Crossroads: Crisis or Opportunity: Free trade or restricted trade?

The U.S. government has never pushed for any significant relief from imported molded products. This is unlikely to change with President Bush.

U.S. molders are unlikely to see any meaningful support for expanded export opportunities.

The troubling trade deficit with China—in 2002 exceeding $100 billion—is likely to grow (see Tables 1, 2, and 3). Geopolitical considerations made it unpalatable for Clinton and now the Bush administration to take on China on trade issues. The result: Many more molding applications will migrate to China from the U.S., Canada, and Mexico.

Molders are pretty much on their own in fighting imports. However, a wealth of trade weapons are at their disposal (see sidebar).

The Bush Trade Policy
Since President George W. Bush’s decision on March 5, 2002 to initiate steel tariffs under Section 201 of the 1974 Trade Act, the question has arisen as to how this administration will stand on issues of free trade and domestic safeguards.

While at first glance the steel tariff ruling would seem to suggest that this president might be sympathetic toward other protectionist policies, a more detailed investigation of his administration appears to imply just the opposite.

From the first days of his administration, President Bush has been a strong advocate of liberalized trade. This commitment is evident in his avid support for new free trade agreements, as well as multilateral efforts to expand market access, efforts to improve global trading regulations, and reduced agriculture tariffs.

Considering the nature of President Bush’s agenda it seems unlikely that the administration will be anxious to enact many import relief programs that could be interpreted by the international community as contrary to his more customary free trade mantra.

So how can we rectify this obviously liberal trade agenda with last March’s steel tariff decision? To start, the Office of the U.S. Trade Representative (USTR) has long been critical of the global steel industry for what it felt was the unfair and inappropriate application of antidumping actions, subsidies, and other market-distorting policies.

Yet even with the current steel relief program—which in late March was ruled as illegal by the WTO—the U.S. government has provided significant opportunities for foreign producers to petition and receive enforcement exclusions under the law.

Last year 727 steel products were excluded from this safeguard relief, and in 2003 there are already 295 products that have been granted exclusion orders. These actions do not appear to lend much credence to the idea that the current administration is likely to implement more import relief programs.

Recent presidential decisions following other U.S. International Trade Commission (USITC) investigations would seem to strongly support this line of reasoning. In a recent case involving an import relief petition filed under Section 312 of the NAFTA Implementation Act, the president chose not to authorize new import relief measures (despite a commission determination that a surge of imports from Canada and Mexico was undermining existing import relief efforts).

Again, following an affirmative Section 421 import injury ruling involving pedestal actuators, the president once more declined to impose protective relief measures.

While there have not been a sufficient number of import relief cases to truly define Bush’s position on the use of safeguard measures, these two cases should call into question any assumptions that people may have made following the steel ruling. Several trade officials questioned for this story seem to agree that these two cases were more representative of the president’s position on safeguards than was his steel tariff ruling.

What Can You Expect?
If the president’s actions do not necessarily reflect an aggressive protectionist policy, what can U.S. producers expect in the way of support from this administration?

First, firms can be confident that the Bush administration will try to take the offensive in confronting nations and industries that deny or limit market access, unfairly subsidize production, dump goods, or violate U.S. intellectual property rights.

While the number of safeguard orders that have been imposed by this administration may be limited to one case, the picture is quite different when you look at antidumping, countervailing duty, market access, and patent infringement cases. For example, since February 2001, 78 antidumping and countervailing duty orders have been placed; and in March 2001, following a USTR investigation of intellectual property rights violations, the president’s trade representative office suspended Ukraine’s duty-free treatment under the Generalized System of Preference (GSP).

This pattern of behavior is also reflected in our multilateral relations. The U.S. has filed 61 injury grievances with the WTO Dispute Settlement panel; and as was earlier mentioned, the U.S. actively campaigned for the adoption of reforms that would dramatically lower trade barriers, curb protectionist trade practices, and significantly improve transparency in the dispute settlement process.

In October of last year, the U.S. formally presented papers to the WTO Negotiating Group on Rules as well as to the Organization for Economic Co-operation & Development (OECD), expressing its desire to see a stricter adherence to due process and greater transparency and public participation in the creation and application of trade remedy decisions.

Second, U.S. businesses can also be assured that the current administration will continue to support economic development and Trade Adjustment Assistance for Firms (TAA) programs. The current TAA program offers technical support to qualified U.S. businesses attempting to adapt to increasingly competitive markets.

Congress and the administration have recently reauthorized this program for another five-year cycle. Manufacturers can reasonably expect that as the current government moves to establish ever-freer trade around the world, governmental agencies like the Dept. of Commerce (DOC), USITC, the Export Development Agency (EDA), USTR, and the Import Administration (IA) will continue to expand their assistance to U.S. industries.

Yet U.S firms struggling with import competition should not expect too much in the way of direct import relief. What firms can rely on is the continued prosecution of unfair trade practices, an intensified lobbying for international trade remedy reform, an expansion of government funding for trade adjustment assistance programs, and a growing shift toward “green light” subsidies.

Do You Want to Fight Imports?
If you feel that your molding or moldmaking business is being seriously harmed by foreign imports or market restrictions, there are a variety of trade laws and government programs that may help you to overcome your trade woes. Deciding which law(s) and programs to employ depends on the nature of the foreign competition that you face. It also depends on how much money you want to spend.

If you have been injured by unfair competition, statutes such as Title VII of the 1930 Tariff Act and Section 301 of the 1974 Trade Act could offer hope of remedy. If, on the other hand, your company is having a difficult time adapting to legitimate foreign imports, Section 201 or Section 421 of the 1974 Trade Act and the TAA program may offer more useful strategies.

Here are some of the more relevant statutes suitable for U.S. molders and moldmakers.

The most common complaints involving unfair imports and competition tend to focus on illegal dumping and subsidies; violations of U.S. patent, copyright, and trademark laws; and unfair restrictions to foreign markets. The U.S. government offers recourse for the victims of each of these grievances.

Countervailing duties, antidumping. Title VII, Subtitles A and B of the Tariff Act of 1930 allows the government to impose Countervailing Duty (CVD) and Antidumping (AD) orders. Two conditions must be met before one or both of these orders can be imposed. First, the DOC needs to affirm that an article is either being subsidized or dumped. Second, the USITC must rule that either a U.S. industry has been or is likely to be “materially injured” as a result of the importation and sale of the subsidized or dumped article, or that the establishment of a same or similar industry in the U.S. would be “materially injured” from the sale, or likely sale, of such unfair merchandise. The minimum duration for a CVD investigation is 205 days; the maximum is 300 days. AD investigations can last between 280 and 420 days.

Injury by unfair policies. If your firm has been “injured” as a result of a foreign government’s unfair policies and deliberate actions, including market access restrictions, you can invoke Sections 301-310 of the 1974 Trade Act. It outlines the powers and procedures necessary to enforce U.S. rights under international trade agreements and obliges the USTR to investigate all legitimate allegations of economic injury resulting from a foreign government’s machinations or its general unwillingness to uphold existing trade laws. In such cases, the USTR has been granted the “discretionary authority to take all appropriate and feasible action, subject to the specific direction, if any, of the president, to obtain the elimination of the act, policy, or practice.”

Injury by infringement. If your firm has been “injured” as a result of foreign infringement of patents, copyrights, trademarks, mask works, or other unfair practices, you can invoke the second half of Section 337 of the 1930 Tariff Act. It declares “unlawful the importation and sale of products that have been produced in violation of valid U.S. patents or copyrights, trademarks, and mask work of a semiconductor chip product or protective design.” As such, the overwhelming majority of Section 337 cases involve alleged patent and copyright violations. Importantly, Section 337 does not require U.S. industries to necessarily show injury as a result of the importation of these unlawfully produced articles. While the USITC has no authority to level damages, it does have the authority to issue limited exclusion orders, cease and desist orders, and in the cases of repeat offenders, seizure and forfeiture orders. (Note that in China in particular the theft of trade secrets and proprietary molding know-how is prevalent.)

Relief from Legitimate Competition
Many U.S. industries also face serious threats from a sudden escalation of legitimate foreign imports, and while the burden of proving injury and its cause are considerably higher in these cases, there are still potential statutory relief measures available to U.S. businesses. Here are a few of the possible options for businesses struggling with a rapid influx of legal imports.

Sections 201-204 of the 1974 Trade Act give the president the authority to provide temporary import relief so as to facilitate the efforts of injured U.S. industries to make the necessary adjustments to compete with foreign industries. Before the president can act, the USITC must first establish “whether an article is being imported in such increased quantities as to be a substantial cause of serious injury, or the threat thereof, to a domestic industry.” Possible remedies include new or increased duties, tariff rate quotas (TRQs), quantitative restrictions, auctioning import licenses, initiating international negotiations, trade adjustment assistance, or a combination of two or more of these remedies.

Sections 421-423 of the 1974 Trade Act allow the government to provide temporary import relief to U.S. industries and workers when a sudden surge in competitive imports causes or threatens to cause market disruptions. The statute directs the USITC to conduct investigations to determine if market disruptions exist or are likely to develop and what the actual or potential injuries are to U.S. firms. Trade remedy options are similar to those under Section 201.

The TAA for Firms program, authorized by Sections 251-264 of the 1974 Trade Act, offers technical and financial assistance to small businesses attempting to adjust to new international competition. The program itself is designed to help firms become more competitive by improving marketing, manufacturing, engineering, information technology, and quality operations. Note that to be eligible firms must qualify as a small business by U.S. Small Business Administration standards. For the plastics and rubber industries a company must not employ more than 500 workers and must demonstrate that it has been significantly damaged by foreign imports.

Burden of Proof
The biggest challenge a molder, moldmaker, or trade association faces when invoking any of the above sections, statutes, or acts is proving the injury and its cause. Clearly identifying direct cause-and-effect relationships in manufacturing trade is difficult and time consuming. You may believe that your business has suffered because of overseas competition, but can you prove a coordinated, intentional effort by another country or government to dump products, hinder fair trade, or illegally subsidize the manufacture of competitive goods?

While the government provides a variety of potential remedies for seeking redress of grievances, you must choose your battles carefully. And remember that a coordinated effort of your peers is more effective than the single-manufacturer approach.