U.S. to slap duties on China paper

In a decision that could trigger a new round of transpacific trade tension, the Bush administration reversed a decades-old policy Friday and said it would impose sanctions to protect U.S. papermakers from illegally subsidized Chinese imports.

Ruling on a complaint by an Ohio papermaker, the Commerce Department said China -- classified for the last 23 years as a “non-market economy” -- would now be treated like any other country accused of unfairly subsidizing exports.

“The China of today is not the China of years ago,” Commerce Secretary Carlos M. Gutierrez said. “Just as China has evolved, so has the range of our tools to make sure Americans are treated fairly.”

If the department’s preliminary ruling is upheld, imports of glossy paper from China will be subject to steep penalties known as countervailing duties.

Chu Maoming, a spokesman for the Chinese Embassy in Washington, called the decision “unacceptable” and said it “seriously undermined” Chinese companies. He said his government “reserved all rights to safeguard its lawful rights and interests.”

Congressional leaders, manufacturers and unions critical of the administration’s China policy were quick to praise Friday’s decision. They said the soaring U.S. trade deficit with China, which reached $232 billion last year, was fueled by unfair competition from Chinese firms getting cheap loans, tax rebates and other government help.

With the Democrats in control of Congress, the White House is under pressure to respond to concerns that American jobs are being lost to unfair foreign competition. Last month the U.S. filed a case at the World Trade Organization in Geneva alleging that China was flooding the U.S. market with subsidized products.

“Everywhere, the manufacturing organizations are saying, ‘This is killing us,’ ” said Daniel DiMicco, chief executive of Nucor Corp., one of the U.S.’ largest steel makers. “We’re not getting the level playing field, and it is not just the paper industry.”

Trade experts predicted that the preliminary ruling would aggravate tensions with China and, if upheld, would trigger a wave of similar complaints by steel makers and other manufacturers that could lead to higher prices for importers of those products. They said officials in Beijing, which is expected to appeal the decision, could find ways to retaliate against foreign firms operating in China.

“I think it could be quite significant,” said Jason Kindopp, a China analyst with Eurasia Group, a political risk consulting firm. “It’s not immediate. But it could start a trend that could be material in the not-too-distant future.”

The Chinese government had attempted to quash the ruling in court. But on Thursday a judge in the U.S. Court of International Trade upheld the U.S. government’s right to proceed with the case.

Congressional critics of U.S. trade policy said Friday that they still planned to push for legislation that would force China to address their concerns about illegal subsidies and other unfair trade practices, such as currency manipulation, or face penalties.

“Changing the law will remove any doubt or court challenge to make certain that every industry can file a case if they have been harmed,” House Ways and Means Committee Chairman Charles B. Rangel (D-N.Y.) and trade subcommittee Chairman Sander M. Levin (D-Mich.) said in a statement Friday.

The Commerce Department’s ruling -- which goes to the International Trade Commission for a final decision -- came in a case filed by NewPage Corp. The Dayton, Ohio, company argued that it couldn’t compete against subsidized imports from China, South Korea and Indonesia.

Imports of coated sheet paper from China increased by 177% in volume from 2005 to 2006, according to the U.S. government. Last year the estimated value of those imports was $224 million.

The Commerce Department’s initial finding, which could be changed, would impose tariffs of 10.9% to 20.3%.

David Phelps, president of the American Institute for International Steel, said extending countervailing duties to Chinese imports was protectionist and could lead to Chinese firms’ being penalized twice, because U.S. firms already can use antidumping laws against Chinese manufacturers.

He expressed skepticism that domestic steel makers, which enjoyed record profits last year, could prove they were being hurt by subsidized Chinese steel, as required by the countervailing- duty law.

“The fact they haven’t filed as yet means they understand that having a record profit year gives them little credibility,” he said.

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evelyn.iritani@latimes.com