US quizzes Canada at WTO over aid for paper mill

Tue Oct 23, 2012 2:21pm EDT

* U.S. wants Canada to withdraw payments to paper mill

* Canada says working with province to answer U.S. questions

By Tom Miles

GENEVA, Oct 23 (Reuters) - Canada found itself lumped together with China and India on Tuesday as a country that the United States suspects of paying illegal subsidies that distort trade, with C$162 million ($163 million) of aid to a Nova Scotia paper mill under scrutiny.

The United States, which is determined to bring China to justice at the World Trade Organization over what it claims are illegal subsidies, said Canada should withdraw payments to the Port Hawkesbury paper mill, which competes with U.S. producers.

The mill has received tax breaks, grants, energy cost reductions and timber subsidies that could be challenged under WTO rules, a U.S. official told the WTO subsidies committee.

A European Union official said the EU also was concerned about the subsidies and asked for more information.

A Canadian official told the meeting that Canada was already working with the provincial authorities to answer U.S. questions and had started a dialogue with the United States which the EU was welcome to join.

Canada is defending itself at the WTO against a legal challenge to another provincial policy - Ontario's green energy scheme which Japan and the EU say illegally discriminates against foreign companies. A leaked early draft of the decision in that case shows Canada is likely to lose.

The Port Hawkesbury mill reopened last month after it had idled for more than a year, following a deal between the provincial power company and the mill's owner Pacific West Commercial Corp (PWCC).

PWCC, itself owned by Stern Partners of Vancouver, bought the mill from NewPage Corp of Ohio, which had filed for Chapter 11 bankruptcy and began restructuring in September 2011.

Nova Scotia Premier Darrel Dexter has said reopening the mill would bring more than 1,400 jobs to the province.

The U.S. official also reiterated the U.S. demand for China to provide full information about state and sub-central subsidies. The U.S. Trade Representative's office says it has found 191 subsidy programmes that were not notified to the WTO.

The United States also says India has 50 unreported subsidy programmes run by the central government. Its criticisms of both Asian countries were backed by the EU, Canada, Japan and Turkey.

The U.S. and Turkish officials also said India should phase out export subsidies for textiles and clothing, a sector which the WTO has considered export competitive since 2007. ($1 = 0.9926 Canadian dollars) (Reporting by Tom Miles; Editing by Stephanie Nebehay and Michael Roddy)