P K Vasudeva: A Byrd amendment in hand

The US would do well to repeal this anti-dumping law

The US is in a Catch-22 position now that the European Union (EU) and its allies have been allowed to slap potentially heavy sanctions on US goods in a row that could stir trade tensions ahead of the US elections.

This is the result of backing from World Trade Organisation (WTO) arbitrators to the EU and eight other countries (including India) demanding sanctions after the US failed to remove an anti-dumping law "" the so-called Byrd amendment "" that was repeatedly declared illegal by the WTO's Dispute Settlement Body on January 26, 2004.

The Byrd Amendment provided for the proceeds from anti-dumping cases concerning all types of commodities, including agriculture and steel, to be paid to the US companies responsible for bringing the cases in the first place to the US Department of Commerce.

This amendment to the Appropriation Bill for all Commodities was signed into law by US President Bill Clinton on October 28, 2000. Clinton chose to sign the amendment, named after Senator Robert Byrd from West Virginia who moved it, despite representations from the EU and several other WTO member-countries.

The Byrd Amendment directs the US government to pay companies that bring anti-dumping or any subsidy cases, from the duties liquidated by the offending companies to cover expenses such as investment in manufacturing facilities and acquisition of technology.

Until July 2004, some $ 800 million had been distributed to US companies under the terms of the amendment, but the figure could rise to several billion dollars over the coming years.

The EU and eight other complainant countries "" Australia, Brazil, Chile, India, Indonesia, Japan, Korea and Thailand "" claimed that the law punished exporters to the US twice.

First, exporters were fined, then those fines were handed over to competitors who used the money for a wide range of purposes, including purchase of equipment, research, training, health-care and pensionary benefits.

In effect, therefore, it creates a perverse incentive system for companies to raise anti-dumping cases. Not surprisingly, the Act, which contravenes WTO rules, became a major source of concern.

As EU Trade Commissioner Pascal Lamy said, "The Byrd Amendment is not a US-EU problem but a US-rest of the world problem. Our unprecedented joint action will send a very clear signal to the US on the need to repeal the legislation, which so clearly defies the letter and spirit of the WTO law."

EU and other WTO member countries have raised two issues that worry them.

First, reimbursing expenses incurred by the petitioners is an illegal response to dumping and subsidisation because it provides an additional anti-dumping and anti-subsidy remedy not allowed under the WTO Agreement.

The Byrd Amendment, by compensating the insured party already protected by the obligation of duties at the border, gives industries "double protection".

Second, the distribution of duties to petitioners is a clear spur to bring anti-dumping cases and it will result in an increase in trade legislation against companies exporting to the US.

The EU and other countries argued successfully at the WTO that these payments to American ball bearing, steel, candle, seafood and other companies amounted to an illegal subsidy. They had asked to be able to hit back with sanctions for the same amount, but the amount laid down by the arbitrator set the figure at 72 per cent.

Despite the ruling in their favour, the EU and other complainant countries are carefully watching how the US administration responds to this challenge. According to local trade specialists, this could become an issue in the November presidential election.

As a US official puts it, "The aim is to get the US comply with the WTO rules but not to impose trade sanctions." Given the high unemployment levels on both sides of the Atlantic, there is some concern about loss of manufacturing jobs in both economies that sanctions would entail.

In any case, the US needs to revoke the Byrd Amendment if the agreements under its Super 301 trade laws or watch/ priority list are not to lose credibility.

As Commerce Minister Kamal Nath wryly pointed out, the concept of free trade would be vitiated if developed countries do not play by rules but set arbitrary standards that will throw the system into chaos.

(The author is chairman, Institute of Economic Development Studies and Training. Email: vasu022@rediffmail.com)