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Christmas is coming early this year for 130 companies in line to reap more than $200 million in cash from the federal government under a controversial new law. To some, the giveaway is legitimate assistance to U.S. industries injured by cheap imports. But to others, it is an unconscionable raid on the U.S. Treasury, almost certain to be found illegal by the World Trade Organization (WTO). Known as the Byrd amendment, the Continued Dumping and Subsidy Offset Act of 2000 was tucked into the massive agricultural appropriations bill last year by Sen. Robert Byrd D-W.Va., over the objections of then-President Bill Clinton and then-U.S. Trade Representative Charlene Barshefsky. The law concerns duties collected at the border by the U.S. Customs Service on products found to be dumped, or sold at less than fair value, in the United States. Duties may also be imposed on imports that are illegally subsidized by foreign governments. In the past, the fees went into the coffers of the federal government. But now, for the first time, that money is being handed over to U.S. companies — mostly steel makers — that brought the dumping complaints in the first place. The Customs Service processed 900 claims, and the first checks go out in the mail this week. Supporters of the law say that the payout is, as Sen. Byrd puts it, “a matter of justice” since it gives the money to the injured parties. “It is time we impose a heavier price on dumping,” said Sen. Mike DeWine, D-Ohio, the author of the legislation, in a press release. “[The law] provides a much-needed incentive for foreign companies to operate under a free and fair market system.” But critics such as John Frydenlund of Citizens Against Government Waste call the law “backdoor corporate welfare. It’s taking money out of the treasury that was supposed to go to taxpayers, and giving it to corporations.” The law has also proved wildly unpopular with U.S. trading partners. The European Union, Australia, Brazil, Canada, Chile, India, Indonesia, Japan, Korea, Mexico and Thailand have filed suit at the WTO challenging the law — the largest group of co-complainants in WTO history. “The Byrd amendment is not a U.S.-EU problem, but a U.S.-rest-of-the-world problem,” said EU Trade Commissioner Pascal Lamy when the case was filed in July. “Our unprecedented joint action will send a very clear signal to the U.S. of the need to repeal legislation that so clearly flies in the face of the letter and spirit of WTO law.” DUTY CALLS U.S. trading partners contend the law is a double penalty. First, the importer has to pay a duty, which offsets the difference between the price of the less-expensive import and the “normal market value” of a product. Such a calculation is made following a quasi-judicial proceeding at the Commerce Department and the International Trade Commission (ITC). Then, after the price is equalized, the U.S. competitors get to pocket the duties. “They get the protection and the cash,” fumes David Phelps, president of the American Institute for International Steel, which represents steel importers. “It’s preposterous on its face,” he says. “There is not one lawyer who would suggest with a straight face this is WTO-consistent.” In fact, many do. “The knee-jerk reaction that this is some kind of supplement to the anti-dumping remedy is really off the mark,” says David “Skip” Hartquist, chairman of Washington, D.C.-based Collier Shannon Scott’s international practice. “This is money that is collected by the government, and it can be used in any fashion the government sees fit.” That means if the United States wants to spend the money on Social Security or Star Wars or give it back to the affected companies, “it’s none of the WTO’s business,” says John Ragosta, a D.C.-based partner with New York’s Dewey Ballantine. “They don’t like it, but it’s not a basis for finding something illegal.” Ragosta and others don’t deny that the payout could be considered a subsidy, but say the argument is a nonstarter because the United States doesn’t export enough steel or other relevant products to make the practice injurious to other nations. But D.C.’s Hogan & Hartson partner Lewis Leibowitz, counsel for the Consuming Industries Trade Action Coalition, argues that the measure directly violates the WTO anti-dumping implementation agreement, which allows for the imposition of duties, but “doesn’t say you can give the money to petitioners who brought the cases.” Leibowitz points to a recent WTO case challenging the U.S. Anti-Dumping Act of 1916. A WTO panel ruled the law violated the organization’s rules because “another remedy for dumping is plainly contrary to the WTO,” Leibowitz says. ON THE BALL Customs has yet to make public how much money companies will receive, but the biggest payments, as first reported in American Metal Market, will go to two companies that make ball and cylindrical roller bearings. In a press release, the larger of the two, the Canton, Ohio-based Timken Co., says it would receive $31 million. Timken had sales in 2000 of $2.6 billion. Why ball and cylindrical roller bearings? According to a customs official, the duties assessed on such products are high and the volume of imports is great. Further, since only two companies applied for money, each got a much larger piece of the pie. In the steel industry, by contrast, many more companies split the money, and the duties on imports tend be lower. Overall, the ITC says that steel products make up half of all anti-dumping cases. To get cash, companies submit proof of “qualifying expenses” to the Customs Service for reimbursement. Such expenses include money spent on everything from manufacturing facilities to raw materials to pensions, although the reimbursement is expected to be pennies on the dollar. The money — an average of $1.5 million per recipient — comes with no strings attached. In the final rule, the Customs Service wrote, “There is no statutory requirement as to how a disbursement to an affected domestic producer is to be spent.” In other words, companies can use it to invest in new technology, give out bonuses, or blow it all on a holiday party. “It’s the worst kind of subsidy, because you don’t get anything for it,” says Leibowitz. “Government money is being given away, but it does not incentive-ize any particular type of behavior, other than bringing anti-dumping cases. It’s rewarding someone for bringing a case that was in their interest to bring anyway.” Indeed, there has been a sharp uptick in the number of anti-dumping cases since the law has been on the books — just what critics feared when it was passed. According to documents filed with the WTO, between Jan. 1 and June 30, 2001, companies in the United States filed suit to initiate anti-dumping investigations 39 times. During the same period one year earlier, only nine probes were launched. But supporters say the Byrd amendment has nothing to do with the increase. “I could not line up one client to bring a case because [the law] is in place,” says Terence Stewart of D.C.’s Stewart and Stewart. “Nobody would bring a case just to get the money. That’s not the real world. People bring cases because they have pressing problems in the market.” As for the 333 percent increase in litigation, Ragosta of Dewey Ballantine blames the economy: When times are tough, companies are more apt to feel the pinch of overseas competition. He notes that the same pattern was evident during the recession in the early 1990s. To attribute the uptick to the Byrd amendment, he says, “is the worst kind of voodoo economics.” Others, though, are more equivocal. The possibility of getting cash back “could be one of the factors in some decisions by domestic industries,” acknowledges Sanford Ring, of counsel in the D.C. office of Dykema Gossett. The law also gives companies an incentive to join an industrywide complaint –dumping cases require support from 25 percent of an industry — because only those who sign the petition are eligible for money. At the end of the day, notes Ring, the money won’t make much difference for most of the recipients. “Even if they get $2 million apiece, that won’t do a lot for [bankrupt steel maker] LTV.”

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