Statement of James C. Tyrone, Senior Vice President of Sales and Marketing, NewPage Corporation, Dayton, Ohio

Testimony Before the Subcommittee on Trade
of the House Committee on Ways and Means

February 15, 2007

Mr. Chairman, Mr. Herger, and Members of the Subcommittee:

I would like to thank you for the opportunity to appear before you here today on the issue of trade with China.  My name is Jim Tyrone and I am the Senior Vice President for Sales and Marketing at NewPage Corporation.  NewPage was founded in 2005, when the company purchased certain of the paper operations of MeadWestvaco.  NewPage produces several types of paper including coated free sheet, a high end paper used in annual reports, magazines, promotional brochures, coffee table books and other types of publications.  NewPage is headquartered in Dayton, Ohio, and has production facilities in Rumford, Maine; Wickliffe, Kentucky; Luke, Maryland; and Escanaba, Michigan; and a converting and distribution facility in Chillicothe, Ohio.  Coated free sheet paper is a multibillion dollar United States industry. NewPage itself has more than 4000 employees in the United States.  I would like to speak specifically today about subsidies to paper producers in China, and the critical need for the United States government to address and offset these subsidies by using all the tools at its disposal including the U.S. countervailing duty law.

NewPage was founded with a great deal of optimism about the future.  In addition to being the largest coated paper manufacturer in the United States, we have efficient, state-of-the-art mills, skilled and dedicated employees, strong relationships with our customers, strategically located mills and distribution facilities and growing markets for our products.  However, unfair foreign competition has made it increasingly difficult for us to feel optimistic.  In fact, NewPage recently had to permanently shut down an entire paper line at its Luke, Maryland facility as a result of unfair foreign competition. 

The government of China provides very significant subsidies to its domestic paper producers, and these subsidies are injuring competing U.S. paper producers.  Starting in the late 1990’s the government of China targeted its domestic coated paper industry for rapid development.  As part of this development plan, the Chinese government provides low-cost policy loans through government-owned banks.  It also provides grants for the development of new paper capacity, and tax breaks based on export performance and domestic equipment purchases.  Moreover, government banks in China forgave at least $660 million in loans they had provided to China’s largest paper producer, Asia Pulp & Paper, when that company declared bankruptcy in 2003.    The PRC has also fostered the development of timber and pulp production in China -- the key inputs into paper production -- with similar subsidized incentives.   These subsidies have had the effect of vastly expanding China’s capacity to produce coated free sheet paper.  Much of this subsidized production finds its way into export markets, particularly the U.S. market, the most open in the world.  Government subsidies allow Chinese producers to sell at very low prices, permitting them to undercut prevailing prices in the United States, and in third country markets.  This, in turn, has allowed Chinese producers to dramatically increase their global market share.  In the United States, Chinese coated free sheet market share has increased by an average 75 percent annually over the past four years based on publicly available data, despite having to ship their products thousands of miles to reach the U.S. market   Ironically, and in contrast to U.S. paper producers, China has no natural advantage in the production of paper.  It does not have an abundant supply of the requisite inputs, and must import much of the pulp that it uses to make paper.  As a result, the government of China is now essentially underwriting the development and expansion of fast-growth forests in China, to provide the timber and pulp that their huge paper companies now need to produce paper. 

In the face of increased unfair foreign competition, NewPage filed antidumping and countervailing duty cases on coated free sheet paper against China, and two other countries, South Korea and Indonesia, in October of last year.  In December, the International Trade Commission reached a preliminary determination that the United States industry producing coated free sheet paper is injured as a result of dumped and subsidized imports from these countries.  The Department of Commerce, which has the responsibility to investigate allegations of dumping and subsidization, is now in the midst of its own investigation. 

The Department of Commerce investigation into subsidies to Chinese paper producers is an historic one.  In the mid-1980’s, Commerce found that it could not apply the countervailing duty law to address subsidies in Czechoslovakia and Poland, based on its conclusion that subsidies in those “nonmarket” economies did not make sense at that time.  Commerce has not since applied its countervailing duty law to nonmarket economies.  However, much has changed in the global trade regime over the last twenty years.  China has become the world’s third largest exporting economy, and the current economic system in China is vastly different than the command economies of the former Soviet bloc countries.  Moreover, China joined the WTO in 2001, at which time it agreed to abide by global trading rules -- including the rules on subsidies --  in exchange for increased access to foreign markets.  Moreover, while China retains many of the elements of a nonmarket system, such as a pegged exchange rate, control over labor and lending rates, and the prices of certain inputs, it has also instituted policies to effect the development of particular industries through a host of subsidy programs implemented at the central and local government levels.  Basically China is a highly subsidized non-market economy.   It is imperative that the United States utilize the countervailing duty law to address these subsidies.

Despite its WTO accession, and specific WTO commitments with respect to government subsidies, it is truly incredible that the PRC is arguing in the context of our case on coated free sheet paper, that the Commerce Department is legally prohibited from applying the countervailing duty law to imports from China.  It is inconceivable to me that China would expect to garner all the benefits from WTO membership and yet argue that it is not bound by the responsibilities that WTO participation carries with respect to subsidies -- responsibilities it specifically agreed in 2001 to uphold. 

As I noted, Commerce has the legal authority to apply the CVD law to China. But we welcome all efforts to offset subsidies, including legislative efforts by this Committee and the WTO case brought by the U.S. Trade Representative.  The USTR  has requested consultations regarding nine subsidy programs in China that are prohibited under WTO rules.  NewPage believes that Chinese paper exporters benefit from several of these subsidies, which we alleged in our countervailing duty petition. 

I would urge the members of this Committee to help ensure a level playing field by making clear to the Department of Commerce, and to the People’s Republic of China, that the countervailing duty law does, in fact, apply to China.  I thank you for your attention and would be pleased to answer any questions.