Grumbles are emanating from the north, as the Canadian government readies a $1 billion bailout of pulp and paper. Ottawa blames the United State’s unintended “black liquor” subsidy to American mills for obliterating the industry’s competitive landscape, a subsidy never intended to benefit paper.

The Canadian government is preparing its own black liquor subsidy to compensate, under the apparent policy of two wrongs can make a right. There is fear that if American pulp and paper mills receive the $7 billion they anticipate this year from the subsidy, Canada’s mills won’t recover.

The forests minister of British Columbia, Pat Bell, told the Vancouver Sun recently that the U.S. subsidy has made the Canadian pulp and paper industry not sustainable. “Our industry will not survive it,” said Bell.

Mills that make recycled paper, too, protest the subsidy because it seemingly certifies black liquor mills as environmentally friendly, even though their manufacturing processes are less efficient, and produce more carbon dioxide, than recycled paper plants.

This could create situations in which recycled paper mills have to purchase green carbon credits to achieve parity with their more-polluting brethen. In a letter to Congress, Quebec-based paper company Cascades said this inequality is a “major threat” to the existence of recycled paper mills such as its one in Auburn.

And, in a major tribute to Sen. Olympia Snowe, there’s belief in Canada that her defense of the liquor credit will preserve it, despite President Barack Obama’s opposition. “My money is on the senator and the protectionist sentiment she represents,” wrote Vaughn Palmer, a Sun columnist, on June 18.

Enough already. What was a bad policy by Congress – the 2005 law providing incentives for blended fuels, for which the paper industry unknowingly qualified – has become an international incident. There’s no disagreement the subsidy is not being used as intended, but there is no consensus on what to do about it.

A $7 billion injection to American paper mills is upsetting trade balances. Yet these funds are also credited with keeping U.S. mills humming, including Maine mills in Bucksport, Lincoln and Baileyville. That latter mill credits the subsidy for its ability to re-open after a 90-day shutdown this year. And bailouts, across the industrial spectrum, are hardly rare nowadays.

Unfortunately, it could be lack of subsidy – or the competitive disadvantage it created – that pushed Canadian-based Fraser Papers, with a mill in Madawaska and sawmills in Ashland and Masardis, into bankruptcy last week.

Though Snowe has been right to defend the credit, despite its faults, she should use her political capital to negotiate a reasonable settlement and quiet international concern. If she’s powerful enough to stymie a president, she should be influential enough to broker a good deal.

President Obama wants the subsidy to end by Sept. 30, three months before its statutory sunset. This could work, if a settlement with American mills is reached. Congress, as the price of its shortsightedness, may have to buy its way out of this mess.

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