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European Union, Canada act as Washington misses another Byrd Amendment deadline

WASHINGTON, DC - 05/02/05 - Tensions between the US and Canada and the European Union - two of its largest trading partners - have ratcheted up another notch as Washington has again failed to abide by a World Trade Organization ruling to dismantle the Byrd Amendment tariff rebate mechanism - also known as the Continued Dumping and Subsidy Offset Act (CDSOA).

Effective today, US exporters of a wide range of products from apparel and oysters to cigarettes and paper products will have to pay punitive tariffs of 15% on their exports to the EU and Canada.

Under the controversial mechanism - named for its primary legislative sponsor, Sen. Robert Byrd (D-West Virginia) - US-based companies that bring successful cases against foreign firms alleging that their competitors' products are being "dumped" in the US at unfairly low prices not only get the benefit of higher penalty tariffs placed on the imported products, but also receive the tariff revenues that Washington collects.
   
The legislation went into effect in October 2000 and was ruled illegal by the 148-member World Trade Organization in early 2003 after the European Union, Canada, and several other counties filed a complaint charging that the new process amounts to a form of "double jeopardy" - not only were their products being hit with penalty tariffs but their US competitors were reaping "windfall profits" from the tariffs.

When Washington failed to dismantle the tariff mechanism by the end of 2003 as directed by the WTO, the EU and seven other countries - Brazil, Brazil, Canada, Chile, India, Japan, Mexico and South Korea - were given the go-ahead to levy some $150 million in punitive tariffs on a wide variety of selected US exports.

The EU, which the WTO has given the go-ahead to impose sanctions of $28 million in the first year, has levied its 15% retaliatory tariff on various types of clothing from women's shorts to men's trousers. Also hit by the EU tariffs will be various paper products such as writing pads and diaries, plus sweet corn, eyeglass frames, and construction cranes.

Canada, authorized by the WTO to impose $14 million in sanctions, is levying15% tariffs on cigarettes, oysters, live hogs, monk fish, and other types of fish and is also asking the WTO for permission to retaliate against more than $4 billion in US imports - a figure, it said, is equal to all the softwood lumber duties collected since they were first imposed in May 2002.

Ottawa took the issue a step further last Friday when it joined several major Canadian exporters in filing a suit in the US Court of International Trade in New York arguing the Byrd Amendment violates provisions of the North American Free Trade Agreement.

"For the last four years, Canada and a number of other countries have repeatedly urged the United States to repeal the Byrd Amendment," said Jim Peterson, Canada's international trade minister Jim Peterson in a statement issued after the suit was filed. "Retaliation is not our preferred option, but it is a necessary action. International trade rules must be respected."

Canada, he said, "believes that the application of the Byrd Amendment to Canada is inconsistent with the specific provisions of US law implementing [the] NAFTA. If successful, this challenge should end the Byrd disbursements to US industries of duties applied on Canadian goods."

While the EU and Canada are the first countries to move ahead to impose sanctions, the other countries named in the WTO complaint are expected to follow suit in coming months to bring maximum pressure on Congress to repeal the law.

The Bush Administration has sought to get the Byrd Amendment repealed since 2001, but support on Capitol Hill for the legislation is strong with many legislators under pressure from constituents who claim the mechanism protects US industries from encroaching foreign competition and preserves US jobs.

In 2004, Washington handed out more than $284 million in payments to US companies based on the tariffs collected under the terms of the Amendment with 44 corporations receiving more than $1 million each, according to the Consuming Industries Trade Action Coalition (CITAC), one of the largest business consortiums leading the repeal effort.

The sanctions, the CITAC said, "will drive up the cost of U.S. products in the foreign countries and likely reduce sales, which could lead to job cutbacks in the United States."

Repealing the amendment, the group said "is needed because it is encouraging more companies to file anti-dumping cases to get government payouts, thus driving up the cost of imports for US consumers."

The Washington, DC-based CITAC issued a statement calling for repeal of the amendment citing Office of Management and Budget (OMB) figures estimating that the federal government would save $1.6 billion by repealing the legislation and having funds stay in the US Treasury "rather than be redistributed to a narrow group of US companies."

According to Daniel Griswold, a trade specialist at the Cato Institute in Washington, DC, agreed adding the chances that Congress will follow the WTO directive to dismantle the Byrd Amendment are "pretty dim because members of Congress like distributing the revenue" generated by the punitive tariffs.

There is, however, some activity to move on the issue on Capital Hill.

In March, Reps. Jim Ramstad (R-Minnesota) joined House Ways and Means Trade Subcommittee Chairman Clay Shaw to introduce legislation to repeal the CDSOA.

The bill - HR 1121 - was introduced in response to a report issued earlier this year by the Congressional Budget Office (CBO) describing damages to the US economy caused by the law, he said.

"The Byrd amendment is bad trade policy and bad fiscal policy and ought to be scrapped."
According to Ramstad, unless the Byrd Amendment is repealed "American exports will be vulnerable to retaliation, and the US will continue to face a difficult task convincing other countries to make their laws comply with international rules."

The CBO report, he said, "showed that this illegal trade subsidy provides incentives for companies to seek anti-dumping and countervailing duty rewards rather than seeking new markets for their products," he said.

"This is time, effort and capital that is being wasted chasing court cases instead of contributing to our economy and creating jobs."

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