Tougher Import Enforcement Regulations Add Impetus To Administration Policies Promoting Exports

Monday, October 4, 2010 - 01:00
Paul C. Rosenthal

Paul C. Rosenthal

Editor: Tell us about your practice.

Rosenthal: Kelley Drye has a very large international trade practice. Because we represent numerous companies and industries that are fighting unfair trade in the U.S., we handle many antidumping and countervailing duty cases. We also represent a wide spectrum of exporters who are facing trade barriers in third world countries. Therefore, we've been very active in various forums helping clients gain access to these markets. We also have significant import, customs and export control practices.

In these areas, we are among the bigger trade practices - and I would argue among the best. We also have an affiliate called Georgetown Economics Services. It is an economic consulting group that is a very important resource for the firm. This is particularly true in the case of its trade practice.

Editor: The Department of Commerce just proposed new regulations that affect cases involving investigations of unfairly traded imports under the antidumping and countervailing duty laws. What would be the effect of these proposals if they are adopted?

Rosenthal: The likely effect is to increase antidumping and countervailing duties arising from investigations of imports. Cases involving imports from China will probably result in the assessment of higher antidumping and countervailing duties. These higher duties should not be vulnerable to challenge at the World Trade Organization (WTO). Because there have been a number of WTO challenges in the past, I'm certain that the Department of Commerce saw to it that the proposed regulations were thoroughly lawyered to assure that they will survive scrutiny by the WTO, as well as by U.S. courts.

Editor: Are the proposed regulations likely to lead to more unfair trade cases being filed?

Rosenthal: I don't think they will lead to additional cases being filed. Although they will increase the amount of duties that might be paid, the increased duties are not likely to be large enough to trigger additional cases.

Editor: The Department of Commerce announced these proposals in connection with the President's initiative to increase exports. What does this proposal have to do with increasing exports?

Rosenthal: These proposals should comfort those within Congress who might oppose measures designed to increase exports unless and until something was done to help domestic manufacturers who are being hurt by imports. One thing most politicians agree upon is that exports are good because they create jobs. Imports, of course, affect jobs, too.

So, if the Administration is perceived as also doing something about import abuses, it sets the stage to rally everybody - both Democrats and Republicans and those people concerned about imports as well as exports - behind a fairly noncontroversial export initiative.

Editor: The President has also said he would like to get the free trade agreements with South Korea, Colombia and Panama approved by Congress. Will these proposals affect those efforts?

Rosenthal: While there is genuine concern about the merits of some of the free trade agreements, opposition to the efforts to complete the legislative consideration of free trade agreements comes from some of the members of Congress who feel that not enough has been done to provide protection for U.S. manufacturers who are fighting imports. Free trade agreements are perceived by some as not being good for U.S. manufacturing because they haven't been properly enforced.

By authorizing action to strengthen U.S. antidumping and countervailing duty enforcement, the proposed regulations enable the Administration to say it is not ignoring the concerns of U.S. manufacturers who are concerned about imports. The proposed regulations could be useful in convincing skeptics of free trade agreements that U.S. rights under trade agreements are going to be enforced. They could make it easier to convince Congress to approve those agreements.

Historically, the provisions of free trade agreements have not necessarily been enforced. The result has been that the benefits to U.S. manufacturers were less than those enjoyed by the foreign signatory. This caused unions and certain industries to be skeptical about free trade agreements in general.

The more you can show that there is a seriousness about enforcing the U.S. rights under free trade agreements, and that the U.S. is going to reap the benefits that it has bargained for, the more willingness there will be to enter these agreements.

There is a major issue with respect to China. Although the U.S. signed the agreement that permitted China to enter the WTO, the Chinese government is not living up to its obligations under this agreement. The U.S. needs to enforce its rights under that agreement. If it does that, it will build a greater comfort level with such agreements.

Editor: Please elaborate further on the politics behind the proposed regulations.

Rosenthal: There is a balance, and there has always been a balance, between those who are "free traders," who do not want to see any impediments to trade - either on the import or export side - and others who are less concerned about exports but want to protect domestic industries. By the way, this is not a totally partisan issue because there are free traders in both parties. The Democrats tend to have more folks who are skeptical of free trade.

If you want to get members of Congress to endorse further negotiations in the Doha round of negotiations, they have to be convinced that the U.S. is going to get the benefit of its bargain and get an agreement that is worthwhile. One of the ways the Administration can do that is by showing that it is going to be tough on enforcement.

When you see the Administration announcing that it's going to insist on enforcing its rights to the full extent consistent with the WTO rules, it makes it easier to enter into or negotiate additional free trade agreements. Conversely, if, for example, these three free trade agreements are not accompanied by actions that show a seriousness about preserving U.S. manufacturing jobs, it makes it harder to convince members of Congress from manufacturing districts to vote for those agreements.

There are many in Congress who are concerned about our trade deficit. They have to be satisfied that something is being done to reduce unfair imports as well as increase our exports.

Editor: In a previous article for The Metropolitan Corporate Counsel, you wrote about a WTO decision on an antidumping practice called "zeroing." What is the status of that decision, and how is it affected by the recent Commerce Department proposals?

Rosenthal: First, let me explain zeroing. The simplest analogy that I have come up with is speeding. If you have a 55 mph speed limit and someone is driving over the limit at 65 mph for an hour, zeroing says that the time you previously spent going 45 mph cannot offset the time you spent exceeding the limit. That time you spent under the speed is ignored, or "zeroed," when considering the time over the speed limit. Unfortunately, the WTO decisions have basically said just the opposite. Even though you are trading unfairly with respect to some of your exports, the WTO says you can immunize your dumping by selling other goods at non-dumped prices. This WTO approach allows the "speeding," or dumping, to go unpenalized, thereby weakening the dumping laws.

Although the proposed regulations are not directed at the zeroing decisions by the WTO, they are designed to strengthen the U.S. enforcement of the laws consistent with WTO obligations, which could offset part of the loss of duties caused by the WTO zeroing decisions. The U.S. has not yet implemented the WTO ruling on zeroing for the purposes of administrative reviews. The U.S. is under a lot of pressure to do so. Both the EU and Japan have threatened retaliation unless the U.S. accepts zeroing.

If the Administration decides to implement the WTO ruling, then we go back to what I said earlier about the political implications. Congress will not be happy about the Administration implementing the zeroing decisions because both Republican and Democratic administrations have decried the ruling as beyond the scope of the authority of the WTO panel.

Editor: Do you see in the Administration a commitment not only to penalize dumping but also an equivalent commitment to do what they can with the trade laws, free trade agreements and other initiatives to promote exports?

Rosenthal: I would argue that there is that commitment. However, this Administration, like previous administrations, both Republican and Democratic, faces the same issue - which is how to balance a free trade agenda with promotion of a strong antidumping regime. Frankly, I don't think these objectives contradict one another. I do think this Administration is serious about the export side of this equation.

There are potential complications of course. If the Commerce Department restricts imports in a way inconsistent with the WTO rules, this could lead to some kind of retaliation. However, since the Commerce Department has designed these new proposed regulations to be consistent with WTO rules, there shouldn't be an inconsistency between the export promotion policies of the Administration and the resolve to be tough on unfair trade practices. In fact, as I said, they're perfectly consistent in that to the extent that there is a showing of resolve with respect to making the unfair trade laws work, it does provide the political will and cover, if I can be so bold, to allow the Administration to do very positive things on the export side.

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