Chinese Paper Tariffs Rankle U.S. Printers —Michelson

ENDING A 23-year-old policy of not applying anti-subsidy laws to non-market economy (state-controlled) countries like China, the U.S. Department of Commerce (DOC) recently determined that two Chinese producers and exporters of coated free sheet paper received countervailable subsidies ranging from 10.9 to 20.35 percent from the Chinese government in the form of tax breaks, tax forgiveness and low-cost loans. In response, tariffs have been enacted for coated free sheet paper imported from China, as well as for the same glossy grade being imported (in lesser amounts) from Indonesia and South Korea.

The preliminary decision, which will likely be challenged by China in U.S. federal court and with the World Trade Organization, will culminate in a final determination by the DOC as early as mid-June. According to U.S. government estimates, imports of coated free sheet paper products from China increased by approximately 177 percent in volume from 2005 to 2006, and were valued at roughly $224 million last year. The investigation and ultimate ruling resulted from an October 2006 petition filed with the DOC by Dayton, OH-based NewPage Corp., reportedly the largest coated paper manufacturer in North America. (To better understand NewPage’s position on why it filed the petition in the first place, read its “Open Letter to Printers” advertisement appearing on page 33 in this issue.)

While putting tariffs on coated paper may, as NewPage sees it, help to “level the playing field” (with foreign competitors being improperly subsidized), this action has many U.S. commercial printers, print buyers and the PIA/GATF up in arms. Noting that paper purchases account for approximately 22 percent of printers’ revenues, on average (and, for some plants, as much as 40 percent), the national association, for one, believes that shortages or disruptions brought about by the ruling will have a serious negative impact on the U.S. printing industry. “It is critical that printers have purchase options and access to a variety of paper producers in order to remain cost-competitive in the global market,” wrote PIA/GATF President and CEO Michael Makin, in a position statement letter directed to the U.S. International Trade Commission.

There is also fear that, due to the U.S. government’s decision, higher prices resulting from a reduction in the coated free sheet supply chain will be passed along to printers’ customers who, in turn, may look overseas to now even more price-competitive Asian print providers. What kind of irony is that? (Also be sure to check out two articles appearing in this issue that discuss China’s impact on our domestic book printing market, as well as the emphasis the Chinese higher education system has placed on the graphic arts.) Likewise, some argue that the import tariffs will give Canadian printers competing in the U.S. market an unfair advantage because they will still be able to purchase Chinese coated free sheet paper at reduced prices. And, to add insult to injury, the governmental action comes on the heels of the latest postal rate case, which already has catalogers and publishers grappling with large postage increases.

Interestingly, other paper manufacturers have remained largely mum on the NewPage petition and resulting DOC decision, even though several will likely benefit from the import duties imposed on lower-cost Chinese providers. I guess they’re being mindful not to anger any existing or potential customers that had been sourcing paper from overseas.

It makes you wonder, too, why the current administration would choose high-quality imported Chinese paper as the test case for instituting import tariffs against non-market economy countries, changing a governmental policy that dates back to the 1980s. However, given America’s reported $232.5 billion trade deficit with China, some analysts predict import duties might ensue on other Chinese products, if these paper tariffs make it through Chinese appeals in U.S. courts and at the World Trade Organization. The printing industry is already facing enough challenges without being at the center of a potential trade war between the United States and China.

Mark T. Michelson