By Bob Davis and Lukas I. Alpert 

WASHINGTON -- The U.S. International Trade Commission blocked the Trump administration from imposing tariffs on Canadian newsprint, handing the publishing industry a victory in a battle it said was crucial to the health of newspapers.

The ITC, an independent government agency, ruled 5-0 that Canadian paper imports didn't caused "material injury" to U.S. paper producers . Under U.S. trade law, tariffs don't go into effect unless the ITC rules that the imports cause harm. The ruling frees U.S. newsprint buyers from paying deposits equal to tariffs proposed earlier by the Commerce Department -- savings worth millions of dollars. The deposits will be refunded, said trade experts.

"We hope today's reversal of these newsprint tariffs will restore stability to the market and that publishers will see a full and quick recovery," said a statement by the News Media Alliance, a trade association of newspapers that has been lobbying on the issue. Last month, 19 members of Congress from both parties testified before the Commerce Department urging it to reverse course.

The decision comes at a particularly fraught time in U.S.-Canada relations, as the U.S. presses Canada to make concessions to reach a deal to join Mexico in a renegotiated North American Free Trade Agreement. One of Canada's main demands is to retain arbitration panels that can review U.S. dumping decisions. A Canadian foreign ministry spokesman welcomed the ITC newsprint decision and said it would help sustain jobs in Canada's rural communities.

In early August, the Commerce Department had ruled that Canadian paper imports improperly competed with U.S. rivals by pricing goods at below-market prices and through unfair government subsidies. Starting in January, in a series of decisions, Commerce set tariffs at around 20%, and newsprint prices jumped by about 30%. Some newspapers blamed the price increases for reduced print distribution and staff cuts. The ITC decision effectively overrules the Commerce Department.

Higher newsprint costs socked newspaper publishers with substantially higher expenses at a time when the industry is already under pressure as readers and advertisers shift to digital distribution and print advertising dries up.

The Pittsburgh Post-Gazette said it was reducing its publishing schedule to five days from seven days a week in part due to the increased paper costs. The Tampa Bay Times cut nearly 50 jobs earlier this summer, which it blamed on the tariffs.

Publishers welcomed the newsprint ruling. "The newspaper business faces enough headwinds and it is a relief that this is no longer one of them," said Paul Tash, chairman and chief executive of the Tampa Bay Times. "We have always maintained that this was a pure financial play by a New York hedge fund and never had anything to do with the actual competitiveness of the market."

Mr. Tash said it was unclear how quickly the elimination of the tariffs would affect operations or if they would be able to hire back staff, noting that he doubted that prices "will fall as quickly as they shot up."

The tariff case was pushed by One Rock Capital Partners LLC and its paper mill, North Pacific Paper Co., in Longview, Wash., also known as Norpac. One Rock Capital didn't immediately respond to a request for comment.

Norpac CEO Craig Annenberg said he was "very disappointed" by the ITC decision, and that the company would "assess our options" when the ITC releases its written decision in a few weeks.

ITC decisions can be appealed to the U.S. Court of International Trade in New York. But trade lawyers said a reversal is unlikely given the unanimous ITC ruling.

The Trump administration has been taking a very aggressive stance on trade issues, which has actively encouraged companies to file more trade cases to block imports. The ITC is designed to take a second look at Commerce rulings, even though it finds for the U.S. company about 80% of the time, said Shara Aranoff, a former ITC chairman now at the law firm of Covington & Burling LLP. She is one of the lawyers for the News Media Alliance.

Dow Jones, the publisher of The Wall Street Journal, is a member of the News Media Alliance.

On Aug. 2, the Commerce Department estimated that the department had begun 120 new anti-dumping and antisubsidy cases since the start of the Trump administration, an increase of 216% compared with the same period in the Obama administration.

William Reinsch, a former Commerce Department official in the Clinton administration who is now at the Center for Strategic and International Studies, says that Commerce essentially acts as a grand jury for trade cases, while the ITC is the judge. The newsprint decision shows that the ITC "deals with the issues, votes on the merits and is an independent entity."

Earlier this year, the ITC also rejected U.S. duties on Bombardier Inc. in a case pushed by Boeing Co.

ITC members are appointed for nine-year terms, to make them independent of any particular president and are split between three Republicans and three Democrats. The current ITC is short one member. Only one of the five current commissioners was appointed by President Trump -- a Democrat who was first appointed by President Barack Obama.

Mr. Trump now has named three others to join the commission, including a Republican for the vacant slot, and a Republican and Democrat to replace commissioners whose terms have expired. Ms. Aranoff, the former ITC chairman and a Democrat, said that she doubted that the Trump appointees would weaken the agency's tradition of independence.

A Commerce Department spokesman said the newsprint decision "shows the process, and its division of responsibilities, is fair and transparent."

Write to Bob Davis at bob.davis@wsj.com and Lukas I. Alpert at lukas.alpert@wsj.com

(END) Dow Jones Newswires

August 29, 2018 19:38 ET (23:38 GMT)