Inside World Trade

Trade laws to counter cheap imports dumped on U.S. market

My previous column focused on trade agreements between the U.S. and other countries that allow for the elimination or reduction of tariffs for imported products. Although these agreements are indicative of a trend to promote free trade, many countries continue to use tariffs for economic and political considerations. 
   The U.S. has a long history of imposing special tariffs when international trade threatens domestic industry. The U.S. Tariff Act of 1890 contained a provision that allowed the U.S. to counter subsidies given by exporting countries to their producers or manufacturers. These foreign subsidies enabled producers to sell at lower prices on the U.S. market in what domestic producers considered an unfair advantage. So to offset this, the U.S. government began assessing additional tariffs on these products when imported into the U.S. 
   After World War I, the U.S. was concerned that surplus stockpiles of goods in Europe would be dumped on the domestic market at low prices. Congress passed an Antidumping Act in 1921 as part of the Emergency Tariff Act. It essentially said that if an industry in the U.S. is injured or likely to be injured because imported merchandise is sold below fair value, then a special dumping duty will be levied against that merchandise. 
   In the 1947 General Agreement on Tariffs and Trade (GATT) rounds of negotiations the U.S. was accused of unfair protectionism by other countries for its antidumping and countervailing (AD/CVD) laws. The laws were viewed by some countries as barriers to trade, and contrary to the GATT goal of eliminating barriers. The negotiations resulted in the GATT allowing both antidumping and countervailing duties as long as certain limitations were applied, and material injury to an established domestic industry was determined. 
   U.S. industries have generally had widespread support and encouragement from politicians in filing antidumping lawsuits against foreign competitors selling their products below fair market value. Lower labor and material cost and subsidies from their governments allow some foreign manufacturers to flood the market with cheaper goods.The result is that U.S. industries with higher costs cannot compete in the domestic market. The steel and textiles industries have been particularly hard hit, suffering the loss of jobs and the closing of plants. 
   Various multilateral agreements and legislative actions on AD/CVD laws and procedures over the years have shaped how the U.S. government determines material injury to domestic industry. An investigation is initiated when a U.S. company submits a petition to the International Trade Commission (ITC) alleging that a foreign company is dumping its product at a lower price on the domestic market.If it is found that there has been material injury to a U.S. company, the Department of Commerce (DOC) will determine whether the product in question is being sold at less than fair market value. If there is sufficient evidence that such a practice exists, the DOC will instruct Customs and Border Protection to collect additional tariffs on the dumped product. The process is the same for foreign subsidized products that are sold below market value and become subject to countervailing tariffs.
   Determining fair market value and material injury is complicated by factors such as average price levels, exchange rates, production costs, trade secrets, and offshore manufacturing by U.S. companies. It is claimed that in some instances the antidumping laws have actually hurt domestic industry. In 1991 the DOC ruled that flat panel display screens from Japan were subject to an additional dumping tariff of 62.7% of the imported value. However, certain types of these screens were not even sold by U.S. manufacturers. So with the additional tariff imposed some of America's largest computer manufacturers could no longer afford components for their laptop computers and moved production overseas. Critics of AD/CVD laws say that determining the fair prices of goods is a complex and arbitrary process. According to the Heritage Foundation, the laws allow U.S. firms to secure punitive tariffs against competing importers when an unfair trade practice does not exist. They say such laws are not beneficial to consumers as they drive up the price of goods on the home market.
   In 2000 Congress passed the Byrd Amendment that allowed for the annual distribution of collected antidumping and countervailing tariffs to domestic industries that were affected by unfair pricing. This amendment was added to the Continued Dumping and Subsidy Offset Act by Senator Robert Byrd, and essentially meant that the money would be directed into special accounts instead of into the Treasury. Beset by increasing cost and complaints of favoritism the amendment was repealed, but still honors claims prior to October of 2007.
   There are currently a little over 100 imported products from 41 countries that are subject to antidumping and countervailing tariffs. Some of the products determined to have been dumped on the U.S. market are frozen shrimp, pasta, honey, manhole covers, ball bearings, polyethylene bags, steel products, and lined paper. These products are subject to additional tariffs ranging from less than 5% to over 100% of the invoice value.
   In recent years the government has made enforcement of AD/CVD laws a priority to protect domestic industry. With more products subject to increased tariffs, some foreign manufacturers have sought ways to circumvent the laws. In some instances fraudulent information on import documents has led to sanctions, penalties, and even criminal charges against importers. With the increasing number of foreign-made products entering the U.S. market, domestic producers will continue to ask the government for price protection. This increasing demand for protectionism will surely be at odds with the proliferation of free trade agreements the U.S. is making with various international trading partners.

Frances Allday was a specialist in commercial trade with U.S. Customs and Border Protection for 25 years