On March 2, 2010, the U.S. Department of Commerce (DOC) released a preliminary decision in a case that has the potential to rock the paper products industry. The DOC found that Chinese and Indonesian producers and exporters of certain coated paper received countervailing subsidies. As a result of this preliminary finding, and to level the playing field for the unfair advantage brought by the countervailing subsidies, DOC will impose tariffs on imported coated paper from China and Indonesia. What will this mean for you? Higher prices or fairer competition for Americans—or nothing.
How the Battle Began
On Sept. 23, 2009, three large U.S. paper makers, and the United Steelworkers Union (Petitioners), filed a petition with the DOC and the U.S. International Trade Commission (ITC), in which they accused China and Indonesia of "dumping" certain coated paper into the U.S. market and receiving unjust subsidies from foreign governments. "Dumping" occurs when a foreign company sells products in the U.S. at less than fair market value. Subsidies means that foreign companies receive financial assistance from foreign governments that benefit exportation of goods. The American paper manufacturers have alleged the U.S. paper industry is being hurt by foreign government-subsidized Asian coated paper.
The DOC commenced an investigation to determine whether manufacturers, producers or exporters of coated paper in China and Indonesia in fact receive countervailing subsidies. The products covered in the investigation included certain coated paper and paperboard suitable for high-quality print graphics using sheet-fed presses, such as paper used for books, magazines, envelopes, greeting cards and catalogues.
As noted above, on March 2, 2010, the DOC issued a preliminary decision finding that Chinese and Indonesian producers and exporters of certain coated paper do receive unfair subsidies. The DOC found that Chinese manufacturers and exporters received subsidies ranging from 3.92 percent to 12.83 percent, with an average subsidy at 8.38 percent, and Indonesian manufacturers and exporters received subsidies at 17.48 percent. As a result of these findings, preliminary countervailing duties have been imposed. Companies who import certain coated paper now will have to post bond or cash deposits in an amount equal to applicable margins relating to the foreign subsidies, thus adding to the cost of purchasing certain coated paper from Chinese and Indonesian companies.
The next issue that the DOC will consider is whether imports of coated paper from China and Indonesia materially injures or threatens to materially injure domestic producers of coated paper. The DOC is scheduled to issue its final determination of the matter in or about September 2010. If the DOC finds that they do, the DOC will issue final countervailing duty orders (i.e., tariffs imposed to neutralize the adverse effects of the countervailing subsidies).
What This Means for U.S. Printers
The Petitioners believe the imposition of such countervailing duties will level the playing field and allow American companies to be more competitive with their Asian counterparts. On the other hand, the Asia-based companies are contending that the imposition of countervailing duties will not really level the playing field and will only serve to increase the cost of coated paper and reduce the supply.
Asia Pulp & Paper (APP), a major exporter of Chinese and Indonesian coated paper, believes that the U.S. paper industry has not been injured by foreign subsidies and that, upon final resolution of the matter, the DOC's preliminary countervailing duties will be reduced or eliminated altogether.
In a press release issued on March 2, 2010, APP's acting president, Terry Hunley, stated, "This case is unwarranted and unfairly limiting competition would be unamerican. It would hurt printers, publishers and everyone in America who consumes finished coated paper products. We will continue our work to have this case rejected on the merits. This process is like the Super Bowl, you can't predict the final score based on what's happened on the first quarter."
APP's position may have some merit. Two years ago, large American paper producers filed a similar petition with the DOC and ITC, claiming that Asian paper was being "dumped" on the U.S. market. In that prior case, preliminary duties were imposed—as in the recent case. However, such duties ultimately were rejected at the conclusion of the matter because there was no finding of harm to the American market.
In addition, government subsidies seem to be commonplace, even in the United States. The U.S. paper industry itself has benefitted from government subsidies, including "black liquor" tax subsidies. "Black liquor," which is a by-product of creating wood pulp, is used as fuel. The U.S. government provided enormous tax breaks (some believe these subsidies amounted to $9 billion in 2009) to encourage paper companies to use biofuels, such as "black liquor," by mixing them with fossil fuels.
In any event, predicting what the DOC and ITC ultimately may decide later this year about countervailing duties and what effect their decision will have on the U.S. paper industry is a rather difficult task. There certainly are pros and cons on both sides of the war. However, if history is any guide, the ultimate effect may be no effect at all. Stay tuned.
- Places:
- China
- Indonesia
- United States