Thursday, January 22, 2015

Boo-hoo!: North American Paper Companies That Enjoyed Black Liquor Subsidies File Complaint Against Foreign Competitors' Subsidies

Please see this update to the story: Hurts So Good: Is International Paper Hoping To Be Punished?

It’s a case of the pot calling the kettle black liquor: Three paper companies that received well over $1 billion in dubious black-liquor subsidies from the U.S. and Canadian governments are suing to stop “unfair” competition from foreign competitors.

Domtar, Packaging Corporation of America, P.H. Glatfelter, and Finch Paper joined with the United Steelworkers union Wednesday to announce they had filed “antidumping petitions against unfairly priced imports” of uncoated freesheet paper (copier paper, for example) from China, Indonesia, Brazil, Portugal, and Australia. Part of their justification for seeking levies on certain paper imports is that China and Indonesia unfairly subsidized their paper companies’ exports.

Since 2009, Domtar has received more than $700 million in tax credits from two U.S. government biofuels programs that have been widely criticized as thinly veiled subsidies of the American paper industry. Both the Alternative Fuel Mixture and Cellulosic Biofuel Producer Credits programs rewarded paper makers for what they and competitors worldwide were already doing – burning black liquor, a caustic pulp byproduct, to power their mills.

Domtar, a Canadian company with extensive U.S. operations, also received $143 million from a Canadian government program that rewarded the use of black liquor at that countries' mills. The program was set up to keep Canadian pulp operations competitive in the face of the U.S’s massive black-liquor subsidies.

PCA quaffed more than $300 million from the programs itself and Boise, which PCA subsequently acquired, took in more than $200 million. Glatfelter imbibed more than $100 million from the programs. Finch was apparently not a beneficiary.

Sitting out this fight is International Paper, a major uncoated freesheet producer that pocketed well over $2 billion from the black liquor programs. IP is a truly global player with much of its production and sales outside of North America, which may make it reluctant to stir this pot even though it would probably benefit if duties are imposed.

"Foreign paper manufacturers are taking advantage of the unfair trade practices of dumping and subsidies to undermine U.S. manufacturers," said Mark Kowlzan, PCA's CEO, said yesterday.

Most of the tax credits were booked in 2009, before Congress finally closed the loopholes that enabled the paper companies to subvert the two programs that were intended to promote the use of environmentally preferable fuels. But favorable rulings from an extremely accommodating Internal Revenue Service have kept the money flowing since then, including $166 million to PCA last year.

IRS whistle blowers have complained that the rulings ran counter to law and logic and based purely on political expediency. Congress dallied in closing the loopholes, apparently as part of the horse trading to get Obamacare passed; then, with some extremely creative accounting, it closed the loopholes and used the supposed savings to help pay for Obamacare.

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