Illegal Chinese Paper Subsidies Hurting U.S.

Over 100 members of Congress, representing both chambers and parties, on Wednesday urged President Barack Obama to investigate illegal subsidies in the Chinese paper industry.
In a letter sent to the White House, lawmakers called the subsidies “significant and market-distorting," and warned that it is a critical time for an industry that is in desperate need of trade relief after years of facing unfair competition.

"America's paper industry is the most efficient in the world and is part of a supply chain that promotes sustainable forestry practices and good-paying jobs,” the lawmakers wrote in the letter. "This industry should not be asked to continue to compete on the unlevel playing field that China has constructed through heavy subsidization of domestic production."

Despite its lack of a competitive advantage in paper production and natural resources to make paper, China has surpassed the U.S. to become the world’s leader in that department in just under a decade, according to a an Economic Policy Institute report released earlier this month.

Since 2000, China has increased its paper output threefold, which seems like a daunting task given the fact that China’s forest base is the smallest in the world per capita, it has an already saturated domestic paper market and very little competitive advantage, even in labor costs.

Instead, China’s growth has been fueled through illegal subsidies, mostly in the form of tax breaks, loans - some of which are not expected to be paid back - and discounted electricity and raw materials, according to the report.

“From my time as a paper mill worker, I know firsthand the consequences of unfair trade practices. The paper mill I worked in for nearly 30 years shut down soon after I was sworn in as a member of Congress because our foreign competitors don’t play by the rules,” said Rep. Michael Michaud (D-ME).

From 2002 to 2009, the Chinese government poured $33.1 billion into what should be an unproductive industry. But, with the help of government subsidies, China was able to ride export-driven growth to become the world’s leading producer of paper products.

In the same time frame that China pumped $33 billion into its paper industry, U.S. employment in the industry fell 29 percent, from 557,000 workers to just 398,000. That amounts to a seven year total of 167,000 jobs lost for an annual average of nearly 24,000 jobs in the industry.

"Too many jobs and too many companies are being destroyed because of how China subsidizes production and violates free trade principles in paper manufacturing as well as in other industries," USW President Leo W. Gerard said in a press release.

If an investigation is launched, it would just add to a growing list of trade disputes between China and the U.S. under the Obama administration. In the past year alone, trade disputes over tires, steel tubing and grating, chicken, autos, aluminum forms, nylon products and salt have arose. In addition, U.S. lawmakers and manufacturers have pressured the Obama administration to force China to let its currency appreciate.

According to China’s Commerce Ministry, the number of trade relief-cases brought against China by the U.S. increased 53 percent in 2009.

"American workers are fed up with foreign subsidies and they need to know that the U.S. government is on their side" Sen. Ron Wyden (D-Ore.) said in a news statement. "The investigation we are calling for is the first step toward achieving economic justice for our paper producers."