The Continued Dumping and Subsidy Offset Act ("Byrd Amendment")
Released: 2006-02-02T00:00:00

Introduction

The Continued Dumping and Subsidy Offset Act (CDSOA, 19 U.S.C. 1675c), (1) commonly known as the "ByrdAmendment," requires that duties collected due to antidumping or countervailing duty orders mustbe distributed to petitioners and interested parties in the investigations that resulted in the impositionof the orders.

Eight countries successfully challenged the CDSOA in a World Trade Organization (WTO)dispute settlement proceeding, and in August 2004 a WTO arbitrator determined the level of"suspension of concessions" (retaliation) that the co-complainants may claim until the United Statescomplies with the WTO ruling. In late November 2004, the European Union, Japan, Korea, India,Brazil, Mexico, Canada, and Chile received formal authorization to retaliate. After warnings by theco-complainants of unified retaliation by July 2005, four have imposed increased tariffs on selectedU.S. goods. The European Union and Canada have been imposing tariff surcharges since May 2,2005; Mexico began doing so on August 18, 2005, and Japan introduced its measures effectiveSeptember 1, 2005. (2)

Congressional action is required in order for the United States to comply with the WTOdeterminations, and, notwithstanding the strong congressional support enjoyed by the CDSOA inboth chambers, (3) severalefforts to repeal or amend the measure were introduced in the 109th Congress, first session. Mostrecently, repeal of the CDSOA was included in S. 1932 , the Deficit Reduction Act of2005, which was passed by the Senate on November 3, 2005, and by the House on November 18. In conference, language was negotiated that would repeal the CDSOA as of the date of enactmentof the Deficit Reduction Act, while allowing distribution of duties on all subject merchandise enteredbefore October 1, 2007. The conference report, with the CDSOA language included, subsequentlypassed the House on December 19, 2005, and the Senate on December 21. A point of order upheldin the Senate against inclusion of Medicare and Medicaid language in a budget bill caused a slightlydifferent version of the conference report to be passed in the Senate; therefore, the House will needto consider the measure once again in 2006.

There have been three other efforts to repeal the CDSOA in the 109th Congress. Inmid-September 2005, two amendments offered by Senator Grassley to H.R. 2862 , abill that included appropriations for the Office of the United States Trade Representative, would havelimited implementation of the CDSOA ( S.Amdt. 1680 ) and removed a negotiationrequirement in the Senate-reported bill aimed at preserving the statute ( S.Amdt. 1681 ). Neither was voted upon, however. H.R. 1121 (Ramstad), a bill that would repeal themeasure, was proposed for inclusion in a larger miscellaneous duty suspension bill now expectedto be considered later in 2006.

In Congress, the controversy over the Byrd Amendment is one component of a larger debateover the future direction of U.S. trade policy. Although many in Congress acknowledge that benefitsare received through liberalizing trade, there is sometimes disagreement over the proper balancebetween these benefits and the costs incurred to domestic industries, firms, and workers by theresulting increase in global competition -- especially if unfair foreign competition is perceived orfound to be the cause of job losses and plant closings. An overall assessment of the United States'WTO membership, including issues of U.S. compliance with certain WTO dispute settlement rulingsdeemed controversial by some, has already received significant attention in the 109th Congress.

This report discusses the controversy over the CDSOA in three parts. First, it covers brieflythe background of the law, its effects, and the WTO dispute settlement case. Second, it discussesthe congressional debate on the pros and cons of repealing the measure. Third, options for Congressare discussed.

Background

Antidumping (AD) and countervailing duty (CVD) investigations are triggered by a petitionfiled by an interested party on behalf of an industry (4) alleging that the industry is injured or threatened with materialinjury by reason of imports that are, respectively, sold in the U.S. market at less than fair value(dumped), or subsidized. In order for the industry to obtain relief, two things must happen: (1) theInternational Trade Administration (ITA), an agency of the Department of Commerce, must finddumping or subsidization and (2) the International Trade Commission (ITC) must find that thedomestic industry is materially injured or threatened with material injury due to the dumped orsubsidized imports. These agencies conduct preliminary and final investigations in a detailedadministrative process with specific time lines. (5)

According to the findings in the CDSOA, the legislative intent of the act is to address theissue of foreign products which continue to be dumped or subsidized sales to the U.S. market afteran AD or CV duty has already been assessed, and, in so doing, to strengthen the remedial purposeof antidumping and countervailing duty laws. One of the findings underlying the law stated thatcontinued dumping or actionable subsidies "can frustrate the remedial purpose of the [trade remedy]laws by preventing market prices from returning to fair levels" which can lead to domesticproducers' reluctance to rehire employees or otherwise invest in the business in order to remaincompetitive. (6)

The CDSOA is also somewhat unique as a trade policy concept because it holds that "therevenue from unfair trade should be used to help those hurt by trade." (7) Prior to its enactment, revenuecollected as a result of AD or CVD orders was deposited in the General Fund of the U.S. Treasury. Instead, the CDSOA directs the Bureau of Customs and Border Protection of the Department ofHomeland Security (CBP) to disburse these duties directly to petitioners and interested parties in theinvestigations that resulted in the orders. Many find the measure controversial, therefore, becausethey believe that it adds a level of "protection" on subject U.S. products in addition to theameliorative action afforded by trade remedies.

Some also find the measure controversial because it was enacted without committee or flooramendment in either House. The measure was inserted into the Agriculture, Rural Development,Food and Drug Administration, and Related Agencies Appropriations Act 2001 ( P.L. 106-387 ) bySenator Robert Byrd, a conferee to the appropriations bill. Similar legislation had been introducedin the 105th Congress ( H.R. 2509 , Regula; S. 2281 , DeWine) and the 106thCongress ( H.R. 842 , Regula; S. 61 , DeWine), but these bills died incommittee. When President Clinton signed the appropriations measure, he noted the insertion of theamendment, saying "this bill will provide select U.S. industries with a subsidy above and beyond theprotection level needed to counteract foreign subsidies," and called on Congress to repeal or amendthe provision. (8)

CDSOA Procedure

The CDSOA requires CBP to distribute all duties collected pursuant to AD or CVD ordersto "affected domestic producers," defined in the act as any manufacturer, producer, farmer, rancher,or worker representative (including associations of these individuals) that was (1) a petitioner orinterested party in support of a petition that resulted in an AD or CVD order, and (2) remains inoperation. (9)

Distributions under the act may be used to offset "qualifying expenditures" within thefollowing categories that the domestic producer incurred between the issuing of an AD or CVD orderand its termination: (1) manufacturing facilities; (2) equipment, (3) research and development; (4)personnel training; (5) acquisition of technology; (6) health care benefits for employees paid by theemployer; (7) pension benefits for employees paid by the employer; (8) environmental equipment,training, or technology; (9) acquisition of raw materials and other inputs; or (10) working capital orother funds needed to maintain production. (10)

In the first stage of the CDSOA distribution process, the International Trade Commissionsends a list to CBP of petitioners and interested parties in support of each investigation (generallyindicated by letter of support for AD or CVD petitions or through affirmative responses to ITCquestionnaires). CBP then publishes a notice of intent to distribute the offset, along with a list ofaffected domestic producers eligible for distributions and the estimated amount available to themat least 30 days prior to the offset distribution date. (11) In order to receive a payment, each company on the list mustdemonstrate that it is eligible to receive an offset disbursement, and must certify that it has qualifyingexpenditures incurred for which distributions have not yet been paid. (12)

CBP places all estimated antidumping and countervailing duties that are deposited with CPBdirectly into "Clearing Accounts." An account is assigned individually to each antidumping orcountervailing duty order under which duties are collected. (13) When the goods areliquidated and the duty is finally paid, the funds are distributed into "Special Accounts," alsoidentified by the individual AD or CVD orders, from which offset payment to individual claimantsare paid. The total amount of offset payments disbursed is limited by the total amount of duties inthe Special Account for each case. (14) As a consequence of this limitation, the actual payments madeoften cover only a minimal portion of each claim involved. For example, in FY2004, more than $1.9trillion in claims from certified interested parties were received, while $284 million, or 0.01% of thetotal claims, was available for disbursement (see Table 1 ).

Table 1. Ratio of CDSOA Claims to Amounts Disbursed,FY2001-2004

Source: U.S. Department of Homeland Security. Bureau of Customs and Border Protection. Continued Dumping and Subsidy Offset Act Disbursement Report for FY 2004 . FY2005 data areavailable on the CBP website ( http://www.cbp.gov ) and will be presented and discussed in aforthcoming update.

The CBP is required to distribute annual offset payments within 60 days of the first day ofthe next fiscal year. (15) A final annual report, listing all claims and disbursements, is made available after all payments havebeen completed for the fiscal year. (16)

Analysis of Prior CDSOA Distributions

Pursuant to the act, CBP collected and distributed about $231 million in FY2001, $330million in FY2002, $190 million in FY2003 (an additional $50 million in FY2003 funds was heldin reserve pending resolution of a legal challenge), and $284 million in FY2004. FY2005 amountsavailable to distribute per case were published on June 1, 2005. (17)

U.S. industries that received the largest CDSOA disbursements in FY2004 includedproducers of ball bearings, steel, petroleum wax candles, cement, food products (includingpineapple, crawfish, honey, pasta, and mushrooms), computer chips, polyester fiber, pencils,softwood lumber, and industrial belts, representing about 93 percent of total disbursements (see Table 2 ). (18)

Table 2. CDSOA Disbursements by Top 10 Industry Sectors,FY2004

Source: U.S. Department of Homeland Security. Bureau of Customs and Border Protection. Continued Dumping and Subsidy Offset Act Disbursement Report for FY2004 . FY2005 data areavailable on the CBP website ( http://www.cbp.gov ) and will be presented and discussed in aforthcoming update.

Continued dumping of some commodities -- bearings and steel products in particular -- mayindicate that firms who continue to export products subject to AD or CV orders are multinationalfirms moving factors of production across borders to U.S. affiliates. In any case, in order for U.S.sales of an item to continue to be profitable despite the assessment of additional AD or CV duties, the price of the targeted good or end-use product must still be competitive in the receiving market,and/or there must continue to be demand for the product. These factors may cause the importer todecide to absorb the additional duties as a cost of doing business, as opposed to pursuing otheralternatives such as purchasing the similar U.S. product or ordering from a foreign supplier notsubject to the AD or CV order.

Individual companies that received disbursements of over $10 million each in FY2004 werethe Timken Company and associated businesses, producers of bearings; Lancaster ColonyCorporation, producers of petroleum wax candles; Micron Technology, semiconductormanufacturers; Emerson Power Transmission, bearings manufacturers; and the International SteelGroup (see Table 3 ). (19)

Table 3. Top 10 CDSOA Disbursements by Company,FY2004

Source: U.S. Department of Homeland Security. Bureau of Customs and Border Protection. Continued Dumping and Subsidy Offset Act Disbursement Report for 2004 . FY2005 data areavailable on the CBP website ( http://www.cbp.gov ) and will be presented and discussed in aforthcoming update.

a. Includes Timken US Corporation of CT, Timken Company of OH, and MPB Corporation of NH.

By state, domestic companies in Ohio received the largest amount in CDSOA funds inFY2004, (20) followedby Connecticut, Pennsylvania, New York, Texas, and New Hampshire (see Table 4 ). Some otherstates received much less; for example, a Vermont received only $1,130.81, which went to a honeyproducer. No companies in Nevada or New Mexico received CDSOA offset payments. (21)

Table 4. Top 10 States Receiving CDSOA Disbursements,FY2004

Source: U.S. Department of Homeland Security. Bureau of Customs and Border Protection. Continued Dumping and Subsidy Offset Act Disbursement Report for 2004 . FY2005 data areavailable on the CBP website ( http://www.cbp.gov ) and will be presented and discussed in aforthcoming update.

Domestic and International Legal Challenges

Domestic Court Cases

The CDSOA has been subject to challenges in U.S. courts on constitutional grounds as wellas on issues of statutory interpretation. A suit alleging that the CDSOA violates the FirstAmendment is pending in the U.S. Court of International Trade, where the plaintiff is arguing thatthe statute infringes free speech rights by conditioning eligibility for CDSOA funds on support ofthe relevant antidumping or countervailing duty investigation, thus placing an unconstitutionalcondition on the receipt of a government benefit. (22) A claim that the CDSOA turned statutory antidumpingprovisions into a penal law, thereby granting the plaintiff a Fifth Amendment right to a neutraljudicial hearing before antidumping duties could be imposed, was rejected by the U.S. Court ofAppeals for the Federal Circuit in March 2003. (23)

In July 2004, the Federal Circuit held that a company that opposed an antidumpinginvestigation may not make CDSOA claims on behalf of an otherwise qualified producer that thecompany has acquired. (24) At issue was 19 U.S.C. Â§ 1675c(b)(1), which provides that"companies, businesses or persons ... who have been acquired by a company or business that isrelated to a company that opposed the investigation shall not be an affected domestic producer." Characterizing the provision as "hardly a model of clarity," (25) the court nonetheless foundthat the purpose of the law was "quite clear -- to bar opposers of antidumping investigations fromsecuring payments either directly or through the acquisition of supporting parties." (26) As a result, the courtconcluded that the provision should be interpreted to "bar claims on behalf of a company that wasacquired by a company that opposed the investigation or, broadly, a company acquired by any'business' related to such a company." (27)

In March 2005, the Federal Circuit held that the CDSOA did not supersede the confidentialityprovisions of Â§ 777 of the Tariff Act of 1930, 19 U.S.C. Â§ 1677f, which generally prohibit the ITCfrom disclosing information deemed business proprietary by the person submitting it without thatperson's consent. (28) Plaintiff companies had been denied distributions under the Byrd Amendment based on dutiescollected on petroleum wax candles from China in 2000 and 2001 as they had not submitted requestsin a timely fashion. The court upheld the ITC's interpretation of the statute, finding that theCommission had properly excluded plaintiffs from its list of "affected domestic producers" for theperiods in question because the firms had claimed confidentiality for their support for the petitionand had not consented to release of this information for these time frames.

On April 19, 2005, Canada, along with Canadian industry groups, filed suit against theUnited States in the U.S. Court of International Trade alleging that the CDSOA, as it applies toCanada, is in violation of Â§ 408 of the North American Free Trade Agreement (NAFTA)Implementation Act, P.L. 103-182 , 19 U.S.C. Â§ 3438. (29) This provision states, in pertinent part, that "any amendment ...that is made to ... title VII of the Tariff Act of 1930" enacted after the NAFTA entered into force forthe United States "shall apply to goods from a NAFTA country only to the extent specified in theamendment." The plaintiffs are arguing that because the CDSOA was enacted as a provision of TitleVII and does not specify that it applies to Canadian goods, the United States acted unlawfully whenit applied the CDSOA to distribute antidumping and countervailing duties assessed on imports fromCanada to U.S. producers. (30)

WTO Dispute

Eleven WTO Members, the largest group of co-complainants in WTO history, initiated aWTO dispute settlement proceeding against the CDSOA shortly after it was enacted. The statutewas found to violate WTO agreements and, absent U.S. action to comply with the WTO rulings bythe December 2003 compliance deadline, eight of the Members received authorization to imposeretaliatory measures based on a formula determined in an earlier WTO arbitration. The EuropeanUnion and Canada have been imposing retaliatory tariffs on certain U.S. products since May 2,2005, (31) and Mexicobegan doing so as of August 18, 2005. (32) In addition, Japan increased tariffs on selected items onSeptember 1, 2005. (33)

WTO Panel and Appellate Body Decisions. InDecember 2000, the European Communities (EC), along with Australia, Brazil, Chile, India,Indonesia, Japan, Korea, and Thailand, requested WTO consultations with the United States on theCDSOA, arguing that it violated the WTO Antidumping Agreement, the Agreement on Subsidiesand Countervailing Measures (SCM Agreement), and other WTO obligations. Canada and Mexicofiled a separate complaint in May 2001. The complainants based their argument in part onprovisions in the Antidumping and SCM Agreements prohibiting WTO Members from maintainingany "specific action against" dumping and subsidization, as the case may be, except for action takenin accordance with the GATT 1994, as interpreted by the respective Agreement. (34) The complainants alsoargued that the payments provided "a strong incentive to the domestic producers to file or supportpetitions for anti-dumping or anti-subsidy measures, thereby distorting the application of the standingrequirements" in the Antidumping and SCM Agreements. (35) These provisions require a specified level of domestic industrysupport for an antidumping or countervailing petition before an investigation may be initiated. Complainants further argued that the CDSOA "makes it more difficult for exporters subject to anantidumping or countervailing duty order to secure an undertaking with the competent authorities[i.e. suspension agreement], since the affected domestic producers will have a vested interest inopposing such undertakings in favor of the collection of anti-dumping or countervailing duties." (36)

In addition to the arguments just described, Mexico also challenged the statute "as such,"claiming that the payments distributed under the act constituted "specific subsidies" as defined inArticle 1 of the SCM Agreement, which may cause "adverse effects" to Mexico's interests in theform of nullification and impairment of benefits. (37) Article 5 of the SCM Agreement allows WTO Members tochallenge so-called "actionable" subsidies, that is, subsidies other than those prohibited under theAgreement where the subsidy is shown to be specific to an industry and causes the type of "adverseeffects" specified in the Article. (38)

The WTO panel found that the CDSOA did create an impermissible "specific action against"dumping and subsidization, and that it provided a financial incentive for domestic producers to fileor support antidumping and countervailing duty petitions, thereby undermining the industry supportrequirements in the Antidumping and SCM Agreements. (39) At the same time, the panel rejected complainants' argument thatthe act would make it more difficult for the United States to enter into suspension agreements, alongwith Mexico's claim that the act itself constituted a subsidy.

The Appellate Body upheld the panel's finding that the statute created a "specific actionagainst" dumping and subsidization not allowed under WTO agreements, but reversed the panel onits conclusion regarding industry support requirements. (40) The Appellate Body concluded that a "specific action against"dumping and subsidization existed for purposes of Article 18.1 of the Antidumping Agreement andArticle 32.1 of the SCM Agreement because the statute fulfilled two basic elements of theabove-quoted phrase. First, the CDSOA constituted "specific" action because offset payments werefound to be "inextricably linked to, and strongly correlated with a determination of dumping ... ora determination of a subsidy" or, as alternatively characterized by the AB, the payments "can bemade only following a determination that the constituent elements of dumping or subsidization arepresent." (41) Second,the AB stated that a measure would be considered to be an action "against" dumping or subsidizationif it "has the effect of dissuading the practice of dumping or the practice of subsidization, or createsan incentive to terminate such practices." (42) The AB found that, given its "design and structure," the CDSOA"effects a transfer of financial resources from the producers/exporters to their domestic competitors"and as a result the requisite incentives are created. (43) Since the CDSOA did not take the form of the responses todumping or subsidization permitted under WTO agreements, the AB concluded that the statute fellwithin the scope of the prohibitions in above-cited articles. (44) The Appellate Bodyrecommended only that the United States "bring the CDSOA into conformity with its obligations"under WTO agreements and did not follow the panel's broader recommendation that the statute berepealed.

The appellate and modified panel reports were adopted January 27, 2003, and the complianceperiod was subsequently determined by arbitration to expire December 27, 2003. The Arbitratoremphasized that it is for the United States to decide on the manner of implementation, which maybe through modification or repeal of the law. (45)

Request to Suspend Concessions. Under theWTO Dispute Settlement Understanding, complainants in a dispute proceeding may seekauthorization to suspend WTO concessions or other obligations -- or retaliate -- if the defendingMember has not withdrawn its measure by the end of the agreed upon compliance period. (46) Countermeasures, whichgenerally take the form of duty surcharges on products imported from the defending country, maybe imposed until the Member has complied or a mutually agreed upon settlement of the dispute hasbeen reached. (47) Sincethe United States did not comply by the December 2003 deadline, eight complaining Members --Brazil, Chile, EC, India, Japan, Korea, Canada, and Mexico -- asked the WTO Dispute SettlementBody (DSB) for authorization to impose retaliatory measures. The United States objected to therequests, sending them to arbitration. The remaining three complainants -- Australia, Indonesia, andThailand -- agreed to give the United States until December 27, 2004, to comply.

Under Article 22.4 of the Dispute Settlement Understanding, the level of suspension ofconcessions or other obligations authorized by the DSB must be equivalent to the level of thenullification or impairment of WTO benefits caused by the infringing measures. Each of the eightMembers seeking to retaliate proposed the suspension of concessions or obligations in an amountto be determined each year that was equal to: (1) the amount of offset payments attributable toantidumping and countervailing duties collected on the Member's products and (2) except for Chile,a proportionate amount of the balance of offset payments less those attributed to the products of theother Members authorized to retaliate. (48) The United States contested the requests on the ground that theproposed retaliation was not based on actual harm to the complainants' exports and noted asparticularly troublesome the use of the amount of duties imposed on goods of countries that werenot party to the WTO proceeding as a basis for determining the amount of permissibleretaliation. (49)

Retaliation Authorized. In awards issued August31, 2004, the WTO Arbitrator (a panel of three) determined that each of the eight Members couldimpose countermeasures on an annual basis in an amount equal to 72% of the CDSOAdisbursements for the most recent year for which official data are available relating to antidumpingand countervailing duties paid on imports from the Member at that time. (50) The Arbitrator stated thatthe disbursements "operate, in economic terms, as subsidies that may generate import substitutionproduction" and used an economic model to determine the level of nullification or impairment ofbenefits, or what the Arbitrator characterized as "a value of trade" affected by application of theCDSOA. (51) TheArbitrator also made clear that each Member would need to ensure that the total value of U.S. tradesubject to the proposed duty increase did not exceed the total value of trade determined to constitutethe level of nullification or impairment, or else propose other forms of suspending concessions tothe DSB that were less likely to have trade effects exceeding this level in terms of value of U.S.exports to the country involved. For example, of the $190 million collected in FY2003, about $121million was collected (and distributed pursuant to the CDSOA) in duties on imports of theco-complainants. Based on the formula determined by the Arbitrator, $87.12 million in FY2003funds was available to be distributed among the eight parties. (52)

Seven of the complainants -- the European Union, India, Japan, Korea, Brazil, Canada, andMexico -- requested and received formal authorization to impose retaliatory measures in lateNovember 2004; Chile was authorized to retaliate in December 2004. In contrast, Thailand, Indonesia, and Australia have entered into agreements with the United States under which they willnot seek authorization to suspend concessions at this time, but retain the right to pursue retaliationin the future. (53)

Actions to Implement Authorized Retaliation. On April 25, 2005, the Council of the European Union adopted a Council Regulation establishingadditional customs duties of 15 percent on certain products from the United States. As of May 1,2005, these duties applied to U.S. exports of certain apparel, binders and notebooks, crane trucks,sweet corn, and wire spectacle frames from the United States. (54) On May 5, 2005, theCanadian government issued a final order implementing a 15% surtax on live swine, ornamental fish,oysters, certain cigarettes, and certain fish items, effective May 1, 2005. (55)

On June 3, 2005, representatives of all eight complaining parties met with the Deputy UnitedStates Trade Representative (USTR) to express concerns about the statute and, in a memorandumto the USTR, conveyed their view of "the urgency of the repeal of the CDSOA." They noted thatthe six remaining members were contemplating the imposition of retaliatory measures by July 2005and that as a result "a broad range of U.S. industries will be subject to increased duties by major U.S.trading partners." (56)

On August 1, 2005, Japan announced that it would impose additional tariffs of 15% on 15categories of U.S. goods beginning September 1, 2005; the imposition of tariffs was approved by thePrime Minister's cabinet on August 12. (57) According to Japan, the level of retaliation would not exceed$52 million, which, it stated, is the amount authorized by the WTO based on the amount of CDSOAdisbursements involving Japanese goods in fiscal 2004. (58) The products that will be subject to the tariff are: seven typesof ball bearings, three types of flat-rolled steel products; navigational instruments; machineryaccessories; printing machines; forklift trucks; and industrial belts.

In addition, Mexico began imposing $20.9 million in retaliatory tariffs effective August 18,2005, placing a tariff of 30% on certain prepared milk products, 20% on wine, and 9% on chewinggum. (59) The officialMexican Government notice states that the tariff decree will remain in effect for 12 months, and thatit will no longer apply when the Ministry of the Economy places a notice in the Diario Oficial thatthe United States has complied with the WTO decision, at which time tariffs will return to theiroriginal rates. (60)

The CDSOA and the U.S.-Canada Softwood Lumber Dispute

For Canada, the CDSOA is also tied to the longstanding U.S.-Canadian dispute over tradein softwood lumber, which itself has resulted in WTO and NAFTA complaints by Canadachallenging U.S. agency actions. The dispute has also been the subject of negotiations between thetwo countries. (61) TheUnited States has been imposing antidumping and countervailing duties on imports of softwoodlumber from Canada since May 2002, with over $4 billion in estimated duties having been depositedwith Customs and Border Protection as of October 1, 2005, (62) and additional dutydeposits accumulating since. Canada has contested the final Department of Commerce dumping andsubsidy determinations and the final International Trade Commission (ITC) threat of injurydetermination in WTO dispute settlement proceedings and before binational panels established underChapter Nineteen of the North American Free Trade Agreement (NAFTA), an option available inlieu of judicial review in the United States.

Among other decisions, WTO and NAFTA panels ruled against the original ITC affirmativethreat of injury determination, with the NAFTA panel having directed the ITC to issue a "no threat"determination and the ITC doing so, but under protest, in September 2004. The United Statesappealed the NAFTA panel decision to a NAFTA Extraordinary Challenge Committee (ECC), whichupheld the panel decision in an August 10, 2005, ruling. (63) At the same time, the ITC continued to find threat of materialinjury in response to the WTO decision and, in November 2004, issued a determination to this effectunder Â§ 129 of the Uruguay Round Agreements Act (Section 129 determination). (64) In February 2005, Canadarequested that a WTO compliance panel review the Section 129 determination (65) and also soughtauthorization from the WTO Dispute Settlement Body to impose sanctions against the United Statesin the amount of $4.25 billion (Can.), an amount based on accumulated softwood duty deposits, if the United States is ultimately found not to have complied. (66) A panel report issued inNovember 2005 upheld the U.S. threat determination. (67) Canada has appealed the report. (68)

Canada maintains that as a result of the affirmative ECC decision in the NAFTA proceeding,the United States has no legal basis for maintaining the antidumping and countervailing duty orderson softwood lumber and must thus revoke them. (69) However, Canada is also concerned that even if the orders areultimately revoked, the United States will not refund the accumulated duty deposits and instead willmake them available for distribution to U.S. lumber producers under the CDSOA. (70) To date, the United Stateshas resisted agreeing to a return of these funds. (71) Moreover, the United States is maintaining that, notwithstandingthe ECC decision, the September 2004 negative threat of injury determination has been supersededby the affirmative Section 129 determination issued in November 2004 and that, withimplementation of the latter, the United States may continue to collect antidumping andcountervailing duties on dumped and subsidized softwood lumber. (72) Canada and Canadianproducers have filed a suit in the U.S. Court of International Trade (USCIT) in which, in light of theNAFTA panel ruling, they are challenging the United States Trade Representative's direction to theDepartment of Commerce to implement the November 2004 ITC determination. (73)

Administration and Congressional Response

The Bush Administration proposed repeal of the CDSOA in the FY2004-FY2006 budgetrequests. In addition, then-U.S. Trade Representative (USTR) Robert B. Zoellick notified WTOofficials in late 2004 that the United States intends to comply with the WTO ruling, but that"complex issues like these often take time." (74)

At the same time, there is considerable opposition in Congress to repealing the CDSOA. OnFebruary 4, 2003, shortly after the WTO panel and Appellate Body reports were adopted by theWTO Dispute Settlement Body, a letter signed by 70 Senators was sent to the White House urgingnegotiations with U.S. trading partners to find a positive resolution rather than making any attemptto change the law. The letter said that the CDSOA's "continued operation is critical to preserve jobsthat will be otherwise lost as the result of illegal dumping or unfair subsidies and to maintain thecompetitiveness of American industry." (75)

Also, in response to the Bush Administration's efforts to repeal the law in the FY2004 and2005 budgets, more than half of the members of the Senate Appropriations Committee, includingSenator Byrd, sent letters (dated June 4, 2003 and June 1, 2004, respectively) to the chairman andranking member of the Senate Transportation, Treasury, and General Government Subcommitteewarning them against any attempt to repeal the law. (76)

CDSOA supporters in Congress also inserted provisions in the Consolidated AppropriationsActs, 2004 ( P.L. 108-199 , signed January 23, 2004) and 2005 ( P.L. 108-447 , signed December 8,2004) directing the USTR and the Department of Commerce to initiate WTO negotiations aimed atrecognizing the right of WTO members to distribute monies collected from antidumping andcountervailing duties. (77) On April 26, 2004, U.S. negotiators complied, in part, by proposing in a submission to the WTONegotiating Group on Rules that negotiators should consider addressing "the right of WTO membersto distribute monies collected from antidumping and countervailing duties" as part of its work in theDoha Round. (78) Theagencies were directed to continue negotiations on the issue in their appropriation act for FY2005,P.L. 108-447. (79) H.R. 2862 , 109th Cong., 1st Sess. (2005), theScience, State, Justice, Commerce, and Related Agencies Appropriations Act, 2006, as reported inand passed the Senate, also contains a CDSOA negotiation requirement for USTR and theDepartment of Commerce for FY2006. (80)

Congressional support for the CDSOA is not unanimous, however. Some Membersintroduced legislation in the 108th Congress seeking to repeal the measure. S. 1299 (Snowe, introduced June 19, 2003) sought to repeal the CDSOA and use AD and CVD duties toestablish a trust fund to aid communities negatively impacted by trade. H.R. 3933 (Ramstad, introduced March 10, 2004) sought to repeal the act and direct that any special accountsestablished under the law be deposited in the general fund of the U.S. Treasury.

In the 109th Congress, on July 25, 2005, H.R. 1121 (Ramstad, introduced March3, 2005, co-sponsored by Ways and Means Trade Subcommittee Chairman Clay Shaw), a billseeking to repeal the CDSOA, was included in a long list of bills that may be included in amiscellaneous duty suspension and technical corrections trade package proposed by the Ways andMeans Trade Subcommittee. (81)

In addition, on September 9, 2005, Senate Finance Committee Chairman Grassley introducedtwo amendments to the Senate version of H.R. 2862 related to the CDSOA. S.Amdt. 1680 would have directed the USTR to determine and report to Congress asto whether distribution of CDSOA funds is consistent with U.S. WTO obligations, and, if found notto be, would prohibit the distribution of CDSOA funds unless USTR later found and reported thatchanged circumstances rendered such distributions not inconsistent with these obligations. (82) S.Amdt. 1681 would have struck the CDSOA negotiation requirement in Senate-reported H.R. 2862noted above. (83) Neitheramendment was voted upon during Senate consideration of the underlying bill.

Budget Reconciliation Bill. On October 26, 2005,a provision repealing the CDSOA was included in a House Ways and Means Committee-approvedbudget reconciliation resolution. (84) The Entitlement Reconciliation Recommendations for FiscalYear 2006 (approved in committee, as amended, by a vote of 22-17) was referred to the HouseBudget Committee and subsequently included in H.R. 4241 , the Deficit Reduction Actof 2005 (Nussle, introduced November 7, 2005). Since the measure provides that any remainingmoney in AD and CVD accounts and all future duties will be deposited in the general fund of theTreasury, the Congressional Budget Office (CBO) estimated that CDSOA repeal would save thegovernment $3.2 billion over five years. (85)

S. 1932 , the Senate version of the budget reconciliation bill, passed onNovember 3, 2005. The Senate bill did not include CDSOA repeal, and any move to include themeasure faced swift opposition in the Senate. In a letter to Senate Majority Leader Bill Frist, 25Senators expressed that "we do not believe that the budget reconciliation process should be used tosubstantively change U.S. trade law." (86) An additional letter, signed by Senators Baucus, Byrd, Conrad,and Inouye (ranking members of the Senate Finance, Appropriations, Budget, and Commercecommittees, respectively), asked Senator Frist to "make certain that the Senate not accede to anyprovision to repeal or modify CDSOA that may be unwisely included by the House in itsreconciliation package." (87) Senator Grassley, in favor of repeal, stated that the budgetreconciliation package was the only possible vehicle in the Senate for repealing the CDSOA in the109th Congress. (88) Despite strong support for the measure, he predicted that, if the CDSOA were ultimately includedin a budget reconciliation measure, many senators would not be likely to vote against the entire billover that one provision.

On November 18, 2005, the House inserted the text of H.R. 4241 into S. 1932 , and passed an amended version of S. 1932 -- including the CDSOArepeal measure -- by a vote of 217-215 (recorded vote number 601). Despite a motion to instructSenate conferees to insist that CDSOA repeal not be included in the S. 1932 conferencereport, (89) House andSenate conferees agreed to include a CDSOA provision that would repeal the measure as of the dateof enactment of S. 1932, but would allow the disbursement of duties on all subjectmerchandise entering the United States before October 1, 2007. (90) On December 19, 2005,the House passed the conference report by a vote of 212-206.

During Senate debate on the S. 1932 conference report, Senator Craigparticipated in a colloquy on his behalf and that of Senator Burns clarifying that "the bill requiresdistribution of all antidumping and countervailing duties finally determined, ultimately assessed onany and all imports of merchandise that are entered, or withdrawn from warehouse for consumptionby the deadline of October 1, 2007," and that "liquidation or assessment of duties need not occurprior to the deadline of October 1, 2007 as a condition of distribution and that the duties ultimatelyassessed will be distributed regardless of the date on which they are finally determined andcollected." (91) SenatorCraig also stated his understanding that "the CDSOA shall operate 'as if' there had been no repeal;meaning that Customs will maintain all existing aspects of the program codified at 19 U.S.C. Â§1675cand contained in accompanying regulations ...." (92) Senate Majority Leader Frist agreed that "it is my understandingthat my colleague is correct in his interpretation of the language agreed to by the conferees," addingthat "duties collected on products entering on or after October 1, 2007, will be deposited with theU.S. Treasury." (93)

The Senate ultimately approved the S. 1932 conference report in a 51-50 vote,with Vice President Dick Cheney casting the deciding vote. However, due to a point of order upheldin the Senate that any bill language dealing with Medicare and Medicaid should not be consideredas part of a budget bill, the Senate-passed version of the conference report was slightly different fromthe House version -- meaning that the House needed to consider the conference report once again. The House took final action approving the legislation on February 1, 2006, with a vote of216-214. (94)

Debate on Pros and Cons of Repeal

The Byrd Amendment controversy is one component of a larger debate in Congressconcerning the overall direction of U.S. trade policy. Although many Members acknowledge thatthere are benefits received by liberalizing trade flows, there is sometimes disagreement on the properbalance between these benefits and the transition costs incurred to domestic industries, firms, andworkers by increased global competition. Because the added welfare from trade tends to be diffusedover the population as a whole, while losses fall disproportionately on import-competing industriesand regions, Members' perceptions of free market policies differ. With regard to the CDSOA,supporters maintain that the measure helps level the playing field by compensating U.S. producersadversely affected by unfair trading practices. Now that some co-complainants have assessedWTO-authorized retaliatory duties on U.S. exports, however, Congress may later face as muchpressure to repeal the measure from U.S. exporters as it does from the domestic producers whobenefit from the measure.

The debate over CDSOA compliance is also related to the issue of differing viewpoints inCongress on the merits of WTO membership, a topic which has also been addressed in the 109thCongress. (95) As aninternational organization designed to ensure that global trade flows more easily, predictably andfreely, the WTO serves as a forum for multilateral trade negotiations and the settlement ofdisputes. (96) Questionsmay arise as to the overall benefit of WTO dispute settlement, which the United States has used toensure that U.S. exporters receive open access and fair treatment in foreign markets, (97) but which has also resultedin rulings that various U.S. laws, regulations, and regulatory actions, particularly in the trade remedyarea, are violative of WTO agreements. (98)

U.S. trade policy is also inextricably related to U.S. foreign policy interests. Some observersare concerned that U.S. leadership in this arena could be compromised by U.S. noncompliance withcertain WTO obligations and may cause strains in U.S. relations with nations that are essential forachieving other foreign policy objectives.

This section provides an analysis of issues Congress is likely to consider as it debates the prosand cons of repealing the CDSOA from these perspectives.

Economic Considerations

Trade remedy actions in general are a source of controversy among economists and otherpolicy makers. Some believe that the CDSOA increases the level of economic inefficiency broughtabout by these actions, while others assert that the small amount of inefficiency brought about by themeasure is worth the cost of preserving U.S. industries and jobs adversely affected by unfair tradingpractices. What follows is an analysis of the economic arguments by both supporters and opponentsof the CDSOA.

Opposing Viewpoints. Most economists supportthe most efficient allocation of resources in an economy. Therefore, they believe that tradeliberalization provides for optimal domestic and global economic welfare because nations are ableto specialize in the production and export of products in which they have a comparative advantagein terms of costs and resources, and buy or import products for which they do not have an advantage. Economic theory indicates that these benefits accrue even if a country unilaterally lowers its barriersto trade, and that countries that impose trade barriers are the ones that are harmed the mosteconomically. (99)

Therefore, most economists believe that trade remedy actions (the vast majority of which areAD or CVD cases) in and of themselves introduce inefficiencies in both domestic and internationaleconomies that result in decreased economic welfare. Some economists hold that if other countriesand firms decide to subsidize or dump goods at lower cost in the U.S. market, it amounts to anadditional benefit to the U.S. economy in the long run, especially if the practice continues over time.

Most analysts, however, acknowledge that allowances for a certain amount of inefficiencyresulting from trade remedies must be made in order to maintain public support for tradeliberalization. Others argue that efficiency is secondary when preserving industries consideredcritical to U.S. national and economic security interests. However, opponents of the CDSOA assertthat the measure provides a type of "double" remedy to domestic producers, thus enhancing theeconomic inefficiency of AD and CVD actions.

Injury to Downstream Industries. Trade remedyactions often lead to price increases on targeted goods -- many of which are industrial inputs usedby other domestic industries. To the extent that the CDSOA encourages domestic producers to fileadditional AD or CVD claims, the measure also contributes to these price increases. Downstreamindustries (for example, the automobile and housing industries which use steel and lumber tomanufacture their products) bear the cost of trade remedies in the form of higher-cost inputs for theirproducts. As a result, these industries may have to raise the price of their goods. At a recent HouseSmall Business Committee hearing, for example, a manufacturer of specialty automotive partscomplained that inflated prices for steel inputs, brought about in part by trade remedy actions, causedunintended "collateral damage" which threatened his business. (100)

In addition, since the EU and Canada have already begun retaliating against U.S. exports,products targeted for increased duties may also become uncompetitive in the receiving market. Therefore, many economists contend that the CDSOA, while providing a benefit to many domesticfirms injured by dumping or subsidies, may in turn cause injury to U.S. downstream producers,exporters, and ultimately, consumers.

Distribution of Benefits. According to aCongressional Budget Office (CBO) memorandum on the CDSOA, the statute may lead to unequaldistribution of benefits within an industry that could give some firms an advantage over domestic,as well as global, competitors. (101)

First, according to the CDSOA, only the firms in support of an AD or CVD petition resultingin an AD or CV duty order are eligible to receive disbursements. Therefore, even though allcompanies in an industry that producing the targeted product may benefit from the remedial effectof trade remedy action, companies are only eligible for CDSOA payments if they are able to certifythat they supported the initial investigation. Those producers within the industry who decide not tosupport the trade remedy action could be placed at a disadvantage vis a vis their domesticcompetitors. (102)

Additionally, due to the considerable transaction costs involved in filing and supporting traderemedy petitions (estimated to range from $500,000 for the simplest case to millions of dollars formore complex ones), it is possible that more efficient firms in an industry might be less likely tosupport a trade remedy petition. Thus, opponents argue the CDSOA mechanism could adverselyaffect the more efficient firms in a domestic industry, while more inefficient firms receive abenefit. (103)

For these reasons, the decisions of U.S. manufacturers in some industries to pursue AD orCVD investigations have caused intense and vocal debate within the domestic industry as a whole. For example, when some U.S. furniture makers and worker unions decided to file a petition onwooden bedroom furniture from China, many larger furniture retailers strongly objected, saying thatthey would lose jobs and business on the retail side if the petition went forward, while producersmaintained that far more manufacturing jobs were being lost than would be lost on the retail side ofthe business. (104) Inthis particular case, many U.S. furniture manufacturers in support of the investigation speculated thatthe cost of lost business from U.S. retailers in retaliation for their support may well exceed thecombined benefit of the AD order and CDSOA disbursements. (105)

According to the CBO, CDSOA payments may also reduce the receiving industry's incentiveto take the necessary steps to remain competitive, such as changing the product mix or developingmore efficient methods of production. Since the affected industry only qualifies for disbursementsas long as it manufactures a particular product, firms may decide to produce the good longer thanit is efficient to do so, rather than allocating resources to producing alternative products that couldhelp firms return to competitiveness. (106) Because CDSOA payments are also linked to productioncosts, firms may be encouraged to increase output beyond the levels signaled by market incentives,ultimately driving down the cost of the product. (107)

Supporting Viewpoints. Many Members havewitnessed the substantial benefits that the CDSOA has conferred on industries and workers in theirstates and congressional districts. In a February 2005 hearing before the U.S.- China Economic andSecurity Review Commission, some Members testified that the CDSOA enabled U.S. firms -- manyof them small, family-run companies -- to purchase new machinery, hire more workers, and competehead-to-head with unfairly traded imports from China. (108)

Supporters of the CDSOA believe that U.S. producers are facing an uneven playing field dueto price discrimination and artificial competitive advantage brought about by unfairly dumped orsubsidized imports. Continued dumping of the targeted merchandise causes U.S. products to remainless competitive, despite additional duties assessed. Therefore, supporters believe that the CDSOAcreates an additional disincentive for foreign exporters to continue dumping and compensatesdomestic producers with financial resources that can be used to maintain competitiveness.

Proponents of this view believe that trade remedies, combined with the added benefitprovided by the CDSOA, are worth the cost of the economic inefficiency because they promote tradefairness, restore competitive balance, and preserve critical U.S. industries and jobs. Supportersbelieve that many countries limit outside competition in their economies by creating "sanctuarymarkets" -- limiting both domestic and international competition -- thus enabling chosen firms tocharge higher prices for goods at home to offset the lower prices charged in the foreign market -- at the expense of industries abroad that produce similar merchandise. Therefore, some supportersbelieve that trade remedy actions, combined with the CDSOA may actually encourage internationaltrade by providing an "interface mechanism" between two radically different economic systems. (109)

Some recent economic research also suggests that the CDSOA could actually lead to higherwelfare for the domestic economy, as well as lower overall antidumping duties, if the goal ofadministrative authorities is to provide affected domestic industries with higher CDSOA payments.According to this theory, since the CDSOA gives the duty revenue to the domestic industry, theaffected industry is interested in receiving the proceeds from AD or CVD action as well as profits. If administrative authorities and policy makers are, in turn, concerned about the affected industry,they may actually choose to assess lower AD or CV duties so that imports of the subject merchandisewill continue. Thus, greater revenues could be collected by the industry, and lower trade remedyduties could reduce the overall economic inefficiency of the actions. (110) However, since thecongressional intent of the CDSOA and trade remedy actions in general seems to be to discourage ,rather than encourage, continued dumping of subject merchandise, modifications to the existingstatutes would be required if increased duty proceeds were desired.

WTO and Other Trade Concerns

Many policymakers believe that a multilateral, rules-based trading system that enhancespredictability and progressively reduces barriers to trade is desirable. Many also believe that theWTO dispute settlement mechanism, of which the United States was a primary architect, is a uniqueand effective means toward achieving that end, because it helps ensure that WTO members' tradepractices are consistent with their GATT/WTO commitments. Those who share this view believethat U.S. compliance with WTO rulings is an important demonstration of U.S. credibility andleadership in the global economy, and will in turn generate increased confidence in the multilateraltrading system.

Dispute Panels Overreached? Although CDSOAsupporters do not necessarily disagree with the value of the WTO or its dispute settlementmechanism, some believe that in the CDSOA ruling, WTO panels overreached by creatingobligations for the United States beyond those agreed to. According to this view, the panels violatedArticle 3.2 of the WTO Dispute Settlement Understanding (DSU), which states thatrecommendations and rulings of the Dispute Settlement Body cannot add to or diminish rights andobligations in the covered agreements. These supporters believe that the WTO panels infringed onU.S. sovereignty by mandating an uncalled-for change to U.S. laws, and in addition encroached onthe constitutional authority of the U.S. Congress to decide how government revenues should bespent. (111) Moreover,supporters argue that since the complaining parties were unable to demonstrate sufficiently that theireconomies suffered "nullification or impairment" through CDSOA implementation, the measureshould have been found to be in compliance with WTO obligations. (112)

Those who favor CDSOA repeal respond that the United States, along with other WTOmembers, agreed voluntarily to limit the means by which they would shield affected industries fromthe effects of import competition (including unfair trade) when they agreed to join the WTO. Furthermore, as the Appellate Body report states, the DSU provides that where a violation of anyWTO agreement is found, there is normally a presumption that the violation has an adverse impacton other parties to the agreement. Thus, they say, the panel properly found that the CDSOA nullifiesor impairs benefits accruing to the complaining parties even if they could not demonstrate actualeconomic impairment. (113)

Discourages Suspension Agreements. Some whofavor CDSOA repeal also believe that the law may discourage administrative authorities fromaccepting alternative arrangements to trade remedy actions, such as mutually agreed-upon suspensionagreements or quantitative restrictions -- also called "price undertakings" in the WTO agreements. These observers believe that if the affected industry expects to receive CDSOA disbursements,petitioners might put pressure on administrative authorities not to negotiate or accept suspensionagreements.

Such alternative arrangements are favored by many WTO members because they seem toinflict a lesser amount of economic damage on the exporting industry, and by many economistsbecause they may reduce the overall level of economic inefficiency in the global trading system. (114) The United States, forexample, has in force ten such agreements (known in U.S. law as suspension agreements ), includingalternative measures on hot-rolled steel imports from Brazil and Russia; cut-to-length carbon steelplate from Russia and Ukraine; and tomatoes imported from Mexico. (115)

Some of the complaining parties in the WTO dispute argued that the United States violatedthis provision in the WTO agreements. However, the dispute settlement panel rejected theirarguments on the grounds that both the Antidumping and SCM Agreements stipulate that membercountries' acceptance of such alternative measures is strictly voluntary. Additionally, WTO panelsfound that U.S. law requires the consideration of the interests of all parties, including downstreamindustries and consumers, before accepting such an agreement. (116)

Concern of Emulation. When the CDSOA wasenacted, some supporters of trade liberalization predicted that the availability of CDSOAdisbursements would provide a direct incentive for U.S. import-competing industries to file AD andCVD petitions in a country that was already one of the most aggressive users of trade remedies. (117) Initially, it seemed asif this prediction might be accurate, as U.S. AD and CVD initiations jumped from 54 in 2000 to 94in 2001. However, U.S. initiations actually dropped in 2002 to 39, and the number was only slightlyhigher in 2003 with 41 initiations. (118) Therefore, there is little evidence to suggest that the CDSOA,in itself, has led to an escalation of total U.S. AD or CVD petitions.

One reason that the number of U.S. trade remedy initiations has not increased may be that,for most industries, the transaction costs involved in filing AD and CVD petitions far outweigh theadditional benefits received, even if CDSOA payments are factored in. Although a few businesseshave received millions of dollars in annual payments (including the roller bearings, steel, seafood,pineapple, and candle industries), the vast percentage of companies received much less. Forexample, of the more than 500 companies that received CDSOA payments in FY2004, only about100 received more than $100,000. A few companies that filed for disbursements in FY2004 foundthat they had been overpaid in previous years and were liable to pay back the difference.

Some observers have also expressed concern that other countries might follow the U.S.example and establish similar laws, thus exacerbating an already apparent increase in trade remedyactions worldwide prior to 2001. In this view, such increases could be harmful to U.S. exports andincrease the decline in international economic welfare already brought about by trade remedy actions. However, to date, no other WTO member has adopted similar laws, and AD and CVD initiationshave declined worldwide, from a total of 393 in 2001, to 319 in 2002, and to 246 in 2003. (119) Some observersbelieve that the decline in trade remedy actions is only temporary, however, and attribute it tointernational restraint pending talks on trade remedies in the Doha Round.

Doha Development Agenda Negotiations. Somebelieve that it may be in the U.S. interest to comply with the Byrd Amendment ruling in view oflarger U.S. goals in the ongoing Doha round of WTO multilateral negotiations, especially if theUnited States seeks to fend off major modifications to the Antidumping or SCM Agreements. Sincemany countries regard trade remedy reform as a "make or break" issue in terms of their acceptanceof any final Doha Development Agenda (DDA) agreement, some observers believe that lack ofaction on CDSOA repeal could weaken the U.S. position in the ongoing trade remedy negotiations. This could be problematic because the gap in negotiating positions between the United States andother WTO countries on trade remedies is large and may be difficult to narrow.

Some in Congress are also concerned about the ability of the USTR to negotiate on traderemedy modifications in a manner favorable to their manufacturing constituents, because theybelieve that the USTR did not expend very much effort in attempting to keep trade remedynegotiations off the table in the DDA. (120) This perception, combined with the Bush Administration'srepeatedly declared support for CDSOA repeal, may have contributed to increased resistance in ofsome in Congress toward WTO rulings and proposals that might weaken U.S. trade remedy laws ingeneral, and repeal of the CDSOA in particular.

Many CDSOA supporters favor seeking a negotiated change to the Antidumping Agreementin DDA talks that would permit all WTO members to distribute duties collected pursuant to AD orCVD action. (121) Thisis the approach Congress instructed the Bush Administration to take as part of the 2004 and 2005Omnibus Appropriations. Many CDSOA supporters believe that this is the proper approach tofollow if there is genuine concern that dispute settlement panels created additional obligations forthe United States in the CDSOA ruling.

Other Trade Agreements and Issues. The UnitedStates has entered into free trade agreements (FTAs) with four of the complaining parties in theCDSOA dispute -- Canada, Mexico, Australia, and Chile -- and is actively pursuing trade agreementswith others, including Thailand. U.S. trade remedy policy in general, and the CDSOA in particular,might dampen the economic welfare effects accruing to U.S. businesses, investors, and consumersfrom these FTAs due to higher costs brought about by the measure (and eventual retaliation), evenas these FTAs have led to significant tariff reductions on both sides. With respect to Canada, thepossible availability for disbursement to U.S. lumber producers of several billion dollars inantidumping and countervailing duties on Canadian softwood lumber has added complexities to theresolution of the ongoing dispute between the United States and Canada over lumber trade.

Secondly, the Bush Administration has often used access to the U.S. market in general, andtrade agreements, in particular, to promote economic growth and development in lesser developedcountries. Preferential market access is provided to many countries, including some of thecomplaining parties in the CDSOA dispute, through the Generalized System of Preferences (GSP)and other programs with a view toward fostering economic and governmental stability. For example,Indonesia and Thailand, both complainants in the CDSOA dispute, are also countries that the 9/11Commission identified as vulnerable to penetration by anti-American Islamic terrorist groups. (122) Although it is unclearthat these or other nations have actually suffered monetary "nullification or impairment" as a resultof the CDSOA, the act is seen by some as potentially counterproductive to U.S. economicdevelopment goals in some developing nations.

Conclusion and Options for Congress

The adoption of WTO panel and Appellate Body reports by the WTO Dispute SettlementBody cannot in itself effect a change in U.S. law. (123) In this case a statute has been found to be in violation of WTOagreements. Since the Executive Branch cannot amend or remove the measure under existingstatutory authorities, congressional action would be needed to do so. Under WTO rules, withdrawalof a violative measure is ordinarily the main objective of a WTO dispute settlement proceeding. Nevertheless, a defending Member may choose to seek other avenues of resolving a dispute. If theMember does not comply by the end of an established compliance period, however, it may alsobecome subject to sanctions until the measure is removed. According to WTO rules, however, anyretaliation must be temporary, lasting only as long as a Member is not in compliance or until amutually satisfactory arrangement is reached.

If the CDSOA remains in force in its current form, it will continue to be a part of U.S. traderemedy law, and import-competing industries that are parties to successful AD and CVD petitionswill continue to receive benefits under the act. However, since two of the complaining parties(accounting for a large percentage of U.S. exports) have already taken steps toward retaliation, U.S.exporters could begin to experience the effects of retaliation in mid-to-late 2005. These exportersmay then begin to lobby Congress for CDSOA repeal.

Were the statute to be repealed, the United States would be in compliance with the WTOrulings and any retaliation that has begun would need to cease. At the same time, CDSOA repealcould lead to additional, if temporary, instability to import-competing industries already identifiedas vulnerable because they may have become dependent on CDSOA disbursements to some degree. Were Congress to consider a gradual reduction of benefits over time, complaining parties may stillview the remaining benefits as WTO-inconsistent and may continue to retaliate as long as theamended measure remains in place. However, the Administration might be able to negotiate amutually satisfactory arrangement with the complaining parties, provided full repeal of the measurewere assured at the end of the process. Repeal of the CDSOA itself would do nothing to affect otherU.S. AD or CVD laws, procedures or actions, and domestic industries would continue to benefitfrom these measures.

In the event the CDSOA were repealed, Congress might at the same time establish anotherprogram in its place that would deal in some other way with the adverse effects of international tradeon firms, workers, and communities in a way that might be considered WTO-compliant. S. 1299 (Snowe), the "TRADE for America's Communities Act," introduced in the108th Congress, sought to repeal the CDSOA and deposit the duties instead into a "CommunityTrade Readjustment and Development Enhancement Trust Fund" that would assist communitiesadversely affected by unfair trade. Many CDSOA supporters maintained that this approach (alongwith similar proposals to expand Trade Adjustment Assistance for firms and workers with AD andCV duties) was not acceptable, however, because protection afforded by the CDSOA could keepfirms operating and workers in the jobs they currently have, rather than reacting to job losses andeconomic dislocation after damage had occurred.

As evident in recent appropriations legislation, Congress has also favored negotiationsleading to recognition of the existing right of WTO Members to distribute collected AD and CVduties in a manner similar to the CDSOA. This course of action is favored by manyimport-competing business associations, according to industry sources. (124) If WTO Membersagreed, the United States, along with all other Members, would have the option, expressly supportedby the WTO, of disbursing AD or CV duties to affected companies or earmarking them for otheruses. Many economists are concerned, however, that replication of the measure by other countriescould lead to a multiplication of inefficient trade remedy actions worldwide.