A New Twist in Regulating Imports

Many Americans believe this nation is an island of free trade in a world of protectionism. The truth, of course, is more complex. Without underestimating the overseas barriers facing our exporters, it is useful to recall the obstacles the United States imposes on imports.

That array of protectionism includes Buy American statutes enacted by various governments; the Jones Act prohibiting foreign vessels from engaging in waterborne commerce between U.S. ports; laws limiting imports of agricultural and manufactured products ranging from brassieres to pillow cases; selective high tariffs on specific items such as textiles and clothing; and regulatory barriers aimed at protecting domestic producers, notably building codes.

Unrealistic Cost Comparisons

Perhaps the most pernicious protectionist laws are the anti-dumping and countervailing duty provisions. Both statutes aim at imports selling here below cost. The statutory definition of "cost" is unrealistic.

Dumping is defined as selling a product for export below its "fair value," which is generally supposed to be the price prevailing in the home market (plus an arbitrary high upward adjustment, supposedly for profit). Anti-dumping duties are levied equal to the amount by which the goods are sold here below "fair value." It's illegal, in other words, for a company to offer a bargain.

Countervailing duties are intended to offset the price advantage an import may have because of foreign subsidies. These special tariffs increase prices by an amount equal to the computed subsidies.

There are many problems with these two statutes from the point of view of maintaining open markets and protecting the consumer. For example, if sufficient sales are not made in the home market, the base price used in the calculations may be that used in a "comparable" market in a third country--no matter how farfetched the comparison. At times, costs in central Africa were used to estimate the home cost of imports from Poland!

Unfortunately, both the anti-dumping and countervailing duty laws are longstanding and prospects are not bright for eliminating either of them. Worse, in late 2000 Congress added a novel twist to these two venerable trade restrictions that sets a terrible precedent.

Relief for Lawyers

Buried in the Appropriations Act for the Department of Agriculture for the fiscal year 2001 is a provision added late in the process, without the benefit of a public hearing. The absence of any hearing means the implications of the new provision could not be debated before Congress acted.

The new provision requires that anti-dumping and countervailing duties are no longer to be deposited into the U.S. Treasury. Rather, all of this money will be sent to the companies who petitioned the government to take the protectionist actions.

This radical new provision represents the "bounty hunter" approach to trade policy. The traditional countervailing and anti-dumping duties, no matter how misguided, were intended to level the international competitive playing field. Depositing the proceeds into the Treasury was an indirect way of recompensing the public for the higher prices consumers have to pay as a result of these two laws.

But giving the proceeds to the companies that initiated the cases means they can make a profit on the deal. Moreover, more litigation is encouraged. Even if an entire industry is supposedly harmed by the trade practices at issue, the cash goes only to those who filed the legal action. Worse yet, we can expect that a host of lawyers will volunteer to take on many more such cases on a contingency fee basis.

It is not surprising that in Washington, the new bounty hunter provision is known informally as the Trade Lawyers Relief Act. It is not beyond imagination to expect that the successful petitioners will use some of their portion of the new bonanza to make political contributions to the legislators who voted for this special interest subsidy, opening the door for yet another round of special interest laws.

Yet, that may not be the end of the line.

In recent years, many nations have retaliated against what they consider to be unfair American anti-dumping actions by instituting similar cases against our exports to them. It is unlikely that, in the case of this latest assault on open trade, they will merely turn the other cheek. Moreover, we can expect that some nations with which we trade will take our "bounty hunter" provision to the World Trade Organization charging a violation of our international commitments. So much for being an island of free trade!

Murray Weidenbaum is a visiting scholar at the Jones Graduate School of Management at Rice University, on leave from Washington University in St. Louis.

For more information ...

The Unintended Consequences of Trade Adjustment Assistance. Government programs designed to compensate workers harmed by import competition weaken the gains from trade and raise troubling issues of equity. (Cato Journal, September 1998, 10 pp.)

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