February, 2001: Cover Story

By Greg Rushford
Published in the Rushford Report

As if the WTO didn’t have enough troubles, lawyers for the well-financed and politically persistent U.S. steel lobby are after it — again.

The domestic steel companies and their labor unions successfully pressured President Bill Clinton to refuse to put reforms of the (often-abused) U.S. antidumping laws on the agenda at the WTO ministerial meetings in Seattle in 1999. This helped kill the launch of a new multilateral round of trade liberalizing negotiations. But protectionists never rest. Now the same steel lobby hopes to persuade President George W. Bush to go back to the mid-1990s and undo the key deal that lead to the creation of the WTO.

That deal — pressed hard for more than seven years of negotiating the so-called Uruguay Round by American negotiators under Presidents Ronald Reagan and George Bush, and finally accepted by Clinton — was finally sealed in 1994. It required WTO member countries to honor dispute-resolution panel findings as binding: Henceforth, if a WTO panel held that a member’s trade regime was not in compliance with that member’s signed obligations to abide by the organization’s negotiated international-trade rules, the losing country could would have to respond. Either it would change its domestic laws to come into compliance, or it would face financial sanctions.

That was “a mistake,” argued Washington trade lawyer Robert Lighthizer at a seminar last month on Capitol Hill that was organized by the New America Foundation. Agreeing, Alan Wolff said that “WTO panels should be advisory only, no longer binding.” Both lawyers are well known for their advocacy on behalf of domestic steel clients like Bethlehem Steel. Lighthizer is a partner in the D.C. office of Skadden, Arps, Slate, Meagher & Flom; and Wolff heads the trade practice at Dewey Ballantine. Their clients’ trade philosophy essentially begins and ends with advocacy for protection from “unfair” foreign competition through high tariffs and quotas.

Before the WTO was launched, signatory countries to the predecessor General Agreement on Tariffs and Trade were free to appease their domestic lobbies by ignoring adverse GATT panel rulings. The Europeans had famously done this when GATT panels found their protectionism on bananas and beef to be inconsistent with the EU’s international obligations to treat all of its trading partners equally. Years of frustration with the ineffective Gatt-panel process inspired U.S. trade officials to work hard during the Uruguay Round negotiations to empower the WTO with real tools to open markets.

Alas, for rule-of-law advocates, it hasn’t worked out so well. As did their Gatt predecessors, WTO panels have found that the Europeans are still discriminating against foreigners on bananas (mainly Chiquita Brands International, which has seen its market share in Europe drop from 40- to 20 percent since 1993, and has announced that it is near bankruptcy), and also against imports of beef. But the Europeans are still stonewalling.

Nor has the United States expressed much enthusiasm about complying with some WTO rulings against it. The best-known example of the latter is the Foreign Sales Corporation case involving WTO-illegal tax breaks to major exporters like Boeing; late last year Congress changed the wording of the offending FSC law. But like the Europeans have done on bananas, the new language looks pretty much like the same old (WTO illegal) subsidies.

Even such staunch free traders like economist Claude Barfield at the American Enterprise Institute worry that the WTO members don’t have the political will to live by the dispute-resolution process. Barfield has a book coming out soon that suggests various reforms to make the process more effective.

By contrast with the steel lobby, Barfield is looking for ways to strengthen the WTO, not weaken it. Nor are major exporters like Boeing — as much as they would like to keep their FSC tax breaks — going around trying to tear down the WTO. But anyone who follows steel politics knows that these guys carry grudges. When the U.S. steel lobby loses cases, its lobbyists have a history of crying foul — and going after the judges. (Former ITC Commissioner Paula Stern voted against the steel lobby in 1991-92, and became the target of a whisper campaign that knocked her out of the running to be President Clinton’s first U.S. Trade Representative; and Commissioner Thelma Askey was knocked off the ITC last month at the behest of the steel lobby (See, the Players section elsewhere in this issue for details).

And when it comes to personal attacks, Robert Lighthizer is at the head of the class.

In his presentation to the New America forum, Lighthizer charged that WTO panels are often comprised of jurists who are “not qualified.” He also suspects that they “may be crooked, although I have no evidence of that,” the Skadden, Arps advocate declared. And even if the panels were “fair arbiters” they would still be “a threat to sovereignty,” Lighthizer added with a touch of nationalism.

“Our laws are being threatened in a very serious way,” Lighthizer added.

The problem, he said, isn’t when the United States is the plaintiff. The U.S. wins most of the time when it brings foreigners before the WTO. But when the United States is the defendant, foreigners usually win. “We have lost 14 of 15 cases where we are a defendant,” Lighthizer complained. Expanding upon his nationalistic theme, Lighthizer expressed his indignation that the government of Japan has recently had the temerity to ask a WTO panel to examine a U.S. antidumping determination on hot-rolled steel.

If the Japanese (and Europeans) keep on winning WTO cases against his steel clients, Lighthizer warned, “this will lead before very long to the end of the process.”

Lighthizer — a Republican who was a member of the George W. Bush trade transition team — and his clients hope that President George W. Bush will agree with them.

Whew.

Talk about inviting ridicule. Any law student would not find it surprising that U.S. steel lawyers win some cases and lose others. Still, some lawyers will always be found to gripe that they lost this case or that because the judge was either stupid or crooked. After Lighthizer griped at the New America seminar that his clients sometimes lose WTO cases, Washington lawyer Gary Horlick shot back with a sarcastic “Well, Duh.” There were titters in the audience. “The system works,” said Horlick, a partner in O’Melveny & Myers who represents major U.S. exporters and also respondents in U.S. antidumping cases.

Here is the Lighthizer perfect view of the WTO legal world, taken from actual cases: Because the United States expects other countries to comply with WTO panels when we win, Korea should stop discriminating against American beef. But the idea that we Americans would have to comply with a case brought by Korea that documented irregularities in U.S. antidumping measures against Korean stainless steel is outrageous on its face. Lighthizer would expect the Europeans to honor the rule of law and stop discriminating against imports of American bananas. But the idea that the U.S. should reform its flawed methodology of calculating countervailing duties against British hot-rolled lead and carbon steel is insulting.

Continuing the Lighthizer view of the legal world: When Poland proves to a WTO panel that Thailand’s calculation of antidumping duties against non-alloy steel and H beams is WTO illegal, of course Thailand is expected to honor its obligations as a respected WTO signatory member. But when the Japanese and Europeans prove the same thing against the United States’ WTO-illegal Antidumping Act of 1916, they have gone too far.

What about Lighthizer’s charge that the Japanese government has a lot of nerve to take the United States before the WTO over a 1999 hot-rolled steel case (Certain Hot-Rolled Steel Products from Japan)? The U.S. Commerce Department hit Kawasaki Steel with a whopping 67 percent antidumping margin, while NKK was “only” hit with a 17 percent antidumping tariff, and Nippon Steel Corp. got 19 percent.

Kawasaki was punished with high tariffs by the Commerce bureaucrats who drew “adverse inferences” on grounds the Japanese company had not provided all the necessary price and cost data for its U.S. sales through a joint-venture affiliate named California Steel. Turns out that California Steel had refused to provide this information to Kawasaki.

And why would California Steel do that? It also turns out that California Steel is also one of the U.S. petitioners who accused the Japanese of “dumping!” California Steel had no incentive to help the defense. It takes a U.S. steel lawyer to argue with a straight face that it is unreasonable for the Japanese government to question this.

[On January 22 the WTO panel issued a preliminary ruling that supported Japan’s argument that the United States antidumping authorities had used arbitrary figures against the Japanese steelmakers, Kyodo reported from Geneva. Apparently anticipating this, six days earlier Lighthizer and Wolff had sent a letter to U.S. Trade Representative Charlene Barshefsky complaining that the panelists who had been selected by WTO Director-General Mike Moore were biased. The two lawyers’ letter did not explain why they had waited until the last minute to question Moore’s judgement.]

While the domestic steel lobby’s complaints against the WTO are laughable, nobody in official Washington laughs back (at least to their faces). And because domestic steelmakers and their unions are so persistent, you can count on the anti-WTO arguments making their way to the desk of President George W. Bush, who will have to decide on the amount of support his administration will give to the WTO.

Will Bush, unlike his predecessor, summon the political will for the United States to honor its obligations as a WTO member, and thus encourage by example the Europeans and others (like China) to do the same)? Or, as the Cato Institute’s Brink Lindsey puts it, “Will our new president also say, ‘we value steel above the whole world trading system?’”

“One way or the other, this will be a huge decision that affects all of international trade politics,” Lindsey declares.

At least, adds Lindsey, this isn’t like the scene in Rick’s Café of the movie Casablanca fame. In the movie, the door to the casino was closed so people could pretend they didn’t know that gambling was going on.

“In this case, because everyone knows what the steel lobby is up to, the door is wide open.”

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