The United States this year faces economic pressure to repeal tax laws that help exporters, customs rules that support manufacturers and farmers, and other regulations that trade partners say violate international trade rules.
Like steel tariffs imposed by the Bush administration in March 2002, the World Trade Organization has ruled against U.S. policies that foreign competitors say run afoul of international trade rules. As in the steel case — in which the president rolled back the tariffs days before at least $2.2 billion in sanctions were go into effect — retaliation is fast approaching.
Congress, which is back in session Tuesday, this time has to take the initiative on changing U.S. laws affecting trade or watch U.S. companies lose overseas sales.
“We made some progress last year, but obviously we need to make more this year,” said a U.S. trade official who asked not to be named.
The first and biggest item on the agenda deals with tax breaks on exports. The WTO in 2000 ruled that the tax breaks are an illegal subsidy, opening the door to $4 billion in sanctions by the European Union.
The 15-nation bloc plans to impose new trade barriers starting March 1 unless the United States repeals the tax rules, a move that would affect U.S. companies that manufacture jewelry, paper and wood products, leather, machinery, toys and other goods by making them more expensive in Europe.
The barriers are much lower than allowed, starting at 5 percent and increasing by another percentage point each month, but still troublesome for some firms.
“That will cause us a major, incredible problem,” said Roz Schott, president of Schott Bros., which exports leather jackets to Europe from its factory in Perth-Amboy, N.J.
Congress last year considered legislation to repeal the subsidy, worth about $50 billion over 10 years to U.S. companies, and also to revamp the corporate tax code.
Separate measures, with marked differences, passed the House Ways and Means and the Senate Finance committees. Corporate heavyweights like Caterpillar and Boeing are fighting firms like Exxon Mobil and FedEx over different versions.
“We still hope to bring up the … bill as early as possible,” said a Senate source. The picture is less certain in the House.
While companies and lawmakers hope to dispose of the tax dispute early this year, the second major item on the agenda is less likely to be resolved. The European Union, Japan, Canada, Mexico and seven other nations won a case at the WTO against the so-called Byrd amendment; the United States had until Dec. 27 to comply.
Named for Sen. Robert C. Byrd, the West Virginia Democrat who ushered it into law, the measure allows U.S. companies to pocket money from foreign rivals. Duties are imposed on goods from overseas when domestic companies complain they face unfair foreign competition and the U.S. government agrees.
Companies received $329 million in 2002, and preliminary figures show as much as $240 million for 2003.
Before the Byrd amendment went into effect, the funds would go to the U.S. Treasury. Foreign competitors want the law reversed, but 70 senators wrote President Bush last year demanding that it remain on the books.
The European Union, Japan and others applied yesterday for the right to impose sanctions, with the figure yet to be determined.
Countries that threaten to retaliate say they do not want to disrupt trade, and are simply focusing U.S. efforts on fixing laws that violate international trade rules. The strategy can be effective.
“While I would take issue with the suggestion that the U.S. only moves with the threat of retaliation, I would not take issue with the general point … that retaliation can be a motivating factor for Congress,” said John Veroneau, general counsel for the Office of the U.S. Trade Representative.
Critics see a disturbing pattern.
Carlo Trojan, EU ambassador to the WTO, in Geneva on Wednesday said the United States has a “quite depressing record” when it comes to obeying WTO rulings, the Associated Press reported.
“The dispute over the Byrd amendment is not an isolated event. … This mounting record of noncompliance, or at least foot-dragging, calls into question the commitment of the United States to the rules-based trading system,” Daniel J. Ikenson, a policy analyst with the Cato Institute, a Washington think tank that advocates free trade, said in a report released Tuesday.
The Bush administration disputes the overall assessment, but acknowledges that ignoring WTO decisions can create an awkward situation when the United States insists that other members comply with international trade rules.
The lowest profile dispute on this year’s agenda involves legislation approved by Congress 88 years ago. The 1916 Anti-Dumping Act allows U.S. companies to sue foreign competitors for damages if they can prove that foreign products sold in the United States are priced below the cost of production with the intent to injure competitors.
A WTO arbitrator this year is expected to decide whether U.S. trade partners could retaliate against the law.
Please read our comment policy before commenting.