Occasionally in Washington, though far too infrequently, common sense manages to best politics. That happened on Nov. 18, when the U.S. House of Representatives voted to repeal the five-year-old Continued Dumping & Subsidy Offset Act (CDSOA), the so-called Byrd Amendment that mandates that financial penalties from trade "dumping" cases be paid directly to the companies that filed or supported the initial complaint rather than to the Treasury.
We certainly don't disagree with the argument that dumping -- which occurs when foreign manufacturers sell goods for less here than they do in their home markets -- is disruptive to global trade. But the Byrd Amendment thumbs its nose at years of international rulemaking while effectively subsidizing companies that know how to game the law. The World Trade Organization agrees: It has ruled several times against the legality of the Byrd Amendment and has allowed additional tariffs of up to $134 million to be assessed against the U.S. because of its refusal to repeal or modify the CDSOA.
Even opponents of the WTO should be able to recognize that the CDSOA, tacked onto a crucial spending bill in 2000 without debate, is bad law. Its filing restrictions favor complainants who get to the courthouse first. Other businesses don't share in any payout even if they're the ones most affected by the dumping behavior. The result: a virtual government subsidy that encourages speedy filing of complaints that are often never systematically verified by the government, with penalties unevenly distributed across affected industries.
A recent study by the U.S. Government Accountability Office found that about half of the $1 billion in penalties collected since the CDSOA's adoption have gone to just five companies. And about two-thirds of total payments have ended up in just three industries: steel, bearings, and candles. If this sounds like an unseemly way for politicians to funnel cash to a favored few constituencies, it is.
Worse, the GAO found that some U.S. companies affected by dumping that did not share in the payouts were put at a disadvantage when they later had to compete against companies whose coffers were fattened by Byrd Amendment cash. (So much for using trade laws to level the playing field.)
Most damning, however, is that the Byrd Amendment tarnishes the reputation of the U.S. -- long a tireless promoter of a rules-based trading environment -- as a defender of global transparency and the rule of law. Congress' past refusal to accept the WTO decision against the CDSOA, along with its foot-dragging in settling a similar $5 billion Canadian judgment against the U.S. In a lumber dispute under the North American Free Trade Agreement (NAFTA), have given America's critics the understandable impression that the U.S. supports trade rules only when they favor its interests.
Besides violating established trade pacts, such behavior is amazingly shortsighted. Trade fuels global growth while easing security tensions for everyone -- especially for the increasingly trade-dependent U.S. That's why last week's House vote was a prudent move, and the Senate should take similar action when it returns in December. America cannot afford to cede the moral high ground on trade.