February, 2001: Publius

By Greg Rushford
Published in the Rushford Report

Oilmen in his hometown of Midland, Texas perked up when Commerce Secretary Don Evans — formerly chairman and CEO of Tom Brown, Inc., an independent oil & gas producer — told senators at his January 4 confirmation hearings that he was sympathetic to the U.S. steel industry’s pleas for more vigorous enforcement of U.S. trade laws. People in Midland like imported oil about as much as people in Weirton, West Virginia like imported steel. As one Midland oilman told me when I called last month, “When Evans said that about steel, I thought, ‘fine, but what about us?’”

The question is a good one.

In 1999, some11,000 independent oil producers in Texas, Oklahoma and other western states watched from the sidelines as the Clinton Commerce Department got into high gear to slap on antidumping tariffs that rolled back a rising surge of foreign steel. Steelworkers screamed that they had lost 10,000 jobs, blaming the import competition. That year, independent oil producers complained that they had lost 100,000 jobs when oil prices fell through the floor — or ten times as many people as in steel.

But while the oil guys’ pain was tenfold that of steel, nobody in Bill Clinton’s Washington felt it.

A coalition of independent oil producers called Save Domestic Oil, Inc. filed an antidumping action in 1999, accusing Mexico, Venezuela, Saudi Arabia, and even Iraq of “dumping” cheap oil in American markets. But the SDO petitioners got no political sympathy from their government. Secretary of Commerce William Daley and other officials made no secret of their distaste for the case. Commerce officials didn’t even look at the case on its merits. Instead, they simply threw out the petition in August 1999, saying an oil industry poll had determined that SDO lacked the requisite “standing” to pursue the case. Commerce would never dare to treat the steel industry like that, the oil petitioners fumed.

Now the independents are cheered that the political winds may have shifted in their favor.

Not only is a favorite son of Midland now in the White House, over at Commerce their friend Don Evans is positioned to breathe new life into the antidumping case (and if that doesn’t work out, perhaps Evans can persuade President George W. Bush to put quotas on foreign oil through section 201 of U.S. trade law). The timing is right for Evans to step in, as a federal judge has now sent the antidumping case back to (reluctant) Commerce officials for reconsideration.

SDO leader Sue Hamm, an Oklahoma oilwoman, says that Midland was “our strongbed of support.” Hamm says that Evans’ company, Tom Brown, Inc., was not asked to join SDO because the firm was producing more gas than oil. “But they did not oppose us, and supported us morally,” she recalls. Adds Texan oil & gas consultant Larry Hulsey, “I can’t remember anyone outside of a major company in Midland not being sympathetic.” Hulsey, who is SDO’s vice chairman, says he hopes that Evans will not stand in the way for political reasons, like he believes that Evans’ predecessor Daley did. All Evans has to do is instruct his new subordinates to “follow the law,” Hulsey adds.

Evans declined to say where his sympathies for the SDO petition are placed, and a spokesman for Tom Brown, Inc. did not return a phone call asking the same question. But a search of available public records shows that Evans and his former firm have strong connections to the SDO petitioners.

Tom Brown, Inc. has a network of interlocking business ties with oil producers who supported SDO’s petition. Evans’ personal ties to the antidumping supporters include his membership in the Independent Petroleum Association of America, and the Permian Basin Petroleum Association, of which he is a director. Both of the oil groups actively — even passionately — supported SDO.
Are Evans’ ties to SDO so close that he should recuse himself from active participation in the case? An Evans spokesman at Commerce told me he would ask the secretary if he had any conflict-of-interest sensitivities, and get back to me. He didn’t. Evans also declined to respond to a question concerning the degree to which he will be involved in doling out some $500 million in loan guarantees to oil & gas producers under the terms of the 1999 Emergency Steel, Oil, and Gas Loan Guarantee Act.

If the ethics could be a bit confused, the politics are easy to understand for anyone who understands the basic economics that drive antidumping actions. When steelmakers file antidumping petitions, Commerce officials know that the resulting tariff hikes will help steelmakers, but also that the higher duties will also penalize consumers of steel. Because of antidumping tariffs on steel, manufacturers like General Motors and Caterpillar have to pay higher prices for this basic raw material that they need to make cars and tractors. So do thousands of small businesses that make things of steel.

But the political downside to helping U.S. steelmakers is considered minimal by politicians, as the resulting higher prices for American automobiles, tractors, and widgets are mostly invisible to the ultimate consumers. But when SDO came along, the suggestion that antidumping officials should stick American consumers with higher prices for their gasoline at the pump was anathema to the Clinton Commerce Department. They must have wondered: What if voters in the 2000 presidential elections would blame Al Gore for the tariffs?

Powerful U.S. oil majors like Exxon, Chevron, Texaco, etc. were also aghast at the prospect of higher tariffs on the imported oil that they require. The American Petroleum Institute put together an “Ad Hoc Free Trade Committee,” and hired Dewey Ballantine’s Michael Stein to help them keep American markets open to cheap imports. This was interesting because Stein usually makes his living advocating keeping cheap imports out of U.S. markets on behalf of domestic steel clients. The buzz in the trade bar was that Stein’s steel employers feared that higher tariffs on oil imports would cause a public outcry that might spill over to their own protectionist antidumping racket. What if ordinary Americans figured out that imported steel is of great benefit to the American economy?

While Stein’s free-trade/protectionist straddle makes him the most interesting advocate involved in this case, he is not the only prominent Washington trade lawyer to have found gainful employment thanks to SDO. Charles Verrill, Jr. (Wiley, Rein & Fielding) represents SDO. Thomas Wilner (Shearman & Sterling) represents Petroleos de Venezuela and CITGO Petroleum Corp. Carolyn Lamm (White & Case) is advocating on behalf of the Saudi Arabian Oil Co. Gary Horlick’s (O’Melveny & Myers) Mexican clients include Petroleos Mexicanos. Joseph Dorn (King & Spaulding) signed on for Texaco, and Robert Burke (Barnes, Richardson & Colburn) represents BP Amoco.

I’ve seen a lot of strange legal and economic things done in antidumping cases, but never one quite like this. A blistering 43-page opinion written in September, 2000 by U.S. Judge Thomas Aquillino Jr. of the New York-based United States Court of International Trade should be must reading for anyone who wants to appreciate antidumping ironies. Judge Aquillino certainly found the case an unusual one.

“Public information of the Department of Commerce shows over one thousand one hundred petitions to have been filed with the ITA since enactment of the Trade Agreements Act of 1979, yet apparently only one was subjected to the kind of threshold agency rejection at issue herein,” the opinion says. [“ITA” refers to Commerce’s International Trade Administration, which administers the U.S. antidumping laws through its Import Administration.]

Basically, the judge determined that Commerce had polled the industry to see if the SDO petition had the requisite support, but had relied too heavily on the views of the handful of big players like Texaco, Amoco, and other API members who did not oppose imports. The big guys argued that the U.S. economy needed imported oil, as domestic production could not satisfy consumer demand. The Big Oil people also maintained that oil prices are essentially set by global market forces. The four countries named in the petition could not control world prices because there are too many alternative sources of supply, the U.S. oil majors insisted.

To mainstream economists such reasoning would be perfectly rational. And how many Americans would find it offensive that their Commerce Department would consider the effect of requested antidumping tariffs on American importers and the overall U.S. economy?

But the judge did.

Judge Aquillino’s opinion said that Commerce had “found that the facts present in the oil industry required the agency to consider factors other than the level of imports.” Continuing, the judge found that, “Specifically, Commerce noted that ‘oil is a limited, non-renewable natural resource’ and that ‘current U.S. demand cannot be satisfied solely by increasing domestic production; it can be satisfied only through a substantial level of imports.’”
Aquillino found that Commerce had “abused its discretion” by following such elementary economic principles.

If that is true (and after reading other papers filed in connection with the case, I’m not sure that the judge really considered all the evidence that was before him), there obviously is something seriously wrong with our antidumping laws.

The U.S. antidumping laws are not written to allow officials to consider such things as the interests of importers, or the public interest. When Louisiana crawfish processors asked Commerce for antidumping tariffs to roll back imports of crawfish tailmeat from China, national restaurant chains like Red Lobster rightly argued that this would harm their abilities to find enough crawfish to supply national markets. Even though Louisiana doesn’t produce nearly enough crawfish to feed Americans nationwide, Commerce didn’t care about the economic welfare of Red Lobster. Nor do Commerce officials ever concern themselves when U.S. auto manufacturers and other major steel users argue that antidumping tariffs on imported steel drive up their costs.

Judge Aquillino said of the SDO case, “this case is the first in which the ITA declined to disregard importer opposition.”

Rather than applaud, the judge sent the case back to Commerce, telling officials to begin anew. In so doing, he used language that — on its face — was serious. Or perhaps it was mock seriousness. Readers can’t tell if the jurist appreciated the irony that the laws that Commerce officials are expected to administer fairly are economically ridiculous.

But when Commerce (supported by the oil majors) filed an appeal of his September ruling with the United States Court of Appeals for the Federal Circuit instead of taking another crack at the SDO petition, there was no doubting that Judge Aquillino was seriously disturbed. He issued a terse 13-page opinion on November 27, 2000 saying that such appeals are only authorized in law regarding “final” orders of the Court of International Trade, which he said his was clearly not.

Maintaining that the appeal was a waste of time as well as improper, Aquillino fumed that “the court is unable to conclude that the defendant [Commerce] is attempting to proceed in good faith...if not in contempt of court.”

When he reads this, one wonders if Secretary Evans might conclude that it is the antidumping laws themselves that are worthy of contempt.

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