
    
    
88. The CCP stated that the CBSA did not err in imposing provisional duties based on the October 22, 2005 announcement, as SIMA does not state that provisional duties must be based on the amount of subsidy determined during the POI.

CBSA Response

89. The preliminary and final determinations of subsidizing are based on information pertaining to the subsidy programs during the POI, which is the period September 1, 2003 to August 31, 2005. As such the USGov announcement was not taken into consideration in making the preliminary or final determination.
90. With respect to the amount of provisional duty collected, since the goods being imported during the provisional period relate to the 2005 crop-year, and the counter-cyclical payment announcement of October 22, 2005, relates to the 2005 crop-year, it is appropriate that this announced payment be incorporated into the amount of provisional duty.
    
    
91. The CBSA acknowledges the USGov's position regarding the inability to forecast the final counter-cyclical amount since finalized payments are based on the average US farm price of corn over the entire marketing year that ends on August 31st. It should be noted, however, that the USDA is estimating the 2005 crop to be 11.1 billion bushels, which is slightly less than the 11.8 billion bushels produced in the 2004 crop-year. In addition, the USDA is also forecasting the average US farm price for corn for the 2005 crop-year to be in the US$1.75 to US$2.05 range, which is less than the 2004 average farm price of US$2.06 ⁴ . In the event of an affirmative injury decision by the CITT, section 55 of SIMA requires the amount of provisional duty to be reviewed, at which point a finalized amount would be determined.

2. Improper Presumption of Benefit Pass-Through - Grain Elevators

92. Maple Leaf Foods Inc., Commercial Alcohols Inc., and CASCO Inc., made representations that the CBSA has not properly demonstrated that the subsidies found at the time of the preliminary determination have been passed-through to the grain elevators, which are responsible for the majority of the exports of the subject goods to Canada. The representations also contained argument that the programs do not provide benefits to the elevators and the CBSA cannot simply assume that a subsidy on an input product is passed-through to an end product.

CBSA Response

93. There is no requirement for the CBSA to undertake a pass-through analysis in this case. In general, the CBSA takes the position that when a transaction occurs between associated parties, the entire amount of the benefit will be presumed to have passed-through to the purchaser. On the other hand, when a transaction occurs between non-associated parties, a subsidy conferred on the vendor cannot be presumed to have passed through to the purchaser that is also located in the country of export. In such cases, the pass-through of the benefit, in whole or in part, must be demonstrated through a pass-through analysis.
    
    
94. The WTO Appellate Body has qualified this obligation, however, in countervailing duty investigations where the authorities are conducting the investigation on an aggregate basis in order to determine a single, countrywide rate. In Softwood Lumber from Canada, the Appellate Body did not hold that a pass-through analysis is required in respect of the particular circumstances of the issue under appeal (i.e. in that case, allegedly subsidized logs were being provided to related sawmills who then processed the logs into lumber and then sold this lumber to unrelated remanufacturers who then exported the product to the USA). The Appellate Body determined that, given the circumstances of an aggregate analysis, it is not necessary to determine how the subsidy benefits are divided between the parties, particularly given that both parties were producing subject goods (i.e. softwood lumber) ⁵ .
    
    
95. As was indicated at the time of the preliminary determination and earlier in this document, the CBSA has made it clear that it was conducting this investigation on an aggregate basis ⁵ . As such, the CBSA has calculated a subsidy amount based on the benefits the USGov has provided to grain corn producers, in aggregate, in the USA.

3. Crop Insurance - Improper Presumption of Benefit Pass-Through

96. The Association of Canadian Distillers made representations that the CBSA committed an error in its assumption that 100% of the benefits paid by the USGov to private insurance companies pass-through to the corn growers and should have conducted a proper pass-through analysis.

CBSA Response

97. In this investigation, the CBSA has determined that the financial contribution in the case of the Federal Crop Insurance Program falls under paragraph 2(1.6)(d) of SIMA, specifically:

98. In such cases where paragraph (d) is applicable, the CBSA regards the non-governmental body as acting in the capacity of the government. As such, the benefit provided by the USGov to the private insurance companies is deemed to have been provided directly to the corn growers. Therefore, there is no requirement to demonstrate a benefit pass-through nor is one being presumed.

4. Crop Insurance - Improper Calculation of Amount of Subsidy

99. The USGov, Maple Leaf Foods Inc., and Commercial Alcohols Inc., made representations that the CBSA's calculation of the amount of subsidy estimated for the Federal Crop Insurance Program for the preliminary determination was incorrect. Both the USGov and Maple Leaf Foods Inc., providedex-post (benefits received) and ex-ante (benefits expected) calculations.

CBSA Response

100. At the time of the preliminary determination, the CBSA estimated the amount of subsidy for each of the 2003 and 2004 crop-years, based on total "subsidy" + A&O + Indemnity involving corn (as contained in Exhibit #28 of the USGov submission), less administrative fees paid by producers, divided by the total corn production. The CBSA was mistakenly under the impression that the figures for "Indemnity" contained in Exhibit #28 related to the USGov's portion, as this exhibit is a Federal Crop Insurance Corporation report.
     
     
101. During verification meetings, USGov officials confirmed that the figures for 'Indemnity' relate to total indemnities for crop insurance and are not the portion paid by the USGov. USGov officials confirmed that, in accordance with the reinsurance agreements, the government only contributes to indemnities in situations where the total premium does not cover the claims. During the two crop-years covered by the POI, the total premiums were more than adequate to cover the indemnities involving corn.
     
     
102. As such, for purposes of the final determination, the CBSA has recalculated the amount of subsidy involving the Federal Crop Insurance Program based on total expenses incurred by the USGov, for insurance premiums and the administrative and operating subsidy paid to the insurance companies, less administrative fees paid by producers, relating to corn, divided by the total corn production.

5. Crop Insurance - Specificity

103. The USGov, Maple Leaf Foods Inc., and Commercial Alcohols Inc., made representations regarding the specificity of the Federal Crop Insurance Program. Representations were made that the program is not specific, that the CBSA did not perform a proper specificity analysis and that it did not take into consideration certain payments for the livestock program in reaching a conclusion at the time of the preliminary determination that a disproportionate share of the benefits was provided to a limited number of enterprises. Counsel for Commercial Alcohols Inc., also provided an analysis of crop insurance on the basis of "Key States" involved in the production of corn in order to demonstrate that corn is not benefiting disproportionately from other crops and as such, contends the crop insurance program is not specific.
     
     
104. The CCP made representations that the Federal Crop Insurance Program is specific and referenced the WTO panel decision on Upland Cotton regarding the specificity of this program ⁷ .

CBSA Response

105. The CBSA has re-examined the Federal Crop Insurance Program with regard to specificity and has concluded that this program is specific in law. The legislation and regulations limit access to the crop insurance program to specific crops, in specific counties and to specific policies. As such this program is limited, in law, to a group of enterprises within the agricultural sector, and therefore, is "specific" pursuant to paragraph 2(7.2)(a) of SIMA.
     
     
106. Given the CBSA's determination that the crop insurance program is specific in law, the "Key States" analysis provided by Commercial Alcohols Inc., that demonstrates that corn is not benefiting disproportionately from other crops does not have a bearing on the determination of specificity.

6. Direct and Counter-cyclical Payments - Improper Calculation of Amount of Subsidy

107. Representations were received from the USGov that the CBSA incorrectly estimated the amount of subsidy involving Direct and Counter-cyclical Payments for the preliminary determination. The USGov indicated that the CBSA erroneously based its calculations on historic payment acres rather than current production, included payments that are not attributable to corn production (farms registered for corn payments that planted no corn) and included payments that are not attributable to corn producers (farms operated under share leases where a portion of the payment is made to the landowners).
     
     
108. The CCP made representations that the USGov's methodology for the calculation of the amount of subsidy involving the direct payments is flawed and suggested that the CBSA had correctly estimated the amount of subsidy regarding the direct payment program. The CCP further stated that with respect to benefits involving landowners, the ultimate economic beneficiary is irrelevant as long as payments are made in respect of corn production.

CBSA Response

109. In its brief, the USGov refers to the WTO Appellate Body decision in Upland Cotton and suggests that the methodology (i.e. "cotton-to-cotton" methodology) developed in that case for purposes of determining the level of "support to a specific commodity" provided by direct payments and counter-cyclical payments would provide guidance in identifying the portion of the payments provided by these decoupled programs that should be allocated to the production of grain corn in this present investigation. The USGov acknowledges, however, that the Appellate Body's conclusion is not necessarily dispositive for purposes of calculating a countervailable subsidy benefit under SIMA.
     
     
110. In this regard, the CBSA takes note of the methodology upon which the Appellate Body relied in Upland Cotton but notes that this particular issue related to the appropriate methodology for determining the level of "support to a specific commodity" provided by these programs within the meaning of Article 13(b)(ii) of the WTO Agreement on Agriculture. The Appellate Body decision does not expressly address the issue of the calculation of the amount of subsidy attributable to the production of grain corn arising from these particular programs under the provisions of the WTO Agreement on Subsidies and Countervailing Measures (Subsidies Agreement). While the CBSA is prepared, in certain instances, to take guidance from relevant WTO dispute settlement jurisprudence when applying SIMA in a countervailing duty investigation, the CBSA is not bound by these decisions, particularly when the dispute in question is not directly related to the relevant provisions of the Subsidies Agreement.
     
     
111. This having been said, the CBSA has adjusted its calculations of the amount of subsidy for the Direct and Counter-cyclical Payment Program for the final determination. The 'numerator' has been adjusted to include only those payments to farmers that actually grew corn. The 'denominator' has also been revised to reflect the actual acreage/volume of production in each of the crop-years rather than historic payment acres.
     
     
112. Turning to the issue of payments made to landowners under share-lease agreements, it is being argued that the CBSA cannot presume a "pass-through" of the benefit from subsidies provided directly to the land owners to the lessee (i.e. the tenant - farmer) but that a pass-through analysis is required to demonstrate that the subsidy has passed through, in whole or in part.
     
     
113. The fact that US law requires the division of the subsidies between these parties under a share lease arrangement suggests that both parties are recognized as having some type of a joint interest in the farming operation particularly since both parties share the risk of a crop. Essentially, both parties can be described as "producers" given their interest in the crop.
     
     
114. in subsection 2(1) of SIMA that states at paragraph (a):

     a financial contribution by a government of a country other than Canada in any of the circumstances outlined in subsection (1.6) that confers a benefit to persons engaged in the production, manufacture, growth, processing, purchase, distribution, transportation, sale, export or import of goods, but does not include the amount of any duty or internal tax imposed by the government of the country of origin or country of export on... (Emphasis added)

115. In the case of share-lease arrangements, both parties are jointly "engaged" in the production, growth or processing of grain corn and as such, the benefit of the subsidies provided to each party are conferred simultaneously on both parties. At minimum, the landowner is providing the land, obviously a very considerable and important input component, and may also be providing other financial assistance in the farming operation depending on the terms of the share crop arrangement (e.g. the landlord may also be expected to contribute a portion of labour, equipment or supplies). As such, the CBSA is of the opinion that a "pass-through" analysis is not required.

Other Representations

116. Parties to the proceedings, or their respective legal counsel, made representations relating to standing, product definition and the definitions relating to "production". The CBSA's position on these issues had been addressed in previous stages of the investigation. The Statements of Reasons relating to these prior stages are available on the CBSA's Web site at www.cbsa-asfc.gc.ca/sima.

Decision

117. Based on the results of the investigation, the President is satisfied that unprocessed grain corn, excluding seed corn (for reproductive purposes), sweet corn, and popping corn, originating in or exported from the USA, has been dumped and that the margin of dumping is not insignificant. Consequently, on March 15, 2006, the President made a final determination of dumping pursuant to paragraph 41(1)(a) of SIMA.
     
     
118. Similarly, the President is satisfied that unprocessed grain corn, excluding seed corn (for reproductive purposes), sweet corn, and popping corn, originating in or exported from the USA, has been subsidized and that the amount of subsidy is not insignificant. As a result, on March 15, 2006, the President made a final determination of subsidizing pursuant to paragraph 41(1)(a) of SIMA.

Future Action

119. The CITT's inquiry concerning the question of injury to the domestic industry is continuing and the CITT will issue its decision by April 18, 2006. Until the CITT issues its finding, subject goods imported from the USA will continue to be assessed provisional duty in the amounts as announced at the time of the preliminary determination of dumping and subsidizing.
     
     
120. If the CITT finds that the dumped and/or subsidized goods have not caused injury and do not threaten to cause injury, all proceedings relating to this investigation will be terminated and all provisional duty paid or security posted by importers will be returned.
     
     
121. If the CITT finds that the dumped and/or subsidized goods have caused injury, the anti dumping and/or countervailing duty payable on subject goods released from customs during the provisional period will be finalized, pursuant to section 55 of SIMA. Imports released from customs after the date of the CITT's finding will be subject to anti-dumping duty equal to the margin of dumping, and/or countervailing duty equal to the amount of subsidy on the subject goods. The importer in Canada shall pay all such duty.
     
     
122. If the importers of such goods do not indicate the required SIMA code or do not correctly describe the goods in the customs documents, an Administrative Monetary Penalty (AMP) could be imposed. The provisions of the Customs Act apply with respect to the payment, collection or refund of any duty collected under SIMA. As a result, failure to pay duty within the prescribed time will result in the application of interest.

Retroactive Duty on Massive Importations

123. Under certain circumstances, anti-dumping and countervailing duty can be imposed retroactively on subject goods imported into Canada. When the CITT conducts its inquiry on material injury to the Canadian industry, it may consider if dumped and/or subsidized goods that were imported close to or after the initiation of the investigation constitute massive importations over a relatively short period of time and have caused injury to the Canadian industry. Should the CITT issue a finding that there were recent massive importations of dumped and/or subsidized goods that caused injury, imports of subject goods from the USA released by the CBSA in the 90 days preceding the day of the preliminary determination may be subject to anti-dumping and/or countervailing duty.
     
     
124. In respect of importations of subsidized goods that have caused injury, however, this provision is only applicable where the President has determined that the whole or any part of the subsidy on the goods is a prohibited subsidy. In such a case, the amount of countervailing duty applied on a retroactive basis will equal the amount of subsidy on the goods that is a prohibited subsidy. As the President has not determined that any part of the subsidy on the subject goods is a prohibited subsidy, countervailing duty will not be imposed retroactively on subject goods imported into Canada.

Publication

125. A notice of this final determination of dumping and subsidizing will be published in the Canada Gazette pursuant to paragraph 41(3)(a) of SIMA.

Information

126. This Statement of Reasons has been posted on the CBSA Web site at the address below. For further information, please contact the officers listed below:

Mail

Canada Border Services Agency
Anti-Dumping and Countervailing Program
SIMA Registry and Disclosure Unit
100 Metcalfe Street, 11th Floor
Ottawa, Ontario K1A 0L8
Canada

Telephone

Ron McTiernan	(613) 954-7271
Gilbert Huneault	(613) 954-7376
Michel Desmarais	(613) 954-7188
Ian Gallant	(613) 954-7186
Fax	(613) 948 4844

Email
simaregistry-depotlmsi@cbsa-asfc.gc.ca

Web site
www.cbsa-asfc.gc.ca/sima

Appendix I

Excluded Products

Included Products

The following table provides a summary of products that are subject and not subject to this investigation:

HS Tariff No.	Description	Endosperm	Tip Cap	Pericarp	Germ	Subject
1005.90.00.11	US No. 1 yellow dent corn	X	X	X	X	Yes
1005.90.00.12	US No. 2 yellow dent corn	X	X	X	X	Yes
1005.90.00.13	US No. 3 yellow dent corn	X	X	X	X	Yes
1005.90.00.14	US No. 4 yellow dent corn	X	X	X	X	Yes
1005.90.00.19	Other	X	X	X	X	Yes
1005.90.00.99	Other (including white dent corn)	X	X	X	X	Yes
1102.20.00.00	Maize (corn) Flour	X	X	X		EXCLUDED
1103.13.00.10	Cornmeal	X	X			EXCLUDED
1103.13.00.20	Corn grits for use in themanufacture of corn flour	X	X		X	EXCLUDED
1104.23.00.00	Corn which is hulled, sliced or kibbled
	Hulled	X			X	EXCLUDED
	Sliced	X	X	X	X	Yes
	Kibbled	X	X	X		EXCLUDED
2302.10.00.10	Bran Sharps and other Residues		X	X		EXCLUDED
2302.10.00.90	Other					EXCLUDED

Note: Grain corn mixed with other grains and oilseed (such as millet), which can be separated from the grain corn after importation is also considered subject goods.

Appendix II

Margin of Dumping

SUMMARY OF THE RESULTS OF THE INVESTIGATION

MARGINS OF DUMPING FOR UNPROCESSED GRAIN CORN ORIGINATING IN OR EXPORTED FROM THE UNITED STATES OF AMERICA

Exporters	Weighted Average Margin of Dumping*
Agri Trading Corporation	25.9 %
Allied Grain Co.	36.6 %
Alton Grain Terminal	49.3 %
Archer-Daniels-Midland Company	27.5 %
Cargill, Inc.	29.6 %
Central States Enterprises	7.7 %
Chicago & Illinois River Marketing, LLC	34.4 %
Conagra	30.4 %
Farmers Grain Dealer, Inc.	25.4 %
Frito Lay Inc.	0.00 %
Interstate Commodities Inc.	3.2 %
Jury Commodities LLC	23.5 %
Lansing Grain	32.1 %
Lapeer Grains	34.2 %
Michigan Agricultural Commodities	37.2 %
Star of The West Milling	41.1 %
The Andersons	24.8 %
The Scoular Company	30.6 %
All other exporters	26 %

*Expressed as a percentage of export price.

Appendix III

Description of Programs and Incentives Identified at Initiation

1. Direct and Counter-Cyclical Payments

The Farm Security and Rural Investment Act of 2002 (FSRIA) provides for direct and counter-cyclical payments for the 2002 to 2007 crop-years. The intent of the payments is to reduce financial risks and help producers meet their cash flow needs. Commodities eligible for direct and counter-cyclical payments include wheat, corn, grain sorghum, barley, oats, soybeans, other oilseeds (sunflowers, canola, safflower, flaxseed, rapeseed, mustard seed, crambe and sesame), rice, upland cotton and peanuts.

Under this program, payments are made annually to eligible producers based on historic acreage and yields. In 2003, landowners had a one-time opportunity to either:

• Use their farm's 2002 Production Flexibility Contract (PFC) acreage; or
• Update their farm's acreage bases to reflect average 1998 to 2001 plantings.

If no election was made before the 2002 crop-election period ended, acreage bases for the farm were established using the farm's 2002 PFC acreage. Farm owners must sign-up between October 1st and June 1st of each year in order to receive payments.

With respect to corn, direct payments involve the provision of a fixed amount per bushel to producers by the USGov pursuant to section 1001 of the FSRIA. Counter-cyclical payments are made pursuant to section 1104 of FSRIA. Counter-cyclical payments are designed to reduce financial risks and provide producers with more stable cash flows. The USGov establishes a "Target Price" and an "Effective Price" for various commodities pursuant to the FSRIA. Counter-cyclical payments are made when an agricultural product's effective price is below its target price and are equal to the amount by which the target price exceeds the effective price.

Producers are eligible for direct and counter-cyclical payments on farms with eligible acreage bases. To be eligible for payments on these farms, producers must annually:

1. Sign a Direct and Counter-cyclical Payment agreement with the USDA's Farm Service Agency;
2. Report how they use all their farm's cropland;
3. Comply with conservation and wetland protection requirements on all their farms;
4. Comply with the planting flexibility requirements;
5. Use the cropland for agricultural or related activities (including not producing covered crops); and
6. Control noxious weeds and maintain land in sound condition.

The direct payment equals the direct payment rate (DPR) times 85% of the farm's base acreage times the farm's direct payment yield. The corn DPR is US$0.28 per bushel for crop-years 2002 to 2007. For the 2003 to 2007 crops, direct payments are made after October 1st of the year the crop is harvested. Producers may request up to 50% of the direct payment in advance, but no earlier than December 1st of the year before the crop is harvested.

The counter-cyclical payment equals the counter-cyclical payment rate times 85% of the farm's base acreage times the farm's counter-cyclical payment yield. Counter-cyclical payments are made when a commodity's effective price (EP) is below its target price (TP). The effective price equals the direct payment rate (DPR) plus the higher of the:

• National average farm price (NAFP); or
• National average loan rate (NALR).

Target prices and national average loan rates are set in the FSIRA. The corn target prices are US$2.60 per bushel for crop-years 2002 and 2003 and US$2.63 per bushel for crop-years 2004 to 2007, inclusive. The corn loan rates are US$1.98 per bushel for the 2002 and 2003 crop-years and US$1.95 per bushel for the 2004 to 2007 crop-years ⁸ .

2. Non-recourse Marketing Assistance Loans and Loan Deficiency Payments

Marketing Assistance Loans (MAL), also provided for in the FSRIA, provide producers interim financing at harvest time to meet cash flow needs without having to sell their commodities when market prices are typically at harvest-time lows. The loans allow USA grain corn growers to borrow funds by pledging and storing crops as collateral. The loans are based on a designated loan amount per unit of production and have a maximum term of nine months. Growers have the option to repay their loans with interest or to forfeit their crops to the USGov's Commodity Credit Corporation (CCC) and have the loan principal and interest forgiven. To discourage crop forfeitures, the USGov allows growers to repay the MALs at lower amounts when market prices fall below the designated loan amount and the repayment amount, resulting in a marketing loan gain to the grower.

Eligible growers who do not take out MALs may, alternatively, receive Loan Deficiency Payments (LDP). These payments are equal to the difference between what the grower would be eligible to receive under the MAL program and the repayment amount. Commodities eligible for non-recourse marketing assistance loans include wheat, corn, grain sorghum, barley, oats, soybeans, other oilseeds (sunflowers, canola, safflower, flaxseed, rapeseed, mustard seed, crambe and sesame), rice, upland cotton, extra long staple cotton, honey, wool, mohair, dry peas, lentils, small chickpeas and peanuts. The majority of payments made under this program are LDP.

3. Federal Crop Insurance Program

Federal crop insurance is provided to reduce losses to agricultural producers as a result of unavoidable causes such as drought, excessive moisture, hail, wind, hurricane, tornado, lightening, insects, disease, etc., or to reduce loss of revenue due to reduced prices, reduced yields, or both.

The Federal Crop Insurance Corporation (FCIC) is a USA federal government enterprise that controls the USGov's federal crop insurance program. The program is administered by the USDA's Risk Management Agency. Federal crop insurance is available solely through private insurance companies that market and provide full service on crop insurance policies upon which these companies share the risk. These policies are then "reinsured" by the FCIC. Reinsurance means that the underwriting gains or losses are shared between the private insurance company and the USGov. Under the agreements by which the policies are reinsured, the USGov agrees to pay the insurance company, among other things, a subsidy for a portion of its administration and operating expenses and a subsidy for a portion the total insurance premiums. Any producer who receives any governmental support must purchase insurance coverage or waive eligibility for any disaster benefits that may be made available in that crop-year.

Two major types of insurance are available, 'catastrophic' coverage and additional coverage. Catastrophic coverage guarantees producers 50% of their average yield at 55% of the expected market price. Premiums are paid by the USGov, which the producer pays a US$100 fee per crop, per county, for which coverage is elected. Additional coverage relating to yield based plans, and revenue or income insurance plans are available to producers who desire higher levels of coverage. The producer pays an administrative fee for the additional coverage of US$30 per crop, per county.

Appendix IV

Summary of Findings for Named Subsidy Programs

1. Direct and Counter-Cyclical Payments (DCP)

The direct payment is a payment made to a producer of grain corn by the USGov pursuant to section 1001 of the FSRIA. Counter-cyclical payments, made pursuant to section 1104 of the FSRIA, are designed to reduce financial risks and provide producers with more stable cash flows.

Determination of Subsidy

These payments involve a financial contribution by the USGov in the form of direct payments. These payments have provided benefits to corn producers by providing additional income assistance in each of the two crop-years covered by the POI.

These payments meet the definition of a financial contribution as defined in paragraph 2(1.6)(a) of SIMA and confer a benefit to the recipient as per paragraph (a) of the definition of subsidy in subsection 2(1).

Specificity

Only a portion of US agriculture is benefiting from the DCP program. Fruits, vegetables, wild rice, poultry and dairy production are not eligible for payment benefits under the program. DCP payments are made to a limited number of eligible enterprises - which includes producers of corn, wheat, other feed grains (sorghum, oats and barley), rice and upland cotton. The legislation and regulations limit access to the DCP program to these crops. As such, this program is limited, in law, to a group of enterprises within the agricultural sector, and therefore is "specific" pursuant to paragraph 2(7.2)(a) of SIMA.

Amount of Subsidy

The total amount of the DCP payments relating to participating farms that planted corn has been allocated over total corn production to determine an average benefit on all goods (including those exported to Canada). This allocation method is consistent with the SIMR as outlined in subsection 27.1(1) and paragraph 27(a).

For each of the 2003 and 2004 crop-years, the total DCP payment amount involving corn was adjusted by removing the payments made to registered corn farmers that did not grow corn in that crop-year. This results in an adjusted DCP payment amount of US$1.56 billion in the 2003 crop-year and US$3.41 billion in the 2004 crop-year. When allocated over total corn production of 10.09 billion bushels for 2003 and 11.8 billion bushels for 2004, the amount of subsidy is US$0.15 per bushel for the 2003 crop-year and US$0.29 per bushel for the 2004 crop-year.

2. Non-recourse Marketing Assistance Loans and Loan Deficiency Payments

Non-recourse Marketing Assistance Loans (MAL), also provided for in the FSRIA, provide producers with interim financing at harvest time to meet cash flow needs without having to sell their commodities when market prices are typically at harvest-time lows. Eligible growers who do not take out MAL may, alternatively, receive Loan Deficiency Payments (LDP). Both the MAL and LDP payments result in a direct financial contribution and related benefit to eligible grain corn producers when market prices fall below the designated loan amount (i.e., the MAL loan rate).

When grain corn market prices fall below the designated loan amount, one of the following generally occurs:

• There is a direct payment from the government to eligible growers who choose to forgo the MAL - equal to the difference between the local market price and the designated loan amount; or
  
  
• There is a loan gain to corn growers that accepted a MAL - equal to the difference between the loan repayment amount (based on the local market price) and the original designated loan amount.

Determination of Subsidy

These direct payments and loan gains result in benefits to corn growers by providing a guaranteed return that is higher than the price available for sales on the open market. These benefits flow directly from the operation of this support program. Accordingly, these payments meet the definition of a financial contribution as defined in paragraph 2(1.6)(a) of SIMA and confer a benefit to the recipient as per paragraph (a) of the definition of subsidy in subsection 2(1).

Specificity

Similar to the DCP, only a portion of US agriculture is benefiting from the LDP and MAL program. Information contained in the USGov submission confirms that MAL and LDP are available to twenty-four specific commodities including grain corn and are not generally available across the US agricultural sector. As such, this program is limited, in law, to a group of enterprises within the agricultural sector, and therefore, is "specific" pursuant to paragraph 2(7.2)(a) of SIMA.

Amount of Subsidy

Pursuant to subsection 27.1(1) and paragraph 27(a) of the SIMR, the total amount of both the Marketing Loan Gains and LDP have been allocated over total US corn production to determine an average benefit on all goods (including those exported to Canada).

Loan gains and loan deficiency payments relating to corn production (in aggregate) total US$77.5 million in the 2003 crop-year and US$2.94 billion in the 2004 crop-year. When expressed over total production for each of the respective crop-years, the result is an amount of subsidy of US$0.01 per bushel for the 2003 crop-year and US$0.25 per bushel for the 2004 crop-year.

3. Federal Crop Insurance Program

The Federal Crop Insurance Act (FCIA) is administered by the USDA's Risk Management Agency under the control of the FCIC. Crop insurance policies are sold and serviced by private insurance companies that are then "reinsured" by the FCIC. The Reinsurance Agreement between the FCIC and the insurance companies provide the terms and conditions under which the insurance companies can operate and how they will be reimbursed by the FCIC.

Pursuant to the FCIA, and as specified in the Reinsurance Agreements, the government agrees to pay certain administrative and operating expenses (an A&O subsidy), all or a portion of policy premiums (a risk subsidy) and a portion of program losses. Program losses can occur when indemnities paid are more than premiums collected. Only "eligible" insurance products are reinsured and subsidized by the USGov. It should be noted that total premiums were more than sufficient to cover indemnities relating to claims involving corn production during the POI.

There are a number of different types of eligible insurance products. They include catastrophic coverage, yield based plans, and revenue or income insurance plans. The USGov pays the entire premium for catastrophic coverage and pays a portion of the premium for other insurance products based on a graduated scale. Policyholders pay a nominal administrative fee.

Determination of Subsidy

It is determined that the payments made by the USGov to private insurance companies under the authority of section 508 of the FCIA (and as specified in individual Reinsurance Agreements) for A&O subsidies, risk subsidies and program losses, constitutes a financial contribution under paragraph 2(1.6)(d) of SIMA through the provision of goods and services by a non-governmental body as directed by the government. It is further determined that these financial contributions confer a benefit to all policyholders in the form of reduced, or eliminated premiums. Accordingly, the Federal Crop Insurance program is considered a subsidy.

Specificity

As previously indicated, the CBSA examines whether an agricultural subsidy is specific in relation to the agricultural sector as a whole, based on the criteria and conditions for non-specificity and the determination of specificity, which are provided for in subsections 2(7.1) to (7.4) of SIMA.

Most of the major crops such as wheat, corn, other feed grains, cotton and rice are eligible to participate in the program in nearly every county in which they are grown. However, the crop insurance program is limited to those commodities specifically named in the FCIA. In addition, the regulations limit access to the program to only those crops and counties designated by the Manager of the FCIC. Eligibility for fruits, vegetables and other specialty crops varies by region. Furthermore, risk protection for livestock, which accounts for the greatest value of production within the agricultural sector, is only available on a provisional, limited basis ⁹ .

The legislation and regulations limit access to the crop insurance program to specific crops, in specific counties and to specific policies. As such this program is limited, in law, to a group of enterprises within the agricultural sector, and therefore, is "specific" per paragraph 2(7.2)(a) of SIMA.

It is also noteworthy that a WTO Panel examined the crop insurance program in Upland Cotton and found that crop insurance subsidies are 'specific' within the meaning of Article 2 of the Subsidies Agreement ¹⁰ .

Amount of Subsidy

SIMR 36 states that where the government subsidizes the provision of goods or services, the amount of the subsidy will be an amount equal to the difference between the fair market value of the goods or services and the price at which the goods or services were provided, over the total quantity of the subsidized goods. As all grain corn producers are eligible to participate in the Federal Crop Insurance program, the amount of subsidy was calculated on the basis of total grain corn production.

A fair market value for insurance products and services would normally be the commercial cost of doing business, plus an amount for profit. Most private insurance companies operate on the assumption that the revenue generated from premiums and administrative fees will cover expected indemnities, administrative costs and an amount for profit. Therefore, to determine an amount of subsidy based on the "fair market value", the financial contributions by the USGov to the private insurance companies, which would normally be included in insurance premiums and administrative fees, was used.

An amount for profit was not included in the amount of subsidy. The private insurance companies are allowed to retain set amounts of any underwriting gains they earn and are also reimbursed by the federal government for net underwriting losses. Only those costs normally absorbed by a private company, but incurred by the USGov have been used to determine the amount of subsidy.

The amount of subsidy was determined based on the total expenses for the USGov for insurance programs involving corn, less administrative fees paid by producers, divided by the total corn production for each crop-year during the POI. Information relating to the expenses incurred by the USGov was contained in Exhibit #28 of the USGov's submission. The net payments by the USGov relating to crop insurance for corn was US$835,864,329 in the 2003 crop-year and US$1,076,872,701 in the 2004 crop-year. When allocated over total production for each of the crop-years, the result is an amount of subsidy of US$0.08 per bushel for the 2003 crop-year, and US$0.09 per bushel for the 2004 crop-year.

Summary of Amounts of Subsidy for all Programs for the POI:

Program	2003 Crop-year (US$/BU)		2004 Crop-year (US$/BU)		Entire POI
Direct and Counter-cyclical Payment:	$1,560,973,755 10,089,000,000	$0.15	$3,411,755,843 11,807,000,000	$0.29	$4,972,749,598 21,896,000,000	$0.23
Loan Deficiency Payments and Marketing Loan Gains:	$77,510,980 10,089,000,000	$0.01	$2,944,036,865 11,807,000,000	$0.25	$3,021,547,845 21,896,000,000	$0.14
Federal Crop Insurance:	$835,864,329 10,089,000,000	$0.08	$1,076,872,701 11,807,000,000	$0.09	$1,912,737,030 21,896,000,000	$0.09
Total Subsidy per Bushel:		$0.245		$0.63		$0.45

Exporters	Amount of subsidy per bushel for the period of investigation (September 1, 2003 to August 31, 2005)	Amount of subsidy per bushel after a CITT finding of injury
All exporters	US$0.45	US$0.87