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Commerce Department Applies New Duties Against China (Update1)

By Mark Drajem

March 30 (Bloomberg) -- The U.S. Commerce Department decided today to levy new duties on imports from China to compensate for Chinese subsidies to exporters, reversing more than two decades of practices.

The Bush administration, which debated the change internally for months, faced pressure to expand the tariffs from steel companies, textile producers and other manufacturers facing competition from China and their advocates in Congress.

``This decision is the most significant step toward a stronger trade policy with China than we have experienced in this decade,'' Republican Representative Phil English of Pennsylvania said in a statement today. English has proposed legislation that would explicitly allow these types of duties to be imposed on China, Vietnam and other non-market economies.

Secretary of Commerce Carlos Gutierrez announced the change at a press conference in Washington today in a case involving coated paper imports. The ruling is a preliminary one by the Commerce Department's office of Import Administration. The initial duties will range from 10.9 percent to 20.3 percent.

Applying countervailing duties against non-market nations may open the way for a flood of new trade complaints by U.S. manufacturers hurt by surging imports from China. The Chinese government lost a U.S. court case yesterday aimed at preventing this decision.

Offset Subsidies

Under decade-old practices, antidumping duties are the only ones that have been applied on products from countries with managed economies because it is difficult to identify subsidies in such countries. A 1986 court ruling affirmed an earlier decision by the Commerce Department that subsidy rules don't apply to those nations.

Antidumping duties apply to goods sold overseas at or below the price they are sold for in the home country. Countervailing duties, which Gutierrez announced today, aim to offset the benefits of government subsidies.

Gutierrez said that in the 1980s and 1990s, Chinese companies wouldn't change their behavior if duties were applied to their subsidized exports.

Now, as China becomes more of a participant in world markets, ``Chinese companies do change their behavior,'' he said.

U.S. retailers such as General Motors Corp., which import goods from China, opposed levying countervailing duties, arguing it would mean duties would be applied twice on many Chinese products -- once for dumping and once for subsidies. Any advantage a company in China gets from a subsidy is already offset by steeper antidumping duties levied against non-market economies, they argue.

Coated Paper

Steel producers, such as Charlotte, North Carolina-based Nucor Corp., and textile makers say that expanded tariffs are necessary to protect them from unfair, subsidized Chinese competition.

The immediate case concerns a complaint by NewPage Corp. that low-cost imports of subsidized glossy paper from China, South Korea and Indonesia are undercutting its profitability.

China's exports of coated paper were set to more than double in 2006 to $224 million from their level in 2004, according to U.S. government data.

Dayton, Ohio-based NewPage, the largest maker of coated paper in the U.S., has operations in Kentucky, Maine, Maryland and Michigan.

Importers of this paper will be charged these duties once this decision is published in the Federal Register. The duties will be adjusted -- and may be withdrawn -- in a final Commerce ruling that must be made before mid-October. After that decision, the U.S. International Trade Commission will rule one last time before the tariffs are officially imposed. If the ITC rejects the duties, companies will be refunded tariffs they paid.

To contact the reporter on this story: Mark Drajem in Washington at mdrajem@bloomberg.net

Last Updated: March 30, 2007 11:49 EDT