6/3/87 Wall St. J. (Page Number Unavailable Online)
1987 WL-WSJ 325173
The Wall Street Journal
Copyright (c) 1987, Dow Jones & Co., Inc.
Wednesday, June 3, 1987
U.S. Fair Trade Laws Are Anything But
By James Bovard

The U.S. definition of unfair trade is far broader and
more arbitrary than that of many of America's trading
partners. And the U.S. has radically different definitions of
fair trade for Americans and foreigners. As Fred Smith of the
Competitive Enterprise Institute says, "If the same
anti-dumping laws applied to U.S. companies, every
after-Christmas sale in the country would be banned."

U.S. trade laws require that the Commerce Department first
determine whether a foreign product is being sold in the U.S.
at less than fair value, or if the foreign company receives a
government subsidy. After that, the International Trade
Commission must determine whether imports cause domestic
companies any "harm which is not inconsequential, immaterial,
or unimportant."

But this measure is so broad as to be meaningless. ITC
Chairwoman Susan Liebeler notes, "Any time a foreign producer
exports products to the U.S., the increase in supply must
result in a lower price of the product than would otherwise
prevail." Even if imports only prevent U.S. prices from
rising, they can be condemned for a price-suppressing effect.
Our trade laws have never been accused of a pro-consumer

What is "less than fair value"? The Commerce Department's
creative interpretation probably has made many medieval
scholastics smile in heaven.

For instance, last year, it cited China for a dumping
margin of 66.65% on its porcelain-on-steel cookware (meaning
that it was spending about $1.67 to get $1 in U.S. sales).
Since China does not have a market price system, the
department looked elsewhere to deduce the cost of Chinese
cookware production, deciding that Thailand was "at a level
of economic development comparable" to China. (This must be a
surprise to Bangkok, since Thailand's per-capita income is
roughly three times higher than China's.) But Thai cookware
makers refused to open their files to the Commerce Department
-- justifiably, since at least one foreign company that
voluntarily helped it in the past has subsequently been hit
with "dumping" charges itself. (Similarly, often when huge
dumping margins are announced it is because the foreign
company refused to reveal all its in-house financial secrets
to a Commerce Department inquisition.)

The Commerce Department then decided to judge China by
comparing its cookware prices with Dutch, French and West
German cookware prices. Not surprisingly, Chinese prices were
much lower. (Chinese quality was also lower, but the
department did not adjust for that.) The Commerce Department
thus "proved" that China was unfairly dumping its pots and
pans on America. Because of the verdict, the Customs Service
now demands a 66.65% cash deposit on all incoming Chinese
porcelain-on-steel cookware.

Trade laws are premised on the idea that every foreign
company is trying to monopolize every sector of the American
economy. The International Trade Commission, established in
1916, determines if harm was done by a particular country's
imports to a particular U.S. industry.

Even though Israel's share of the U.S.
oil-drilling-equipment market was less than 1%, for example,
the International Trade Commission found that the American
industry had somehow suffered. In a recent flower
investigation, the ITC concluded that full-size Kenyan
carnations were hurting American flower growers. Total Kenyan
carnation exports to the U.S. are Lilliputian -- less than
0.05% of total U.S. flower consumption -- and the alleged
"less than fair value" margin was only 1.58%. (Susan Liebeler
and Vice Chairwoman Anne Brunsdale dissented but were
outvoted. All five ITC commissioners are Reagan appointees.)

And there is a double standard. Former ITC Chairman
William Leonard noted in a recent interview: "The ITC more or
less takes on faith the price information and profitability
supplied by domestic industries. But the price information is
usually meaningless because it does not show the quantities
being sold." Of course, U.S. producers have an incentive to
overstate their prices to make it easier to prove that
foreigners are unfairly "underselling" them. No American
company has ever been penalized for lying about its prices in
an ITC investigation.

Reading the congressional debate on the House trade bill,
one would think that most trade cases were about
international conspiracies to take over the U.S. market. But
the vast majority of recent trade cases are simply American
bureaucrats quibbling about such things as which expenses of
a foreign company to allow, how to calculate foreign cost of
production, adjustments for exchange-rate fluctuations,
comparing prices for arbitrary "adjustments" for differences
in quality, different volumes of sales, and wholesale vs.
retail sales figures.

In 1984, Italy was convicted of a "less-than-fair-value"
margin of 1.16% on its pads for the keys of woodwind
instruments -- even though Commerce admitted that it did not
compare sales of identical products in Italy and the U.S. The
whole idea of proclaiming 1% and 2% dumping margins in a
world where exchange rates routinely fluctuate 2% a week is

Commerce Department analyses of foreigners' cost of
production are often senseless. U.S. trade law requires that
the department always assume in its "cost-of-production"
formula that a foreign company makes a profit of 8% or more.
Every trade case that proves that foreign companies are
selling below cost of production also assumes that foreign
companies make an 8% profit. Nobody at the department can
explain how a company can sell below cost and still make this
same profit.

The recent semiconductor case, where the Commerce
Department claimed that the Japanese were selling at less
than "fair value," was typical of the department's wizardry.
It assumed a static "cost-of-production" model that was
scorned by the Federal Trade Commission as unrepresentative
of how businesses operate and calculate in the real world.
There were disputes on how to allocate such items as plant
overhead, research and development expenses, start-up costs
and pension costs. And, of course, the Commerce Department
assumed that the Japanese were making an 8% profit on their
money-losing sales.

The whole point of U.S. trade laws is to prevent
foreigners from dumping their products, bankrupting American
companies, and then taking over the market and clobbering
consumers. Our trade laws perpetually inflate domestic prices
in order to protect consumers against the one-in-a-million
possibility that a foreign company could corner the market --
and raise prices. But the more internationalized markets have
become, the less ability individual companies or countries
have to dominate a market. If Germans try to bushwhack
beer-drinkers, for example, the Dutch, Belgians and even the
Mexicans will undercut their scheme.

According to Commerce Secretary Malcolm Baldrige, "Our
fair trade laws are the bedrock on which free trade stands."
But, rather than bedrock, our trade laws are a rigged trap,
certain to snare foreigners while leaving domestic companies
untouched. For the U.S. Commerce Department, the only fair
price seems to be a price higher than that charged by
American competitors.


Mr. Bovard writes frequently on trade issues.


6/22/87 Wall St. J. (Page Number Unavailable Online)
1987 WL-WSJ 317846
The Wall Street Journal
Copyright (c) 1987, Dow Jones & Co., Inc.
Monday, June 22, 1987
Letters to the Editor: Trade Is Everything but Unfair

Re James Bovard's June 3 editorial-page article, "U.S.
Fair Trade Laws Are Anything But":

Mr. Bovard displays an alarming ignorance of our trade
laws, the purpose for which they were enacted and the
Commerce Department's role in carrying them out. The statutes
to which he refers -- those against "dumping" (selling
foreign goods in the U.S. at below cost or home market
prices) and those against foreign subsidies of U.S. imports
(which permit offsetting "countervailing duties" to be
imposed) were enacted by Congress as part of the Tariff Act
of 1930. They are consistent with the provisions of the
General Agreement on Tariffs and Trade (GATT), the prevailing
international trade mechanism subscribed to by more than 90

The purpose of these laws is to defend American companies
against loss of home market share to predatory pricing or to
foreign producers that benefit from the deep pockets of their
own governments through targeted subsidies. Without these
laws foreign countries would expand their U.S. market share
and home employment at our expense, thus reducing the sales
and employment of their U.S. competitors.

The Commerce Department and the International Trade
Commission (ITC) are responsible for administering these
laws. With rare exceptions, trade-law cases are initiated by
individual companies or by an industry that believes it has
been injured by unfair practices, not self-initiated by
government. These industrial petitioners seek the redress
they are entitled to under both our laws and those of the
GATT -- not protection from legitimate competition or an
umbrella under which to raise prices.

When a case is brought to us, the Commerce Department
assembles and verifies the facts on costs and prices, and
determines whether dumping or a countervailable subsidy
exists. The ITC determines whether the practice has in fact
injured or threatens to injure the U.S. petitioner. Our
decisions are based on facts established by our government
investigators, not on unverified data from petitioners.

Only about 25% of the cases result in duties being
imposed. Most are dismissed because the facts disclose no
offense or the practice does not cause injury to American
producers. We know that low-priced imports benefit consumers,
but the benefits must be weighed against the potential loss
of jobs caused by dumping and subsidies. Mr. Bovard points
out that selling below cost by American producers in the
American market is a common -- and legal -- practice. But
selling to Americans, by American firms competing with one
another, does not threaten to transfer wealth and
unemployment across international boundaries.

Our statutes and regulations involve specific methodology,
though we do accept changes from respondents when they lead
to a fairer result and are consistent with our laws. And
despite Mr. Bovard's criticism, we do include an allowance
for "profit" in our cost analysis. Framers of the statute
concluded, correctly I believe, that such an allowance was
necessary to reflect the cost of capital inherent in any
business. A carefully defined process of cost analysis
enables us to reach consistent conclusions that are beyond
the reach of political influence and are seldom upset if
appealed in the courts.

Finally, Mr. Bovard complains about decisions to impose
very small dumping margins, and about the proxy methods used
to calculate costs of products of nonmarket countries such as
China. We agree with his complaints, but are bound by the
laws now in effect. The administration has proposed a
different and better way of analyzing nonmarket economy
imports; we are hopeful that it will be included as a part of
the trade bill now being debated.

We will continue to implement our trade laws as
vigorously, fairly and impartially as we can, recognizing
that they are a vital and internationally accepted vehicle
for striking a fair balance of benefits among consumers,
American producers and their international competitors. The
U.S.'s economic future can tolerate neither the protection of
inefficient industries, nor the destruction of those that are
competitive. It is in the national interest that we prevent
both from happening.

Bruce Smart

Undersecretary, International Trade

U.S. Department of Commerce



Fortunately the U.S.'s legal system provides some relief
to problems created by quibbling bureaucrats administrating
the U.S.'s arbitrary trade laws. The U.S. Court of
International Trade repeatedly has struck down the
determinations of federal agencies responsible for
administrating unfair trade laws, particularly the decisions
of the Commerce Department's International Trade
Administration (ITA).

The federal judges who sit on this court have not minced
words in describing the ITA's decisions. For example, the
court directed the ITA to reconsider its decision concerning
Canadian raspberries since the ITA is "not at liberty to
disregard the statute's plain meaning." The court also
recently rejected the ITA's "just-trust-us stance" and
enjoined it from releasing confidential business information.
Last month the court agreed with U.S. specialty steel
producers that the ITA's "complete failure" to address a
particular issue "was not in accordance with law" and, in
another case, it agreed with Canadian meat packers that the
ITA's failure to use certain statutory provisions was an
"impermissible interpretation of the statute."

Mr. Bovard described as "absurd" the ITA's 1984 conclusion
that parts of Italian musical instruments were being sold at
1.16% below their "fair value." In fact, the court sent the
case back to the ITA, which concluded in 1986 that the
merchandise had not been sold at less than fair value.

The U.S.'s system is by no means perfect. Appeals to the
Court of International Trade are expensive and often involve
long delays before decisions are issued. Still, in the long
run, U.S. and foreign businessmen are not wholly at the mercy
of bureaucrats who often confuse political loyalty with
intellectual honesty.

Jack Gumpert Wasserman

New York


In November 1986, the Rev. William Hogan, economics
professor at Fordham University and a longtime authority on
steel, wrote: "Within the last year, I saw the price list of
a Western European company shipping steel to the U.S. at $300
to $325 per ton, depending on the product. The shipments to
nearly all other countries were in the area of $200 per ton."

There's nothing fair about that! Foreign producers aren't
out to kill the U.S.'s steel industry and then clobber
American consumers. They simply wanted a strong steel
industry and overbuilt plants to get economy of scale. To
solve that problem, they protected their domestic markets and
exported the surplus to the only open steel market in the
world -- the U.S.

I've never been associated with the steel industry, but
believe we need one in this country. For every absurd ruling
such as that pejorative to Kenya carnation exporters, I can
cite an equally absurd ruling pejorative to U.S. producers;
e.g., dumped products have just about killed the ultramodern,
efficient ferroalloy industry, one that I believe is critical
to our national security.

R.L. Smith

President Emeritus

Michigan Technological University

Houghton, Mich.



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