Introduction
One main roles of the World Trade Organization (WTO) is to ensure that there is fairness in international trading activities between countries in the world. International trade has always been a challenge for a substantial number of countries due to the issue of trade balance.
The utilization of the principle of competitive advantage has not worked effectively, leaving most countries exposed to trade deficits when participating in international trade. The World Trade Organization has been undergoing several changes through a series of trade negotiations.
The changes have been aimed at ensuring that the risks of trade liberalization, especially in the developing countries, are minimized. Trade liberalization is a concept that has been enhanced by globalization. While this principle is desired, it has proven to pose negative impacts on the balance of trade in the developing world.
The potential of the developing countries to produce and compete in the global market is lower compared to the developed countries. Therefore, the developed countries often export large volumes of goods in the developing world, making the developing markets to be dump sites for goods from the developed world.
This pollutes the grounds of fair competition in international trade, acting as an impediment to the liberalization of trade. It should be noted that the issue of fair trading practices also affects trade between the developed countries (World Trade Organization, 2013).
The Bryd Amendment is one of the pieces of legislation on dumping. The piece of legislation was formulated in the United States and has been subjected to criticism at the World Trade Organization summits.
Overview of the Byrd Amendment
The Byrd Amendment was passed in 2000. This legislation is also called the ‘Continued Dumping Subsidy Offset’. This piece of legislation was developed as part of the appropriation law of the United States in agriculture, as well as food and drug management.
The development of this legislation was spearheaded by ‘Senator Robert Byrd of the state of West Virginia’ in the United States. The Byrd Act was effective in diverting the attention that had been occasioned by import duties that the US wanted to be subsidized.
Before this Act was formulated, such money was injected in the ‘United States budget. However, the Act suggested that such money was to be distributed to the United States firms, which filed complaints about unfair pricing.
The implication of this Act is that the non-US companies that sell their products below the cost price in the United States are subjected to fines, and the funds given to the United States firms that launch the complaints (United States International Trade Commission, n.d.).
This Act was received with a lot of protests from a substantial number of countries, who presented their resentments to the World Trade Organization. From the outlook, it is evident that this Act is a defensive policy that is used to protect the United States firms, while at the same time harming the non-US firms through fines.
Protectionism is a fragile activity, particularly in cases where a lot of partners are involved in trading practices.
It is important to bring about the arguments that have been given by other countries concerning the Byrd Amendment in order to get a clear glimpse of the consequences it has posed on trading practices between the United States and her trading partners.
Countries that presented their petition to the World Trade Organization following the development of the Act include: ‘Japan, South Korea, Australia, India, Brazil, Chile, Indonesia and the European Commission’, which represented the Europe countries (European Commission, 2007).
The Rationale for the Byrd Amendment
Rus (2007) observed that the aim of the Byrd Amendment was to enhance the principle of fair trade in the trading practices between the United States and its competitive trade partners.
However, the Act only worked for five years, before it was repealed by the United States. Its repealing was caused by its rejection by the World Trade Organization, following the opposition that had been launched by the trading partners of the United States.
The legislation gained negative attention not only in the global trading arena, but also within the United States.
Criticisms came from diverse sources, both local and international, forcing the United States Congress to do away with this piece of legislation that had a negative connotation on the trading scene in the United States.
It is important to observe that the Byrd Amendment was based on the ‘Anti-Dumping and Countervailing Duty Laws’ of the United States (Raghavan, 2002).
The AD/CVD is meant to protect the local US industries from the competition that comes from the goods that are imported into the country. The provisions in the AD/CVD allow for scrutinizing of subsidy and pricing practices of the companies that import products from other countries into the US.
Therefore, the imports that are dumped in the United States were to be subjected to duties, which would then be used to subsidize production in the local industries. Foreigns firms would then be forced to shun from price discrimination in the United States, thereby strengthening the local industries in the local market.
Price discrimination is often considered as an unfair trade practice, yet it is commonly employed by firms as a marketing strategy that is used to attract customers in the competitive markets. The Byrd Amendment brought about a lot of contradictory practices in the application of the AD/CVD.
Prior to the implementation of the Byrd Amendment, proceeds from the duties were paid into the US Treasury.
However, the Act changed this, where the proceeds that were charged on firms conducting unfair trading practices in the United States were given to the US companies that were considered to be victims of the unfair subsidy and pricing practices.
This gave the US companies an edge over other companies trading in the country. It denoted absolute protectionism, thus promoting discrimination in trade, which was against the principle of indiscrimination in trade of the World Trade Organization (Bhagwati, Meyer & Mavroidis, 2003).
The ruling against the Byrd Amendment by the World Trade Organization
As noted earlier, several countries in the world presented their petitions to the WTO over the enactment of the Byrd Amendment.
They cited the legislation as a tool that was being used by the United States to enhance an unfair trading environment, which was meant to promote the competitiveness of her firms at the expense of the foreign firms operating in the country.
The Act was held as a violation of the ‘Anti-Dumping Agreement of the World Trade Organization’. The WTO panel noted that the Act presented a complex measure that unearths the issues that appertain to the use of trade remedies and subsidies by countries.
What came out from the deliberation by the WTO panel is that by virtue developing an enforcing the Act, the United States was trying to promote the issue of subsidization of production contrary to the ‘Anti-Dumping Agreement’ of the WTO (Bhagwati, Meyer & Mavroidis, 2003).
According to the AD Agreement, subsidization of production ought to take place within limited confines in order to promote a balanced trading environment. This is what can be done to ensure that each country is not victimized when trading with another country.
This is a matter that required negotiation, according to the WTO panel. The idea of embracing subsidization as a means of dealing with unfair trading practices was advanced by the United States, as well as Canada. While similar practices are exercised by the ‘Organization for Economic Cooperation and Development’, the sense of rationalization on the matter differed as denoted by the Byrd Act. Therefore, the WTO’s panel argument was that the CDSOA was operating illegally since it did not pay respect to the AD Agreement of the WTO (Raghavan, 2002).
The panel cited the provisions in the Act, like the compensation of the complainants, using the duties that were collected out of unfair pricing and subsidy by foreign firms. According to the panel, this was a financial incentive that could be used for backing the Anti-Dumping applications and complaints.
The panel cited that the Act encouraged dumping to some extent, yet this was against ‘Article 18.1 of the WTO’s Anti-Dumping Agreement’.
Article 18.1 of the ‘WTO AD Agreement’ specified only three remedies that could be applied by WTO countries in neutralizing the dumping effect. These provisions include: price undertakings, provisional measures, and anti-dumping duties (Raghavan, 2002).
The ruling denoted that the special provisions of the AD Agreement, which applied to the developing countries, had been violated by the virtue of the enforcement of the Byrd Amendment.
Through the requirement of the support for the AD petition, which would be used for permitting offset payments, the law gave a provision for the domestic firms to back the AD complaints; thereby rendering some acts of the WTO’s AD Agreement meaningless.
These include article 5.4, which gives provisions of article 11.4, which gives provisions on ‘Subsidies and Countervailing Measures’ on the complaints that are raised by domestic industry and the satisfactory investigation of such complaints.
The panel did not find any obligatory need to have price undertakings put into effect. It was found out that the application that had been presented by Mexico failed to prove that CODSOA went against the ‘specific’ subsidy provisions of the WTO’s ‘SCM Agreement’ (Raghavan, 2002).
The basis of US Loss of the petition
The United States lost in the petition basing on the argument that was made by the WTO panel that listened to the petition by WTO member countries over the Byrd Amendment.
According to Article 18.1 of the WTO AD Agreement, the CODSOA was not an anti-dumping duty, meaning that it violated article 18.1 of the WTO AD Agreement. Also, CODSOA was not considered to be a price undertaking, which implied that it went against Article 32.1 of the SCM.
The WTO noted that the Byrd Amendment had a lot of adverse effects on the then competitive relationship between locally produced goods and the dumped goods.
However, it is argued that the WTO did not come out clearly to explain the competitive relationship between locally produced goods and the goods that are dumped into the country (Bhagwati, Meyer & Mavroidis, 2003).
What should be asked at this juncture is whether the United States complied with the ruling of the WTO. A number of researchers have argued that the petition on the enactment of the Byrd Amendment posed a test to the effectiveness of the dispute settlement system of the World Trade Organization.
It took the United States three years after the settlement made in 2002 to repeal the Byrd Amendment. The repealing of the Act was a process that entailed the counter petitions and the weighing of the possible actions by the United States Congress, which had passed the legislation (Hervey, 2003).
Before the repealing of the law, there were hostilities in trade between the United States and the countries that had presented the petition about the Amendment to the WTO.
Since the repealing of the Byrd Amendment, the United States has strengthened trade ties with the European Union and other countries in Asia and South American continents (Yerxa & Wilson, 2005).
Conclusion
The Byrd Amendment is an act that was meant to enhance the competitiveness of the local industry in the United States. However, as noted by a substantial number of countries, the Act went against the status of the World Trade Organization on the AD Agreement.
The complainant countries presented a petition to the WTO, which made a ruling against the United States.
In the ruling, the WTO dispute resolution panel argued that there were aspects of protectionism in the Amendment, which implied the lack of fair competition in the trade between the United States and its trading partners.
References
Bhagwati, J., Meyer, A., & Mavroidis, P. C. (2003). The Byrd Amendment is WTO-illegal: But we must kill the Byrd with the right stone. Web.
European Commission. (2007). WTO dispute settlement. Web.
Hervey, C. (2003). The Byrd Amendment battle: American trade politics at the WTO. Hastings International and Comparative Law Review. Web.
Raghavan, C. (2002). WTO panel rules against US on Byrd amendment. Web.
Rus, T. N. (2007). The short, unhappy life of the Byrd Amendment. Web.
United States International Trade Commission. (n.d.). Byrd Amendment. Web.
World Trade Organization. (2013). Principles of the trading system. Web.
Yerxa, R., & Wilson, B. (2005). Compliance with WTO dispute settlement decisions: Is there a crisis? Web.