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Clinton’s Fair-Trade Fraud

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PRESIDENT CLINTON prides himself on calling for “free and fair trade” with foreigners every chance he gets. However, what is the Clinton administration’s idea of fair trade? Few things better illustrate the political corruption of the idea of fairness than the abuses of the U.S. anti-dumping laws.

Clinton’s Commerce Department found pretexts to condemn foreigners for unfair trade in 98 percent of the dumping cases filed against foreign companies, ranging from Chilean salmon to Chinese pencils and paper clips, to Romanian steel pipes, to Italian pasta, to Taiwanese roofing nails, to German printing presses, to Indonesian mushrooms. These rulings effectively locked hundreds of foreign companies out of the American market and damaged the competitiveness of American manufacturers who needed foreign inputs and raw materials.

In 1999, U.S. anti-dumping laws became a major source of international conflict. Many foreign nations protested that the U.S. government perennially prohibited imports on the flimsiest of pretexts. Clinton, in an interview on the eve of the Seattle World Trade Organization (WTO) meetings, declared, “We can’t give up our dumping laws as long as we have the most open markets in the world, and we keep them open to help these countries keep going, and other countries don’t do the same. They shouldn’t be able to take advantage of temporary economic developments to do something that otherwise the free-market economy wouldn’t support.” (Actually, several other nations including Hong Kong, New Zealand, and Singapore have more open markets than does the United States.)

Clinton refused to change U.S. anti-dumping laws because “there has to be some sense of fairness and balance here.” According to Clinton, because the U.S. market was open for most products, the U.S. government should have a blank check to treat other imports however it chose.

The new protectionism

Dumping penalties are the epitome of the new protectionism — arcane trade barriers often concocted behind closed doors by government bureaucrats accountable to no one. Instead of openly raising tariffs, governments create convoluted trade laws that allow them to convict almost all foreign companies while pretending that they are not subverting free trade. The anti-dumping laws are a sword of Damocles hanging over every foreign company exporting to the United States.

Anti-dumping laws treat low prices as federal crimes. Dumping occurs when a company sells a product at a lower price (#&147;less than fair value”) in an export market than in its home market, or when a foreign company sells a product for less than the cost of production plus a large profit. When the Commerce Department finds a foreign company guilty of dumping, and the U.S. International Trade Commission (ITC) also concludes that the dumped products injured competing American companies, the United States imposes penalty tariffs on the imports equal to the alleged dumping margin.

The U.S. government has imposed more dumping penalties against low-priced imports in recent years than has any other government in the world. Protectionists perennially assert that dumping is a predatory activity, intended to destroy American industries. But the actual U.S. definition of “dumping” mocks this claim. A foreign company is guilty of dumping if it earns less than an 8 percent profit on its U.S. sales. The higher the profit the company allegedly made in its home market, the easier it becomes to label its U.S. prices unfairly low. The Commerce Department is extremely arbitrary in how it convicts foreign companies of selling at unfairly low prices.

Clinton routinely invoked the suffering of the U.S. steel industry to justify perpetuating U.S. anti-dumping laws. The steel industry, which has been massively protected by either import quotas or byzantine anti-dumping laws for more than 30 years, effectively has veto power over U.S. trade policy. The Commerce Department bends over backwards to create pretexts to block steel imports.

Waging war against the world

On June 22, 1993, the Clinton administration took hundreds of American manufacturers hostage. The Commerce Department announced that day that it was imposing dumping duties of up to 109 percent on steel imports from 19 nations. The ruling effectively excluded almost all flat-rolled steel imports from Argentina, Australia, Brazil, Finland, France, Italy, Japan, Mexico, Poland, Romania, Spain, Sweden, and the United Kingdom. Once dumping duties greater than 15 percent are imposed on a foreign company, experts estimate that its steel is effectively barred from the U.S. market. Because many of the types and qualities of imported steel are not produced in the United States, this was a harsh blow to many American manufacturers.

Most of Commerce’s rulings were based on a disregard of the actual prices of foreign steel. Since foreign steel companies’ prices were not as high as Commerce’s make-believe prices, Commerce pronounced all the foreign companies guilty and sought to bar the steel of most of them from the U.S. market.

Commerce used two types of make-believe prices. The first was based on Commerce analysts’ recalculating foreign companies’ cost of production (often arbitrarily increasing the cost of components and other factors), then adding 8 percent for profit and 10 percent for administrative overhead.

The second “make-believe” method consisted of invoking the “best information available” — often simply the allegations made by U.S. steel producers in their complaints to Commerce. Even in cases in which Commerce had the chance to verify most of the information submitted by foreign companies, U.S. bureaucrats found pretexts to reject foreign submissions and instead christened the unsubstantiated accusations made by American companies as gospel truth. The decision to allow an American manufacturer to buy the steel he needed hinged on whether a low-level Commerce bureaucrat could detect any errors in the tens of thousands of pages of documentation submitted by foreign steel producers.

Vice President Al Gore visited Warsaw in April 1993 and hailed the “green shoots of free enterprise springing up in cities and on the land” in Poland. But the Commerce Department in the 1993 rulings judged and penalized Poland as if it were still a communist country. Commerce has special rules for nonmarket economies (which Poland denied being, since it had thrown the communists out years earlier and embarked on fundamental reforms), which allegedly lacked realistic price systems. Commerce officials randomly selected third countries and compared guesses about third-country production costs to the prices of nonmarket economies’ exports. Commerce officials compared Poland’s U.S. export prices with alleged costs of production in Thailand, South Africa, and Malaysia. Commerce then revealed that Polish steel was guilty of a dumping margin of 62 percent.

Steel-using industries employ 30 times more Americans than do domestic steel manufacturers — yet the Commerce Department cared only about steel producers. Throughout the investigation, the Commerce Department behaved like a wholly owned subsidiary of the U.S. steel industry. While Commerce Secretary Ron Brown met with chief executive officers from U.S. steel companies, he refused to meet with representatives of any of the foreign companies involved in this case.

The Commerce Department is effectively above the law in how it runs its anti-dumping regime. It routinely takes a company three to five years of litigation and hundreds of thousands of dollars to successfully challenge an absurd dumping decision by the U.S. Commerce Department. Though the Commerce Department is often found by federal judges to have violated federal law, the agency routinely refuses to accept such court rulings as binding precedent. The United States has chosen to disregard numerous GATT rulings that found its actions violated its international obligations.

Clinton’s 1999 comment that anti-dumping laws must be preserved because of “a sense of fairness” fails the laugh test. As Cato Institute trade analyst Brink Lindsey observed,

In the typical anti-dumping investigation, the Commerce Department compares home market and U.S. prices of physically different goods, in different kinds of packaging, sold at different times, in different and fluctuating currencies, to different customers at different levels of trade, in different quantities, with different freight and other movement costs, different credit terms, and other differences in directly associated selling expenses (e.g., commissions, warranties, royalties, and advertising). Is it any wonder that the prices aren’t identical?

Lindsay examined 141 dumping calculations the Commerce Department made between 1995 and 1998. Commerce based the dumping margin strictly on comparisons of U.S. and foreign home-market prices in only four cases.

A 1998 Congressional Budget Office (CBO) study noted, “The United States progressively and substantially increased the initial duty rates it imposed…. The average initial rate imposed from 1993 through 1995 was almost triple the average from 1981 through 1983.” The average dumping margin imposed between 1995 and 1998 by the Commerce Department was 44.68 percent. Few importers can afford to pay that high a surtax — especially since Commerce can retroactively increase the dumping penalties in subsequent rulings.

Dumping penalties tax the competitiveness of America’s leading industries. The CBO study noted, “Most U.S. antidumping activity — approximately four-fifths of active measures and approximately two-thirds of the products covered by the active measures — is against upstream [i.e., inputs] goods.”

Dumping cases have inflated the price American businesses must pay for semiconductors, flat-panel computer screens, steel, railroad rails, and ball bearings. The anti-dumping laws effectively turn midlevel Commerce Department employees into the czars of American industrial policy.

Government employees without the skill to get a job on the assembly line at Caterpillar’s Peoria, Illinois, factory acquire the power to dictate whether Cat will be permitted to buy the foreign steel it needs. Bureaucrats who could not be hired as data-entry clerks at Apple Computer gain the power to dictate whether Apple will be allowed to buy foreign semiconductors. CBO concluded that the anti-dumping law “has become a form of general trade protection, which harms the overall economy.”

Foreign nations are increasingly imitating U.S. anti-dumping laws to bushwhack American exporters. Outside the U.S. market, American companies are hit by dumping penalties more often than those of any other nation. The Clinton administration has disregarded the needs and interests of U.S. exporters — even though the United States is the world’s largest exporter.

The anti-dumping laws have become a license for American officials to act unfairly towards foreigners and a multibillion dollar game of Trivial Pursuit — gone from a (false) concern over foreigners’ taking over U.S. markets to an obsession with depreciation of neon signs, raspberry freezing costs, and measuring costs that don’t exist. The time has long since passed to abolish these laws.

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    James Bovard serves as policy adviser to The Future of Freedom Foundation. He has written for the New York Times, The Wall Street Journal, The Washington Post, New Republic, Reader's Digest, Playboy, American Spectator, Investors Business Daily, and many other publications. He is the author of a new e-book memoir, Public Policy Hooligan. His other books include: Attention Deficit Democracy (2006); The Bush Betrayal (2004); Terrorism and Tyranny (2003); Feeling Your Pain (2000); Freedom in Chains (1999); Shakedown (1995); Lost Rights (1994); The Fair Trade Fraud (1991); and The Farm Fiasco (1989). He was the 1995 co-recipient of the Thomas Szasz Award for Civil Liberties work, awarded by the Center for Independent Thought, and the recipient of the 1996 Freedom Fund Award from the Firearms Civil Rights Defense Fund of the National Rifle Association. His book Lost Rights received the Mencken Award as Book of the Year from the Free Press Association. His Terrorism and Tyranny won Laissez Faire Book's Lysander Spooner award for the Best Book on Liberty in 2003. Read his blog. Send him email.