Another WTO ruling declaring the United States guilty of violating fair trade rules has apparently angered the establishment and congressional circles in Washington and there are signs of a defiant mood.
The new ruling gives a go-ahead signal to the European Union and seven other complainants to impose up to $150 million a year penalty on the US for its failure to repeal a trade law already declared illegal by the WTO.
Known as the Byrd amendment, the law requires the US customs authorities to distribute the proceeds of anti-dumping and anti-subsidy duties to the companies that initiated the cases.
It was passed in 2000 without any congressional hearings and a minimum of debate. Introduced by Senator Robert Byrd, it was a last-minute amendment to an unrelated appropriations bill.
The amendment, as The Economist, London, put it, is "one of the most outrageous weapons in America's trade protection arsenal". It offers American firms a cash incentive to "clamour for protection".
Even if the Bush administration were willing, it cannot get a repeal resolution through in Congress because the Byrd amendment is extremely popular there. Last year, 70 senators sent a letter to President Bush saying he should leave the law alone. The beneficiaries of this law have effective lobbyists in Washington and have much to lose from repeal.
The co-complainants in this case were Brazil, Canada, Chile, India, South Korea, Japan and Mexico. Three others, Australia, Indonesia and Thailand, had joined the original complaint but did not press for sanctions, agreeing instead to give the US until the end of this year to repeal the legislation.
China, whose imports have accounted for about a third of all anti-dumping and countervailing duties collected by the US authorities in recent years, was not a complainant and will not be able to impose sanctions.
The August 31 decision of the WTO follows wide-ranging rulings that declared illegal the US cotton-farm subsidy programme, struck down US attempts to ban internet gambling, overturned US tariffs on Canadian lumber and temporary tariffs on imported steel.
The WTO said last year that an income tax subsidy given by the US also violates international trade laws. These rulings have given rise to trade tension and anti-WTO sentiment in Congress and business circles.
But, The Economist said: "It is a pity that while America's lawmakers squeal about the importance of fair rules for global trade, they are reluctant to accept the WTO as a judge of what is fair and what is not".
A statement issued by the US Trade Representative's office was too aggressive in tone. Its spokesman Christopher Padilla said that the Bush administration "will continue to enforce anti-dumping rules" irrespective of the WTO decision. However, it will work with Congress to alter trade rules to comply with the WTO decision.
The statement said that the United States is committed to trade policies that "ensure a level playing field for American workers and farmers." The new ruling "will not affect the ability of the United States to continue enforcing its trade laws to impose duties on countries that sell unfairly dumped or subsidized products in the US market.
The ruling also prompted attacks from Democrats eager to capitalize on the trade issue. Sen. John F. Kerry, in a statement, said: "Once again the Bush administration failed to stand up for American companies and workers at the WTO, and as a result, unfair trade practices are hurting our economy and middle-class families."
America's prestigious weekly magazine, Business Week, was too hostile in its comment. Its report, headlined "The WTO loses friends on the Hill" said: "Had Congress known in 1995 that the fledgling World Trade Organization would repeatedly overrule the US on major tax and trade laws, would Congress have voted to have the US join? Not likely.
And when the chance to bolt the 147-member body comes up next year in a reauthorization bill, Congress may decide to drop membership in the Geneva-based organization."
The WTO decision is also certain to add to transatlantic trade frictions at a time when the US presidential campaign is in top gear. According to "The Times", London, it is another setback for Washington "in the continuing tit-for-tat trade war" with Brussels.
More damaging, potentially, than the anti-dumping dispute, according to The Times, is the WTO's ruling that tax breaks for Foreign Sales Corporations are illegal. The EU has been awarded the right to sanctions on US exports of about $ 4 billion in retaliation against the tax advantages used by major US corporations, such as Microsoft and Boeing.
Originally, the WTO had declared the measure "illegal" in 2002, supporting claims that the Byrd Amendment punishes exporters to the United States twice because they are fined first, and then those fines are passed on to their competitors. And the WTO had given the United States until the end of last year to change the law.
The WTO arbitrators delivered a complex judgment based on economic modelling of the trade effects of the US measure. The calculation of the level of the additional import duty or other counter-measures is based on the amount of payments disbursed to the US industry in the latest annual distribution.
Specifically, the authorized level of retaliation is based on the trade effects of the most recent payments distributed from anti-dumping or countervailing duties collected on the products originating from each Member. Accordingly those payments shall be multiplied by a factor of 0.72.
Although the Bush administration did recommend that the amendment be repealed, it was the US Congress that was lukewarm to make the changes. The amendment - the original legislation is called Continued Dumping and Subsidy Offset Act of 2000 - mandates the distribution of the anti-dumping and countervailing duties to the companies that brought or supported the complaints.
It therefore creates an undue incentive for US firms to seek the imposition of duties on imported goods, thereby improving their competitive position and receiving cash payments.
A compromise solution as hinted at in the USTR statement and also in circulation on Capitol Hill may be that the duties which are collected through the anti-dumping law should go to workers or communities hard hit by import competition, rather than to companies.
The European Commission has, so far, stayed its hand in enforcement of any sanctions, knowing that any attempt to implement a $4 billion tariff wall would not only create political uproar but also damage the interests of European companies that import American products and components.
The EU is already applying sanctions to selected US goods in retaliation for the US failure to alter its laws granting companies tax breaks for exports, and disputes are simmering on genetically-modified foods and subsidies to the European Airbus.
Since the Byrd amendment was enacted, about $800 million has been paid out to makers of ball-bearings, steel, candles and pasta, among other products. The US congressional budget office says that a further $2.35 billion will be disbursed between 2005 and 2009.
Meanwhile, India is in a jubilant mood and said that the ruling has vindicated the developing countries which have always been accused of distorting the global trading system by the rich states.
"Up till now, developed countries used to say that developing countries are vitiating what WTO stands for: free competition, fair competition, level playing field," India's trade minister, Kamal Nath, said.
"But as it is emerging now, it is the developed countries which are vitiating what WTO stands for, and I think there are many more such rulings called for, there are many more such examples," he said.
However, India and the other complainants have indicated that they would hold off from imposing sanctions. Instead they are likely to use the threat of retaliation to press the U.S Congress for an early repeal of the legislation.
A joint-statement from all the eight complainants said they could "exercise their retaliatory rights, at any time deemed appropriate." The EU and Japan have much hopes that a quick action by Washington would avoid sanctions.