Commentary

This Byrd Won’t Fly

Originally published in the Wall Street Journal on September 18, 2004.

The World Trade Organization ruled last month that eight U.S. trade partners are entitled to retaliation for U.S. failure to comply with its rulings against the Continued Dumping and Subsidy Offset Act, also known as the Byrd Amendment. But an issue much larger than the ruling is at stake. How the U.S. responds will have far-reaching implications for the WTO: Failure to comply could mark the beginning of its end as a valid institution.

Unfortunately, Congress is strongly opposed to repealing the Byrd Amendment and is unlikely to budge anytime soon. The relatively meager levels of retaliation authorized — around $150 million — will do nothing to change that mindset. The WTO authorized $4 billion in sanctions to Europe over U.S. failure to comply with the foreign sales corporation issue, which remains unresolved to this day, as U.S. exporters endure retaliatory tariffs in Europe.

While it is within the rights of any sovereign WTO member to ignore dispute settlement findings and endure trade retaliation if it occurs, the system is premised on compliance. It is ultimately unsustainable if any country, particularly the U.S., chooses to exercise that right. If the U.S. treats retaliation as a minor irritant, not an indictment of its actions, others will feel entitled to show similar disregard for the WTO. This is particularly hypocritical in light of U.S. efforts to encourage China and others to abide by their own commitments.

Most cases that enter the dispute settlement process are resolved at the first stage, during consultations, and require no adjudication. That is a testament to the value of the WTO. Contrary to the beliefs of protectionists in Congress, trade disputes need not yield a winner and loser, nor need they be acrimonious.

If a dispute makes it into adjudication, countries are expected to abide by the rulings. In some cases the threat of retaliation or actual retaliation becomes necessary — not an end itself, but as a means to an end. Retaliation is supposed to shift the burden to the noncompliant country to assess its priorities. By identifying retaliation targets in the noncompliant country that are not immediately involved in the dispute, those domestic interests suddenly have a stake. And their interests are by and large served by compliance.

While the U.S. should be compelled to honor its obligations — with prodding to do so from the domestic interests that will pay the price of retaliation — that process is stunted in the U.S. through demagoguery about the WTO. The question shifts from “How do we comply?” to “Why should we comply?”

These efforts are spearheaded primarily by Democrats in Congress, like Sen. Max Baucus of Montana and Rep. Sander Levin of Michigan. In response to the WTO finding against the Byrd Amendment in January 2003, Sen. Baucus said, “In the end, this decision may not matter much, as I suspect there is little support in Congress for implementing it.” He also introduced legislation to create a panel of retired judges to review all WTO decisions that the U.S. loses as a signal that U.S. membership might be short-lived. Not to be outdone, Rep. Levin said he would oppose any effort to repeal the Byrd Amendment, adding that the growing list of adverse rulings is eroding U.S. support for the WTO.

In response to last month’s ruling, John Kerry declared, “Once again, the Bush administration failed to stand up for American companies and workers at the WTO, and as a result, unfair trade practices are hurting our economy and middle-class families.” That statement is so incorrect as to warrant an apology to Americans who are routinely deprived of the truth about trade and the WTO by Sen. Kerry and others of his ilk. It diminishes the significance of the ruling by obscuring the truth behind what really happened in this case and what it could mean for the future of the world trading system.

The Byrd Amendment directs the distribution of antidumping and countervailing duties collected by the U.S. Customs into special accounts for disbursement to companies that supported the original petitions in these cases. Before the amendment became law, such duties were commingled with other government revenues in the general treasury.

The legislation was surreptitiously inserted into the agriculture appropriations bill in 2000 by Sen. Robert Byrd after it failed to win support from the congressional committees that have expertise and oversight on trade issues. President Clinton strenuously objected to the amendment, but could only have killed it by vetoing the entire appropriations bill. Instead, he signed the law and implored Congress to repeal the amendment, knowing full well — as the trade committees and Sen. Byrd did — that it was contrary to U.S. WTO commitments.

By compensating petitioners and supporters of petitions, the Byrd Amendment provides an additional financial incentive to file antidumping and countervailing duty cases. Furthermore, by excluding from compensation those companies that do not support the petitions, the law encourages them to change their positions simply to maintain eligibility for compensation.

Yet despite opposition to the law from President Clinton and advocacy for repeal from President Bush, Congress shows no sign of relenting. While the motives of some may be to subvert the WTO, others in Congress who do not share that agenda need to look at the big picture. Trade has been an integral component of economic growth for more than half a century. The WTO is a hallmark of that progress and its legitimacy as an institution is our best hope for advancing trade liberalization. Is Congress prepared to risk its demise by ignoring the outcome and enduring retaliation? The present answer, alas, seems to be “Yes.”

Dan Ikenson is a trade policy analyst with the Cato Institute.