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June 13, 2005

Stop Provoking a Trade War

By

Have you heard? There's a war on.

No, not the war against terror. Everyone's heard of that. But we're also in the midst of a trade war -- and chances are it's affecting your wallet.

Last month, Canada slapped a 15 percent tariff on several American exports, including farm products and cigarettes. The European Union has applied tariffs on our exported paper products and some machinery. These foreign-imposed mark-ups make it tougher for American companies to sell their goods and remain in business.

Unfortunately, it's our own fault. Our trading partners didn't fire the first shot in this war. They're simply responding to an obscure provision of our trade law known as the Byrd Amendment.

Enacted in 2000, the Byrd Amendment (named for Sen. Robert Byrd, D-W.Va.) supposedly is designed to prevent other countries from "dumping" -- that is, deliberately selling their products below cost in an effort to run American companies out of business. But the law actually sets up a perverse incentive: If a company claims it is being harmed by foreign competitors, it can ask the Commerce Department for relief. So, instead of encouraging free trade, this measure does just the opposite.

That's because, if the government decides dumping has occurred, it collects damages and pays them to the affected companies. In other words, our federal government does the legal work and companies collect the cash.

And if the government can't prove that dumping has occurred, it sends a survey to the companies in the "injured" industry asking if they think there's been dumping. If they do, tariffs are levied and corporate payouts begin. On each survey is a box each firm may check if it wants to be included on the payout list. In short, because of the Byrd Amendment, the U.S. government is inviting collusion among firms to "prove" dumping has occurred.

The payouts can be huge. All told, the government collected $284 million last year and sent it on to various companies. One steel company took in $44.4 million in payments. About 40 companies pocketed more than $1 million each. And, not surprisingly, the number of cases filed is skyrocketing. There were only 14 anti-dumping cases in 1995. In the last two years, 72 new cases have been filed.

Of course, the rest of the world has taken note of our unfair trade practices. Eleven countries, including important trade partners such as the E.U., Australia, Japan and South Korea, have filed complaints with the World Trade Organization. And they won their case.

The WTO first ruled against the Byrd Amendment in January 2003, finding that it provided an unfair subsidy to American manufacturers. Then-U.S. Trade Representative Robert Zoellick promised to comply with the WTO's decision, but in the more than two years since, the United States has not done so. So our allies are using sanctions, in an attempt to make us play by the rules we helped design.

A trade war is always bad news. In the years after World War II, the United States became the most powerful economy in history by encouraging free trade. Instead of using our government's power to keep imports out, we allowed them in. As economic freedom swept the globe, it helped dozens of countries become wealthy, and no country reaped bigger benefits than we did.

Now, we're on the wrong side, attempting to sabotage free trade rather than encourage it. Ironically, while the law was supposedly designed to protect domestic interests, American consumers are the real losers in all this. We pay twice for the Byrd Amendment: Once when government lawyers prosecute dumping cases and again when the prices we pay for goods go up.

It's time to end this trade war. Congress should repeal the Byrd Amendment.

Ed Feulner is president of the Heritage Foundation.

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