New congress moving on several trade issues

The House Ways & Means Committee has asked the Department of Commerce (DOC) to delay an action that would change the way in which Commerce calculate anti-dumping duties, expected to reduce the magnitude of duties in future cases, and asked for comments from industry on the proposal. NAFEM has submitted comments along with other trade associations and corporations, supporting the DOC proposal.

Senator Jay Rockefeller (D–WV) has introduced a wide-ranging bill that would make major changes in U.S. trade laws, increasing protection for steel and other industries.

Complaints over Chinese trade policies, including subsidies for its domestic manufactures and currency manipulation that makes its products more competitive in export markets, have been growing in Congress for several years. Bills introduced in the last Congress requiring the U.S. government to retaliate against the current sea manipulation were opposed by the administration, which asked for freedom to continue to negotiate with the Chinese over both trade and currency issues.

Moving ahead of the expected reintroduction of these bills this year, the Administration announced in early February it requested dispute settlement negotiations with China at the WTO over what USTR called “China’s use of what we contend are illegal subsidies.” The request for negotiations is a required first step before the United States could ask the WTO to establish a dispute resolution panel and judge the legality of China’s policies under WTO rules. As the WTO would probably agree with United States in this case, the eventual outcome would be WTO authorization of retaliatory tariffs by the United States against Chinese products.

The U.S. complaint does not get into the issue of currency manipulation, but alleges instead that China provides a range of tax rebates or reductions that give an unfair competitive advantage to Chinese products when they are exported. “That means a range of domestically produced goods in the United States, from steel to wood products to information technology, are denied an opportunity to compete fairly in the United States and in third country markets,” according to the USTR’s office.

Second, the complaint alleges China provides income and VAT tax reductions to firms in China, whether Chinese or foreign-owned, that purchase products made in China, including steel products, instead of imports.

The new chairman of the Trade Subcommittee of the House Ways and Means Committee, Representative Sander Levin (D – MI) supported the action, saying “I am glad the Administration recognizes that Chinese subsidies are a widespread problem that has caused major harm to American workers, farmers and businesses. But actively using WTO enforcement procedures, United States can hold China, as well as other trading partners, accountable to the WTO commitments.”

When a U.S. industry wins an anti-dumping case against a foreign manufacturer, the DOC has to calculate the amount of anti-dumping tariff, intended to level the competitive field between the domestic and the foreign manufacturer. To do this, Commerce compares the price at which the foreign firm has sold the product in the U.S. market to its presumed cost of production. The current tariffs on stainless sheet and strip from a number of European and Asian manufacturers have been calculated this way.

Often, the foreign manufacturer has made a number of sales, not all at the same price. In calculating duties in the past, Commerce has looked only at sales that have taken place below the cost of production. Sales at higher prices have been “zeroed” out of the calculation. Obviously, this leads to higher tariffs than if all sales had been averaged.

The Consuming Industries Trade Action Committee (CITAC), of which NAFEM is a founding member, has led a campaign to persuade the DOC to end “zeroing” and instead to take a weighted average of all prices at which the product has been sold, calculating tariffs in a manner CITAC and NAFEM believe is more equitable. Late last year, under pressure from several WTO decisions, Commerce proposed to make this change.

In January, the new leaders of the Senate Finance and House Ways and Means Committee, Senator Max Baucus (D-MT) and Representative Charles Rangel (D-NY), asked Commerce to delay its action pending Congressional review, and the Ways and Means Committee subsequently requested comments from industry.

NAFEM, on behalf of the industry, has joined other CITAC members in writing the Ways and Means Committee in support of the DOC proposal. Noting that NAFEM members compete effectively in export markets, NAFEM wrote Chairman Rangel that “the food equipment industry’s competitiveness, particularly in export markets, depends on access to stainless sheet and strip steel at competitive prices. When domestic prices exceed those on the world market, as has happened when tariffs are calculated incorrectly, we lose exports and lose jobs.”

Congress might direct Commerce to stick with its past methods of calculating duties. As this story went to press, no decisions had yet been made.

Rockefeller Asks for Major Changes in Trade Law
Senator Jay Rockefeller (D-WV) is the first to introduce legislation to ramp up protection for domestic manufacturers against foreign competition. Other bills will soon follow.

According to a recent report in American Metal Market, “the bill reads like a wish list for the domestic steel industry and the United Steelworkers Union, who sent their top officials to Capitol Hill last week to meet with several congressmen and at least one Bush Administration official to promote their agenda.”
While China is the main target of Rockefeller’s bill, its provisions are far broader. The bill would:

  • Give Congress final word on any proposed changes to U.S. regulations design to implement WTO decisions, such as the elimination of “zeroing” (see above);
  • Increase dumping margins in cases where foreign producers absorb anti-dumping and countervailing duties instead of passing them on to customers;
  • Expand application of countervailing duties to non-market economies, principally China; at present only anti-dumping duties apply to China;
  • Clarify that exchange rate manipulation (as in China’s case) is a subsidy subjects to countervailing duties;
  • Require negotiations to eliminate the differences in treatment of direct and indirect Value Added Taxes (VAT) on export sales and, if the negotiations don’t eliminate the disparity, make rebates of VAT taxes subject to countervailing duties.

Rockefeller’s bill is very unlikely to move in its current form. However, many of its provisions are likely to be introduced in other bills and receive serious consideration. Congress’ decisions will be heavily influenced by the outcome of the complaint against China’s use of tax subsidies to promote exports and limit exports recently filled with the WTO by the USTR (see above).