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Mr. Gray continued on to explain the National Sword Policy currently coming out <br />of China. China has historically been a big recipient of recycled materials. Now, <br />however, they have closed the door to shipments of recycling coming in to the <br />country and not letting the materials in unless they meet a very, very high standard. <br />One of the things impacting the revenue for Roseville over the past year is the <br />National Sword Policy. In the long run, this policy will actually be a good thing <br />for the recycling and manufacturing markets. But in the short-term, it is creating <br />difficulties. <br />Member Kruse asked if it is feasible to meet China's new standards. <br />Mr. Gray noted that China is currently issuing a standard of less than a half -percent <br />of contamination, which is a standard that even Eureka would have trouble meeting. <br />Perhaps the end negotiated level would be higher than that; it is hard to know. If <br />China goes on too long like this, their internal markets will run out of supply. <br />Chair Cihacek asked whether international markets are being impacted as <br />significantly as American recycling markets. <br />Mr. Gray responded that the system has worked so efficiently in the past, because <br />Chinese containers arrive here full of products; the containers are emptied and then <br />refilled with recyclables. Going elsewhere for recycling material would require an <br />entirely new system and structure. <br />Member Kruse asked if China currently uses all of the recyclable material it imports <br />from the United States. <br />Mr. Gray explained part of the problem with international markets is there are good <br />international end markets, companies that are responsible with the material and <br />have controls in place. And then there are also companies that do not have proper <br />environmental controls. There is not an easy way to track where the material goes. <br />Eighty-five percent of what Eureka generates stays in Minnesota, but Eureka is also <br />susceptible to global pricing fluctuations for commodities. <br />Member Misra asked whether there are facilities in the US that are positioned to <br />pick up this slack, particularly in plastics. Also, she asked if there is a way to track <br />the shipments going abroad. <br />Mr. Gray responded there is no system. Once it leaves the shores of America, the <br />tracking and enforcing of environmental controls is completely out of Eureka's <br />control. He also noted that there are markets in America for this type of material, <br />but these markets do not have the capacity to absorb it all. If it becomes clear China <br />will not back down, then there is incentive for that kind of capital and facilities to <br />develop in America. <br />Page 4 of 9 <br />