steptoe.com THE FUTURE OF TRADE REMEDY SYSTEMS a presentation by Richard O. Cunningham Partner, Steptoe & Johnson, LLP

2 FUNDAMENTALLY CHANGING WORLD ECONOMY  Low levels of developed country tariffs on manufactured goods  Mobility of capital and technology  Progressive shift of manufacturing from developed countries to  China  India  Developing countries, primarily in Asia  Why?  lower cost labor that is increasingly well-educated  improving infrastructure  receptivity to foreign investment plus (in some cases) government support  for host countries, desire to provide jobs and improved livelihood for large, growing populations  for companies, (a) desire to serve growing markets and (b) need for cost- competitiveness

3 THE EFFECTS ON TRADE  Macroeconomic  increased trade flows  tendency for global over-capacity increased imports into developed countries first light manufactures then capital-intensive goals (especially from China) beginnings of higher-technology imports  Microeconomic: The “Platform Company”  focused on global, not just domestic, markets  retained at “home”: corporate strategy, finance, domestic distribution and – for now – r&d  shifted abroad: manufacturing, software writing and – importantly – jobs  benefits: production costs, capital needs, ability to reduce price, some cyclicality protection  Examples: Apple, IKEA, Black & Decker, even IBM

4 THE POLITICS OF TRADE REMEDIES  JOBS are the focus of trade politics  Declining, import-impacted industries have political power  examples: steel, textiles, paper/lumber, furniture  Developed-country administrations’ political dilemma  recognition of the benefits of globalization & imports (cheaper goods for consumers, lower inflation, higher corporate incomes, increased exports of services, financing debt)  but need to respond to pressure of lost jobs, community distress, etc.

5 THE “EASY” POLITICAL ANSWER  Avoid “protectionism” – i.e., discretionary actions, such as tariffs, VRAs, safeguard measures  Instead, “tough” enforcement of the laws against “unfair” trade: antidumping, countervailing duties  Where “necessary,” increase that toughness by such devices as zeroing, NME methodologies and “facts available” in dumping cases, creative subsidy theories in countervail cases (natural resource pricing, government “channeling” of bank lending, applying CVDs to NME countries), and inflexible cumulation in injury proceedings  No discretionary decision required: “We’re not protectionist; we just enforce the law”

6 BUT THERE ARE PROBLEMS  Problem One: Constraints Imposed By the WTO  Problem Two: In Some Ways, These Laws Don’t Fit the New Economic Realities

7 PROBLEM ONE: THE WTO ASSERTS ITSELF  This is not your father’s GATT  Composition of the WTO: predominantly developing countries  They see the WTO – correctly – as an organization that must oppose restrictions on trade flows  Non-vetoable dispute resolution (a U.S. idea)  Ineffectiveness of U.S. effort to limit “standard of review”  The Result: increasing discipline on perceived excesses in trade remedy “enforcement”  Non-application if CVDs to pre-privatization subsidies  Safeguards only where import increase was “sudden, sharp & recent”  Zeroing  Natural resource subsidies (e.g., lumber)  Overly-restrictive “presumptions” in sunset reviews

8 PROBLEM ONE: THE WTO ASSERTS ITSELF (cont’d)  Is the United States headed for a confrontation with the WTO on these issues?  Twisting and turning to avoid true “implementation”  Furor in the Congress and possible legislation

9 PROBLEM TWO: FREQUENTLY, TRADE REMEDY LAWS DON’T FIT THE NEW REALITIES OF TRADE  What used to be a sale of imported goods may now be a sale of services – Eurodif case  What is the imported product? -- Thermal Transfer Ribbons vs. D-RAM cases  Is a “platform company” a member of the domestic industry? -- EU’s footwear case and the “Community provider” proposal  Do domestic industries still see the trade remedy laws as productive in an age of “platform companies”?

10 SOME “BIG ISSUES” ON THE HORIZON  Anti-circumvention “strengthening”  The “China Problem”  trade imbalance and currency undervaluation  first response: subject NMEs to countervailing duties  on the horizon: aim the trade remedy laws at the currency issue? countervail? Or (horrors!) dumping calculation?  what effect on other Asian producers that use Chinese components?  Cumulation -- The “China problem” catches innocent bystanders

11 FINAL THOUGHT: THE NEED TO RE- THINK TRADE REMEDY POLICY IN LIGHT OF THE NEW REALITIES OF TRADE  Ad hoc antidumping and countervail cases are not a trade policy  the “overkill” problem  the need for increasingly artificial interpretations to make these laws “work”  no “adjustment” component  Safeguards make more sense as a policy tool  focused on adjustment (regaining competitiveness or an orderly downsizing)  amount of import restriction keyed to facilitation of adjustment, not some artificially computed “amount of unfairness”  temporary duration of import restrictions  can provide a focus for other government action to help workers, communities, etc.

12 FINAL THOUGHT: THE NEED TO RE- THINK TRADE REMEDY POLICY IN LIGHT OF THE NEW REALITIES OF TRADE (cont’d)  But problems exist today  WTO decisions have emasculated safeguards  Industries do not find safeguards attractive (too “political,” available “only” to powerful industries, AD/CVD relief better)  Some suggested changes (through Doha Round?)  Reverse the WTO rulings – adopt “substantial and continuing increase”  Explicit, mandatory adjustment requirements  Make relief mandatory unless vetoed by President  Allow President to suspend dumping and countervail cases  Integrate import relief with other assistance