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A man transports rolls of paper at the Catalyst Paper distribution centre in Surrey, B.C., in 2014. The U.S. Commerce Department imposed a countervailing duty rate of 6.09 per cent against Catalyst in January, and this week’s addition of 22.16 per cent in anti-dumping duties raises the company’s combined tariff to 28.25 per cent.

<252>DARRYL DYCK/The Globe and Mail

The U.S. newspaper industry is warning of pain ahead after the U.S. Department of Commerce imposed anti-dumping duties that resulted in tariffs totalling 28.69 per cent on most Canadian producers.

"Newsprint is the highest expense item behind payroll," News Media Alliance president David Chavern said in a statement on Wednesday. "Most newspapers will not be able to absorb these increased costs and will be forced to reduce page counts, reduce days of distribution, and/or move more information to digital platforms."

The preliminary anti-dumping duties announced late on Tuesday average 22.16 per cent against most Canadian producers of uncoated groundwood paper such as newsprint. The new punitive tax comes on top of preliminary countervailing tariffs averaging 6.53 per cent levied in January.

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Read more: U.S. hits most Canadian newsprint producers with hefty anti-dumping duties

The effects of the combined duties are expected to hit newspapers in smaller U.S. communities especially hard. "Some small-market or rural newspapers, with slim margins, will close," Mr. Chavern said.

Canadian firms sent an estimated US$1.27-billion worth of uncoated groundwood paper to the United States in 2016.

Other groundwood products include book-grade paper and some types of printing and writing paper.

Groundwood from Canada is subsidized and being dumped at below market value, according to U.S. manufacturer North Pacific Paper Co., also known as Norpac. The company, which is based in Longview, Wash., complained to the Commerce Department in August that paper makers in the United States are being hurt by Canadian groundwood.

Norpac chief executive officer Craig Anneberg said the Commerce Department's decision proves his company's complaint was valid. "We have suspected that some Canadian producers were dumping uncoated groundwood papers in the U.S. markets – this has now been confirmed," he said from Washington State.

Norpac, owned by hedge fund One Rock Capital Partners LLC of New York, argues that subsidies in Canada include breaks on electricity rates and unfair financial assistance.

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The duties could harm about 20 Canadian paper mills, according to the Forest Products Association of Canada. Association CEO Derek Nighbor said the tariffs are "completely unjustified and represent a costly and losing proposition for workers and paper customers on both sides of the border."

The Commerce Department focused its investigations of the groundwood issue on three Canadian companies, which it refers to as mandatory respondents.

The Commerce Department imposed a countervailing duty rate of 6.09 per cent against Catalyst Paper Corp. of Richmond, B.C., in January. The addition of 22.16 per cent in anti-dumping duties raises the company's combined tariff to 28.25 per cent.

Catalyst CEO Ned Dwyer oversees the company's B.C. mills in Crofton, Powell River and Port Alberni. "Even with the exemption of directory paper, the remaining anti-dumping and countervailing duties are onerous and a critical cost challenge for Catalyst," he said in a statement.

Montreal-based Resolute Forest Products Inc. and Catalyst are the mandatory respondents in the anti-dumping case. The Commerce Department hit Resolute with countervailing rate of 4.42 per cent in January, but did not impose an anti-dumping tariff.

Resolute, Catalyst and Montreal-based Kruger Inc. are the mandatory respondents in the countervailing investigation.

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Kruger must now pay 32.09 per cent in total tariffs – 9.93 per cent for the countervailing rate and 22.16 per cent for the anti-dumping portion. The company is worried about the impact, notably at its mill in Corner Brook, Nfld., and two of its plants in Quebec (Brompton and Trois-Rivières).

In a news release, Kruger called the duties "unfounded," and denied dumping its products.

Newfoundland and Labrador Premier Dwight Ball said the Corner Brook mill is "caught in the middle" of trade disputes between Canada and the United States. And Bruce Ralston, B.C.'s Jobs and Trade Minister, said he will work with Catalyst and Ottawa to help combat the "unfair tariffs."

Foreign Affairs Minister Chrystia Freeland and Natural Resources Minister Jim Carr warned of severe consequences. "Any duties will have a direct and negative impact on U.S. newspapers, especially those in small cities and towns, and result in job losses in the American printing sector," they said in a joint release.

The groundwood battle comes amid little sign of progress in renegotiation talks for the North American free-trade agreement and the fight over Canada's shipments of softwood lumber into the United States.

Bryan Yu, deputy chief economist at Central 1 Credit Union, said the decision on newsprint tariffs underscores the confrontational position of the Trump administration.

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