Port Hawkesbury Paper LP is vowing to use the North American Free Trade Agreement to fight a penalizing tariff imposed on its paper exports to the United States.
Management at the Nova Scotia mill was disappointed when the U.S. International Trade Commission announced Wednesday it would uphold a 20.18 per cent tariff placed on supercalendered paper produced by Port Hawkesbury Paper.
A couple of U.S. paper companies filed a complaint with the Commerce Department that Canadian mills, especially Port Hawkesbury Paper, were being unfairly subsidized.
Although much of Canadian papermakers’ success in the U.S. market is largely due to a low Canadian dollar, compared with the greenback, the Commerce Department found in August that U.S. paper manufacturers were being “materially injured by reason of imports of supercalendered paper from Canada.”
This all stems from the fall and rise of NewPage Port Hawkesbury, then owned by a U.S. hedge fund. It went bankrupt in 2011 and sat idle for a year and a half before Pacific West Commercial Corp. acquired the mill in 2012 for about $33 million.
The new Canadian owner benefited from the provincial government of the day paying to keep the mill in “hot idle” so it could be quickly restarted under new management.
Once it bought the mill, Pacific West Commercial also received a $124.5-million incentive package from the province.
Despite all that, nearly three-quarters of the tariff imposed on Port Hawkesbury Paper’s U.S. exports is based on the allegation the plant is receiving subsidized electricity rates.
The paper company expects a further appeal under NAFTA will take another two to three years. But if the penalty is overturned, much of that duty will be returned to the company.
While it has been reported that Port Hawkesbury Paper will be paying a $3-million duty on exports to the U.S. each month, the paper mill’s development manager, Marc Dube, told me it is difficult to determine how much the tariff will cost the company at the end of three years.
Although it is continuing to honour commitments to its U.S. customers, the Nova Scotia mill is also finding new markets for its glossy, coated paper within Canada and internationally, he said.
Eventually, if new markets continue to grow, it may reduce the amount of product shipped to the U.S. and, as a result, reduce the penalty it will be paying.
Much of Port Hawkesbury Paper’s advantage is the quality of its product and having the most modern papermaking machinery in North America, Dube said.
The mill’s highest input cost is electricity, which is higher than any of its U.S. competitors. So to suggest the power rate Port Hawkesbury Paper is paying is a subsidy just doesn’t add up, he said.
“When the tariff was put in place, we’ve seen more European paper come into North America. They could see there was a tariff that was impacting a Canadian mill, and they’ve been able to come into North America and dump paper at a price we can’t compete with.”
The Nova Scotia Utility and Review Board did approve a change in the power rate when the new owners took control of the Point Tupper mill, but Dube said the plant’s owner, the province and the federal government all maintain its electricity bill is not subsidized.
The U.S. argues, however, that the review board acted as an extension of the provincial government when it set the rate for Port Hawkesbury Paper and therefore was providing a subsidy.
While it may appear that way, even to some Nova Scotia observers, Dube told me power rates paid by its competitors in the United States are set in much the same way, by an arm’s-length, quasi-judicial price-setting authority.
“We are the highest quality, certainly within North America. So if we can reach our goal of becoming the lowest-cost producer, we’ll work through the (appeals) process over the time frame and hopefully, at the end, will have money that’s in the bank for us.”