Irving Paper's trade battle gets tougher with Trump administration

New Brunswick's largest forestry company is continuing its battle against punishing trade duties imposed on some of its paper exports to the United States.

Irving Paper Ltd. is pursuing the fight with the International Trade Commission in Washington over supercalendered paper made in Saint John.

The provincial and federal governments have filed documents supporting the company and are also appearing before a tribunal to argue that the duties violate the North American Free Trade Agreement.

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They say it's "particularly egregious" that the U.S. administration didn't directly investigate Irving even when the company volunteered to undergo a probe.

Instead, the U.S. estimated Irving was receiving a subsidy rate based on what two other Canadian companies were getting.

"Irving Paper is a major economic player in New Brunswick and a critical contributor to the overall forestry industry of the province," government spokesperson Bonnie Doyle-Creber said in a written statement. "For this reason, the provincial government supported Irving Paper in its efforts to reduce the countervailing duty on supercalendered paper imported into the U.S."

Fight started in 2012

Irving was caught in a net cast by the U.S. government when the Obama administration investigated a complaint filed by American papermakers about the $124-million Nova Scotia government bail-out of the Port Hawkesbury paper mill in 2012.

That trade action ensnared three other Canadian companies selling supercalendered paper into the U.S.: Irving, Catalyst Paper Corp. of British Columbia, and Quebec-based Resolute Forest Products.

Two of the companies, Irving and Catalyst Paper Corp., were slapped with duties of 11.19 per cent even though the U.S. didn't investigate them.

The rate was an average of the rates applied to Port Hawkesbury and Resolute.

The rate was increased to 18.85 per cent in October 2015, still based on an average, and still without Irving having an opportunity to argue its case in Washington.

At the time, Irving spokesperson Mary Keith called the action "completely unfair to Irving Paper and … inconsistent with the law."

U.S. cites "subsidies" to Irving

Irving applied for an expedited review. What emerged from preliminary results released last November contained a long list of programs that the U.S. views as subsidies to Irving.

"The Department of Commerce ... preliminarily determines that countervailable subsidies are being provided to Irving Paper Limited," the Nov. 18, 2016 memorandum said.

The department is still conducting its final review.

Scotty Greenwood, a Washington-based lobbyist who specializes in Canada-U.S. relations, says she expects it to become even more difficult for Canadian companies to win such cases with U.S. President Donald Trump now in office.

"It's pretty clear that the Trump administration … is looking at a more robust enforcement agenda on trade than the one we've experienced in the past," she said. "There are a lot of enforcement-type 'hawks' that are beginning to populate trade policy."

Alan Wolff, a former U.S. trade official, predicted a tougher approach to imports would be "one of the hallmarks of the new administration."

Trump rhetoric will have impact

He said while the review process is supposed to be independent, Trump's America-first rhetoric will have an impact.

The U.S. looked at programs that benefitted not just Irving Paper but also J.D. Irving Ltd. and Irving Pulp & Paper Ltd., citing cross-ownership of the family businesses.

Some of the New Brunswick government programs cited include loans, payroll rebates such as the Alward government's "One Job Pledge," research and development tax credits, three programs run by the Regional Development Corporation, adjustments to stumpage rates and reimbursement of silviculture expenses for Irving work on Crown land, and the New Brunswick Large Industrial Renewable Energy Purchase Program.

That program allows forestry companies such as Irving to sell electricity it generates from renewable sources, such as wood biomass, to NB Power, which then gives the companies credits on their power bills to reduce their energy costs.

The U.S calls that a "financial contribution" and therefore a subsidy.

"NB Power first determines the credit it wants to give the large industrial customer, such as Irving; NB Power then works backwards to build up to that credit through a series of renewable energy power purchases and sales and additional credits," the memorandum says.

Tax credits considered subsidies

The U.S. Commerce Department also ruled that several federal programs provided unfair subsidies to Irving, including a "green transformation" program for the pulp and paper industry, a tax credit for accelerated capital costs, and the Atlantic Investment Tax Credit, which provides a 10-per-cent credit on investments in machinery and equipment.

Irving declined to comment on the case, but the company's filings in Washington say the U.S. decision on stumpage rates was based on "conjecture" and its silviculture reimbursements from the province did not fully cover Irving's costs.

In a joint submission, the federal and New Brunswick governments argue that Washington's finding on stumpage "is contrary to legal precedent and not supported by the facts."

The silviculture reimbursements are exempt from duties "because they are for the purchase of services and therefore do not qualify as financial contributions under the statute and they did not provide a benefit to Irving," the government briefs says.

Irving also says the credits on its power bills through the renewable energy purchase program were "less than adequate remuneration" for the electricity Irving generated, and weren't subject to duties because they didn't affect the cost of producing supercalendered paper.

The Obama administration launched the investigation after the U.S. Coalition for Fair Paper Imports said the Port Hawkesbury bailout boosted Canadian exports of supercalendered paper to the U.S., depressing prices.

Duties started in 2015

U.S. Customs and Border Patrol began collecting the duties from American buyers in 2015, in effect driving up the price of the Canadian products in the U.S., including Irving's.

Irving Paper has also applied for an administrative review of the duties, a separate process.

The administrative review allows an affected company to argue for reduced duties based on updated information.

The New Brunswick government is also supporting Ottawa's challenge to the duties under the North American Free Trade Agreement.

Most of that challenge focuses on defending the Port Hawkesbury bail-out, but it also argues that Irving's subsidy shouldn't have been based on an average of the rates applied to Port Hawkesbury and Resolute.

It says Irving's duties should be recalculated to take into account that Port Hawkesbury's bailout didn't benefit Irving.

That case was heard before a NAFTA arbitration panel last October and the decision is still pending.