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EU Plans to Impose First Anti-Subsidy Duties on China

Feb. 4 (Bloomberg) -- The European Union plans to impose anti-subsidy tariffs against China for the first time, targeting imports of paper with levies as high as 16 percent to counter trade-distorting government aid.

The European Commission proposed introducing the duties for five years to counter the alleged unfair subsidies to Chinese exporters of coated fine paper, which is used for books, brochures and magazines. The recommendation is in a Feb. 3 commission report into the need for levies requested by producers in Europe including Sappi Ltd.

“Anti-subsidy measures should be imposed in order to prevent further injury being caused to the union producers by the subsidized imports,” the commission, the EU’s trade authority in Brussels, said in the 61-page report obtained by Bloomberg News. The conclusion will form the basis of a decision the EU’s national governments must make by May 17.

Europe’s 4 billion-euro ($5 billion) market for coated fine paper is a focal point of trade tensions after Chinese Premier Wen Jiabao snubbed European pleas last October to let the yuan’s exchange rate rise faster. To bolster European exporters and narrow its trade deficit with China, the 27-nation EU says the Chinese government should follow up more ambitiously on its June pledge to ease the yuan off a two-year peg to the dollar.

Dumping Duties

In November, as part of a parallel trade inquiry, the EU introduced provisional duties as high as 39.1 percent on Chinese coated fine paper to counter below-cost imports, a practice known as dumping. EU governments face a separate mid-May deadline to decide whether to turn these anti-dumping levies into definitive five-year measures.

Europe imposes anti-dumping duties on Chinese goods ranging from textiles and chemicals to shoes and bicycles. China faces such EU taxes on about 50 products, more than any other nation.

The EU has never imposed anti-subsidy levies against China. The U.S. decided last year to apply anti-subsidy and anti-dumping duties to imports of Chinese paper.

The call for European anti-dumping and anti-subsidy duties against China comes from a group that includes South Africa-based Sappi, which makes coated fine paper in EU countries including Germany and the Netherlands. Germany’s Papierfabrik Scheufelen GmbH, Spain’s Lecta SA and Italy’s Burgo Group SpA are also in the alliance seeking trade measures.

‘Gratified’

“We are gratified that the commission has recognized the illegal subsidies being offered by the government of China which feed the overproduction of coated fine paper,” Frank Leerkotte, managing director of the Brussels-based Confederation of European Fine Paper Industries, which filed trade complaints last year on behalf of the four producers seeking EU duties, said in an e-mailed statement. “The illegal subsidies are a major part of the problem.”

China should brace for more subsidy complaints by European manufacturers, Europe’s trade chief said in October.

“I expect that it will become a trend,” EU Trade Commissioner Karel De Gucht said in an Oct. 4 interview. “What European companies see as unfair competition has to do with subsidization. I expect that there will be more and more complaints.”

Unlike in the dumping case on paper, the EU refrained from imposing provisional anti-subsidy duties when a deadline for such measures came last month.

Should the EU decide to impose five-year anti-subsidy duties on Chinese paper and to turn the provisional anti-dumping levies into definitive measures, the bloc may lower the rates against China for dumping. The current anti-dumping duties amount to 39.1 percent against all producers in China except Asia Pulp & Paper Group’s Gold East Paper (Jiangsu) and Gold Huasheng Paper (Suzhou Industrial Park) units, which face a 19.7 percent levy.

Chinese makers of coated fine paper increased their combined share of the EU market to more than 4 percent in 2009 from around 1 percent in 2006, the bloc said in November.

To contact the reporter on this story: Jonathan Stearns in Brussels at jstearns2@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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