Tony Soprano Meets the Antidumping Law

Forget all the high-minded rhetoric about “fair trade” and “level playing fields.” Discount the apple-pie claims that the antidumping law protects good American companies and their hard-working employees from unscrupulous, predatory, foreign cheaters. Those are just some of the myths that have sustained the costly antidumping status quo for decades.

If the American public were familiar with all of the sordid details of the antidumping case concerning wooden bedroom furniture from China (which I called a Poster Child for Reform back in 2004), they would be angry and ready to change the law.  Well, on Tuesday, the Wall Street Journal did its part by running a story about how U.S. producers of wooden bedroom furniture have been extorting cash from their Chinese competition in exchange for dropping pursuit of even higher antidumping duty rates at the Commerce Department.

The Journal reported that about $13 million was paid to a group of 20 U.S. furniture makers between 2006 through 2009, and that a much larger, but unspecified, amount of money went to pay the U.S. firms’ lawyers.

Surprisingly, this practice is not illegal. Charlotte Lane, one of six commissioners at the U.S. International Trade Commission, which presides over antidumping investigations and sunset reviews, said, “I cannot figure out for the life of me how they are legal.” And her colleague, Commissioner Dan Pearson added that these settlements create “additional costs and distortions” in furniture trade, “with little evidence that these distortions have yielded any benefits to the industry overall, the U.S. consumer, or the U.S. taxpayer.”

But this practice is nothing new. It’s been going on in the shadows for several years in other cases as well. Bill Silverman, a trade lawyer who represents furniture retailers and importers, offered: “Everybody in the industry in the U.S. and China understands that these payments are clever shakedowns.”  Back in 2006, I wrote about similar “shakedowns” with hundreds of exporters from several countries in the shrimp antidumping cases (toward the end of the paper under the subheading, “A Sign of Things to Come?”)

This pay-to-play scheme is made possible by the peculiarities of the U.S. antidumping system. The United States has the distinction of being the only major economy in the world that uses a “retrospective” system for collecting final antidumping duties on imports. That means that importers pay estimated antidumping duties on goods when they enter the United States, but the final liability is not known until much later—often 18 months to several years later. This system creates enormous uncertainty for importers and works effectively to supercharge the impact of U.S. antidumping measures.

Every year the Commerce Department invites parties involved in antidumping cases to request reviews of the most recent year’s imports to determine the actual amount of dumping for that year, and to set new deposit rates going forward. (More detailed description here.) Neither petitioners nor the respondent companies are required to request a review, and if no requests are made within a given time frame, the duty rates already in effect continue.

So, if a foreign exporter has a 10 percent antidumping duty rate on his products, but is managing to continue making sales in the United States, he might not want to request a review of the previous year’s sales, which could establish a higher final liability and a higher deposit rate going forward. But petitioners can request a review of those sales. In the furniture and shrimp cases, petitioners requested reviews of dozens of companies that “could live with” the rates they were paying, thereby introducing the specter of greater uncertainty, more legal and other expenses, and the risk of higher duties. That’s when petitioners offered to rescind those review requests in exchange for payments.

Now, if that doesn’t amount to extortion (link definition), I’m not sure what does.

As I wrote about the shrimp cases in 2006:

Most foreign companies accepted the deal, which arguably was the better option for both parties in each deal. But there is clearly something unseemly about the domestic industry extorting large sums of money from foreign shrimp producers under threat of burying them in heavy legal costs and the uncertainty associated with the Commerce Department’s calculating new antidumping rates. There is also something ominous about the relative ease with which the petitioners’ bar was able to effectively sell access to the U.S. market and split the proceeds with U.S. companies.

Although the Byrd Amendment was found in violation of the ADA [Antidumping Agreement] and will cease to operate next year, the petitioners’ lawyers seem to have concocted a model for effectively resurrecting Byrd. With this success under their belts, petitioners’ lawyers have a new way to market antidumping actions to their current and prospective clients.

These extortions are only the latest shenanigans in the wooden bedroom furniture case. Antidumping is portrayed as a tool to protect “our” producers from “their” producers. But the primary targets in the furniture case were other U.S. furniture producers.  As I wrote in 2004:

The case of Wooden Bedroom Furniture from China has nothing to do with unfair trade and is a perfect example of the need for antidumping reform. The filing of this case was a tactical maneuver by one group of domestic producers that seeks to exploit the gaping loopholes of the antidumping law to get a leg up on its domestic competition. Domestic producers realize that the only way to compete and offer their customers variety is to source at least some production from abroad. Instead of preserving or returning domestic jobs (which is the public justification for the petition) import restrictions will cause a shift in sourcing from China to places like the Philippines, Indonesia, Brazil, and Vietnam–places from which many of the petitioners have begun or are poised to begin importing themselves.

The antidumping law is nothing like what its supporters claim it to be.  Its operation works to the benefit of a few industries and crafty insiders at great cost to the rest of the economy.  Let’s hope the Journal article sparks the kind of outrage that will propel serious antidumping reform in the United States.