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Commerce Department Targets Chinese Subsidies on Coated Free-Sheet Paper Preliminary decision to apply countervailing duty law to China signals major change in trade policy. by Tim Truman Subsidies provided to Chinese producers and exporters of coated free-sheet (glossy) paper are the subject of the first countervailing duty (CVD) investigation against a non-market economy (NME) since 1991. On March 30, 2007, the Commerce Department preliminarily decided to apply CVDs to coated free-sheet paper imported from China. The decision altered a 23-year-old policy of not applying the CVD law to NMEs, and it reflects China’s economic development. (Story continues below.)
The preliminary results of the department’s CVD investigation found that Chinese producers and exporters of glossy paper received net countervailable subsidies ranging from 10.90 to 20.35 percent. As a result, U.S. Customs and Border Protection is now collecting a cash deposit or bond from importers of that paper subject to the investigation. “This administration has aggressively enforced our antidumping laws to combat unfair Chinese trade,” said Secretary of Commerce Carlos M. Gutierrez. “China’s economy has developed to the point that we can add another trade remedy tool, such as the countervailing duty law. The China of today is not the China of years ago. Just as China has evolved, so has the range of our tools to make sure Americans are treated fairly. By acting on the petition filed last October, the United States is demonstrating its continued commitment to leveling the playing field for American manufacturers, workers, and farmers.” (Story continues below.)
First China CVD Investigation since 1991 The path to this decision began in October 2006, when a U.S. manufacturer of coated free-sheet paper, NewPage Corporation of Dayton, Ohio, asked the Commerce Department to reconsider its long-standing policy of not applying the CVD law to China. NewPage’s petition marked the first time since 1991 that a U.S. company formally requested the Department of Commerce to countervail an NME. In its petition, NewPage alleged that several Chinese companies received subsidies, such as tax breaks, grants, and low-cost loans. From 2005 to 2006, imports of coated free-sheet paper products from China increased by approximately 177 percent in volume and were valued at an estimated $224 million. Legal Authority to Apply CVD Laws to NMEs The Commerce Department has the legal authority to apply the CVD law to NMEs. However, in 1984, the Commerce Department reasoned that subsidies had no measurable economic effect in the Soviet-style economies that were then under consideration. So the department adopted a policy of not applying the U.S. CVD law to NMEs. This policy was subsequently upheld by the U.S. Court of Appeals in its 1986 Georgetown Steel decision. Since then, the antidumping law has been the most commonly used instrument to address unfair trade practices involving Chinese goods. Nature of a Subsidy Government subsides distort the free flow of goods and adversely affect U.S. business in the global marketplace. Foreign governments subsidize industries when they provide financial assistance to benefit the production, manufacture, or exportation of goods. Subsidies can take many forms, such as direct cash payments, credits against taxes, and loans at terms that do not reflect market considerations. U.S. law and regulations establish standards for determining when an unfair subsidy has been conferred. The amount of subsidies that a foreign producer receives from its government is the basis for the rate by which a subsidy is offset or “countervailed.” CVD versus Antidumping CVD investigations, including the current one, are often accompanied by antidumping investigations. The Commerce Department commonly applies the antidumping and CVD law at the same time. In fact, 30 out of the department’s 35 current CVD orders are paired with a dumping order. The Commerce Department recognizes that its conclusion to apply the CVD law to China may require a review of U.S. antidumping methodology for China, particularly at the enterprise-specific level, and it is currently considering this issue. A possibility of double counting results from simultaneous antidumping and CVD investigations, depending on the specific facts arising in such investigations. Hence, to the extent that the parties to the proceedings provide evidence for the investigations, the department will respond to the concerns in the course of its investigations. China Still an NME Conducting this CVD investigation does not reverse the Commerce Department’s decision, reaffirmed in August 2006, to treat China as an NME under the antidumping law. Rather, the department will use all available trade remedy tools to ensure a level playing field for U.S. manufacturers. Tim Truman is a senior import policy analyst in the International Trade Administration’s Import Administration unit.
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