In a stinging defeat for New Brunswick's largest forestry company, the U.S. Commerce Department has set the stage for punishing new duties on some J.D. Irving Ltd. paper products.

The department ruled Monday that Irving's "subsidy rate" for supercalendered paper is 18.85 per cent, which means that's the level of import duty that could be applied when the product is exported to the United States.

That rate is actually higher than the preliminary rate of 11.19 per cent set by the department in July.

By applying the rate to Irving paper, it will make the product more expensive, and less attractive, to U.S. buyers.

The rate applies to Irving Paper even though the company argued vociferously that it was never investigated by the U.S. government and never had the chance to make its case that it is not as subsidized as other Canadian forestry companies.

'The process followed by the Department of Commerce has been completely unfair to Irving Paper and is inconsistent with the law.' - Mary Keith, J.D. Irving spokesperson

"The process followed by the Department of Commerce has been completely unfair to Irving Paper and is inconsistent with the law," spokesperson Mary Keith said in a written statement.

The final step in the American process will be a confirmation by the U.S. International Trade Commission of its earlier ruling against Canadian paper companies. That's expected Dec. 4.

Duties are due to be imposed on the Canadian exports Nov. 30, but U.S. Customs started collecting cash deposits from American buyers in August, based on the department's preliminary ruling in July.

Irving Paper mill on Bayside Drive in Saint John

A spokesperson for Irving Paper says the process followed by the Department of Commerce in deciding on possible tariffs on its products "has been completely unfair" (Google Street View)

The U.S. investigation was triggered by Nova Scotia's large bailout package in 2012 to revive Port Hawkesbury Paper.

Only Port Hawkesbury and a Quebec-based company, Resolute Forest Products, were thoroughly investigated.

The 11.19 per cent rate applied to Irving in July was an average of the rate applied to Port Hawkesbury, 20.33 per cent, and the 2.04 per cent the rate applied to Resolute.

Irving protested at the time that it couldn't possibly benefit from Nova Scotia subsidies and it deserved the chance to make its own case in Washington.

"None of these alleged subsidy programs were available to or applicable to the Irving Paper business," Keith said in her statement Wednesday.

But the administration ruled that a full investigation of all companies would involve tens of thousands of pages of documents, and it was within its rights to use the average of the high and low rates to determine the rate for other companies.

Wednesday's ruling increases the subsidy rate applied to Port Hawkesbury and Resolute, and thus also increases the rate for the others, Irving and B.C.-based Catalyst Paper.

The U.S. Commerce Department says it will immediately ask for U.S. Customs to start collecting higher deposits on Canadian exports at the border.

Months of lobbying

The decision comes after months of frantic lobbying by Irving to get the decision reversed.

The flurry of activity reveals that while the company may be influential with provincial governments in Atlantic Canada, it doesn't have nearly the same sway in Washington.

Last week, two powerful U.S. senators, Democrats Chuck Schumer and Heidi Heitkamp, asked the administration to reconsider hitting Irving with a subsidy rate.

A staffer in Schumer's office urged officials to "carefully consider" Irving's arguments, according to documents filed in the case in Washington.

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Subsidies from the Nova Scotia government to the Port Hawkesbury Paper led to U.S. complaints. (Wendy Martin/CBC)

Heitkamp "expressed her concern" that Irving hadn't had the chance to make its case and said it might harm Irving's agricultural business in her state of North Dakota.

And in August, a third Democratic senator, Joe Manchin of West Virginia, called a commerce department official "on behalf of" J.D. Irving Ltd., according to documents. Manchin told the official Irving had not "done anything wrong."

Earlier in the year, Canada's ambassador to the United States, Gary Doer, and Paul LePage, the governor of Maine, both wrote letters asking that Irving be given a chance to make its case.

J.D. Irving employs 1,200 people in Maine.

Despite the high-level support, Irving's Sept. 11 submission requesting a review of the preliminary decision was rejected by the U.S. administration because it cited new information, which was not allowed.

The department told Irving to re-submit it without the new evidence.

Irving fought for time

Irving was also stymied when it sought 15 minutes to present its arguments at a Sept. 24 review hearing into the case.

Irving and other Canadian forestry companies were given 90 minutes in total and were told to divide it up among themselves. But the other companies decided to give Irving only five minutes, something Irving protested.

"Irving has as much at stake in this investigation as any other respondent, and the issues that it has raised in its briefs are no less important than the issues raised by any other respondent," wrote the company's Washington lawyer, Warren Connelly.

But the commerce department rejected the request for extra time.

In the hearing itself, Connelly accused the department of an "egregious error" by not giving Irving the chance to present its case during the preliminary investigation, according to a transcript.

"If the department doesn't mitigate this error, Irving will have to spend tens of millions of dollars on cash deposits that bear no relationship to any conceivable subsidies that it may have received," Connelly said.

He argued the department should calculate an accurate subsidy rate for Irving rather than using an average of the high and low rates for other companies.

Irving's lawyer was again frustrated during the hearing itself when he tried again to get extra time to make his arguments.

When Elliot Feldman, a lawyer for Quebec-based Resolute Forest Products didn't use all his allocated time, Irving lawyer Warren Connelly asked if he could have those precious minutes.

But Resolute's lawyer refused, because, he said, Irving had wrongly accused Resolute of receiving additional subsidies.

"I have no interest in giving you more time to claim that we're subsidized," Feldman said.

"Fortunately, you don't make the decision," Connelly said.

"I do," Feldman answered.

"I think it's my time. It's allocated to us."

The chair of the session then called a break, without giving Irving the extra time. The rest of the hearing was devoted to the government of Nova Scotia defending its support to Port Hawkesbury paper.

Nova Scotia subsidies angered U.S.

The U.S. investigation began in February after a complaint by an American industry group, the Coalition for Fair Paper Imports.

The complaint was prompted by the Nova Scotia government's 2012 rescue package for a mill in Port Hawkesbury, a $124-million package that included a $40-million provincial government loan guarantee, training money and lower electricity costs.

The Nova Scotia government and Port Hawkesbury Paper said lawyers vetted the financial assistance to withstand future trade challenges from unhappy U.S. papermakers.

The U.S. group said the re-opening of the Port Hawkesbury mill boosted Canadian exports to the U.S., depressed prices, and made it unworkable for an American firm, Verso Corp. to rebuild its mill in Minnesota, which had burned down.

But the initial investigation by the U.S. International Trade Commission broadened beyond 13 incentives from the Nova Scotia government to include other forestry companies in Canada that produce supercalendered paper.

"Irving Paper will continue to pursue an expedited review of its business to demonstrate that it has not received any countervailable subsidies," Keith said Wednesday.

She did not respond to a question about how the requirement for cash deposits was affecting Irving's business in the United States.