It is no secret that world opinion of the United States and its
policies is unfavorable. Yet, the Bush administration — with
cajoling from Congress — is exacerbating those perceptions with an
astonishingly antagonistic trade policy posture. The United States
has become an international trade scofflaw.
Consider the U.S. position in its long-running softwood lumber
dispute with Canada. The United States initially imposed
antidumping and countervailing duties on Canadian lumber in 2001.
Canada responded by challenging the legal and analytical propriety
of those measures in the dispute settlement systems of the North
American Free Trade Agreement (NAFTA) and the World Trade
Organization (WTO), both bodies whose rules governing trade and
dispute settlement were co-authored by the United States.
Canada claimed that the U.S. authorities failed to demonstrate
that the domestic industry was threatened with injury by subsidized
or dumped Canadian imports, and that the subsidy and dumping
analyses were both illegal and violated international agreements. A
NAFTA panel and WTO agreed.
After exhausting and losing every legal and procedural appeal at
its disposal, the United States was handed a final loss by the
panel last month. Under NAFTA rules, the United States is expected
to revoke the duties prospectively and refund the duties — close
to $5 billion — that have been collected in error over the past
four years. But how did the world’s richest country and
self-proclaimed champion of rules-based trade respond? U.S.
officials announced that the lumber duties would remain in place
despite the rulings, and that there would be no refunds. So much
for the rule of law.
The Bush administration cites a revised injury analysis, issued
in November 2004, as the basis for continuing to restrict Canadian
lumber and its refusal to refund duties already collected. But that
revised analysis is invalid under NAFTA. It was rendered only after
the record was re-opened and new information considered —
contravening the NAFTA panel’s instructions to render a
determination on the original record and explicitly forbidding
re-opening of the record.
Under NAFTA rules, the United States is obligated to terminate
the restrictions and refund the duties. At the very least, it
should refund the duties collected through November 2004 before
which there was not even a modicum of justification for the
restraints. But such compliance appears unlikely.
Intransigence on lumber is the latest in an emerging pattern of
U.S. disregard and antipathy for the trade rules that are so
essential to the global economy. The United States has failed to
comply with several other verdicts of the WTO dispute settlement
body in recent years, including a 2003 indictment of the so-called
Byrd Amendment.
A little digging reveals a scandalous relationship between the
U.S. positions on Byrd and lumber. 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 collected at the border to the domestic industries that
filed or supported the original petitions in the underlying cases.
Previously, duties collected were commingled with funds in the
general treasury.
Byrd was quickly challenged by several trade partners in the WTO
and was ultimately found to violate U.S. trade obligations because
it 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. producers (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 or announced that they will begin imposing
retaliatory tariffs against various U.S. exports. But Congress is
unmoved by that retaliation. Apparently, as far as Congress is
concerned, international trade rules apply to U.S. trade partners
only.
There is broad bipartisan support in Congress to keep the Byrd
Amendment, and why shouldn’t there be? Congress has been able to
dole out $1 billion in subsidies between 2001 and 2004 under Byrd
without having to defend or justify the disbursements since the
funds don’t come directly from U.S. taxpayers.
But that $1 billion is modest relative to the $5 billion at
stake in the lumber case. If the United States were to comply with
the lumber rulings and refund the duties, Congress would lose the
opportunity to bestow those massive subsidies on its constituents.
Thus, U.S. willingness to blatantly ignore the outcomes in two
major dispute settlement cases — inactions that will carry
profound costs for U.S. interests — is being driven by the
crassest of political considerations. Trade policy be damned.
America’s growing disdain for its international trade
commitments is a troubling development. It will now be that much
easier for U.S. trade partners to break the rules and disregard
their own commitments. Members of Congress who grandstand over
Chinese trade and currency policies haven’t a leg to stand on.
U.S. credibility on trade issues is waning at a time when strong
leadership is desperately needed. With the Doha Round of WTO talks
fast approaching in what experts believe to be a do-or-die meeting
in Hong Kong in December, U.S. mockery of the rules could not come
at a worse time.
Daniel Ikenson is a trade policy analyst at the Cato
Institute.
