Posted on 02/09/2003 5:10:11 PM PST by Marianne
HOST OF COMPANIES POCKET WINDFALLS FROM TARIFF LAW
The Wall Street Journal
By Neil King, Jr., Staff Reporter
December 5, 2002
NORTH EAST, Md. -- When making Fourth of July sparklers lost its shine, the Elkton Sparkler Co. in 1999 shut its factory here and became an importer of sparklers instead.
Yet this year, it rehired a skeleton crew, cranked up its old boiler and started making sparklers again. The reason: Elkton wanted to take advantage of an obscure new law that is showering money on certain U.S. manufacturers.
The law, the Continued Dumping and Subsidy Offset Act of 2000, works like this: Manufacturers that successfully petition the U.S. to impose tariffs on imports they claim are being "dumped" -- or sold for less than fair-market value -- are allowed to keep the proceeds of those tariffs. Elkton and its archrival, Diamond Sparkler Co., had successfully protested cheap Chinese imports in 1991; the U.S. then hit the Chinese makers with import duties.
The Byrd Amendment, as the new law is known, creates a practice found in no other country, where the proceeds of tariffs generally are placed in the government till and not given out to specific companies. Indeed, that's how it used to work in the U.S.
To foreign companies and other critics, the Byrd Amendment, named after Sen. Robert Byrd of West Virginia, amounts to a double whammy: The U.S. not only whacks foreign manufacturers with hefty tariffs, but it also rewards their U.S. competitors. So when Elkton started importing, the tariffs it paid helped Diamond get a government check for $1.6 million.
The law has triggered bureaucratic skirmishes and legal spats unusual even by Washington standards. In Louisiana's Atchafalaya Basin, hundreds of crayfish farmers and processors are vying for a portion of $8 million in duties on Chinese imports. A clutch of U.S. candle makers is clamoring over $65 million collected from Chinese candle companies that must pay 54% duties to get their products into the U.S. Only rarely is the disbursement simple. Maui Pineapple Co., for instance, is the sole candidate to receive this month about $500,000 in duties on imported Thai pineapples. Congressional forecasters figured the Byrd Amendment would dole out $39 million a year. In fact, the Treasury Department will soon cut checks for the latest year totaling nearly $320 million to companies including the J.R. Moon Pencil Co., the Bonanza Crawfish Farm, U.S. Steel Corp. and Gates Rubber Co. On the paying end are companies from Chinese pencil makers to Italian manufacturers of industrial belts.
Companies for years have sought government protection from imports they say are unfairly subsidized or sold below their fair value. Help, when it comes, usually takes the form of tariffs. California garlic growers in 1994, for instance, won 299% duties on garlic from China. The tariffs are intended to help U.S. companies compete by putting their products on a level playing field with the dumped imports. But until last year all duty collections spilled into the Treasury's general fund.
Enter Sen. Byrd, a master Washington wheeler-dealer. In the fall of 2000, the veteran lawmaker slipped the Subsidy Offset Act amendment into an agricultural spending bill. Then-President Clinton railed against the amendment but grudgingly signed the bill, which took effect last year.
Sen. Byrd continues to champion the law. "We should not back away one whit from providing support for American industries, especially in such precarious economic times," he said yesterday in a statement. "If the duties collected were simply poured into the general Treasury, the companies most affected by these harmful unfair trade practices would lose the opportunity to invest in themselves."
Ball-Bearing Bonanza
The amendment's chief beneficiaries for 2001 were two ball-bearing companies whose lawyers helped to write the legislation, congressional staffers say. Torrington Co., a unit of Ingersoll-Rand Co., Woodcliff Lake, N.J., took in $63 million in Byrd money last year, and Timken Co., Canton, Ohio, fetched $31 million. The two companies also expect to receive the bulk of this year's payout from ball-bearing duties -- an estimated $70 million collected from bearing makers in Japan, the United Kingdom, Romania, Sweden and six other countries. Timken recently agreed to buy Torrington.
Timken has for decades invested heavily in research and development, a company spokeswoman says. "The Treasury Department payment clearly recognizes just how important such investments are to developing innovative technology."
The Byrd Amendment authorizes the U.S. Customs Service to disburse the tariff revenues. Dumping duties on, say, canned mushrooms or iron castings pile up in separate accounts. Every year, U.S. companies that can show they supported a dumping case -- and have continuing manufacturing operations -- apply to receive some of that money. The cash is doled out in proportion to each company's claimed expenses, so that large companies typically get bigger slices of the pie.
Companies are allowed to request reimbursement for nearly all their production expenses, including research, capital and material costs, but not labor. Since the legislation is retroactive, companies can claim expenses dating back to when the protective duties first took effect. Pushing it to the hilt, companies last year put in requests for $1.2 trillion, or about 10% of the U.S. annual gross domestic product. Ball-bearing maker Torrington, which had sales last year of $1.1 billion, sought reimbursements of $23.4 billion.
"To us this is essentially recovering money that we were entitled to years ago because of predatory international competition," says a spokesman for Torrington parent Ingersoll-Rand.
The biggest Byrd Amendment beneficiaries aren't the country's steelmakers even though they represent the largest share of the 337 active antidumping and countervailing duty cases. Steel and iron companies last year collected only about $29 million, or 14% of the total. That's because imports on many steel products have declined sharply since tariffs were imposed.
Instead, the main beneficiaries are companies such as New Jersey pasta maker A. Zerega's Sons Inc., which took in nearly $2.3 million last year from pasta companies in Italy and Turkey. More than a third of all this year's Byrd Amendment money will go to companies selling candles, pasta and crayfish tails, imports of which have remained strong despite their high tariffs.
Word of the Byrd bonanza seeped out slowly at first. "But it's not a secret anymore," says Jeffrey Laxague, the Byrd program administrator at the Customs Service, who's been swamped by letters and phone calls from companies and their lawyers seeking to qualify for Byrd funds. Nearly 1,200 companies have sought reimbursements this year, a 30% jump from 2001.
"It's the money that's driving all this," says Mr. Laxague. The single largest blitz of inquiries came this summer from the nation's beekeepers, who had heard -- wrongly -- that a fortune had built up on honey duties from Argentina and China. "It was nothing but beekeepers for days," he says. Honey duties, enacted late last year, won't be ripe for disbursement until 2003.
U.S. trading partners have blasted the Byrd Amendment as violating international trade rules by unfairly favoring U.S. companies. The World Trade Organization, in a September ruling, agreed. More than a few U.S. companies are of the same mind. "The Byrd Amendment is just bad trade policy," says William Lane, a Washington lobbyist for heavy machinery maker Caterpillar Inc. "It promotes litigation, violates our WTO commitments and undercuts U.S. competitiveness."
But Congress and President Bush don't appear ready to bend. U.S. Trade Representative Robert Zoellick -- despite his free-trade leanings -- appealed the WTO ruling last month. Sen. Byrd and other influential members of Congress have said they will fight any effort to repeal the law.
The Byrd law is replete with the sort of ambiguities that keep lawyers busy. Trickiest of all is the requirement that companies show they supported the original case that resulted in dumping duties being enacted. Some of these cases date back to the 1970s and 1980s.
The fight over who was and wasn't a supporter has been particularly heated in the candle industry, which won stiff import duties on wax candles from China in 1986. The imports kept arriving and the duties piled up. But who should get the proceeds?
For Jay Urwitz, one of a slew of corporate lawyers in Washington who are working the Byrd account, the answer is simple: Candle Corp. of America, the industry's largest employer. "I think it's only fair that my client get some of the cash," says Mr. Urwitz, of the law firm of Hale & Dorr.
CHECKING THE WRONG BOX
But Candle Corp.'s claim was rejected by the U.S. International Trade Commission, which has the task of sorting out which companies supported past dumping cases. Candle Corp.'s problem is that it offered only conditional support for the tariffs on a 1985 questionnaire that the ITC distributed to candle makers. Then, in a follow-up questionnaire in 1986, a Candle Corp. official checked the "Don't Support" box. The company, a unit of Blyth Inc., Greenwich, Conn., has appealed the ITC's rejection to the Customs Service.
The ITC similarly nixed the big Yankee Candle Co. of Massachusetts from a list of qualified recipients. That provoked a heated letter last month from the state's Democratic Sen. John Kerry, who argued that pouring "an enormous infusion of cash into the hand of a minuscule fraction of the industry [would] irrevocably alter the domestic marketplace."
The ITC also rebuffed a Louisiana purveyor of crayfish and alligator pelts, PS Chez Sidney LLC, saying the company failed to support slapping duties on Chinese crayfish imports in 1996. PS Chez Sidney filed suit against the ITC last month on First Amendment grounds in the U.S. Court of International Trade in New York.
"This is a free-speech issue," says William Brown, the company's lawyer. "We believe it is unconstitutional to provide government benefits to those who support them and to punish those who don't."
Companies are eagerly eyeing some new pots of cash that could pay out big. Canadian softwood lumber, as of this year, is subject to import duties averaging 27%. Already the timber kitty holds $570 million and is expected to top $1 billion by next spring. The money could start to flow to U.S. timber companies as soon as next year. Canada is fighting the tariffs at the WTO.
Elkton, the sparkler importer that nevertheless applied for Byrd money, used to crank out a million sparklers a day in a cluster of squat, concrete-block buildings set amid weeds and rusty trucks at the top of Chesapeake Bay. It still owns the little factory complex, about two miles from its warehouse and offices on the other side of town, but not much happens there nowadays.
David Shivery, the company's vice president, unlatches a padlock and yanks open the door to a dark chamber he calls the wire-straightening room. "I'm pretty sure that over all those years we made more sparklers than Diamond, and we haven't got a penny of the Byrd money," says Mr. Shivery.
Coils of sparkler wire lay 10 deep on the floor, but there are no workers to cut and straighten them, and won't be for some time. After the production burst in September, Mr. Shivery figures Elkton may make another batch or two sometime next year.
"When there's money out there like this, why not take advantage of it?" says brother Charles Shivery, who heads the sparkler business his father founded in 1945.
At rival Diamond Sparkler, last year's check for $1.6 million "put us in the black for the first time in years," says William Weimer, Diamond's general counsel. One of the last sparkler makers in the U.S., Diamond also expects to get much of this year's estimated $700,000 payout, collected from Chinese producers that pay a 93% duty to ship their goods to the U.S.
(emphasis added)
Yeah sure. #1, you don't grow oranges on wetlands. #2, when wetlands are developed, it's NEVER for agricultural use.
#3, Wetland development is a simple give-and-take. To use a wetland, you donate non-wetland to take it's place and BAM! you can build your mall!
Disney has been trading off wetlands for dry to expand it's park for 25 years now.
The only loser here is Florida residents and alligators. Brazil is just jumpin' on the band wagon. And for 20 cents a gallon, to lose an entire industry is insane.
Grocers will, but consumers won't.
I would agree, if the playing field were level. If the US doesn't support our domestic industries, we will soon be at the mercy of the third world countries. The other choice is to try to compete with virtual slave wages, and the only way to do that is to dramatically lower our standard of living.
I don't know about you, but I like indoor plumbing.
The only way to compete with a lower standard of living is to lower ours. Then you can sell apples as apples, and oranges as oranges. If we are to maintain our standard, tarriffs have to be applied to imports in order to maintain economic/dollar value parity with the importing country. The funds paid by the importers go into the Federal coffers to pay for essential items of govt, and US businesses continue to sell domestically at a dollar value that reflects OUR cost of production plus a profit margin.
If the US controlled the economies of all of the other countries of the world, then we could have true free trade. When us labor costs are many times higher than those of backward countries, and those countries can sell with a much lower cost to produce, the jobs and the facilities go overseas, US workers lose their jobs, and in this case their pensions and health care that can no longer be funded, and the US loses it's strategic industries to overseas firms who may or may not be friendly to us.
Many people try to make the free trade issue complicated, and complain that US companies should have to compete on a global basis, but it really is as simple as using tarriffs to level the field.
You might pay a little more for steel or Orange juice, but you'll pay less in terms of taxes and other fees to the govt that are made up by the tarriffs.
In addition, America will be considerably stronger in terms of defense/offensive capabilities. Don't let your greed towards what are really imaginary savings blind you to your responsibilities as a citizen, and a patriot.
Freedom isn't free, and so called "free trade" is an attempt at a free lunch for traitors of the worst kind.
I don't want to lower my standard to that of the third world where indoor plumbing doesn't exist in many places, just to save an imaginary few cents on a glass of OJ. In addition, history has shown that without tarriffs, the cost savings in third world labor are never passed to US consumers, they just fatten the profit margin of the corporation.
WFTR
Bill
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