Archives - Economics: Page 7
Author: paul carson (Tue Mar 20, 2007 4:38 pm)
Title: Economics
By STEVEN R. WEISMAN
Published: March 2, 2007
LUKE, Md. — For years the residents of this economically distressed hollow in the Appalachians have watched textile mills, glass factories and tire makers close down one after the other. Now its lone remaining big factory — “the last man standing,” as the production manager at the paper mill here put it — is threatened by imports of cheaper paper made in China.
The Luke paper mill was built in the 1880s on the upper Potomac.
“We’re still the economic engine for this whole area,” said Scott Graham, the production manager, referring to the river valley and forested hills surrounding the mill. “But our operations cannot compete with these below-cost imports.”
It is a familiar story in the struggle of the American industrial base to cope with globalization, but this one may have a different ending.
The problems of paper mills here and elsewhere around the country have become a test case for a possible new confrontation between the United States and China, which many industry officials and members of Congress hope could lead to new tariffs on imports not only of Chinese-made paper but also of steel, furniture, textiles and plastics.
In coming weeks, the Commerce Department is expected to decide whether to impose duties on high-gloss paper known as “coated paper” — the kind made here in Luke — that is imported from China. Many trade specialists in Congress and in the industry expect it to do so. Indeed, China has gone to court to block the decision in advance.
If imposed, the duties would set an important precedent, reversing 20 years of settled American trade policy in which the United States refrained from making accusations that “nonmarket economies” like China were granting illegal subsidies. In its court case, China argues that changing that policy without legislation or a full regulatory hearing would be illegal.
The Bush administration’s decision to face the issue of subsidies comes at a time of mounting pressure by Congress for a tougher stance on trade. With the American trade gap with China widening to a record $232.5 billion last year — roughly one-third of the entire deficit — Democrats say that if the Commerce Department does not act, they will pass legislation forcing its hand.
Many lawmakers say it is time to stop treating China with kid gloves, arguing that Beijing no longer deserves a free ride in which it benefits from a special exemption generally forbidden to Japan, Europe and other advanced industrial powers.
“I’m glad the administration is finally doing something,” said Representative Sander M. Levin, a Michigan Democrat and chairman of the trade subcommittee of the House Ways and Means Committee. “They are beginning to recognize that there was an election last year.”
The travails of the Luke mill are similar to those of other aging factories. But the NewPage Corporation, the company that owns the plant and is the largest producer of the high-quality paper, argues that it has hardly stood still in the face of foreign competition.
Mr. Graham, the production manager, whose grandfather helped pour concrete for the mill’s old 600-foot smokestack, points out that in seven years, the mill has invested hundreds of millions of dollars in labor-saving computerized equipment while reducing its work force to 1,000 from 1,500 and increasing its output by a third.
True, the plant, a sprawling complex on the upper reaches of the Potomac River, is fired by coal mined nearby and fed by huge quantities of water from local reservoirs, the same way it was when it was built in the 1880s here on the Maryland-West Virginia border.
Giant truckloads of trees are hauled up at one end of the mill. On the other end, thick rolls of shiny white paper are loaded on trucks. Among the clients for NewPage’s paper are producers of annual reports, labels, Hollywood movie posters and the glossy catalogs put out by Williams-Sonoma, Pottery Barn and Neiman Marcus.
Although Chinese companies also use modern equipment, NewPage maintains that their real advantage results from subsidies. They include government grants for modernization, low-cost loans, debt forgiveness, tax breaks for export-oriented companies and subsidies for suppliers of wood and pulp.
China’s market share in coated paper is still small, but rather than wait until Chinese producers dominate the business — as they have in things like toys and underwear — the paper mill’s backers are hoping to block what they see as unfair competition before it is too late.
The involvement of NewPage in the Commerce Department’s strategy was not accidental. Last year the department quietly informed critics of China’s trade policies that it would be willing to review its longstanding policy of not challenging Chinese subsidies as illegal if they could come up with a clear-cut case.
At the NewPage mill in Luke, Md., logs are eventually turned into the kind of coated paper used for catalogs, movie posters and annual reports.
Charlie Robertson of Keyser, W.Va., at a debarking and chipping machine. The mill has cut jobs and invested in computerized equipment.
Lawyers for NewPage say that Chinese producers charge $800 for a midgrade roll of paper, compared with the $1,000 the American company charges. The price differential alone does not prove the case, but it has enabled Chinese producers to increase their share of the American market from less than 1 percent in 2000 to 5.4 percent last year, the company says.
Under the complicated rules of trade, countries may impose tariffs in two situations: if an import is deemed to have been “dumped,” or sold below cost; or if certain illegal subsidies were involved.
The first category of tariffs — to guard against dumping — are imposed, threatened, disputed, retaliated against and ultimately negotiated all the time. The United States and China have frequently accused each other of dumping, and antidumping tariffs are being contemplated in the coated-paper case.
What makes this case significant, however, is that the department announced last November that it was also investigating whether to seek duties above and beyond those, to punish China for illegal subsidies.
Antidumping duties are often low. But if antisubsidy duties are imposed, they could double the price of Chinese paper, eliminating it from the market entirely, lawyers for the Chinese government say.
The Commerce Department is expected to announce its decision by April 2. The argument for changing the policy is that China has become a major aggressive player on the world economic stage, and that a policy forged when Beijing was just beginning to move away from communism — and its subsidies barely produced a ripple — is out of date.
Franklin L. Lavin, the under secretary of commerce for international trade, said that he could not comment on the merits of the case, but that politics did not play a role in the decision to investigate.
“Look at the timeline,” he said. “This was not a response to the midterm elections or to politics. It’s a response to the fact that the China of today is very different from the China of 15 years ago.”
Lawyers handling the case for the Chinese government and for several Chinese companies say these subsidies are in effect being counted twice in the investigation of antidumping and antisubsidy actions.
“The fear is that this case is going to be exploited by industry after industry,” said William H. Barringer, a partner at Vinson & Elkins, which represents the Chinese government on the issue. “The first people in the door will be steel. If this is upheld, China will be overwhelmed having to defend all these cases.”
If China loses the case, it has the option of pursuing two kinds of appeals: one with the United States Courts of Appeals and the other with the World Trade Organization in Geneva. The lawyers for China say that Beijing would pursue these appeals rather than engage in any retaliatory tariffs on American goods.
Many experts see the coated-paper case as one of three recent administration moves to raise pressure on China and to try to pre-empt Congress, forestalling legislation that might dictate trade policy and possibly nullify past trade accords with China and other countries.
The other two were a February announcement by the United States trade representative, Susan C. Schwab, that the United States would challenge Chinese subsidies at the World Trade Organization in Geneva, and a parallel threat to seek relief at the trade organization if China did not do more to crack down on piracy and counterfeit goods.
The administration’s tougher stance also comes at a time of little progress in the so-called strategic economic dialogue with China, begun with great fanfare last fall by Treasury Secretary Henry M. Paulson Jr.
“It’s clear these steps are intended to slake Congressional appetites and avert legislation that would put President Bush in a bind,” said Gary C. Hufbauer, a senior fellow and trade expert at the Peter G. Peterson Institute for International Economics in Washington. “It’s also designed to give some heft to the ‘strategic economic dialogue.’ ”
Some in Congress also see the China actions as a sign that Mr. Paulson, who resigned as chief executive of Goldman Sachs to become Treasury secretary last summer, realizes that his policy toward Beijing is faltering. A main focus has been a failed effort to persuade China to stop interfering with its currency levels in a way aimed at promoting exports.
“When Paulson came in, he thought all you have to do is talk logic with the Chinese,” said Senator Charles E. Schumer, Democrat of New York and a vociferous critic of China. “They talked very nicely and gave him ice in the winter. Now he’s learning that you have to be tougher. It’s not like doing a deal with Goldman Sachs.”
A spokeswoman for Mr. Paulson, Brookly McLaughlin, said that the dialogue was “not designed to replace other bilateral negotiations or the necessary enforcement of our trade laws.” Mr. Paulson, meanwhile, will be trying to shore up his approach with a visit to China in March, his third since taking office.
The policy rests on the basic idea that American consumers gain tremendous benefits from access to goods from China and that the American economy has proved itself capable of adapting to even the most intense foreign competition, in that way constantly advancing the nation’s prosperity and productivity.
But that perspective does not carry much weight here in Luke.
“Somebody’s got to be left who can do more than flip burgers for a living,” said Thomas Caldwell, who ran a machine cutting rolls of paper into sheets at the plant before becoming president of the local union seven years ago. “I’m scared to death of how my grandkids are going to have to deal with this.”
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