U.S. Puts Tariffs on Chinese Paper

By Ariana Eunjung Cha and Peter S. Goodman
Washington Post Foreign Service
Tuesday, April 3, 2007

SHANGHAI, April 2 -- Chinese industry and trade groups accused the Bush administration on Monday of a misguided and hypocritical approach to trade for its decision last week to slap steep tariffs on certain Chinese-made paper.

The United States contends the glossy paper is subsidized by the Chinese state. But China's Ministry of Commerce called the economic sanctions "unacceptable." Hua Min, head of the World Economy Research Institute at Fudan University in Shanghai, called the American stance "absurd," noting that the United States just a few years ago was found to be giving illegal tax rebates to companies such as Boeing and Microsoft.

In Washington, officials at the Commerce Department said they had no choice but to act on a petition filed by an aggrieved U.S. paper company whose sales have been undercut by cheap Chinese imports.

"The Chinese economy is replete with subsidies," Undersecretary of Commerce for International Trade Franklin L. Lavin said in an interview Monday. "It gives Chinese exporters an unfair advantage in the U.S. market, and we're determined to do what we can to unwind that advantage."

The decision to impose tariffs on one product -- high-gloss paper, used to print magazines and some books -- has sown anticipation that this is merely the first in a string of such cases, with the administration likely to follow with similar action against a range of Chinese industries, possibly including steel, textiles and plastics.

The new Democratic leadership on Capitol Hill accuses the administration of allowing China to carve into the U.S. market with a range of alleged wrongdoings, from maintaining an underpriced currency -- which makes Chinese goods cheap on world markets -- to pumping credit to favored industries. The political situation has forced the administration to adopt tactics that make it appear to be taking a harder line, analysts said.

"The potential spillover could be big," said Pietra Rivoli, a trade expert at Georgetown University.

In years past, the potential U.S. response to supposed subsidies was limited by ambiguities in the law. The administration could accuse China of dumping its products at below-market prices in the United States, but the tariffs in those cases are small. Tariffs allowed in response to subsidies are far larger, up to 20 percent in this case.

For two decades, the United States had refrained from taking that approach in cases involving "non-market" economies because in socialist and communist systems, subsidies are routine. This time, bolstered by a federal court decision affirming the approach, the administration formally accused China of subsidies.

Lavin, the Commerce undersecretary, said the administration hopes negotiations can resolve future trade disputes. But "we're prepared to use this countervailing duties route if we have to," he said.

On Monday, the administration continued its offensive on trade, accusing 63 countries -- not least China and the European Union -- of maintaining unfair barriers to U.S. exports.

"The administration continues to use all enforcement tools at its disposal to ensure fair treatment in the global marketplace for U.S. workers and consumers," U.S. Trade Representative Susan C. Schwab said in a statement.

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