J.D. Irving, Port Hawkesbury Paper subsidies are in U.S. crosshairs

The U.S. government is investigating whether to impose trade sanctions on paper exports from the Maritimes because of industrial subsidies that producers receive from the New Brunswick and Nova Scotia governments.

The U.S. International Trade Commission, in a preliminary ruling in April, said American paper manufacturers have been hurt by the low price of subsidized Canadian paper coming from J.D. Irving Ltd. in Saint John and Port Hawkesbury Paper in Nova Scotia.

It cited four provincial subsidies offered by New Brunswick.

"There is a reasonable indication that an industry in the United States is materially injured by reason of imports of supercalendered paper," the ruling says, a reference to a type of paper produced by Irving Paper and Port Hawkesbury Paper.

"For purposes of this preliminary determination, we find that the significant volume of subject imports from Canada had a significant impact on the domestic [U.S.] industry."

The commission's ruling triggered a full investigation by the U.S. Commerce Department that could see countervailing duties and tariffs imposed on the exports.

The ruling says the U.S. Commerce Department found 28 cases of government support that warranted an investigation, four of them from the New Brunswick government:

• "Government funds for J.D. Irving Ltd."

• A loan from the New Brunswick government.

• Grants under Efficiency New Brunswick.

• New Brunswick Climate Action Fund grants.

Irving spokesperson Mary Keith says the company wants the commerce department to review all of the alleged subsidies.

She says if that were done "in a full and fair manner, it would conclude that all programs would result in no duties or duties that are negligible" and below the allowable threshold.

That's a reference to the commerce department's decision to not allow Irving to be a respondent in its investigation, even though any eventual duties would affect the company.

Economic Development Minister Rick Doucet said in a statement to CBC News that the provincial government is watching the commission's work very carefully.

"The province has been retained specialized legal counsel to defend its interests in this case, as the forestry industry is a vital part of our economy," Doucet said.

"The province of New Brunswick has cooperated with the government of Canada in filing its response in the U.S. Commerce investigation."

In documents filed in Washington on May 27, the New Brunswick government responded to Commerce Department questions about subsidies to Irving under the One Job Pledge, the Regional Development Corporation, the Climate Change Action Fund, the High Energy Use Tax Rebate, the Forestry Industry Remission Program, the Financial Assistance to Industry Program, and Efficiency New Brunswick.

The dollar amounts are blanked out in the version of the filings publicly available on the U.S. government web site.

U.S. coalition prompted investigation

The U.S. investigation began in February and came after a complaint by an American industry group, the Coalition for Fair Paper Imports.

The complaint was prompted by the Nova Scotia government's 2012 rescue package for a mill in Port Hawkesbury, a package that included a $40-million provincial government loan.

The U.S. group said the re-opening of the Port Hawkesbury mill boosted Canadian exports to the U.S., depressed prices, and made it unworkable for Verso Corp. to rebuild its mill in Minnesota, which had burned down.

But the investigation broadened beyond 13 incentives from the Nova Scotia government to include the four New Brunswick programs, as well as others offered by the federal, British Columbia, Quebec, and Ontario governments.

Russell Dreschsel, the chief executive officer of Maine-based Madison Paper Industries, one of the companies behind the complaint, refused to comment on the ruling.

So did a spokesperson for Verso Corp., another complainant.

Irving argued before the commission that its investigation should look at different categories of supercalendered paper as distinct products.

But the U.S. papermakers argued that American buyers see the different grades are "interchangeable."

The commission turned down Irving, saying there was not "a clear dividing line" between the various grades of paper.

Irving is also objecting to the U.S. Commerce Department not giving it the chance to respond to the complaint as part of its investigation.

The department says in documents that because the investigation involves more companies than it expected, and 17,000 pages of documents had been filed in the case by the end of May, it would only examine the two largest Canadian exporters, which it doesn't identify.

The U.S. Commerce Department says it will issue its preliminary ruling on the case July 28, with a final ruling scheduled for Oct. 13.

If the commission's own final ruling comes to the same conclusion as the department's, they can then impose duties on the Canadian imports.

Forestry issue looms

This dispute is unfolding at the same time another major Canada-U.S. forestry issue is looming.

The Softwood Lumber Agreement, signed between the two countries in 2006, set up a mechanism for dealing with accusations of unfair trade practices.

Traditionally, the U.S. government has exempted the Maritimes from its sanctions, accepting the arguments of the Maritime Lumber Bureau that wood from this region is not subsidized in the same was as the rest of Canada.

The region is also exempt from the measures allowed under the 2006 agreement.

Zoltan van Heyningen, a spokesman for the U.S. Lumber Coalition, says his understanding is there have been no talks between the two countries on extending the agreement.

"We understand that the U.S. government is seeking such negotiations, but that the Canadian government has thus far declined," he said.

Van Heyningen wouldn't comment on whether the U.S. industry believes the Maritime exemption should be renewed.