Issues & Overview U.S. Congress Should Support A Rules-Based Trade Regime

Sunday, May 1, 2005 - 01:00

Matthew R. Nicely
Willkie Farr & Gallagher

Among the more interesting debates in the international trade law field today
is how World Trade Organization (WTO) members approach implementation of rulings
adopted by the Dispute Settlement Body (DSB). One school of thought is that such
rulings should be implemented without question, based on the rule of law;
another is that implementation should be weighed against the economic and
political costs and benefits of a refusal to implement, including the prospect
of retaliation. Proponents of the former adhere to their position, in part,
because it fosters adoption of domestic legal systems throughout the world that
are likewise rules-based. Yet, in an international context, proponents of this
position are charged with sacrificing U.S. sovereignty to an international
organization with which we might disagree. Proponents of the cost/benefit
approach argue that the WTO system specifically contemplates non-compliance
(although it is not preferred), and sets forth the terms by which such
non-compliance may be penalized by fellow WTO Members.

Both positions have merit, but the rules-based approach is the preferred
model. Correcting WTO-inconsistent measures - and doing so quickly - sets an
important example for our trading partners, which can only benefit us when we
bring and win our own cases (which we often do). Such an approach also shows our
less developed trading partners that we will do our part to uphold the system,
despite the political costs at home, and even if the economic costs of
retaliation are relatively small. We must appreciate the fact that our
non-compliance often comes at a much higher economic cost overseas in developing
countries that have little or no ability to rebalance their trading relationship
with us. This is a particularly important message to send as Members seek to
reach agreement on the terms of the Doha Development Agenda - a negotiation
round aimed at using trade to help lift the developing world out of poverty.

We sometimes forget that the WTO's guiding instrument - the General Agreement
on Tariffs and Trade (GATT) - was created in the aftermath of World War II to
facilitate peace among nations. The theory was - and is - that nations that
trade with each other, under a system of predictable rules, are less likely to
go to war with each other. A rules-based system builds confidence among trading
partners, and in turn creates a more stable global political environment. Acts
of protectionism that lead to retaliation from others result in a loss of
confidence in the system and contribute to economic and political instability
throughout the world. We are all better off if we abide by the rules, for the
sake of the rules.

In today's world, such sentiments should matter. Yet, there are several
examples of the United States either refusing to implement - or delaying the
implementation of - DSB rulings. This is most often the case when action is
required from Congress to correct a WTO inconsistency. The best current example
is the "Continued Dumping and Subsidy Offset Act of 2000," better known
colloquially as the "Byrd Amendment," under which antidumping and countervailing
duties get passed on to U.S. domestic industries - a practice the WTO's
Appellate Body has deemed inconsistent with WTO agreements. This kind of
subsidization was never contemplated by WTO Members; duties of this sort were
always meant to correct a distortion in the marketplace, not to line the pockets
of domestic industries. President Clinton knew before the provision was passed
that it was WTO-illegal; President Bush wants it abolished. Yet, Congress
refuses to act. Meanwhile, the lure of Byrd money encourages domestic industries
to bring these cases, no matter how frivolous, and has resulted in the adoption
of other policies, such as Customs' new continuous bond requirement (see
separate article on page 26), that layer bad policy on top of bad policy.

Congress should repeal the Byrd Amendment, and in so doing take a stand for a
rules-based trading system in which all Members of the WTO abide by their
obligations, regardless of the cost. We will all be the better for it.