U.S. Law Stirring Up Trade Fight

A trade battle is shaping up over a law that lets U.S. companies pocket tens of millions of dollars in fines that the government collects from foreign competitors.

Foreign governments say the law violates trade agreements and they have started proceedings against the United States in the World Trade Organization. If they win, they could cripple U.S. companies’ ability to compete abroad by imposing duties of their own on U.S. goods.

The law, passed last year, seeks to level the playing field for U.S. companies by compensating them when the federal government determines foreign competitors dumped their products in the U.S. at artificially low prices. The first checks are to go out later this year.

Critics warn it could unleash a flood of litigation.

“It encourages people in the private bar to seek out cases. Ambulance-chasing. Not too many lawyers will be able to resist what essentially is a bounty,” said John Simpson, president of the American Assn. of Exporters and Importers.

The law was written with the steel industry in mind, and steel dominates the list of companies that have won trade complaints.

Of the 360 punitive-duty cases preliminarily qualified for payments, 46% involved steel. The chemical industry was a distant second with about 14%, but the list of industries benefiting runs the breadth of the economy: pasta, aspirin, garlic, tomatoes, uranium and the humble Fourth of July sparkler.

Diamond Sparkler of Youngstown, Ohio, won an unfair-trade complaint against its Chinese competitors, resulting in the U.S. government’s slapping a punitive duty on imports.

“Even with the 94% duty, we’re still getting killed,” said William A. Weimer, Diamond Sparkler’s general counsel. “We just can’t compete with the wages we have to pay.”

Under the law, the punitive duty collected on sparklers imported from China can go to Diamond instead of the U.S. Treasury, as it did before.

U.S. companies must apply to get the money and will have to certify they’re putting it to a use allowed by law, such as training, new technology, health benefits and pensions. The law also lets unions apply for a share of the money.

Companies that use steel, steel importers and some U.S. trading partners say the duties alone are punishment enough for unfair trade practices, and putting money into the pockets of U.S. companies goes too far.

The European Union, Australia, Brazil, Chile, India, Indonesia, Japan, South Korea and Thailand have told the WTO that giving trade-violation fines to competing companies violates international agreements.

Even if the United States prevails with the WTO, a challenge is threatened on another front.

The Canadian government has warned that if duties levied against Canadian or Mexican products are given to competing U.S. companies, Canada will view it as a violation of the North American Free Trade Agreement.

Canadian Ambassador Michael Kergin said his country worries that the law provides an incentive to U.S. companies to file more trade complaints and the U.S. government to approve marginal claims.

It is “a fundamental change in policy direction which could have unfortunate consequences for international trade in general and the administration of trade remedy law in particular,” Kergin said.

The payment program was inserted last year into a farm spending bill by Sen. Robert Byrd (D-W.Va.). He used a procedure that made it impossible to kill the provision without dooming the entire Agriculture Department appropriation for fiscal 2001, which began Oct. 1.

In defending the law, Byrd has said money doesn’t change hands if foreign trading partners play by the rules. In addition, the duties don’t last forever; each is reviewed every five years and can be lifted if the government is convinced the aggrieved U.S. industry won’t be harmed by revocation.

Companies that buy imported steel and the export-import industry have been pressing for a repeal. The Bush administration hasn’t indicated whether it would support such a move.

David Phelps, president of the American Institute for International Steel, a trade association, predicted an international backlash if the law stands.

“The Byrd amendment will increase the retaliatory use of the trade laws against U.S. exporters,” he said. “We are hopeful that the Bush administration will take a long, hard look at this embarrassment to U.S. trade policy.”

Meanwhile, the Customs Service is struggling to create a system for distributing the damages to U.S. industries. In the first six months, the agency collected $50 million.

The Customs Service had expected to have details worked out and some proposed rules circulating by now, but its plan still is under internal review. By law, no money can be distributed until the fiscal year ends Sept. 30.