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Japan looks just like a knight throwing down the gauntlet without being fully prepared to actually fight.

In a key steel-trade row with the United States, Japanese government officials appear to be in no hurry to move on to the next stage of the World Trade Organization’s dispute-settlement procedures. Some are even wondering if pushing the U.S. too hard on the issue would really be a good thing for the entire global trade system.

In late October, then U.S. President Bill Clinton signed into law a controversial antidumping bill on steel trade. The law allows the U.S. administration to compensate U.S. steelmakers hurt by dumping by sharing with them revenues from antidumping duties.

The controversial measure was attached as an amendment to a comprehensive agricultural spending bill. Clinton signed the bill into law, following its passage through both the House of Representatives and the Senate.

Although Clinton and other administration officials themselves voiced objections to the measures — which is commonly referred to as the Byrd law — they reluctantly agreed to enact it so as to not to kill the comprehensive farm spending bill.

At the end of December, Japan, the 15-nation European Union and seven other economies filed a complaint with the WTO — the Geneva-based watchdog on international commerce — over the Byrd law, vehemently complaining that subsidizing domestic companies with revenues collected through antidumping procedures is incompatible with WTO rules.

Under WTO rules, member economies are allowed to impose antidumping duties. But there is apparently no clause directly banning the practice of offering subsidies to domestic makers from antidumping revenues.

The Byrd bill was enacted amid persistently strong Congressional pressure for tough action to protect the domestic steel industry against a flood of below-market foreign steel.

Japanese steelmakers have been the primary target of antidumping sanctions by the U.S. since the Asian financial crisis struck in 1997. This is a major reason why Japan has strongly insisted on including a review of WTO antidumping rules in an agenda for a new round of global trade liberalization negotiations.

The new round has not yet been launched because of sharp differences over the agenda, including Japan’s insistence that antidumping rules be “reviewed.”

The Byrd law only adds another layer to the controversy, with Japanese officials complaining that it will further encourage U.S. steelmakers to file antidumping suits against foreign producers.

The U.S. steel industry has filed 11 antidumping complaints with the Clinton administration. Seven of them have been accepted and penalty duties were applied.

Despite the fact the Byrd amendment was pushed by Republicans, Japanese officials were rather optimistic until recently that the new Republican administration of President George W. Bush would move quickly to rescind the controversial law in the Republican-controlled Congress.

Before Clinton, Republican administrations were thought to pursue global trade more enthusiastically than Democratic ones.

But Japan’s expectations were betrayed. The Bush administration has made it clear that it has no intention to urge Congress to nullify the Byrd law. And earlier this month, U.S. Trade Representative Robert Zoellick went even further by suggesting to a U.S. House of Representatives committee that “safeguard” emergency trade curbs be used on steel imports.

After visiting Washington, Pascal Lamy, the EU trade commissioner, also warned Japanese Foreign Minister Yohei Kono in a telephone talk recently that protectionist sentiment is growing in the U.S. Congress over the issue of steel trade. Kono replied that Japan would keep close contacts with the EU over the matter.

After filing a complaint over the Byrd law with the WTO, Japan, the EU and seven other economies held “bilateral consultations” with the U.S. in Geneva in early February, in the first stage of the WTO’s dispute-settlement procedures.

In theory, they can now move on to the next stage — asking the WTO to set up a neutral panel to rule on the case. WTO rules allow any member in a trade dispute to make such a request if its complaint is not resolved within one month of bilateral consultations.

“We had expected the Bush administration would at least maintain the Clinton administration’s objections to the Byrd law. But we were wrong,” a senior Japanese trade official said, requesting anonymity. “We may no longer have any choice but to request the establishment of a WTO panel to adjudicate the case.”

But at the same time the official said that Japan will wait until specific rules for implementing the Byrd law are actually set before making a final decision on whether to request a WTO panel.

“We need to be fully prepared for a legal battle at the WTO by carefully examining the implementation rules. But we do not know when the rules are actually laid down,” the official said.

While requesting a WTO panel now appears to be the last-remaining option, there is concern among some Japanese officials about a possible negative effect on the entire global trade system of doing so.

“Even if our chance of winning the case at the WTO turns out to be very good after scrutinizing the implementation rules for the Byrd law, we need to be careful in deciding whether to ask for the setting-up of a WTO panel,” a senior Foreign Ministry official said. “We are concerned that if we drive the U.S. into corner over steel trade, it might become reluctant about fulfilling commitments it has made at the multilateral arenas, like the WTO, even if it wouldn’t go so far as to bolt the WTO.”

But when the WTO replaced the General Agreement on Tariffs and Trade in January 1995, some Congressional members said that the U.S. should exit the WTO if it loses any three consecutive trade cases, calling it the “three strikes-out” principle.

In the past year, the U.S. has lost two straight steel cases filed by Japan and some other WTO members.

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