Trade relief from imports that are dumped (illegally priced) or benefit from illegal subsidies requires an affirmative determination of material injury or threat of material injury from the U.S. International Trade Commission.[1] This proceeding is entirely distinct from the U.S. Department of Commerce’s determinations respecting dumping or countervailing duty margins.[2] A fundamental principle of the commission’s consideration of material injury issues is that such determinations are sui generis, meaning that each investigation is unique and particular to the totality of factual findings made by the commission. Nevertheless, the statute provides specific guidance on consideration of volume and price effects. Moreover, the statutory threshold of injury necessary to establish material injury is, at least on its face, a low one. Material injury means “harm which is not inconsequential, immaterial or unimportant.”[3] The U.S. Court of Appeals for the Federal Circuit confirmed that an affirmative determination is warranted when the effects of subject imports are “not merely incidental, tangential or trivial.”[4] Whether the commission, in fact, applies a stricter standard is a matter of considerable discussion.[5] But it is apparent that commission factual findings will continue to receive a high level of deference from the commission’s reviewing courts.[6]

The differing natures among U.S. manufacturing industries is a key reason for both the commission's sui generis approach and the high level of deference granted the commission’s decisions. Consideration of capacity utilization data illustrates this issue. The majority of anti-dumping and countervailing duty cases involve metal products, predominately steel products. In those industries, producers often operate below full capacity utilization. Producers can sometimes be profitable operating only one shift, even though the equipment has the capability of operating three shifts. But for some industries, the production equipment is intended to be run 24/7 throughout the year. Examples include production of organic products such as citric acid or paper. Thus, with respect to citric acid production the commission found that it was a “high-fixed cost, capital intensive industry” that is “dependent on continuous production of an organic product” made in “a tightly controlled and sanitary fermentation process that cannot easily be slowed or stopped.”[7] In fact, equipment can be damaged beyond restarting with prolonged shutdowns. In such industries, the imperative to fill the production capacity dominates producer decisions in sales negotiations.

The commission has confronted the nature of the paper industry in several recent cases. Due to abundant resource availability and high demand for printed materials, the paper industry has long been an important part of the manufacturing sector in the United States.[8] But unfair imports from a number of countries have negatively impacted production in key segments of the paper industry, particularly for products experiencing declining demand due to the growth of e-commerce.

Most recently, the commission made a unanimous affirmative preliminary injury determination with respect to supercalendared paper imported from Canada.[9] This paper product is typically used for magazines and advertising circulars. The case was brought by the two largest U.S. mills still producing supercalendared paper, Verso Corporation and Madison Paper Industries. In making its preliminary determination, the commission noted that production is capital intensive, with petitioners estimating that a new greenfield pulp and paper facility would cost $500 to $700 million. In this industry, “producers seek to run their paper machines on a near continuous basis to maximize efficiency.”[10] The commission stated that “because domestic producers need to run their mills at high capacity utilization, domestic mills have priced their product competitively and often below the level of subject imports to maintain their sales volume.”[11] The commission’s recognition of this characteristic of the industry was important because it explained how negative price effects could be present even when subject import prices were often higher than domestic industry prices. The commission stated that the subject imports “were good substitutes” for U.S. production and that “to maintain sales and capacity utilization, the domestic industry was required to price its products competitively.”[12] The commission stated that “the record indicates that the domestic industry was increasingly unable to price its [supercalendared] paper at levels that permitted it to cover its costs.”[13] The industry’s “lower revenues, in turn, caused poor and declining operating performance.”[14] Notwithstanding the absence of significant capacity utilization impacts, the commission acknowledged that petitioner had “provided additional detailed information on price competition at several purchaser accounts.”[15] The commission indicated it would “examine carefully” the information to be received from purchasers in the final phase of the investigation.[16] The supercalendared paper case will move relatively quickly because it is limited to illegal subsidies, primarily to Port Hawkesbury Paper LP in Nova Scotia. Thus commerce’s preliminary and final countervailing duty determinations will be issued this year and the case will return to the commission for a final injury determination in early fall 2015.

The commission’s supercalendared paper decision followed by only one month the commission’s preliminary determination in another paper case, that involving uncoated paper in sheets. The U.S. producers of sheeted uncoated paper, typically used as copy paper, obtained an unanimous affirmative preliminary injury determination from the commission with respect to alleged unfair imports from Australia, Brazil, China, Indonesia and Portugal.[17] Petitioners in the uncoated case are Domtar Corporation, Finch Paper, P.H. Glatfelter, Packaging Corporation of America and the United Steel Workers.[18] Foreshadowing the analysis performed in the supercalendared case, the commission recognized the importance of maintaining high capacity utilization and reasonable prices due to the highly capital intensive nature of the industry. The commission stated that that a new paper machine for uncoated paper was estimated to cost over $600 million and a new greenfield pulp mill would cost over $1 billion.[19] The commission noted that purchasers had shifted purchases of uncoated paper from U.S. producers to subject imports since 2011 and stated that price was the reason for the shift.[20] The commission rejected arguments that imports from certain of the subject countries did not compete with the U.S. producers.[21] This case is now before the Department of Commerce for determination of the margins of dumping and illegal subsidies and will return to the commission for a final injury  investigation, which is likely to occur in early 2016. Thus, even though the supercalendared case began after the uncoated case, the longer statutory timeline for completion of anti-dumping investigations will mean that the supercalendared case will move almost a half-year ahead of the uncoated case.

Finally, the earlier case on sheeted coated paper suitable for high-quality print graphics is back in the news. In late 2010, U.S. producers of paper, including Appleton Coated, NewPage Corporation and Sappi Fine Paper North America, obtained relief from dumped and subsidized imports from China and Indonesia.[22] That case will be undergoing a five-year “sunset” review later in 2015. Moreover, on March 13, 2015, Indonesia belatedly requested World Trade Organization consultations with the United States with respect to the anti-dumping and countervailing duty measures imposed.[23] Indonesia also claims that the International Trade Commission’s threat of material injury determination was based on speculation and that the determination did not establish a causal nexus between the unfair acts and injury to the domestic industry. Such consultations typically fail to resolve the dispute and are a simply a required precursor to a formal WTO challenge.

In conclusion, the coming year will be an important one for these key paper industries. More than in any time in the past, the commission will be examining in detail the conditions of competition in the paper sector and the impact of unfair imports on the ability of U.S. producers to successfully navigate a declining demand environment.

Originally published at Law 360 on May 22, 2015.