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WASHINGTON, Sept 24 (Reuters) - U.S. trade officials would set a dangerous precedent if they confirm a ruling that a private contract to provide a Canadian paper mill with cheap electricity was a government subsidy, a U.S. trade hearing on paper imports was told on Thursday.
In a preliminary decision, the U.S. Department of Commerce set anti-subsidy duties on paper from Canada's Port Hawkesbury Paper (PHP), after a complaint by U.S.-based Madison Paper Industries of Maine, owned by Finland's UPM-Kymmene Corp , and Verso Corp of Ohio.
Gilles Gauthier, a senior official at the Canadian embassy in Washington, told a Commerce hearing the ruling would allow foreign companies to retaliate against U.S. companies which also do deals to secure cheap power.
"If not corrected, this will create a dangerous precedent," he said.
The U.S. companies argued that Nova Scotia Power, owned by Canadian energy company Emera Inc, provided electricity too cheaply to Port Hawkesbury on the orders of the regulator.
Lawyers for the mill said electricity pricing accounted for more than 70 percent of the duties, preliminarily set at 20.33 percent. The duties aim to compensate for the amount of unfair government support received by foreign companies.
Lawyer Gary Horlick, representing Port Hawkesbury, said the implications of the ruling could extend to company share listings and mergers, which also need regulatory approval.
"It would be ... a radical move by the department. You're saying that private contracts between private parties, which require approval by regulatory bodies, are subsidies," he said.
But lawyers representing the Coalition for Fair Paper Imports said the power company provided the cheap electricity because it was directed to by the Nova Scotia Utility and Review Board.
"The consequences of the board's actions were that PHP received electricity at a subsidized rate," Brian McGill, from law firm King & Spalding, told the hearing.
The case covers imports of glossy supercalendered paper from Canada, used to produce such materials as magazines, catalogs, corporate brochures, flyers and directories, which Commerce values at an estimated $868.4 million in 2014.
The Department of Commerce is scheduled to announce its final determination on anti-subsidy duties on or about Oct. 14. The U.S. International Trade Commission must also rule in favor of the U.S. companies. (Reporting by Krista Hughes; Editing by Richard Chang)