Solar Panel Case Shines Light on the Imperative of U.S. Trade Law Reform
Earlier this year, the Cato Institute published this paper, which describes the self-flagellating nature of the U.S. antidumping law. Nearly 80 percent of all U.S. antidumping measures imposed between 2000 and 2009 (130 of 164 measures) restrict imports of intermediate goods—inputs required by U.S. producers for their own production processes.
Antidumping duties on magnesium, polyvinyl chloride, and hot-rolled steel, for example, enable petitioning U.S. companies that often dominate domestic supply of raw materials to foreclose alternative sources and then thrust higher prices on their U.S. customers. But those customers—U.S. producers of auto parts, paint, and appliances—who consume the now-restricted raw materials to produce higher value-added goods and who might otherwise create jobs, are instead made less profitable and less competitive, burdening the broader economy.
But here’s the kicker. The statute itself forbids the administering authorities from considering the economic impact of antidumping restrictions on those firms or on the economy at large. The well-being of the petitioning industry is all that matters and the collateral damage to downstream industries and the overall economy is to be ignored.
Now, the high-profile antidumping and countervailing duty cases recently initiated against solar panels from China are shining some fresh light on this outrage. A group called the Coalition for Affordable Solar Energy (CASE), which represents the portion of the U.S. solar industry that is downstream of the solar panel producers (the producers’ customers), is asking the cases be dropped or settled. CASE, representing 145 member companies that employ over 14,000 workers in solar project development, logistics, construction, and installation, argues:
The severe tariffs [being sought] would have a very damaging effect on the solar industry in the United States and would fundamentally undermine many years of effort by all of us who care about the future of solar power …
In simple dollar terms, [the] petition threatens the planned installation of solar electric power systems in the amount of $11 billion in 2012 and the potential installation of $60 billion currently in the total pipeline …
By asking government to interfere and artificially increase the price (equivalent to putting on a high tax) will only hinder the deployment, cost thousands of jobs … and further negatively impact an already shaky economy.
There is no good reason for arguments like these—and the facts supporting them—to be ignored in trade remedies cases. Several other major countries that have antidumping and countervailing duty laws on their books employ a so-called public interest provision that directs the authorities to deny duties when the likely costs are demonstrated to exceed any benefits to the petitioning industry. (See page 18 for an elaboration.)
It is difficult to fathom how an administration that begs U.S. businesses to invest and hire would not be pushing hard for this particular reform. After all, the administration acknowledges the importance of ensuring downstream producers have access to imported inputs. The Office of the U.S. Trade Representative has argued this point in its complaint against Chinese export restrictions at the World Trade Organization. And the president himself described how the competitiveness of U.S. firms is hurt by restrictions on imported inputs when he signed into law the Manufacturer’s Enhancement Act last year.
But then again, incongruities in this administration’s economic policies seem to be the rule, not the exception. In the solar panel case, the president has offered his rhetorical support (at least) to the petitioners, even though their success would drive up the cost of already-too-expensive solar power, reducing demand for an energy source the president has been advocating and subsidizing with the incentive of 30 percent tax credits.
I suppose the White House has determined that the cost of import duties—to consumers up front and to taxpayers through the a much higher tax credit—is worth the benefit of having a Chinese scapegoat to take the heat off the president for Solyndra’s failure.
Trade Law, Trade War, and the Case of Multilayered Wood Flooring from China
Public angst over China’s rise and the threat of populist currency legislation have prompted speculation about a U.S.-China “Trade War.” With the 2012 elections still a whole year away, there is ample opportunity for campaigning politicians to ignite that fuse.
But pyrotechnics aren’t necessary. Rather than a 1930s-style free-for-all, a trade war—if one were to begin—is more likely to be of the lowercase, “rules-based” variety, where trade restrictions are imposed in compliance (or under the pretense of compliance) with global trade rules. Many of the battles would be waged behind the façade of so-called trade remedy laws.
Antidumping and countervailing duty measures are the most commonly invoked forms of “contingent protectionism” permitted under World Trade Organization rules. Those rules allow member governments to maintain and administer national antidumping and countervailing duty laws to remedy—through the imposition of customs duties—the effects of imports determined to be sold at unfairly low prices (antidumping) or determined to be unfairly subsidized by a government (countervailing). But imposing “remedies” under these laws is contingent upon certain conditions being met. Two core conditions are that the administering authorities need to demonstrate that the imports in question are being dumped or subsidized, and that those dumped or subsidized imports are causing or threatening material injury to the domestic industry.
A determination expected tomorrow from the U.S. International Trade Commission offers a case in point. The Commission will vote on the question of whether dumped and subsidized imports of multilayered wood flooring (MLWF) from China are causing or threatening material injury to the U.S. MLWF industry. An affirmative determination could invite Chinese retaliation because the evidence of a causal connection between imports from China and injury to the U.S. industry is weak to non-existent. If the U.S. government is going to stretch or skirt the evidentiary standards established by domestic law and international treaty, the Chinese government may be inclined to do the same. (In fact, the Chinese government is already alleged to have broken those rules – and the United States is seeking recourse in the WTO – when it imposed antidumping and countervailing duties on U.S. chicken exports in 2010.)
Multilayered wood flooring is a floor covering product—used for the same practical purposes as hardwood flooring, tile, and carpeting. Sales of MLWF are highly dependent upon new housing starts and remodeling expenditures, both of which tanked when the housing bubble burst in 2008. As a result of U.S. housing starts declining from a seasonally adjusted annual rate of 1.1 million units in February 2008 to just 505,000 units in March 2009, as well as the large decline in remodeling activity over the same period, MLWF industry prices, shipments, revenues, and profits declined substantially, as did imports from China and other countries. But since the second quarter of 2009, housing starts have been stable at about 600,000 units per year and remodeling activity has been steady at about $112 billion per year.
Importantly for the injury analysis, this period of stability in housing starts and renovation activity enables an analysis that isolates the effects of imports on the domestic industry. And what is evident is that, as domestic consumption of MLWF picked up, so did U.S. imports, producer shipments, revenues, and profits (from -9.9 percent in 2009 to -1.0 percent in the first half of 2011). Increasing volumes of subject imports correlate with an improving condition of the domestic industry. Throughout the period of stabilization, prices in the U.S. market have been steady, as well. If imports from China were to have an injurious effect on the domestic industry, one would expect the increasing volume of such imports to drive down prices in the United States. But imports from China, on average, do not underprice domestic MLWF. According to the public version of the USITC Staff Report in this matter:
…prices for MLWF from China were below those for U.S.-produced MLWF in 60 of 110 instances; margins of underselling ranged from 1.5 to 36.4 percent. In the remaining 50 instances, prices for MLWF imported from China were above those for U.S.-produced MLWF; margins of overselling ranged from 0.1 to 30.4 percent.
An affirmative finding of injurious dumping and/or subsidization from the USITC tomorrow would require disregard of these and other crucial facts and would warrant closer scrutiny of the antidumping regime. It would also invite similar actions from Chinese trade remedies authorities and then who know where it will lead.
Good News on Cotton
We’re another step closer to putting a shameful chapter of America’s trade policy behind us, with the good news that the House today approved (by a margin of 223-197, roll call here) an amendment offered by Rep. Ron Kind (D-WI) and Rep. Jeff Flake (R-AZ) to prohibit the use of funds in the appropriations bill to provide payment to the Brazil Cotton Institute: the administration signed a deal last year with Brazil to send $147 million a year of taxpayers money to Brazil so they would look the other way while the United States continued to subsidize our cotton farmers illegally. Mr Kind and Mr Flake rightly argued that was an egregious use of taxpayer money. Some lawmakers agitated against stopping the payments in case it sparked a trade war, but the answer to that, of course, is to bring U.S. cotton policy into compliance with WTO rules (and rulings). More background here.
Someone in Europe Is Talking Sense on Carbon Tariffs
The nominee for EU Trade Commissioner Karel de Gucht has taken the brave step of opposing carbon tariffs, called for by many European politicians (including, notably, French President Nicolas Sarkozy).
In the first day of his confirmation hearings, Mr. de Gucht expressed concern that carbon tariffs were a possible first step in a “trade war” and implied that they were in any event inconsistent with current trade law. (I agree.) He also called for abolishing tariffs on goods beneficial to the environment as a trade-friendly way to reduce greenhouse gases, and expressed support for the Doha round of multilateral trade talks. (More here.) While the Trade Commissioner’s influence over actual trade policy in the EU is arguably limited, it is good to have someone in the post who is instinctively suspicious of green protectionism and friendly towards the WTO.
The European Parliament is due to vote on the European Commission nominees (en masse) on January 26.
Buy American, Destroy American Jobs
The “buy America” provision in the misnamed stimulus bill was supposed to protect jobs in the U.S. Alas, by encouraging foreign protectionism, the measure is likely to end up destroying American jobs.
Indeed, the provision has all the earmarks of a grand political fiasco. Reports the Financial Times:
Confusion reins. For fear of missing out on contracts, many companies are demanding that all their suppliers are Buy American-compliant regardless of any exemptions.
“Those companies that can comply are of course thrilled and are trumpeting that in their marketing. Those that cannot are in agony and are losing business and cutting workers,” says David Ralston, a government procurement lawyer at Foley & Lardner. “The many companies that find themselves in the gray areas are calling their lawyers.”
Canada’s government has been an early and vocal lobbyist against the measures, sending officials to Washington to warn that a trade war is brewing. Canadian municipalities threatened to attach “do not Buy American” provisions to their own public projects after manufacturers were cut out of US stimulus projects, but have agreed to hold off while the national government tries to resolve the problem.
Canada wants to broker a bilateral trade agreement on government contracts which would extend all the way down to the level of local authority. The US trade representative says it is open to the idea.
While this would quieten the Canadians, it could spark cries of protest from the US’s other trading partners. The British ambassador has given several speeches in recent weeks chastising the US over Buy American and the way it is being implemented. The Europeans are watching closely. But could the US write bilateral deals with them all? Buy American’s supporters in Congress would surely kick back.
The Chamber of Commerce is proposing a compromise. It has called on the administration to tell municipalities to act as if they were signatories to the federal government’s agreements. “I think there is enough flexibility for OMB [the Office of Management and Budget] to make that change. I don’t have a crystal ball but for multiple reasons it would make sense for them to do it,” says Chris Braddock, the Chamber’s procurement expert.
On Monday all groups with a stake in the debate submitted their written comments to the OMB, the White House department handling the stimulus. The administration must now write the final rules on how to implement Buy American.
The U.S. has gained enormously from the expansion of trade in recent years. We all will lose if Washington now encourages a global retreat from free markets.
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