Free trade, taxes and the closure of a Maine paper mill

Printed from: http://newbostonpost.com/2016/05/10/free-trade-taxes-and-the-closure-of-a-maine-paper-mill/

It’s a story that hits so many hot-button issues of the presidential campaign — free trade agreements, energy costs, monetary policy, taxes, income inequality, the loss of middle-class manufacturing jobs to foreign competition and technological change, corporate political influence, and government officials-turned-high-priced-Washington-lobbyists — that you might expect to see it on the front page of the New York Times.

Yet in this particular case, the story is about the New York Times, which earlier this month announced it would take a $41.4 million loss “related to the announced closure of a paper mill operated by Madison Paper Industries.” The Times Company owned part of the mill, though not a controlling interest.

The mill’s closure means that 214 employees at the paper factory, in Madison, Maine, will lose their jobs. That is a sufficiently big deal that the governor of Maine, Paul LePage, greeted the news by issuing a statement of sorrow: “We are saddened to hear that 214 Mainers will be losing their jobs, and our thoughts go out to them and their families.”

Whose fault is it? Governor LePage attributed the issue in part to technological change. Businesses are increasingly reaching customers with ads on Google or Facebook, not with coupons or display advertisements distributed with Sunday newspapers or in glossy magazines. That means consumers are reading on computers or mobile phones, on glass screens made in China, Korea, Taiwan, Japan, or Taiwan, instead of on paper made in Maine. “With the rapid decline of daily newspapers and other publications, it is not surprising the demand for supercalendered paper is plummeting,” the governor said.

Yet the statement from the governor blaming the decline of print for the job losses also mentioned foreign competition — not Asian glass-screen manufacturers, but Canadian newsprint mills.  The persistence of the Canadian paper mills undercuts the argument that technology is to blame for the Maine mill’s closing. Canadians have smartphones, too, after all.

“Success” in the paper business these days is a relative term, however. One Canadian mill with which the Maine one was competing was itself on the verge of closure before the government of Nova Scotia rode to the rescue with a bailout package to help that mill out of a bankruptcy-style reorganization. The province’s Department of Economic and Rural Development and Tourism gave the paper mill tens of millions of Canadian dollars in loans and tens of millions of Canadian dollars more in grants for to support “sustainable harvesting and forest land management.” The Canadian government also allows the mill to harvest timber at below-market rates on “Crown Lands” — Queen Elizabeth’s land, controlled by the Canadian government. Those subsidies from the Canadian government were at the heart of an unfair trade complaint by the American paper-makers, who banded together into a “Coalition for Fair Paper Imports.”

That coalition, which included the partly New York Times-owned Madison Paper Industries, hired at least two Washington lobbyists, Gilbert Kaplan and Bonnie Byers, who are former Department of Commerce officials, and paid them $320,000 in fees over five years. The lobbyists, in turn, got the Commerce Department to slap a 20.18% tariff on paper imported to America from the subsidized Canadian mill. The government of Nova Scotia reportedly has paid $2.3 million (Canadian) in legal fees to fight the tariff, which costs the Canadian mill more than $3 million (Canadian) a month.

Not even the tariff on Canadian competitors was enough to keep the Maine mill open, however. CentralMaine.com reported that production will cease there the week of May 23: “Workers will stay on until June 12 and be let go in increments after that, according to Mike Croteau, president of the United Steel Workers Local 36 union, which represents many of the mill employees.” The dispatch said Maine’s papermaking industry had lost 2,300 jobs in the past five years.

Press coverage of the closure also mentioned as contributing factors “the strength of the U.S. dollar against the Canadian loonie” and “high natural gas costs.”

One intriguing and not-so-easy-to-answer question these days is what is a foreign company, anyway. Maine’s Madison Paper Industries was a joint venture of Finland-based UPM-Kymmene Inc. and of a New York Times Co. subsidiary, Northern SC Paper Corp. The Times Company itself is led by a British CEO, Mark Thompson, and the largest shareholder of its publicly traded shares is a company controlled by a Mexican billionaire, Carlos Slim Helu.

As for the “Canadian” companies hit by the trade tariffs for which the “American” Madison Paper lobbied, Governor LePage notes that at least two of them, Irving Paper and Catalyst Paper, have substantial operations in the U.S. and “together employ 1,200 Mainers.”

If this were a New York Times dispatch about the situation, the paper might stress the income inequality angle by noting that Mr. Thompson’s compensation nearly doubled last year to a reported $8.7 million, which may seem like a lot of money even if one isn’t a soon-to-be unemployed union paper-mill worker in Maine.

But since this is not a New York Times dispatch about the situation, I am free to note that if Queen Elizabeth or the taxpayers of Nova Scotia want to subsidize cheaper paper for the newspaper I read, my own instinct is to say thank you and move on, rather than to try to hire some lobbyists to raise taxes on the stuff so that it is more expensive. As the Maine paperworkers and New York Times shareholders have found out, you can’t tax your way to prosperity, unless maybe you are a lobbyist.

Ira Stoll

Ira Stoll

Ira Stoll is editor of FutureOfCapitalism.com and author of “JFK, Conservative.” Read his past columns here.

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