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Countervailing duty : the case of China's coated free-sheet paper exporting Liu, Kai

Abstract

In the last decade, as China engaged in market reforms, the U. S. Department of Commerce began to reassess the use of Countervailing duty (CVDs) laws against China. Specifically, in 2007, the Department of Commerce started a countervailing duty investigation against a paper exporting company located in China, along with companies in Indonesia and Korea. This thesis uses this case to ask whether there is evidence that a company in a non—market economy responds differently to subsidize than those located in a market economy. First, I introduce what kinds of subsidies the government in China and Indonesia offer to companies in the paper industry and what kinds of subsidies United States International Trade Commission chose to investigate and what kinds of subsidies it did not choose, and explain why it did that. I use a simple theoretical model in this thesis based on the model of strategic trade used by Brander and Spencer (1985). Two exporting firms from two different countries are competing in a third country. I modify the model to capture the types of subsidies I have found in the paper industry and I separate domestic and export output. I show that the subsidy from a non—market economy country may induce more exports than if it comes from a market economy country. Further, like Brander and Spencer, I find that as one firm’ s exporting quantity goes up, another firm’ s exporting quantity will decrease. I then use an empirical model to test the results from the theoretical model. I use quarterly firm—level data from one Chinese firm (Chenming. Ltd) and one Indonesian firm (Asia Pulp&Paper Co. Ltd) named in the US CVD case. Chenming. Ltd (Chenming) is a big state—owned firm and it received lots of subsidies since 1950. Asia Pulp&Paper Co. Ltd ( APP) is also a big paper producing firm but it is privately owned. I find evidence that both of the two firms increased their exports in response to subsidies, although there is some evidence that exports from the Chinese firm are more elastic with respect to subsidies, implying that subsidies from NMEs may well be of concern to importers.

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