Port Hawkesbury Paper has won a round in its ongoing battle against a 20 per cent tariff imposed on the glossy paper it exports to the United States.
A North American Free Trade Agreement panel has challenged the basis for imposing the duty, including a claim the paper company's electricity rate is an unfair subsidy.
In an April 13 ruling, the panel has sent the matter back to the Department of Commerce, which imposed the duty, for reconsideration.
"We feel validated," said Marc Dube, development manager at Port Hawkesbury Paper in Point Tupper, N.S. "We feel that the work that we've done and certainly the work we've done restructuring the mill was done in a way that certainly was not a subsidy."
Low Canadian dollar eases tariff sting
The tariff has cost the company more than $50 million since it was imposed in 2015, said Dube. The money has been held in trust pending an appeal that was launched by Port Hawkesbury Paper and other Canadian mills facing similar tariffs.
The duty pain has been eased by a drop in the value of the Canadian dollar.
"The Canadian dollar being at the level it is, is very helpful for all exporters who are paid in U.S. dollars. Certainly in this process, it's been critical for the mill," said Dube.
The U.S. Department of Commerce has until mid-summer to reconsider its initial finding to impose tariffs and respond to the NAFTA panel's decision.
One option it has is to launch an appeal.
Other mills also appeal
Irving Paper, Resolute Forest Products and Catalyst Paper Corp. have also challenged their U.S. tariffs. The Canadian government and the provinces of Nova Scotia, Ontario, Quebec and British Columbia have all supported their efforts.
The Nova Scotia government spent tens of millions of dollars to save the Nova Scotia mill when the previous owner, NewPage, shut it down.
That assistance included $36.8 million to maintain the mill in a so-called hot idle state in 2012 before Pacific West Commercial bought it for $33 million.
Port Hawkesbury Paper asserted the province's financial assistance was extinguished by the purchase, which it says was made at arm's length and for fair market value between private parties.
Concerns over price of power
Port Hawkesbury Paper receives electricity at a discounted rate, which was approved by the Utility and Review Board.
The NAFTA panel said the price of electricity was controlled not by the goverment of Nova Scotia, as alleged, but by Nova Scotia Power Inc. and its regulator, the Nova Scotia Utility and Review Board.
"The record is replete with evidence that the legal standards in Nova Scotia by which the private entitity, NSPI, determines the rate it charges its customers, are normal in this widely regulated industry," said the decision.
Dube said the most important aspect of the NAFTA panel decision concerns electricity.
"Certainly the tariff level, three-quarters of it is electricity, it's been shown or assessed by the panel that it's not a subsidy. That would be a substantial change to the tariff," he said.
In a news release, the Nova Scotia government said it's pleased with the panel's unanimous decision and that it "will continue to work with our partners on this important issue."
Not a total win
The NAFTA panel did uphold the U.S. Commerce Department's finding that two Nova Scotia government supports — the Forestry Infrastructure Fund and the Sustainable Forest Management and Outreach Programs — amounted to a subsidy liable to countervailing duty.
The panel ruled the programs "served to improve the position of NewPage Port Hawkesbury during its bankruptcy proceedings and to assist Port Hawkebury Paper with the ongoing costs it would incur with the management of its input and supply chain."
The panel upheld an 18 per cent tariff against Irving Paper of New Brunswick and Catalyst Paper of British Columbia.
The panel said the department was following the direction of Congress, which mandated a tariff amount in cases where other importers are found to be subject to countervailing duties.
Irving did not respond to a request for comment.
Montreal-based Resolute Forest Products was singled out by the Commerce Department along with Port Hawkesbury Paper in 2015.
It had been assessed a 17.8 per cent duty.
The panel directed the commerce department to re-examine issues associated with Resolute's purchase of a related company, Fibrek, and claims that federal assistance received by Fibrek amounted to a subsidy.