Trade politics. Byrd-brained

America's Congress runs afoul of the World Trade Organisation, again

IT HAS been a rough summer at the World Trade Organisation (WTO) for America's trade officials. Recently the arbiter of global trade rules has ruled against them in cases from cotton subsidies to Canadian lumber. Now the Geneva body has also meted out punishment. On August 31st, a WTO arbitration panel ruled that eight of the organisation's members, including the European Union, could impose tariffs of up to $150m a year on American goods, because America had failed to repeal a law that the WTO first deemed illegal in 2002.

This law, known as the Byrd amendment after its sponsoring senator, is one of the most outrageous weapons in America's trade-protection arsenal. Passed by Congress in October 2000, it says that companies that initiate anti-dumping and anti-subsidy complaints should receive the proceeds of any duties that are imposed. It thus offers American firms a cash incentive to clamour for protection.

America's trading partners were outraged and filed a WTO complaint in 2001. The WTO decided that the Byrd amendment broke global trade rules, because it compensated American firms twice (in tariffs and money). America was given until December 2003 to get rid of the law. Nothing happened. Now the WTO says that the EU and others may impose tariffs worth up to 72% of the amount paid under the amendment to American companies.

This will not happen overnight. The EU, Japan and other plaintiffs have all played down the prospect of imminent retaliation. They say that they do not want sanctions but an end to the Byrd amendment. Unfortunately, that is highly unlikely. Although the Bush administration would like to comply, this is an election year. For his part, John Kerry has been complaining that the Bush trade team has failed to fight hard enough for American workers.

Even if the Bush team were willing, it would get nowhere in Congress, where the Byrd amendment is extremely popular. Last year 70 senators sent President Bush a letter saying he should leave the law alone. Its beneficiaries, such as steel and lumber producers, have effective lobbyists in Washington and much to lose from repeal. In 2000-03, over $700m was distributed under the Byrd law. According to the Congressional Budget Office, $2.35 billion could be dished out in 2005-09.

Any retaliatory tariffs, in contrast, will take a while to cause political pain. Not all countries subject to American anti-dumping duties (and thus the Byrd law) joined the WTO complaint. China, a regular target, was not party to it and so cannot hit back under this week's ruling. If the EU and others eventually impose tariffs, these will not hit the main beneficiaries of the Byrd amendment but a different group of exporters, who will need time to convert legislators to the cause of repeal. Gary Hufbauer, a trade expert at the Institute for International Economics, thinks the earliest likely date for repeal is 2006.

Congress's performance on tax breaks for “foreign sales corporations ” - -in essence, export subsidies also deemed illegal by the WTO - hardly signifies respect for global trade rules. In March 2004, the EU imposed tariffs on American goods, in WTO-sanctioned retaliation. These tariffs are being raised by one percentage point a month. Congress's efforts to remove the subsidy have morphed into a monstrous corporate-tax bill, stuffed with giveaways for everyone from tobacco companies to bourbon distillers, that would do more harm than the tariffs. In any case, its prospects for passage, at least before the election, are slim.

As these episodes show, the ingredients for rising trade tension and anti-WTO sentiment in Congress are present. It is a pity that, while America's lawmakers squeal about the importance of fair rules for global trade, they are reluctant to accept the WTO as a judge of what is fair and what is not.

The United States Congress runs foul of the WTO - again

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