Commerce Dept. Policy Changes on Chinese Paper Unlikely to Affect Newsprint Imports in the Near Term

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By: Jim Rosenberg

A recently concluded court case and subsequent U.S. Department of Commerce policy change may affect imports of low-priced newsprint from China. But before those imports attract government scrutiny, they will have to grow from comparatively tiny test quantities to production volumes, and a U.S. producer must make the case that China’s government subsidizes its newsprint industry.

Last week the U.S. Court of International Trade ruled in favor of the U.S. Department of Commerce in a case brought by the Chinese government. The ruling allows the Commerce Department to apply countervailing duty law to imports from non-market economies.

The case arose when an Ohio maker of glossy paper petitioned the department to reconsider its 23-year-old policy of not applying the antisubsidy law to China. The policy existed, in the words of a department announcement, because “subsidies had no measurable economic impact in the 1980s’ Soviet-style economies that were then under consideration.”

China’s move to a market economy, the department argues, now allows the use of countervailing duty law as “another trade remedy.” The day after the New York-based court’s decision, the Commerce Department announced a “preliminary decision to apply U.S. anti-subsidy law to imports from China.” A final determination in the case of imported coated free sheet paper is expected in mid-June.

According to the department, the volume such paper imports from China rose 177% from 2005 to 2006. Its preliminary decision of last Friday “determined that Chinese producers and exporters of coated free sheet paper received countervailable subsidies ranging from 10.90 to 20.35 percent.”

The Commerce Department also may apply antidumping law to imports, as it already has done with large newspaper printing presses. Citing 31 antidumping orders issues against China since 2001 (compared with 24 between 1993 and 2000), and Commerce Secretary Carlos M. Gutierrez said “the Bush administration will continue to vigorously enforce U.S. trade law with respect to China.” A quarter of all dumping orders arise from Chinese dumping cases, according to the department.

The Commerce Department will only look into newsprint imports from China if petitioned to do so by a domestic producer — something that hasn’t happened yet, according to a department spokeswoman. And it is unlikely to happen unless and until there are contracts for production quantities.

Of the two large newspaper companies known to have tested newsprint from China, a Gannett spokeswoman declined to comment on plans or current activity involving use of Chinese newsprint. Last year, a Gannett executive said that the company expected to see a substantial volume of Chinese newsprint early this year and anticipated it would be a buyer (E&P Online, Dec. 11).

At the other publisher, John Cannizzo, senior manager, newsprint, for
Tribune Co., said he’d heard no questions raised about newsprint imported from China. And while “keeping my ear very close to the ground,” he noted that the Commerce Department has very little trade history to measure at this point. The Chinese “are really not bringing any in yet,” he said, adding that it’s too early to guess at the impact of any possible future subsidy investigation.

Tribune’s initial tests, in Orlando and Los Angeles, showed the newsprint had good runnability and good optical properties. And while Cannizzo said at the time that the imported newsprint was “priced extremely competitively,” he added that price was “not the sole driver.” He said Tribune also seeks diversity of suppliers to ensure availability and quality.

The possibility of antisubsidy duties was not contemplated when Tribune originally arranged to test newsprint from China. Cannizzo was aware, however, that difficulties might arise over glossy paper, which had been imported from China well before the first test shipments of newsprint.

“The newsprint situation would appear to be quite different, at this time,” from that of glossy paper, where the Chinese have developed a significant market over a period of years, said Bernard Bottomley, president of Bottomley & Associates, a consultancy based in Breckinridge, Colo. In comparison, he said, “Chinese newsprint is a relatively new entrant to the North American market.”

A former newspaper company newsprint buyer, Bottomley cites two reasons for doubting that newsprint will figure in trade troubles with China any time soon. Echoing Cannizzo, he said there are “not enough quantities for a long-enough period of time … to get the attention of the Commerce Department.” And, he asks, is the pricing really low enough? Bottomley doesn’t think so, saying the price hasn’t been much lower than the spot market of the past six to eight months.

The Chinese, he continued, “were getting into [North America] pretty much at a market price.” Now, at spot-market pricing, they are forced to sell only somewhat below that level. Compared with the big players’ prices, he added, “they’re not that much under.”

Politics almost inevitably enters contentious trade issues. In the course of U.S.-China trade, Bottomley predicted that “we’re going to get whacked back by the Chinese in some manner” if antisubsidy duties are imposed. Besides, he points out, the U.S. and Canadian industries also have benefited from subsidies.

But beyond political considerations, there is at least one more reason why the Commerce Department may never examine newsprint imported from China: no one will complain.

For starters, said Bottomley, suffering now experienced by U.S. newsprint suppliers is “nowhere near” that of Canada’s. Further, the merger of U.S. giant Bowater with Canadian giant Abitibi Consolidated will give one company roughly half of North America’s newsprint business, making it the biggest supplier with possibly the most to lose to imports. But the proposed AbitibiBowater would be based in Montreal, not the United States.

Abitibi and Bowater may dominate, but they’re not the onlyl suppliers in eastern North America. Georgia-based SP Newsprint Co. is there, too; but as a partnership of newspaper publishing companies, Bottomley points out, its owners are unlikely to press the government on low-priced imports.

So if the Chinese find a market in the U.S., Bottomley predicted, it will be in the western states, where Abitibi and Bowater are not major players, and where, again, the biggest supplier is Canadian, Catalyst Paper Corp., and the next biggest, while U.S. companies, are both publisher-owned.

For any antisubsidy investigation, said Bottomley, “The western market is not likely to be a breeding ground for one of these cases.”

While some domestic producers may get some mileage out of whining and pointing at Chinese imports, Bottomley said those imports probably would not set off alarms when run through the Commerce Department’s typically strict accounting for pricing.

For now, problems in the domestic market, according to Bottomley, are the result of severe oversupply of producers and declining consumption by newspapers.

Meanwhile, back at Tribune, Cannizzo said the hope is to get a second, larger round of testing under way soon. As printed, bar codes on newsprint rolls in the original tests could not be scanned.

“It appears it has been solved,” said Cannizzo. Tribune is waiting to get more rolls and see if the codes can be scanned. If they can, he said, “it’s still our intent to go to a second phase of tests.”

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