U .S. trade practices were slapped again recently when the World Trade Organization imposed penalties on a wide range of U.S. exports. The decision targets the Byrd Amendment, a law that was passed to protect U.S. steel makers harmed by cheaper imports of foreign steel. The WTO had already determined that the amendment was illegal, so its decision was expected.
The first priority of the United States should now be to come into compliance with the WTO ruling. Escalation of tariffs must be avoided.
The Byrd Amendment is named after Sen. Robert Byrd, who represents West Virginia, a traditional steel-producing state. West Virginia, as well as other U.S. steel-producing regions, has been hard hit in recent years by imports of foreign steel, which costs considerably less than domestically produced steel. In 2000, he introduced legislation designed to protect those mills. His bill imposed tariffs on products that the U.S. government decided were being sold in the U.S. below market prices.
Those tariff revenues were paid to the same companies adversely affected by the imports. In other words, U.S. companies were helped twice: once at the border, when the price of competing products was effectively raised, and again when they were given an infusion of money to make them more competitive. It is estimated that the Byrd Amendment transferred about $750 million in aid to U.S. companies. That figure could increase to nearly $3 billion next year with the imposition of tariffs on softwood imports from Canada.
The law was challenged and the WTO last year ruled it was illegal. The U.S. appealed to no avail. To its credit, the White House has said it wants to comply with the WTO decision. Congress’ failure to repeal the legislation, however, led to the recent ruling. Last month’s WTO decision authorized $150 million in retaliatory tariffs on goods ranging from apples to textiles. Japanese exporters, hardest hit by the amendment, are looking to recoup some $77 million in tariffs on items such as steel, ball bearings, textiles and machinery.
The WTO action is unique in that it was sought by seven complainants: the European Union, Japan, Canada, Brazil, India, Mexico and South Korea. They are now drawing up lists of goods that they will hit with their own tariffs. Europe is taking a smart approach; it is targeting companies considered most likely to push the U.S. to move faster to repeal the Byrd Amendment. It is also targeting sectors in which U.S. products make up less than 20 percent of the market; that way European importers and consumers will not be adversely affected.
Antidumping statutes — which the Byrd Amendment is — are always suspect. Determining the accurate price for the production of a foreign-made good — and hence whether it is being sold at “below market prices” — is difficult, if not impossible in the supercharged political atmosphere of most trade disputes. Nonetheless, they evoke deep emotions and tend to provoke tit-for-tat exchanges that sometimes spiral into trade wars.
U.S. President George W. Bush has said the United States will comply with the ruling and his chief trade representative is working to fix the law. The earlier repeal of the Foreign Sales Corporation rule, which gave U.S. companies a $50 billion tax break that the WTO also concluded was illegal, is one sign that Washington is taking multilateral trade rules seriously.
The world should now find out just how serious the U.S. really is. The election campaigns are over, and Mr. Bush no longer has to play politics with trade. The president has said he believes in free trade and wants to see a successful conclusion of the Doha Round of multilateral trade negotiations. Using his new “mandate” to repeal the Byrd Amendment would be a good first step. From there, he can work to reform the agricultural-subsidy policy that his administration has championed and that has gladdened the hearts of protectionist agricultural lobbies the world over, including in Japan.
The failure to take serious action and to search for common ground with key trading partners could lead to a downward spiral as the U.S. and EU spar over a range of trade disputes. The most bitterly contested issues, in a rather long list, include aircraft subsidies and genetically modified foods.
Failure to abide by WTO rulings would also undermine attempts to resuscitate the Doha Round of multilateral trade negotiations. There is no reason to push for more trade rules when existing ones are not being respected. In other words, there are no winners and losers in the most recent WTO decision. As long as the multilateral trade order is being followed, all are winners. That is the mentality that motivated the original trade discussions and it still applies today.
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