A Stitch in Haste

A free-trade kerfuffle that we can't possibly win:

The Bush administration said it would work with Congress to avoid U.S. exports being hit with potentially hundreds of millions of dollars in new sanctions approved on Tuesday by the World Trade Organization.
...
The WTO approved a retaliation request by the European Union, Japan, Canada, Brazil, India, Mexico, Chile and South Korea after the United States failed to meet a deadline last year for repealing the so-called "Byrd amendment," which has been declared illegal under international trade rules.

The program distributes funds raised by U.S. anti-dumping and anti-subsidy duties on imported goods to companies that asked for the protection. Previously, the funds went into the general treasury. About $710 million has been paid to companies over the past three years.

Now, in my opinion the Byrd Amendment is a second-order-of-magnitude travesty, not only because it interferes with international trade per se, but also because it selectively subsidizes favored businesses and industries (and we all know how they become "favored" to begin with).

But now, by enacting a tariff scheme that just about everyone knew that the WTO would declare "illegal," the U.S. is caught in the most pernicious of Catch-22 situations: either obey the WTO and "clean up our room" like a good little schoolboy, or ignore it -- thereby giving the one-world wingnuts yet another reason to crow and strut about how "arrogant" the U.S. is (and causing a rift between the President and Congress in the process). All this, plus the actual direct impact on U.S. exporters when the retaliatory measures of our trading partners take effect.

Yuk.

While this President has been an unmitigated disaster on free trade issues (think "steel" and "shrimp"), the Byrd Amendment is in all fairness not his fault -- an excellent primer on its uninspiring history here.

And there's little he can do except what he's doing now, namely jawboning Congress to repeal it (yet another example of a Republican President having to negotiate with a Republican Congress -- so much for the "Kerry for Gridlock" imbeciles).

Let's get the repeal of this pork-barrel monstrosity behind us, hopefully with as little global embarrassment as possible.

Remember the Byrd Amendment, 19 U.S.C. 1671, §754? It's a bizarre anti-free-trade law that not only slaps counterproductive tariffs on goods from countries deemed to be "unfairly competing" with American businesses, but actually gives the money raised from those tariffs to the companies in the affected industries. These companies are in essence collecting their own private tax.

Over a year ago the World Trade Organization ruled that the Byrd Amendment was a violation of international trade rules and authorized retaliatory sanctions by the European Union, Japan, Canada, Mexico and other nations.

So, for American consumers, the Byrd Amendment:

--raised the prices of imported goods in the affected industries as a result of the tariffs;

--raised the prices of domestic goods in the affected industries as a result of reduced competition;

--propped up inefficient industries, to the detriment of the economy as a whole;

--hurt efficient industries that were successfully competing in global markets, as a result of the retaliatory tariffs.

Great going, Senator Byrd.

In any event, the Government Accountability Office has released a study of which industries are receiving all that Byrd Amendment tariff money, totaling $1 billion over four years:

Two-thirds of that money went to three industries — ball bearings, candles and steel. Nearly half of the $1 billion in payments went to just five companies.

The Timken Co. of Canton, Ohio, was the largest recipient, receiving $205 million. The other four big recipients were the Torrington Co., $135 million; Candle-lite, $57 million; MPB Corp., $55 million; and Zenith Electronics Corp., $33 million.

Candles? The candle industry is vital to America's economic vitality or national security?

But wait, there's more:

The former chairman of the board of Timken, William R. Timken Jr., was a major contributor to President Bush's re-election campaign and served as finance co-chairman for his campaign in Ohio, the state that gave Bush his margin of victory over Democratic candidate John Kerry. Bush appointed Timken the U.S. ambassador to Germany in July.

I think the political expression for this is "quid pro ball bearing."

So is this good news or bad news? On the one hand, the deadweight loss and disruption to market dynamism from the Byrd Amendment was "only" $1 billion over four years. On the other hand, the brazen specificity of the awards and the political give-and-take are rather nauseating. As the saying goes: great subsidy if you can get it.

In any event, it appears that support in Congress for repealing the Byrd Amendment is growing, but still inadequate to succeed.

Keep all this in mind the next time you're shopping for candles.

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Meanwhile, Senator Byrd has announced that he will seek an unprecedented ninth term in the Senate in 2006. Byrd is 87 years old.

Just a quick update to this chain to note that the House of Representatives, in its package of budget cuts, also included a provision to repeal the Continued Dumping and Subsidy Offset Act, 19 U.S.C. 1671 §754 (a/k/a the "Byrd Amendment").

The Byrd Amendment is among the most brazen and obnoxious examples of the Politics of Pull ever to come out of Congress. Not only is it a mindless, counterproductive trade barrier (in the form of duties) to restrict imports for the sake of indirectly propping up politically favored industries here in the U.S., but it is simultaneously a direct subsidy (i.e., corporate welfare) to those industries, since the duties collected under the Byrd Amendment are then given to the protected businesses rather than to the Treasury.

Great gig if you can get it. And if the House, in a rare moment of non-stupidity, doesn't vote to take it away.

Unfortunately, the Senate version of the budget bill preserves the Byrd Amendment. Its future in conference committee is unclear. Also keep in mind that the "repeal" is of the transfer of the monies collected to the protected industries, not the duties themselves. Truly free trade is still a bit too much for our hack politicians to embrace.

Hat tip to Hit & Run.