“Byrdening” Relations: U.S. Trade Policies Continue to Flout the Rules

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Overview

As 2004 begins U.S. commitment to the rules‐​based system oftrade is uncertain at best. Despite repeal of the steel safeguardtariffs, the United States remains neglectful of its obligationsunder various World Trade Organization agreements. It has failed toimplement several adverse WTO rulings in recent years. One of themore notorious instances of noncompliance concerns the ContinuedDumping and Subsidy Offset Act‐​better known as the Byrdamendment.

The Byrd amendment directs the distribution of antidumping andcountervailing duties collected by the U.S. Customs Service (nowcalled U.S. Customs and Border Protection) to special accounts fordisbursement to companies that supported the original petitions inthese cases. In September 2002 a WTO dispute settlement panel foundthe Byrd amendment in violation of several provisions of variousWTO agreements. Four months later the WTO Appellate Body upheldmost of the panel’s findings, and an arbitrator subsequently set adeadline of December 27, 2003, for the United States to comply withthat ruling.

That date came and went without any steps taken by the Congressor the administration to resolve the issue. Now, trade sanctions bysome or all of the 11 WTO complainants against U.S. exporters arelikely, if not imminent. Later this month those members who chooseto retaliate will make their decisions known to the WTO, and anarbitrator will likely determine the level of retaliation to whicheach member is entitled.

Why is the Byrd amendment so reviled by U.S. trade partners? Whyhave U.S. policymakers drawn a line in the sand over thisprovision? And what are the implications of continued U.S.intransigence on this issue?

How a Bill Became a Law‐​Redux

The Continued Dumping and Subsidy Offset Act was originallyintroduced by Sen. Mike DeWine (R‑OH) during the first session ofthe 106th Congress as S.61. When introducing the bill on January19, 1999, Sen. DeWine remarked: “It’s time we impose a heavierprice on dumping and subsidization. The Continued Dumping andSubsidization Offset Act would accomplish this goal. It wouldtransfer the duties and fines imposed on foreign producers directlyto their U.S. competitors. Under our bill, foreign steel producerswould get a double hit from dumping: they would have topay a duty, and in turn, see that duty go directly to aid U.S.steel producers.”[1]

Although the bill had 26 cosponsors, it never garnered enoughsupport in the Senate Finance Committee to make it to the floor fora vote. Perhaps the Finance Committee‐​the committee with expertiseand jurisdiction on trade matters‐​was aware that the “heavierprice” and “double hit” nature of the bill about which Sen. DeWineboasted constituted violations of the WTO’s Antidumping Agreementand Agreement on Subsidies and Countervailing Measures.

Despite the known opposition‐​or more likely because of it-Sen.Robert Byrd (D‑WV) surreptitiously inserted the language from S.61into a 2001 appropriations bill for agriculture and relatedprograms at the last minute without any debate on the amendment.Hence, it became known as the Byrd amendment.

Since it would have required a vote against the entireappropriations bill to defeat the Byrd amendment, Congress passedthe legislation and sent it to the president for his signature. InOctober 2000 President Clinton signed the bill into law but notedthe WTO‐​inconsistent nature of the Byrd amendment, calling on theCongress “to override this provision, or amend it to be acceptable,before they adjourn.” That never happened.[2]

While disbursements under the Byrd amendment thus far have beenrelatively modest-$231 million in fiscal year 2001 and $330 millionin 2002‐​the number of claims, the number of claimants, the amountssought, and the average company disbursement have been rising. In2001 there were 894 separate claims seeking in total $1.2 trillion!That’s right: close to 10 percent of gross U.S. domestic product.The 894 claims were filed by 155 different companies, and 541 ofthem (61 percent) were successful in winning some money. Theaverage award per claim granted was $427,000.

In 2002 the number of claims and the number of claimantsreceiving money jumped to 1,089 and 731, respectively‑a successrate of 67 percent. The number of companies making claims surged to243‐​an increase of 57 percent from the previous year. The amount ofmoney sought rose to $1.4 trillion, and the amount dispersed jumpedto $330 million, for an average award per claim granted of$451,000.

The fiscal 2003 figures have not yet been released, butdisbursements are projected to skyrocket on account of dutiescollected on Canadian lumber‑a figure that may be over $5billion.[3]

How a Law Became a Dispute

In December 2000 the European Union and eight othercountries‐​Australia, Brazil, Chile, India, Indonesia, Japan, SouthKorea, and Thailand‐​sought consultations with the United Statesover the Byrd amendment. Failing resolution, a WTO disputesettlement panel was appointed to adjudicate the matter. In late2001 Canada and Mexico joined the matter as the 10th and 11thcomplainants.

The complainants maintained that the Byrd amendment was inviolation of some 16 provisions of various WTO agreements. But theessence of those complaints boiled down to two practicalconcerns.

First, reimbursement of expenses constitutes a measure beyondthe scope of what is permissible under the Antidumping Agreementand the ASCM. Those agreements expressly permit the imposition ofdefinitive duties, provisional duties, or price undertakings(suspension agreements) to offset the effects of dumping orsubsidization. No other remedies‐​including distribution of dutiesto protection‐​seeking companies‐​are allowed. Just as Sen. DeWinesaid, the effect of the Byrd amendment is that foreign producersare effectively penalized twice‑a clear violation of the relevantWTO agreements.

Second, by compensating petitioners and supporters of petitions,the Byrd amendment provides an additional financial incentive tofile antidumping and countervailing duty cases. Furthermore, byexcluding from compensation those companies or unions notsupporting the petitions, the law encourages companies that mightotherwise decline to support petitions to do so simply to maintaineligibility for compensation. And this effect undermines therequirement (under Article 5.4 of the Antidumping Agreement andArticle 11.4 of the ASCM) that administering authorities determinewhether there is sufficient industry‐​wide support for a petitionbefore initiating an investigation.[4]

Certainly, the possibility of receiving payments for supportinga petition has potential to corrupt the process. If for no otherreason, a producer otherwise disinclined to support the petitionmight choose to support it because the producer would bedisadvantaged if its domestic competitors got money for supportinga petition and it did not. This is particularly realistic sincethere is virtually no economic cost to supporting a petition.

During the dispute settlement process, Canada submitted twoletters written by or on behalf of U.S. producers that reveal howthe potential of receiving Byrd money taints the equation. Oneletter, written by John Ragosta, a trade attorney with DeweyBallantine, seeks support from other producers for a prospectivecountervailing duty petition. The letter explains the Byrdamendment and states that “if the [CDSOA] is … applicable here,the total amount available to US lumber producers could be verylarge‐​easily running into hundreds of millions of dollars ayear.”[5] Thesecond letter, written by a U.S. producer, provides an example ofhow the Byrd amendment influences the process. In it, the produceris changing its position from one of opposition to a petition toone of support “for purposes of qualification for consideration forbenefits under the” Byrd amendment.[6]

In September 2002 a dispute settlement panel, concurring withthe complainants on their major points, found the Byrd amendment inviolation of several WTO provisions[7] and recommended that the United Statesbring the law into conformity with those agreements by repealingit.[8] TheUnited States appealed the decision.

In January 2003 the Appellate Body issued a splitruling.[9] Itupheld the panel’s determination that the Byrd amendment is ameasure in excess of what is considered a permissible response todumping or subsidization, but in a display of deference to U.S.authority, it overturned the panel’s ruling that the amendmentundermines the administering authority’s ability to determinewhether there is sufficient industry support for a petition. TheAppellate Body reasoned that even if support for a petition ismotivated by the prospect of receiving Byrd money, the AntidumpingAgreements and the ASCM do not require the administeringauthorities to ascertain the motives behind support. All thatmatters is whether there is sufficient support.

How a Dispute Became a Problem

Congress‐​in particular, the Senate‐​seems to have drawn a line inthe sand over this issue. In February 2003, 69 senators signed aletter to the president urging him to press America’s tradingpartners into “negotiations on CDSOA prior to any attempt to changeour laws.” The letter states that “the WTO has acted beyond thescope of its mandate by finding violations where none exists andwhere no obligations were negotiated.”[10]

Rep. John Spratt (D‑SC) said: “This is a clear example ofoverreaching by the WTO, extending obligations to the United Statesthat do not exist in any trade agreement. This is not the firsttime the WTO has done this.… I think the Bush Administrationshould serve notice now that this issue is part of the Doha agenda,and we will not close the round until it is resolved to oursatisfaction.”[11] Rep. Sander Levin (D‑MI) said he would opposeany effort to repeal the Byrd amendment, adding that the growinglist of adverse rulings is eroding U.S. support for theWTO.[12]Sen. Max Baucus (D‑MT), who has been a leading critic of the WTOdispute settlement system, said, “In the end, this decision may notmatter much, as I suspect there is little support in Congress forimplementing it.”[13]

That is a serious statement. For the highest‐​ranking Democratwith trade expertise and jurisdiction to suggest that a WTOdecision may not be implemented speaks volumes about U.S.commitment to the international trading system. Greg Mastel, atrade adviser for a Washington law firm and former counsel to theSenate Finance Committee, is so convinced that repeal is unlikelythat he reportedly went as far as to suggest that the complainantsshould consider adopting their own versions of the Byrd amendmentas an alternative to U.S. repeal.[14]

Nevertheless, there have been some attempts by Congress toimplement the Appellate Body’s decision. Sen. Olympia Snowe (R‑ME)introduced legislation in 2003 that would divert the collectedduties to special accounts to help communities (rather thancompanies) that are affected by dumping and subsidization. Whetherthis would suffice to satisfy the Appellate Body is unclear. Whatis clear, however, is that the legislation did not inspire muchsupport in Congress during 2003.

Better received was antagonistic legislation, introduced by Sen.Baucus in March 2003, proposing the formation of a panel of judgesto review WTO decisions that are adverse to the United States. Theimplication of this proposal is that there is an anti‐​American biasin the WTO, and therefore U.S. commitment to that body istenuous.

The premise here is plain wrong. It ignores important facts.Complainants win overwhelmingly. Since 1995 (the first year of theWTO), complainants have won 88 percent of the cases adjudicated inthe dispute settlement system.[15] This is testament to the system’sworking. Before pursuing dispute settlement and incurring the costsof a case, complainants make certain that they have a soundcase.

Since 1995 the United States has been involved (as complainantor defendant) in 155 of the 304 total disputes (51 percent). In2003 the number of disputes in which the United States was adefendant surpassed the number of disputes in which it was acomplainant for the first time. In the first four years of the WTO,the United States was a complainant 51 times and a defendant 27times. During the most recent four years, the United States was acomplainant 15 times and a defendant 42 times.[16]

The United States has been playing defense with regularity inrecent years, not because of an anti‐​American bias in the WTO, butbecause of its own overzealous application of trade restraints andserious flaws in its trade remedy laws.

Implications of Continued U.S.Intransigence

If nothing else, the Bush administration has become adept atmaking lemonade from its abundance of trade lemons. In response tothe Appellate Body report, the Office of the U.S. TradeRepresentative offered the following statement:

We welcome the findings in today’s report that the Actis consistent with the WTO requirements for the initiation ofanti‐​dumping or countervailing duty investigations. We are stillreviewing that report, but we note that since the dispute did notinvolve the underlying U.S. anti‐​dumping and countervailing dutylaws, the United States will continue to vigorously enforce thoselaws to ensure that U.S. industries, farmers, and workers are notforced to compete with unfairly traded imports.[17]

That statement captures the essence of why this dispute is a bigproblem for policymakers, and indeed for U.S. trade policy. TheByrd amendment relates to the sacred cow of U.S. trade policy‐​thetrade remedy laws.

Congress seems to have a reflexive, blind commitment topreserving the status quo when it comes to the trade remedy laws‐​inparticular, the antidumping law. Despite the fact that theantidumping law is used predominantly by a handful of U.S.industries to the detriment of large swaths of U.S. import‐​usingindustries and exporters, many in Congress are loath to budge onthis issue.[18] In the summer of 2002 trade promotionauthority legislation was almost sunk by the Senate’s inclusion ofthe so‐​called Dayton‐​Craig amendment, which would have denied“fast-track” voting procedures to any trade agreement that dared toinclude changes to the antidumping law. Under threat of veto by thepresident, the Senate grudgingly dropped the amendment.

The dispute over the Byrd amendment is not an isolated event.There are a number of outstanding WTO rulings against U.S. laws andpolicies‐​including the Foreign Sales Corporation/​ExtraterritorialIncome Tax provision and the Antidumping Act of 1916‐​that theUnited States has yet to implement. This mounting record ofnoncompliance, or at least foot‐​dragging, calls into question thecommitment of the United States to the rules‐​based tradingsystem.

Should the United States continue to ignore its obligations, itwill forfeit its ability to compel other members to abide by therules. Meanwhile, with the Doha Round of multilateral trade talksfaltering, U.S. delinquency on these matters could hasten theround’s collapse. After all, what is the point of negotiating newagreements when those currently in effect are disregarded with suchfrequency by the world’s largest economy?

It is time for policymakers to answer honestly: Are subvertingthe world trading system and souring international relations foryears to come worth the short‐​term political gains to be won byintransigence?


[1] MikeDeWine, Comments in “Statements on Introduced Bills and JointResolutions,” Congressional Record, no. 8, January 19,1999, p. S497. Emphasis added.

[2] WhiteHouse, Office of the Press Secretary, “Statement by the President:H.R. 4461, The Agriculture, Rural Development, Food and DrugAdministration, and Related Agencies Appropriations Act for FY2001,” news release, October 28, 2000.

[3] MarkDrajem, “U.S. Misses Deadline on Repeal of Tariff Law,” SeattleTimes, December 30, 2003.

[4] Underthe Antidumping Agreement and the ASCM, an investigation cannot beinitiated unless the authorities have determined that the petitionrequesting relief has been filed “by or on behalf of the domesticindustry.” The petition is considered to have been made “by or onbehalf of the domestic industry” if it is supported by thosedomestic producers whose collective output constitutes more than 50percent of the total production produced by that portion of thedomestic industry expressing either support for or opposition tothe petition. In addition, no investigation can be initiated ifdomestic producers expressly supporting the petition account forless than 25 percent of total domestic production.

[5] Reportof the Panel on United States‐​Continued Dumping and SubsidyOffset Act of 2000, WT/DS217/R and WT/DS234/R, September 16,2002, p. 311. Letter from J. Ragosta, Dewey Ballantine, datedJanuary 8, 2001, p. 2, attached to a letter from R. Wood, chairmanof the Coalition for Fair Lumber Imports, dated January 8,2001.

[6] Ibid.,p. 311. Brief of Fred Tebb & Sons, Inc., dated March 22,2002.

[7] Ibid.The panel concluded “that the CDSOA is inconsistent with ADArticles 5.4, 18.1 and 18.4, SCM Articles 11.4, 32.1 and 32.5,Articles VI:2 and VI:3 of the GATT 1994, and Article XVI:4 of theWTO Agreement.”

[8] Normally, when a dispute settlement panel rules in favor of thecomplainant(s), it simply recommends that the defendant bring itslaw into conformity with the agreement. Here, the recommendation ofoutright repeal indicated a fairly strong indictment of the Byrdamendment.

[9] SeeReport of the Appellate Body on United States‐​Continued Dumpingand Subsidy Offset Act of 2000, WT/DS217/AB/R andWT/​DS234/​AB/​R, January 16, 2003, p. 104.

[10]Letter from 69 U.S. senators to President George W. Bush, February4, 2003.

[11] JohnSpratt, “Spratt Criticizes WTO Decision on Anti‐​Dumping Remedy,Calls on Administration to Strike Back,” news release, January 16,2003.

[12] “U.S.Faces WTO Pressure to Repeal Trade Measure,” New YorkTimes, January 17, 2003.

[13]Ibid.

[14]Attributed to Greg Mastel in “Australia and EU to retaliate againstUS,” MSNBC​.com, December 14, 2003.

[15] PeterHolmes, Jim Rollo, and Alasdair R. Young, “Emerging Trends in WTODispute Settlement: Back to the GATT?” World Bank Policy ResearchWorking Paper 3133, September 2003, Table 11, p. 18.

[16]Compiled from statistics on the WTO website, http://​www​.wto​.org/​e​n​g​l​i​s​h​/​t​r​a​t​o​p​_​e​/​d​i​s​p​u​_​e​/​d​i​s​p​u​_​s​t​a​t​u​s​_​e.htm.

[17]Statement from the Office of the United States TradeRepresentative, January 16, 2003.

[18] For amore detailed discussion of the costs of the antidumping statusquo, see Brink Lindsey and Daniel J. Ikenson, Antidumping Exposed: The Devilish Details of Unfair TradeLaw (Washington: Cato Institute, 2003).