Back Byrd Amendment — The politics of US trade
K. Subramanian
| The Byrd Amendment, which directs the US Government to distribute the collected anti-dumping and anti-subsidy duties to the companies that brought the cases in the first place, is incompatible with the WTO rules. The Amendment has not been rescinded despite several hits. Also, there was no doubt about its adverse economics since its inception. Given the growing nexus between the US politicians and business, it may be a miracle if the Amendment is modified, says K. Subramanian. |
The main Bill dealt with the programmes of the Department of Agriculture — farm subsidies, food stamps — and had nothing to do with trade. His Bill was titled Continuous Dumping and Subsidy Offset Act (CDSOA) and later came to be known as the Byrd Amendment. As a senior member who had served the Senate for 42 years, his standing enabled him to rush through the Bill.
The deadline for the US to bring the Byrd Amendment into conformity with WTO rules expired on December 27, 2003. Given the lack of compliance from the US, the EU on January 15 requested WTO authorisation to impose sanctions. The move is necessary to safeguard EU rights to retaliate, thus defending the interests of EU exporters affected by this measure.)
Briefly, the Amendment requires anti-dumping tariffs collected by the US Customs to be turned over to the petitioning companies instead of being credited to the Treasury as government revenues. In the first instance, the US companies petition and seek tariff protection. When the tariff is imposed, the Byrd Amendment stipulates that the monies so collected be handed over to the petitioning companies. Though it amounts to robbing Peter to pay Paul, the Senator was firm in his view that those who cause damage to US industries should compensate them for the injuries caused. While his Bill was not germane to the main one, Congressmen and US senators have their own ways of pushing legislation through various committees. It is endearingly called pork barrelling. What was surprising was that Byrd's attempt was not the first. He hijacked two Bills, which were languishing in the finance committee for two years and saw his version through.
In March 1999, Rep. Ralph Regula (Republican-Ohio) had introduced CDSOA of 1999 in the House of Representatives. Two weeks later, Sen. Michael DeWine introduced an identical Bill in the Senate. Both Bills were referred to relevant committees with oversight over trade matters, but could not pass muster for two years. Sen. DeWine had argued: "Under our Bill, foreign steel producers would get a double hit from dumping: They would have to pay a duty and, in turn, see that duty go directly to aid US steel producers." Though the Bill had 26 sponsors, it could not get enough support in the Finance Committee to get passed in the Senate. Part of the reason was that the Senate Finance Committee was aware that the double-hit provisions of the amendment violated WTO's Antidumping Agreement and Agreement on Subsidies and Countervailing Measures (ADA/ASCM). However, Senators are not deterred by global concerns while serving their constituents. What Sen. Byrd did was to break the impasse and introduce the amendment. The Wall Street Journal (May 11, 2002) reported how lawyers of two ball-bearing companies, which were the major beneficiaries of the amendment, helped the Senator draftthe legislation.
The Bill was passed without any debate. The Congress could not have defeated the amendment without voting against the entire Appropriations Bill. Nor could it have deferred the appropriations Bill to the following session in an election year. It forwarded the whole Bill to the President for approval. Even while signing the Bill into law, the President, Mr Bill Clinton, took note of the WTO violations implicit in the amendment. He called on the Congress "to override this provision, or amend it to be acceptable, before they adjourn." That never happened and the Congress also adjourned soon.
The Bill has not been rescinded since in spite of several hits it has received. The major hits were from the US' own global trading partners and, in due course, from the WTO. Its survival till date is an interesting study of the politics of trade policy in the US. There was no doubt about its adverse economics from its inception.
In December 2000, the EU and eight other countries, including India, challenged the amendment and sought consultations with the US. Failing to resolve the issue through consultations, they sought dispute settlement through a WTO panel to adjudicate the matter. In late 2001, Canada and Mexico joined them. Though they referred to 16 violations of various WTO agreements, the basic pleas were two.
First, reimbursement of expenses to the petitioners constituted a measure which was beyond the scope of those permissible under AD and ASCM. Those agreements expressly permit the imposition of definitive duties, provisional duties or price undertakings to offset the effect of dumping or subsidisation. No other remedies are allowed under the WTO regime. The Byrd amendment effectively penalised foreign importers twice — the very antithesis of what Sen. DeWine sought.
Second, by compensating petitioners and their supporters , the Byrd Amendment provided an additional incentive to file antidumping and countervailing duty cases. As the amendment excludes those firms and parties who do not support the petition, the law puts a premium on those who petition only to seek compensation or not to be left out of the claims. This vitiates the base to facilitate an inquiry by administering authorities to assess whether there is sufficient industry-wise support for investigation before initiating investigation. There is no cost to petitions and firms could file petitions merely to get compensation.
In September 2002, the WTO panel agreed with the complainants on the major issues and found that the Byrd Amendment was violative of WTO provisions. It recommended that the US bring the law in conformity with those agreements by repealing it. It is significant that the panel recommended outright repeal of the Byrd Amendment. The US appealed against the decision.
The Appellate Body (AB) issued its ruling in January 2003. It was a split ruling. The Appellate Body did uphold the panel's view that the amendment was a measure, which was not permissible under WTO agreements. However, its decisions were flawed or controversial in other ways. As Jagdish Bhagwati and his colleague point out in their paper (The Byrd Amendment is WTO-illegal: But we must kill the Byrd with the right stone, World Trade Review, March 2004), the AB had adopted a purely legal or procedural reasoning to come to the conclusion and left out the substantive reasons to condemn it. The substantive reason is that "by over-compensating (allegedly) injured private parties, the US turns the table and disturbs the `level-playing field', this time to the advantage of its nationals." Other academics and international trade lawyers have faulted the AB for some its other findings.
The panel and the AB were over indulgent to the US and it took more than three years for the dispute to be decided. The US was expected to conform to the decisions of the AB and the time given was December 27, 2003. The US could not amend or rescind its law. First, there is reluctance in the US to conform to the WTO rulings. Second, the complainants gave a long lead, as they could not agree among themselves on the compensation amount. It was on August 31 that the overdue announcement was made by WTO's arbitrators.
The US Congress and Senate are not too keen to amend the law. In February 2003, 70 senators signed a letter urging the President to press US' trading partners to negotiate "on CDSOA prior to any attempt to change our laws." Senator Baucus, a leading critic of the WTO dispute settlement system, issued a statement suggesting that there was no support in Congress for implementing the ruling on Byrd. There are other grounds for the delay.
Mr Daniel Ikenson, trade policy analyst at the Cato Institute, says, "It is proving difficult to pry congressional hands from a tool that allows them to quietly subsidise their business constituents. Unfortunately, the relatively low levels of retaliation authorised — about 150 million this year — will do little to inspire a change in that mindset." In the last three years since its enactment, the Byrd amendment has become the darling of US politicians.
Prof. Kara M. Olson, of the American University, Washington, has undertaken several studies on the consequences of the Byrd amendment. Her studies confirm that more petitions were filed by industries since the implementation of Byrd amendment and the average increase was about 35 per cent.
Moreover, there is evidence that campaign contributions by firms influenced congressional decision-making. Her "results indicate that larger contributions did indeed come from firms that were more likely to receive large Byrd pay-outs."
Until the time when the US is compelled to amend the law under international pressure, US firms will continue to receive hundreds of millions of dollars in Byrd disbursements in addition to the more favourable competitive conditions they enjoy due to traditional antidumping protection."
The data on Byrd disbursements are staggering; in 2001, the total disbursement was $230 million, in 2002 it was $330 and for 2003 it is estimated at $200 on date. It will be self-perpetuating as more and more items are brought under protective tariff.
Another aspect is that Byrd's reach cuts geographically across the US and covers a range of commodities from steel to pasta, candles, cookware, DRAMS, prawns, food products, orange juice, and so on. Before Byrd, protective legislation was confined to states dominated by regional and special interests. Byrd does away with this and goes all across the range of industries. It encourages rent-seeking recklessly. Given the growing nexus between the US politicians and business, it will be a miracle if the Byrd amendment is modified or rescinded.
This dispute over the Byrd Amendment is not a solitary instance. There is a backlog of earlier verdicts of the WTO such as that on the Foreign Sales Corporation Antidumping Act of 1916, ruling in the soft lumber case, et al. In March 2004, Mr Robert Zoellick, US Trade representative, explained to a congressional committee, "Our ability to demand that others follow the trade rules is strengthened when the US addresses cases we lose." But how long can the WTO and other members of the body wait? Unfortunately, the trading flows and patterns between the US and other members of the WTO are so imbalanced that there are hardly ways by which the `penalties' can be constructively imposed. It may be self-inflicting when enforced by weaker countries. Thus, in the larger context, though Byrd Amendment is obnoxious, it may have a longer life than all of us wish.
(The author, a former Finance Ministry official, has experience in international, financial and trade issues.)
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