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Billions in Sanctions Authorized For March 1 Unless Congress Implements WTO-Ordered Change to U.S. Tax Policy; Retaliation Looms

Billions in Sanctions Authorized for March 1 Unless Congress Implements WTO-Ordered Change to U.S. Tax Policy; Retaliation Looms in Other WTO Rulings Against U.S. Laws


When the GATT Uruguay Round was being negotiated in the early 1990s, many in the U.S. only saw the World Trade Organization (WTO) and its powerful new dispute settlement process as a venue for the U.S. to bring challenges against other nations. But, the growing number of WTO rulings against an array of U.S. laws – including some recent high-profile cases – has underscored what critics warned a decade ago: the WTO impedes the ability of America’s democratically-elected representatives to determine U.S. policy.

To date, the U.S. has lost more than 80% of all WTO complaints brought against its laws. Challenges against U.S. trade safeguards law at the WTO have been particularly frequent and successful.  Of the 11 completed antidumping (AD)/ countervailing duty (CVD)/ surge protection cases against the U.S., the U.S. has won only two. U.S. policies ranging from tax to antidumping measures and clean air to sea turtle protections have been labeled illegal by WTO dispute settlement panels, and unfortunately the U.S. has changed domestic policies to conform to many of these rulings.

Most recently, President Bush eliminated the Section 201 safeguards for steel– just days before $2 billion of WTO-authorized trade sanctions were to kick in. That the WTO could successfully coerce the President to reverse a policy with huge consequences for a vital sector of our economy, as well as the livelihoods of thousands of hardworking citizens, should remove all doubts about the power of the WTO. The fact that many analysts interpreted the steel Section 201 tariffs as vital to President’s Bush’s reelection prospects in key swing states such as Pennsylvania, Ohio, and West Virginia makes the Bush Administration’s compliance with the WTO’s decision all the more remarkable – putting to rest the canard often repeated by WTO defenders that the body is powerless to force countries obey its directives.

As the adverse rulings pile up, many in Congress, the media and think tanks who supported the WTO’s establishment are beginning to sound like its critics: “Once tax policy is on the table, there’s no end to what the WTO might meddle in”   (Wall Street Journal editorial, Jan. 17, 2002).  And, concerns are mounting in Congress about allowing the WTO to dictate U.S. policy. At the WTO’s Geneva headquarters in Jan. 2004, 40 countries lined up to lecture the U.S. for its failure to conform its laws to several recent WTO rulings, including:

Target Law WTO Action Current Situation
Foreign Sales Corp. (FSC) tax break

Provides a tax benefit to corporations by exempting sales made overseas by subsidiaries from earnings for U.S. tax purposes.

WTO DS 108. In Oct. 1999 the WTO ruled in favor of EU claims that the FSC was an illegitimate export subsidy. The U.S. then modified the law to implement the WTO ruling. The amended law (the Extra-Territorial Income regime) was again challenged by the EU and ruled WTO-illegal. The U.S. lost its second appeal in Jan. 2002 and in Aug. 2002, the WTO panel found the EU entitled to impose $4 billion in sanctions. The EU has set a Mar. 1 deadline for sanctions, although it has indicated some flexibility if one house of Congress passes legislation that meets EU approval by that date.  Sanctions will start with a 5% tariff on listed U.S. products that will be increased by 1% a month until it reaches 17%.  The EU target list includes 1.4 billion euros ($1.6 billion) of U.S. pearls, diamonds, and precious metals, as well nuclear reactors, boilers and a range of paper and pulp products.


The “Byrd Amendment”, i.e., the Continued Dumping and Subsidy Offset Act of 2000

Distributes duties from trade remedy laws to petitioning companies.

WTO DS 217/234. In a case brought by Australia, Brazil, Canada, Chile, the EC, India, Indonesia, Japan, Korea, Mexico and Thailand, the WTO ruled in 2001 that the redistribution of AD/ CVD penalty funds to the U.S. companies constituted an improper remedy against dumping. Deadline for compliance was Dec. 27, 2003. Eight of the complaining countries filed requests for sanctions with a WTO arbitration panel Jan. 26, 2004.   A decision on the level of permitted sanctions is expected later in 2004. 70 U.S. Senators have signed a letter to the Bush administration asking that they pursue negotiations to include the Byrd Amendment in WTO agreements.
The 1916 Anti-Dumping Act (sec. 801 of the 1916 Revenue Act)

Allows private party lawsuits for treble damages for unfair pricing in the U.S. if intent to injure the competition can be shown.

WTO DS 136/162. In 1999, the WTO ruled that the statute’s focus on another country’s “intent to dump” went beyond the scope of domestic AD/ CVD laws permitted under WTO rules. The panel also ruled that the penalties exceeded WTO terms. The U.S. unsuccessfully appealed in 2000 and the deadline for compliance was in 2002. On Sept. 22, 2003, the EU formally asked the WTO to set the level of sanctions that it could apply to U.S. products.   On Feb. 23, 2004, the WTO ruled that the EU cannot implement its own treble damages law as a retaliatory measure – but can impose sanctions up to the amount of losses suffered in claims under the 1916 Act.


Anti-Dumping Measures Against Certain Hot-Rolled Steel Products from Japan WTO DS 184/244. In this case, Japan challenged the determinations of the anti-dumping investigations of the U.S. Department of Commerce and the U.S. International Trade Commission on their anti-dumping investigations of Certain Hot-Rolled Steel Products from Japan, charging that they were reached using “deficient procedures” under the Tariff Act of 1930 that were forbidden by the WTO. After the U.S. missed a deadline for compliance in Dec. 2003, the WTO extended the deadline until July 31, 2004.

Our escalating trade deficit, the jobless “recovery”, the hemorrhaging of U.S. professional, manufacturing and service jobs, along with record-low commodity prices and declining farm income, have placed the trade issue front and center in public opinion and in the presidential race. The nine-year record of the WTO makes clear that this version of international commercial rules is not working for America.*

The U.S. Constitution grants Congress exclusive authority to set U.S. trade policy. The U.S. Constitution also grants Congress exclusive authority to enact and amend federal legislation.   Congress must staunchly protect its constitutional authority and prevent its erosion by overreaching WTO demands.

* For more details on the WTO’s record and proposals about what changes are needed, please see Public Citizen’s new book by Lori Wallach and Patrick Woodall: “Whose Trade Organization: The Comprehensive Guide to the WTO.” Or contact Public Citizen’s Global Trade Watch at 202-546-4996/ www.tradewatch.org