AWPA Wireline - FEBRUARY 2005

The White House proposed for the third time repealing the subsidy program for US companies - the Byrd Amendment - that has been declared illegal by the World Trade Organization (WTO).

In its annual budget recommendations to Congress, the White House said repealing the Continued Dumping and Subsidy Offset Act would save an estimated $1.608 billion in the 2006 budget year. The US faces about $150 million in possible trade retaliation from Japan, the European Union and six other trading partners if it does not repeal the Byrd Amendment.

The Bush Administration has proposed repealing the program the past two years, only to be ignored by Congress. The sharp increase in outlays for 2006 reflects expected payments of duties collected on softwood lumber from Canada.

Meanwhile, the payouts continue. The FY 2004 disbursements were recently released totaling $284 million. Forty-four companies received more than $1 million each. To date, $1 billion has been given out since the program began in 2001.

And on the multilateral front, Australia, Thailand, and Indonesia have agreed to refrain from seeking World Trade Organization authorization to impose retaliatory duties on US imports as a result of the US failure to comply with the WTO ruling striking down the Byrd Amendment. Australia said in a notification circulated to WTO members that it will give the US an indefinite period to ensure compliance with the ruling. In exchange, the US agrees that Australia has the right to initiate sanctions proceedings at any future date of its choosing if compliance is not achieved. Australia's potential for retaliation is tiny, given that only some $7,500 in US duties were collected on its imports in fiscal year 2003.

Indonesian officials stated that they have decided to refrain from pursuing sanctions for the time being and will enter into discussions with the US formalizing arrangements to safeguard its rights to pursue sanctions at a future date. Indonesia officials were unable to provide a precise estimate for its retaliation, but said the amount of duties collected on its imports was very small.

Thailand has a similar agreement with the US that Australia negotiated. Thai officials have said that the amount of dumping and countervailing duties collected on their US-bound exports in 2003 totaled some $5-$6 million, putting the maximum potential retaliation at $4.3 million based on the August arbitration ruling.

None of the eight countries that initiated the WTO complaint have actually started to impose the sanctions, despite the green light from WTO that they could do so. Collectively, sanctions could total more than $150 million annually based on the estimated $240 million in disbursements under the Byrd Amendment in 2003.

However, Canada's International Trade Minister recently announced that Canada will now also file a request for authority to retaliate against the US in an amount exceeding C$4.1 billion because softwood lumber duties have been included under the scope of the Byrd Amendment payouts.

FSC Solution Okayed by EU

The European Council of Ministers, the EU's executive body of member states, have voted to approve the suspension of FSC-related tariff sanctions on all US products. The suspension went into effect retroactively as of January 1, 2005, and any duties paid on covered products during the interim will be refunded.

Continuation of the suspension, however, will be conditional on the WTO's ruling later this year on whether the US tax reform legislation conforms to the Dispute Settlement Body's ruling. If it does not (and EU trade experts claim that to be the case), punitive tariffs will be re-imposed January 1, 2006, on 60% of the value of US products on the list to a maximum of 14 percentage points. Under WTO guidelines the Dispute Settlement Panel should complete its review in 90 days from the date of the EU's request or in late March 2005.

The new list of products covered by sanctions, if the WTO rules against the US, has not been published yet. The original list covers 1,600 products in 44 tariff categories.