April 5th 2003

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Articles from this issue:

COVER STORY: Iraq war: will it change everything?

EDITORIAL: Bushfires: urgent action needed

Queensland: Beattie follows Canberra on embryo experimentation

Water rights: an emerging political issue in the Murray Darling Basin

Straws in the Wind: Varieties of folly / With us or against us / Cue for a song / Hatred

NSW Election: Bob Carr's next four years

Trade deal: what will Washington do?

Euthanasia: Victorian Tribunal orders death by starvation

Has privatisation been successful?

Letters: The cost of the Victorian bushfires (letter)

How taxation hits families

School students, demonstrations and the New Civics

ASIA: North Korea's nuclear game

SARS: China the epicentre of world flu outbreaks

BOOKS: On Enlightenment, by David Stove

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Trade deal: what will Washington do?

by Colin Teese

News Weekly, April 5, 2003
What seems to be believed by some is that in the matter of Iraq, the United States makes its own rules; if the international community won't support its position, then the US turns its back on international co-operation and goes its own way.

If this group were to follow some of the antics of the US in the area of trade policy, they might well find endorsement for their views. In working out its own trade policy attitudes, the US has routinely paid scant regard for the rights and privileges of others: neither does it appear to consider itself bound as tightly as should others be by the rules of the WTO, of which it was a principal sponsor.

Australia has been a victim of US capriciousness towards WTO rules and principles. First in the matter of a WTO dispute about Australia's so-called subsidies on exports of leather to the US, and second in the settlement of a dispute over restrictions placed by the US on Australia's exports of lamb. There may well have been other examples.

As to leather, a WTO disputes settlement panel found against Australia, and we were ordered to remove our subsidies on leather exports. More than that - and in contradiction of WTO rules - the US demanded that we pay compensation for damage our subsidies had already caused to US companies.

We agreed to do so, unwillingly, because we were threatened with action against other exports if we failed to comply.

In the matter of tariff increases imposed by the US on our lamb exports, the WTO panel found in our favour. After more than 18 months of applying restrictions against our lamb, the US made no offer of compensation for past damage suffered by our lamb producers; and, no doubt, we preferred not to ask for it for fear of retaliation against us in other ways.

Even worse, despite a ruling by the WTO against it, the US agreed to remove the offending border taxes, only after we were pressured, under duress, to acquiesce to their applying a different form of subsidy to their lamb producers. The new assistance was probably not much less damaging to our exporters than the initial restrictions.

No doubt other smaller trading partners could tell similar stories, of their dealings with the US, though of course the US is more circumspect in its dealings with powerful partners such as the European Union.

Yet even in those less accommodating circles, the US is not above striving for escape from its obligations.

There is the as yet unresolved question of taxation subsidies to certain categories of US exporters which the WTO has ruled illegal and the US is reluctant to dismantle.

Now a new problem has emerged. Readers of News Weekly will be excused if they are unfamiliar with the term "Byrd" - at least as it applies to matters of trade policy. Actually, it is not so much a term as the name of a United States Senator of the Democrat persuasion, who a couple of years ago managed to pass through Congress an amendment to US legislation on the country's anti-dumping practices.

("Dumping" is the trade practice whereby exporters sell in overseas markets at less than the cost of production. Importing countries are permitted, under WTO rules, to act against such imports by imposing extra border taxes on the offending country's goods, but only after a procedure of proper examination has proved the existence of "dumping".)

Now the US procedures for acting on "dumping" are themselves not consistent with WTO rules. The legislation under which the US operates precedes the WTO, and thus far the US Congress has declined to bring its legislation into line with the US's new obligations. And, incidentally, if you are wondering why the European Union has not challenged these particular illegalities, the answer is simple. The EU's dumping procedures are also not in conformity with WTO rules.

The amendment effected by Senator Byrd takes the US into deeper inconsistency with WTO rules. The US legislation now requires the government to return to disadvantaged US companies the amounts collected as extra-border taxes from dumped goods entering the US.

This particular US transgression has attracted immediate and spirited opposition from a number of members of the WTO led by the European Union. Australia has joined the group as an "in principle" supporter; it is not yet clear whether and to what extent any Australian exports are presently in the firing line, but there is little doubt some could be in future.

The reaction of Trade Minister Vaille, as reported in the press, is, however, worthy of examination. The Byrd amendment in his view could lead to a greater range of products being targeted for anti-dumping actions. It is hard to imagine how, since even under present US law, it is a requirement to establish that dumping has occurred before extra border taxes can be collected. What has changed is that those duties now go as effective US subsidies to the affected American companies rather than the government.

But, of course, as pointed out earlier, the very procedures used by the US to prove dumping, do not comply with the WTO rules. And those are just the procedures which can, and do, have the effects that concern the Minister. Yet, so far Mr Vaille has not expressed concern about them.

Perhaps that is because his advisers are ideologically committed to the view that dumping is a perfectly legitimate trade practice, consistent with the free trade objective, and should not be outlawed at all.

Certainly, Australia has been reluctant to invoke its right to protect Australian businesses (or for that matter farmers) from the adverse consequences of dumped imports. To our policy makers dumping is an unqualified benefit to consumers.

The US and the EU, though in theory sharing our commitment to free trade, take a different view. They spring readily to the defence of their companies at the first suggestion of dumping, if necessary invoking measures outside WTO rules.

The Byrd amendment is perhaps the most serious challenge so far to the integrity of the WTO. It is also a serious embarrassment to the US Government. The Administration - that is the President and his Departments - which represents the US in the WTO, has said it will comply with the Organisation's ruling. But is that gift within their giving?

In the last resort the President can overrule Congress on the matter of the Byrd amendment, though at a cost. And there is no evidence of Congress softening its position.

Senator Byrd himself has entered the debate with an interesting proposition. The WTO ruling has no legal basis, he claims, because it overrules the right of Congress to makes laws for the US. Can the WTO, asks Senator Byrd, make tax law for the US? Good question.

But the Senator skates past an important point. The President signed the WTO agreement, including the dumping provision, on the basis of a negotiating authority from Congress; subsequently, Congress itself ratified the agreement. Has the US Congress tied itself in knots? Not according to 70 Senators covering both sides of politics who have asked the President to ignore the WTO finding.

President Bush will face a difficult decision. He can, of course, disallow the amendment - and that is what he will have to do to support the WTO ruling. But Congress, and the opposing Senators - not to mention Senator Byrd - are backed by powerful US business interests. The President must disappoint one side or the other.

If he backs the WTO his domestic support base will be affected. If he doesn't, then what kind of signal will that send to the world at the very moment a new round of trade negotiations is under way? And, no less important, won't it give further comfort to those who insist on questioning the US's commitment to international co-operation in a wider context?

For what it's worth, my guess is that the President will go with the WTO and defend Congress and US business. But it is a tough decision. Don't be surprised if I'm wrong.

  • Colin Teese was Deputy Secretary of the Department of Trade and Australian negotiator at GATT

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