MADAWASKA, Maine — Fraser Papers Inc. is cutting production at its Madawaska mill and laying off 100 workers, a move it blames on the weak economy.

The Canadian-owned company said Friday it is taking its No. 6 paper machine out of service for an indefinite period starting Monday. Fraser said a drop in advertising has reduced demand for publishing papers.

Fraser also said it may slash up to 200 jobs at its operations in Edmundston, New Brunswick, across the St. John River from Madawaska.

The company has scheduled a maintenance outage at the Edmundston mill for early June and unless its financial losses are fixed, nearly half of the 450 workers at the northeastern New Brunswick mills may be jobless.

U.S. Rep. Mike Michaud, who was a millworker for nearly 30 years at Great Northern Paper Co., said his office would work to provide assistance to the affected workers in northern Maine.

“This news couldn’t come at a worse time for the workers, their families and the community of Madawaska,” said the 2nd District Democrat. “This machine going down is yet another sign that we still have a ways to go before we get out of this economic downturn.”

Bill Peterson, director of human resources for Fraser, said Friday the 100 layoffs at the Madawaska mill would reduce the work force there to about 622 employees.

Madawaska Town Manager Christina Therrien said Friday that based on state statistics for the first quarter of this year, the layoffs will push the Madawaska area’s unemployment rate from 9.7 percent to about 13.2 percent.

The paper mill not only is Madawaska’s largest employer, she noted, it also is the town’s largest taxpayer, accounting for about half of its tax base.

Therrien said she’s deeply concerned about the ripple effect the layoffs will have on the larger community.

“They’re good-paying jobs,” she said, adding that the affected employees will have less capacity to support local businesses, which in turn could affect their workers. “It impacts every aspect of the community.”

And given the state of the economy, not just in the United States but globally, those jobs will be hard to replace, according to Therrien.

“Businesses have been downsizing,” she said. “There aren’t too many that are looking to expand. Who are you going to get to [bring jobs to northern Maine] in economic times like these?”

As a border town, Madawaska in the past has been able to benefit from its proximity to New Brunswick during good economic times for Canada and vice versa.

“You usually can kind of play off each other,” Therrien said.

This time, however, the Canadian economy isn’t faring better than that in the United States, she noted.

Edmundston Mayor Jacques Martin said the loss of jobs at Fraser would have a devastating impact on the forestry supply chain throughout the region.

“We keep hearing about the automobile industry, but meanwhile, the forestry industry is in peril,” he said. “The competition in forestry is ferocious right now and the government needs to take the necessary measures to keep the industry alive.”

Despite taking market-related downtime at each of its operations to reduce operating costs, Fraser reported a $16.7 million first-quarter loss, a mounting debt of $25 million and large pension obligations.

Fraser CEO Peter Gordon said the company is asking for concessions from workers, a greater allocation of New Brunswick’s wood supply, more competitive electricity rates, better compensation for power from its biomass cogeneration facility and elimination of the black liquor tax subsidy for its competitors in the United States.

“The next few weeks will be critical as the company works with the union, governments and lenders to come up with a viable business plan,” he said during an interview from the company’s head office in Toronto.

In order to staunch the forestry firm’s losses, Gordon has identified a handful of key problems that need to be fixed.

The first is lowering the fixed costs of operations, including a reduction in the number of workers, compensation and benefits.

The company confirmed in February plans to cut 78 jobs from its Edmundston mill over the next 2½ years, with at least 56 positions eliminated from the payroll by the end of 2009. Although no additional job cuts have been confirmed to date, fewer workers may return to work after the Edmundston mill’s maintenance shutdown.

Doris Lavoie, president of the Edmundston workers’ union, said employees are prepared to make concessions as the union renegotiates the collective agreement, which expires June 30.

“We’re losing 200 jobs and they still want to cut back our wages, pensions and benefits,” he said during an interview from Edmundston. “We can make all the concessions in the world, but if the government doesn’t take action, it won’t do anything.”

Gordon said the company is working around the clock to save the Edmundston jobs, but he added that employee contract issues are only a small piece of the puzzle.

Fraser also is struggling to compete with U.S. companies benefiting from a black liquor tax subsidy. This is a tax credit meant to encourage the consumption of biomass-related fuel such as grain ethanol.

“Somehow pulp producers — with the encouragement of their tax consultants — have driven a huge hole into the tax subsidy and it’s going to cost the American taxpayer billions and force the closure of Canadian pulp mills,” Gordon said.

Brett Bundale of the Saint John Telegraph-Journal, Dawn Gagnon of the Bangor Daily News and The Associated Press contributed to this report.