Penalty tariffs on U.S. goods begin Sunday

WASHINGTON -- U.S. clothing, paper products and sweet corn will soon be more expensive for Europeans. For Canadians, American cigarettes, hogs, oysters and fish will cost more. For the United States, it's all part of a new trade war that will mean lost sales and probably lost jobs.

Starting Sunday, American exporters of a wide range of products will be hit with penalty tariffs of 15 percent levied by Canada and the 25-nation European Union because of U.S. government payments to American companies that have been ruled illegal by the World Trade Organization.

Given current feelings in Congress, those penalties and additional sanctions pending in other countries could stay in effect for a long time, despite the Bush administration's opposition to the law that authorized the payments.

The law at issue, known as the Byrd amendment for its chief sponsor, Sen. Robert Byrd, D-W.Va., enjoys broad support in Congress because of the millions of dollars it provides to U.S. companies.

Under the Byrd amendment, passed in October 2000, companies that bring successful cases against foreign firms alleging that their competitors' products are being sold in this country at unfairly low prices not only get the benefit of higher penalty tariffs placed on the competing products but also receive the tariff revenue that the government collects.

Before the Byrd amendment, the extra border taxes went into the government's coffers instead of being turned over to U.S. companies. Foreign companies complain that the new process amounts to double jeopardy. Not only are their products being hit with penalty tariffs but their U.S. competitors are getting a windfall from those tariffs.

The European Union and other nations sued the United States before the World Trade Organization and won the case in January 2003.

When the Byrd amendment was not repealed by the end of 2003, the EU and seven individual countries -- Brazil, Canada, Chile, India, Japan, Mexico and South Korea -- won the right to impose a total of $150 million in economic sanctions on the United States.

That amount is linked to the levels of U.S. tariffs being imposed on companies based in the various countries. The amount is designed to rise in coming years as the tariff payouts to U.S. companies increase.

While the EU and Canada are the first countries to move ahead to impose sanctions, the other countries are expected to follow their lead in coming months.

The EU, which the WTO has given the go-ahead to impose sanctions of $28 million in the first year, has levied its 15 percent retaliatory tariff on various types of clothing from women's shorts to men's trousers. Also hit by the EU tariffs will be various paper products such as writing pads and diaries, plus sweet corn, eyeglass frames and construction cranes.

Canada, authorized by the WTO to impose $14 million in sanctions, is levying 15 percent tariffs on cigarettes, oysters, live hogs, monk fish and other types of fish.

The sanctions will drive up the cost of U.S. products in the foreign countries and likely reduce sales, which could lead to job cutbacks in the United States.

And the sanctions starting Sunday are only the beginning. In addition to the more than $100 million in sanctions for the other parties to the WTO suit aside from the EU and Canada, trade experts predict the level of payouts to U.S. companies will grow significantly in future years, meaning rising sanctions on U.S. products.

For Canada, penalty duties just on that country's shipments of softwood lumber to the United States are now running at an annual rate of more than $1 billion, an amount the U.S. lumber industry is in line to collect.

The Bush administration has called these payouts an "unwarranted subsidy" and has pledged to work with those in Congress who are trying to repeal the Byrd amendment. That fight is expected to be led by new U.S. Trade Representative Rob Portman, who was sworn into office Friday, succeeding Robert Zoellick. But judging from sentiment on the Hill, Portman, a former Ohio congressman, will have his work cut out. To show support for the Byrd amendment when it was first being attacked in the WTO, a group of 70 senators sent President Bush a letter supporting the measure.

Reps. Jim Ramstad, R-Minn., and Clay Shaw, R-Fla., have introduced legislation to repeal the Byrd amendment. Adam Peterman, a Ramstad aide, said repeal supporters hope to gain the votes of lawmakers who hear from companies being hit by the new sanctions.

But trade experts predict it will be tough to repeal the law, given that the government handed out $284.1 million in payments to U.S. companies based on the tariffs collected in 2004. That included 44 corporations that got more than $1 million each, according to the Consuming Industries Trade Action Coalition, one of the groups leading the repeal effort.

Repeal supporters say it is needed because the Byrd amendment is encouraging more companies to file antidumping cases to get government payouts, thus driving up the cost of imports for U.S. consumers.

"This encourages companies to seek antidumping duties against their foreign competition," said Dan Griswold, a trade expert at the Cato Institute, a conservative think tank in Washington. "But because members of Congress like distributing this revenue, the prospects are pretty dim that Congress will do the right thing."

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On the Net:

Consuming Industries Trade Action Coalition: http://citac.info

Cato Institute: http://www.cato.org

U.S. Trade Representative: http://www.ustr.gov