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The political rhetoric is so common, it has become almost cliche: The United States has the most free and open markets in the world. But if that’s the case, why is the country being sued so often — and losing so often — before the World Trade Organization? A Legal Times analysis of all WTO decisions shows that U.S. fortunes in the last two years before the Geneva-based body have taken a sharp downward turn. During this period, the United States has been named in complaints far more often than any other country, and has lost about 70 percent of all cases. Most often the cases have involved trade disputes over steel, but U.S. measures attempting to protect domestically produced lamb meat, wheat gluten, and combed-cotton yarn, for example, have also been found illegal under WTO rules. The losing streak is likely to continue: Several cases that trade lawyers describe as all but unwinnable are in the pipeline. Nor are the losses inconsequential. One, involving tax breaks, could result in up to $4 billion in tariffs on U.S. goods exported to Europe. Trade experts say the reason the United States so often finds itself in the hot seat has to do with the country’s application of anti-dumping, countervailing-duty, and safeguard laws. All are tools used by the government to protect industries from allegedly unfair overseas competition involving such things as goods being sold below cost in this country. Whether the poor showing by the United States is the result of illegitimate protectionism or WTO bias is unclear. But one thing is certain: U.S. trade laws are in the cross hairs of many WTO member nations. As the WTO prepares to convene in Doha, Qatar, at the end of this week, almost all representatives from the 142 member countries are pushing to take up the issue if a new round of WTO talks is launched. “If you put our trade laws on the negotiating table, they will be gone, rendered useless,” says D.C.-based trade lawyer Roger Schagrin of Schagrin Associates. “That’s what everyone else in the world wants.” Responds Kaye Scholer partner C. Christopher Parlin: “Dumping will be on the agenda. Period. Full stop. The U.S. is completely isolated in opposing this. There will be no new round without renegotiation of [anti-dumping laws], and, in my opinion, there will be no successful conclusion without some of the revisions in the current rules sought by other countries.” But the prospect of any negotiations that would weaken U.S. trade protection has drawn a sharp response from Congress, where 63 senators signed a letter to U.S. Trade Representative Robert Zoellick opposing any negotiations that could result in weaker U.S. trade laws. Despite his reputation as an ardent free-trader, Zoellick, it seems, has gotten the message. In a speech last week to the Council on Foreign Relations, he said, “We can only maintain domestic support for trade if we retain strong, effective laws against unfair practices. Although some nations are critical of the U.S. application of these rules … we will continue to insist that any consideration of WTO rules focus first on getting the practices of others up to U.S. standards.” This tension over U.S. trade laws predates the 1995 founding of the WTO. During negotiations, other countries argued that the dumping laws should be considered a prohibited trade barrier. But Mayer, Brown & Platt partner Mickey Kantor, who was the U.S. trade representative at the time, reports that the U.S. delegation threatened to walk out at the last minute “unless our trade laws and philosophical underpinnings were preserved.” The United States’ trading partners blinked, and the U.S. laws received the WTO’s blessing — at least in theory. In practice, the dispute settlement process has served as an alternative avenue of attack, one that has been embraced with increasing gusto in the last two years. “Clearly, they are trying to do by indirection what they couldn’t do by direction,” says Kantor. Sens. Max Baucus, D-Mont., Jay Rockefeller, D-W.Va., and Jeff Bingaman, D-N.M., reached the same conclusion. In an Oct. 1 letter to Zoellick, they expressed fear that the Doha negotiations would pave the way for “other countries to continue by negotiation what they have begun to do by litigation. If anything, our focus should be on rolling back some of the dispute settlement decisions in these areas, not exacerbating the problems they engendered.” A SECRET COURT While some have called the WTO the “Global Supreme Court of Commerce,” the dispute settlement process lacks many standard features of a court. For one thing, the entire process is secret. Not only is the public barred from hearings, but even industries and companies directly affected can’t participate. Briefs are also kept confidential, unless a country chooses to release them on its own (as do the United States, the European Union, Canada, Australia, and New Zealand). Amicus briefs are accepted at the discretion of the governments involved in the case, to the intense irritation of environmental and other advocacy groups. The United States has led the fight to make the process more open, although it remains an uphill battle. “We have a very transparent system of litigation and decision making in general,” says USTR General Counsel Peter Davidson. “We think the WTO should move toward greater transparency in dispute settlement as well.” Cases are initially heard by a three-member panel chosen from a roster of eligible “neutrals,” most of whom are trade lawyers, economists, or other trade specialists, but not professional jurists. Only minimal safeguards exist for vetting conflicts of interest. Most panel decisions are appealed to the WTO’s seven-member appellate body, which usually upholds the panel’s findings. The results tend to be predictable, for it is a rule of thumb among WTO lawyers that the complainants almost always win. In part, the United States’ recent poor record is explained by this fact. During the last two years, the United States was on the defensive 14 times. By comparison, in the same time period, just five cases were filed against Canada, the second most popular target. Of those 14 cases, the United States won two (a complaint brought by Canada involving export restraints treated as subsidies, and another involving the Trade Act of 1974), lost 11, and one, involving Cuban trademarks, was more or less a draw. The United States also brought four cases against other countries during this time period, and won three of them. Prior to 2000, the United States was more often on the offensive and won more than half of all its cases. “You have a system in which bringing cases seems to result in affirmance 90 to 95 percent of the time,” says Terence Stewart of D.C. trade boutique Stewart and Stewart. He questions where one could find another tribunal, domestic or international, with that kind of record. SOVEREIGN STRATEGIES Despite its shortcomings, the dispute settlement process has many defenders. They point out it is a young system, not quite 7 years old, and certain rough spots are to be expected. And they say it is better than what it replaced: a weak system under the General Agreement on Tariffs and Trade that allowed losing parties to block unfavorable decisions. The system is also fast: Most cases take two to three years. “I’m a big fan,” says D.C.-based O’Melveny & Myers partner Gary Horlick, who describes himself as a “hired gun” for U.S. and foreign companies with an interest in WTO cases. “The system works. People use it.” In his experience, says Horlick, the mere threat of WTO action can spur countries to fix problems. Indeed, the USTR counts these cases, which don’t show up on a win/loss balance sheet, as its greatest successes. “Often the threat of litigation forces a settlement,” says Davidson of the USTR. Ideally, this means U.S. stakeholders get results within months instead of years. At the same time, some lawyers report that the USTR has been reluctant to bring cases that might create unfavorable precedents. Nonetheless, the United States recently won an anti-dumping case against Mexico over high-fructose corn syrup. “The number one lesson we’ve learned is that consistency in the U.S. position has been crucial,” says Davidson. “If we take a position out of convenience in one case, we have to be prepared to have it shoved back in our face next time.” When litigation is necessary, says Wilmer, Cutler & Pickering partner Robert Novick, who served as general counsel of the USTR from 1999 to 2001, “One thing the system does that is very important is to help de-politicize issues. Countries can let the WTO decide who’s right and who’s wrong, instead of getting their whole relationship in knots.” In addition, says Horlick, the WTO provides a way to take care of irritating issues that “would kick around forever on a bilateral agenda.” For example, he points to a dispute among France, Canada, Peru, and Chile involving sea scallop labeling. “It’s not central to the government of France what it calls scallops, so if an outside body says stop, they will,” he says. Where the system breaks down, though, is when bigger issues are at stake. To date, the most notable case involves the European Union and hormone-treated beef from the United States. With a public that tends to be deeply suspicious of “Frankenfoods,” the E.U. banned the importing of such meat. The United States objected, and in 1998 the WTO appellate body ruled that there was no scientific proof that hormone-treated meat is harmful. Nonetheless, the E.U. refuses to accept U.S. beef from cows treated with growth hormones. The WTO-approved recourse has been for the United States to impose more than $100 million in retaliatory sanctions on goods imported from Europe, such as Roquefort cheese, mustard and chocolate — something of a Pyrrhic victory, since it’s U.S. consumers who ultimately pay the tariffs in the form of higher prices. The next collision — one that is potentially much larger — seems likely to come over U.S. trade laws. Already, the WTO has found one U.S. law, the rarely used Anti-Dumping Act of 1916, to be inconsistent with WTO rules. Senate action repealing or amending the law will be necessary to bring about compliance. Another law, the Byrd amendment, is almost certain to be struck down. Passed by Congress last year, the law lets companies that file successful anti-dumping complaints in the United States pocket the duties collected. Ten nations plus the E.U. have launched a WTO challenge — more co-complainants than any other case in WTO history. None of this is likely to make the WTO any more popular with some members of Congress. “The most delicate issues are those when a statute is challenged,” says Novick. “The question of sovereignty comes into play.” The string of losses on anti-dumping/countervailing-duty cases has raised more worries about whether any supposedly legal U.S. trade protection actions can pass muster with the WTO. “There was a strong belief that what we negotiated in good faith in the Uruguay round [creating the WTO] provided good cover,” says Stewart. “The domestic bar in the U.S. is getting a redefinition of the agreement.” Davidson of the USTR says, “These are hard-negotiated agreements. They take many years of parties fighting over the details. We need to make sure the panels are respecting these agreements and interpreting them the way the parties intended them to be interpreted, and not doing creative gap filling.” He points out that since 1995, the Department of Commerce has issued more than 800 anti-dumping and countervailing-duty determinations, and that seven WTO panels, covering 19 determinations, have been established in response to complaints from foreign governments. (Four other potential cases, covering five additional determinations, are currently the subject of WTO consultations.) Even if the numbers show that most decisions aren’t challenged, that’s little comfort to lawyers who achieve hard-won victories at home only to see the WTO undo their handiwork. “The process is so skewed against users of these laws,” says Schagrin of Schagrin Associates. As a lead lawyer in the recent ITC steel safeguard hearing, Schagrin says that even though a remedy hasn’t been announced, he’d “bet a ranch” that they’ll lose at the WTO, “regardless of the way the ITC writes the decision.” To some lawyers, the real reason that U.S. anti-dumping and other trade safeguards enjoy such strong political support at home has much to do with the steel industry. “The dumping law is the steel industry’s law,” says Hogan & Hartson partner Lewis Leibowitz, who has opposed the industry in trade proceedings. “The steel industry could get the Senate to condemn Mother Teresa.” Indeed, the industry has been the single biggest user of such laws in recent years, accounting for roughly half of all cases before the ITC. To Leibowitz, the United States’ losing streak in the WTO is not a reflection on the substance of the trade laws, but how they are applied. “The U.S. loses every case because our trading partners pick cases that are losers for us,” he says. “If you look at the decisions, they are about the reasoning of very deliberate practices by the U.S. Commerce Department and International Trade Commission.” Other lawyers stress that the attack on U.S. trade laws doesn’t mean our markets are not generally open and barrier-free. “The U.S. probably has a competitive advantage in 95 percent of sectors, but not in everything,” says a D.C. trade lawyer. “The vast majority of [dumping] cases are with products where the U.S. doesn’t have the comparative advantage. That’s where protectionism lurks.”

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