April 28, 2009 / 3:34 PM / 9 years ago

Canada calls "unfair" a U.S. tax break to paper makers

WASHINGTON (Reuters) - A U.S. tax break being used by paper manufacturers who use a “black liquor” byproduct to fuel their plants is unfair and should be stopped, Canadian Trade Minister Stockwell Day said Tuesday.

Paper makers have claimed $7 billion in tax credits by using a loophole in a U.S. law designed to boost biofuel use, Day said in an interview with Reuters financial television.

Paper manufacturers create a byproduct called black liquor when they process wood into pulp for making paper. They have long used the byproduct for fuel in their mills.

By blending the byproduct with diesel, the companies have tapped into a tax credit which one lawmaker called a “lifeline” to mills hit hard by the recession.

“The insidious effect on Canadian industry is it’s giving millions and millions of dollars to U.S. pulp and forestry companies that they wouldn’t have otherwise, and it’s really tilting the competitive playing field,” Day said

“We’re asking that it be addressed and that it be addressed right away,” added Day, who discussed the issue with U.S. Trade Representative Ron Kirk and senior lawmaker Rep. Charles Rangel (D-N.Y.) on a visit to Washington.

Day said he was assured lawmakers would look at how paper manufacturers were using the credit, which is set to expire in December.

International Paper Co, the largest U.S. paper and packaging maker, said in March it received $71.6 million for using the fuel mixture at 15 mills.

The credit has also been used by Verso Paper Corp and Temple-Inland Inc.

”It’s a hugely unfair tax advantage that’s going to these companies,“ Day said. ”We’re not saying it’s illegal, but it’s unintended that they would tap into this particular resource.

Reporting by Roberta Rampton; Editing by John Picinich

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