U.S. / China trade dispute: Plastics not yet an issue

In late March the U.S. government announced it will impose countervailing duties on import of high-gloss paper from China, the first time in decades that the U.S. has threatened to impose such sanctions against imports from a country with a non-market economy—such as China once had.

Countervailing duties are not punitive but are intended to counter-balance any illegal subsidies given to an importing firm by its own government. In this case, brought forth last year by NewPage Corp. a Dayton, OH paper manufacturer, the firm was able to convince a trade court that two of its Chinese competitors were marketing imported high-gloss paper at below-production cost. The preliminary decision will now go to the International Trade Commission for a determination of injury to the U.S. industry.

Trade sanctions in the paper manufacturing industry may eventually have ramifications for other manufacturing industries, including plastics processing. The trade deficit with China remains a powerful political issue in the U.S. The deficit reached a record $232.5 billion in 2006, accounting for about a third of the entire U.S. trade deficit. As a result of the NewPage case, duties of 10.9% and 20.4% will be imposed on two Chinese paper manufacturers; the duties match the alleged illegal Chinese government subsidies.

The sanctions could open a flood of cases in the U.S. if other industries can convince that they too are harmed by illegal subsidies. China may challenge the duties in U.S. federal court and the World Trade Organization (WTO). The tariffs take effect immediately but a final determination from the U.S. Commerce Department may take months.

Following the Democratic party’s success in the U.S. elections last November, the U.S. move was not entirely unexpected, but nor was it greeted in China. Under the headline “Ill-conceived tariff”, the opinion page of the English-language version of China’s People’s Daily newspaper called the move “a sign of increasing U.S. anxiety over its huge trade deficit” and added, “The anti-subsidy measures will increase the cost of Chinese products sold in the US, but will not increase the competitiveness of U.S. manufacturers. They will continue to operate at a disadvantage in competition with low-cost Asian rivals.”—[email protected]