Commentary

Byrd Boondoggle

This article appeared on Nationalreview.com on December 9, 2005.

House and Senate conferees are expected to produce a compromise Budget Reconciliation bill this week. While both versions are decidedly timid in tackling the goliath deficit, the House language includes repeal of a costly corporate boondoggle known as the Byrd Amendment, which taxes the budget as well as America’s international credibility.

The Byrd Amendment, formally known as the Continued Dumping and Subsidy Offset Act, became law in 2000. It mandates distribution of antidumping and countervailing duties — historically reserved for the general treasury and used for general purposes — to the domestic companies that brought or supported the original petitions in the underlying trade remedy cases.

Since 2001, over $1 billion have been diverted from the treasury into the coffers of some very well-to-do corporations. Many billions more sit in escrow waiting for litigation to determine if and when those funds will be distributed.

According to a recent report from the Government Accountability Office, nearly half of the funds distributed between 2001 and 2004 went to five lucky companies, and $340 million — one third — went to two bearings producers, the Timken Company and Torrington, which have since merged into a single entity under the name of the former.

In 2004, Timken had an operating income of 5 percent on revenues exceeding $4.5 billion. Yet, the Byrd money Timken received from the treasury exceeded the taxes it paid by more than 30 percent. These kinds of programs help explain Congress’s plummeting public-opinion ratings.

Beyond its fiscal impropriety, the Byrd Amendment has come to symbolize American hubris, even underhandedness, in its approach to international trade rules. Soon after its passage, the Byrd Amendment was challenged by several countries in the World Trade Organization on the grounds that it violated certain trade rules. The WTO largely agreed, ruling that Byrd punishes foreign exporters twice — first, by imposing the duties as a remedy to dumping or subsidization (which is acceptable), and then by using those funds to directly subsidize the U.S. petitioners (which is not).

Despite the ruling, the United States failed to repeal Byrd and last year the WTO authorized retaliation by the complainants. Thus far, Europe, Canada, Japan, and Mexico have begun imposing retaliatory tariffs against various U.S. exports.

President Clinton signed Byrd into law because his only alternative was to veto the entire agriculture appropriations bill of 2001, into which Byrd was snuck at the eleventh hour. Clinton objected to the Byrd provisions and called on Congress to repeal it. Likewise, the Bush administration supports repeal.

But the Senate, in particular, has been vocal in its criticism of the WTO ruling against Byrd, finding its logic flawed and, therefore, unworthy of U.S. compliance. Such a posture is unseemly, considering that the United States coauthored the WTO rules, which have served U.S. interests well for more than 10 years.

Wouldn’t the Senate expect China and other countries to honor WTO rulings, particularly if the United States were the complainant? And if the United States sees itself as above the rules, why should other countries negotiate new agreements containing yet more rules that might be disregarded to serve some political agenda?

Certainly that sentiment has infected the listless Doha Round of WTO negotiations. There can be little doubt that U.S. intransigence on Byrd and other disputes has contributed to the general malaise, occasional ill will, and general distrust that have permeated the Doha Round. Past U.S. actions — or inactions as the case may be — are haunting the negotiations.

The developing countries in particular are wary of U.S. proposals because they were burned badly by the fine print in previous agreements. In the last round of multilateral trade talks (the Uruguay Round from 1986 to 1994), the United States had agreed to progressively remove quotas on textiles and clothing between 1995 and their eventual elimination in 2005. But the United States exploited loopholes in the agreement and back-loaded the most relevant liberalization until the end, depriving developing countries of trade gains in the intervening years.

It is not difficult to understand why those countries have greeted U.S. agricultural proposals with circumspection and skepticism. Along with clothing, agricultural goods are many developing countries’ most competitive (if not only) tradable products. They cannot afford to get double-crossed this time.

A Byrd Amendment repeal would not undo those sentiments overnight, but it could give an enormous morale boost to the fledgling WTO negotiations just in time for what many consider to be a make-or-break ministerial meeting in Hong Kong next week. It would show that the United States respects and values the WTO, and that it wants the rules-based system of trade to survive.

If Congress wants to enrich its corporate constituents, it can do so in an honorable and straightforward manner, without tapping federal funds, by supporting trade liberalization in the Doha Round. The broad financial benefits of a successful round far exceed the narrow benefits of Byrd subsidies. And the windfall will reach large swaths of American consumers, producers, farmers, ranchers, and service providers, not just litigious industries.

Daniel Ikenson is a trade-policy analyst at the Cato Institute in Washington, D.C.