A presidential decision…on Chinese coat hangers?

U.S. to Vietnam : Don’t sell us too many knit shirts

The U.S. steel lobby: When we lose, the WTO is unfair

May, 2003: Players Who’s Up To What

By Greg Rushford

Published in the Rushford Report

A presidential decision…on

Chinese coat hangers?

            Only the toughest decisions have to be made by the president of the United States , alone in the Oval Office. And surely, the weight of statesmanship rested heavily on President George W. Bush’s shoulders as he pondered what to do about Steel Wire Garment Hangers from China . The issue was grave. Nobody else in the government of the United States could figure it out. How high should tariffs on wire coat hangers from China be?

            At the International Trade Commission, Commissioners Deanna Tanner Okun, Jennifer Hillman, and Marcia Miller thought that Chinese coat hangers should be taxed at 25 percent. But Commissioner Lynn Bragg thought that it should only be 20 percent, while Commissioner Stephen Koplan thought that it should be more than 30 percent. But they didn’t really know for sure. The commissioners laid out their thinking in a 47-page report that was sent to the White House in late January. It took the president until April 25 to figure out the right answer. He must have had other things on his mind.   

            That’s what presidents are for.

            The case began in  early January, when veteran Washington lawyer Frederick Waite started the legal process that was destined to wind up in the Oval Office. Waite, a partner in the D.C. office of Holland & Knight, represents three U.S. companies that produce the wire coat hangers that are familiar to Americans when they visit their dry cleaners. The American businesses have a gripe about their competition from mainland China , which is mainly that the Chinese are too successful at capitalism. “Through aggressive marketing and price underselling, these imports have simultaneously captured an increasing share of the U.S. market and driven down the prices of domestic producers who are seeking to meet this burgeoning challenge,” Waite argued in a petition to the ITC.

            Now, most people would quickly wonder what was the matter with that. Sounds like Waite was describing exactly the sort of conduct that market competition is all about. But it turns out that there is a law aimed at preventing the Chinese from becoming too-successful in business. Section 421 of the Trade Act of 1974, as amended, is designed to give the president the power to close domestic markets if it happens that imports from communist China are causing, or even threatening to cause, “market disruption to the domestic producers of like or directly competitive products.”

            In other words, if any Chinese exporter starts gaining significant market share in anything, the president — and only the president — can do something about it.

            The statute actually dates to the Cold War era when the United States traded with communist countries. It has long been outdated. But it was forced upon the Chinese by the United States as part of the terms of China ’s accession to the World Trade Organization.

            Waite’s case looked like a legal slam dunk. Sure enough, the ITC — which is supposed to be a gate-stopper to avoid wasting valuable presidential time — voted that there was indeed “market disruption” going on.

            Turned out that Bush wasn’t shocked and awed by that possibility.

            He threw out the case on April 25. After thinking the matter through, the president realized that the current tariff of only 3.9 percent on steel wire garment hangers from China was about right. Unlike predecessor Bill Clinton, who didn’t always seem to use his time in the Oval Office as wisely as he might have, Bush is a decisive man.

            “Additional tariffs would also likely have negative effect on the thousands of small, family-owned dry cleaning businesses across the United States that would either have to absorb the resulting increased costs or pass them on to their customers,” the president noted in a memorandum.

            Too bad that the president didn’t think of the adverse impact upon thousands of small metal-working businesses and consumers last year when he imposed tariffs of up to 30 percent on imported steel. But that’s another story.

            Fact is, these Section 421 cases sound good on paper, but they tend to fail because the law doesn’t take into account the intangible factor of presidential embarrassment. If Bush would have agreed to protectionism regarding Chinese coat hangers, think of the long list of other special pleaders who would also be crowding in to demand their time in the Oval Office. “We would soon be creating a managed-trade regime, the exact opposite of the professed objective of getting China into the international-trading system,” notes Hamilton Loeb, who heads the international trade practice group in the D.C. office of Paul, Hastings, Janofsky & Walker and who represented the Chinese respondents in the case.

U.S. to Vietnam : Don’t sell us

too many knit shirts

            Speaking of embarrassments, last month the United States successfully managed to cap the amount of clothing that Americans can buy from Vietnam . In their economic wisdom, the folks at the Department of Commerce and the Office of the U.S. Trade Representative calculated that it would be an injustice if the Vietnamese would be allowed to sell Americans more than 14 million dozen cotton knit shirts this year. I don’t know how the trade cops in the U.S. government know such things, they just do.

            But this story is bigger than knit shirts. It’s also about cotton woven trousers, gloves, even panties. Socks are also thought to be involved.

            Overall, the U.S. government decided that although Vietnam has been selling Americans some $200 million worth of clothes every month — or $2.4 billion a year — this is simply too much. Americans should only be allowed to buy about $1.6 billion in clothing from Vietnam every year, the bureaucrats figured. Late last month, the Vietnamese agreed to a quota scheme aimed at precisely this.

            What did the Vietnamese think of this idea? And why have they gone along with it?

            The answer to the first question is, not much. The answer to the second is, the Vietnamese didn’t have much choice. “They learned that negotiating with the U.S. government over textile quotas is like negotiating with the Mafia,” says one American observer. The Vietnamese were told by the U.S. officials that if they refused to sign, the American government would only make matters worse by imposing even more restrictive quotas. “This is not really a negotiation, we hold all the cards,” the Vietnamese were informed. 

            Unless Vietnam somehow manages to get into the World Trade Organization by January 1, 2005 , the U.S. has the right to continue the quotas even after they expire on that date for all other WTO members (except China , which also has been dragooned into this messy business).

            “The pact is likely to put a damper on the enthusiasm generated among investors by the U.S. bilateral trade agreement with Vietnam that took effect in December 2001,” Margot Cohen noted in a report in the Wall Street Journal filed from Hanoi . “Although that agreement did raise the likelihood of separate textile negotiations, it pumped up investor expectations of much wider access to the lucrative American

market.”

            Now, investors who have been looking for opportunities in the rag trade in Vietnam will have to go elsewhere.  

The U.S. steel lobby:

When we lose, the WTO is

unfair

            I’ve filed several stories recently that have documented how domestic steel protectionists are on the political warpath to discredit the World Trade Organization’s dispute resolution process as biased against America , even when they know that the accusations are without legal merit. The steel guys don’t deny the facts, they just hide from them. I’ve offered Daniel DiMicco, the chairman of the American Iron & Steel Institute, the opportunity to refute the charges with a full column in this publication — if he dares. So far, the otherwise outspoken DiMicco has refused to put his pen where his mouth is.

            Meanwhile, DiMicco and the AISI have once again accused the WTO of bad faith. The beef this time involves the recent decision of a WTO dispute panel that has determined that President Bush’s steel tariffs pursuant to Section 201 of U.S. trade law are WTO-inconsistent.

            “The President’s steel 201 remedy is completely justified, and it complies fully with WTO rules,” the AISI has stated in a press release that called the WTO ruling “biased” against the United States . “Do not allow WTO bureaucrats to undermine U.S. sovereignty and U.S. trade policy based on rulings that have no credibility,” the release declares.

            Problem is, the WTO’s dispute panel report in question hasn’t yet been released. Although they haven’t actually read it, the steel lobbyists want the rest of us to believe that that there was something underhanded going on.

            When the report is published, it will likely show that the WTO jurists were careful with the facts and did not make any new law. Most likely, the jurists simply found that the Bush steel plan obviously was contrary to well-established U.S. law as well as the WTO’s safeguards agreement, which is essentially the same thing.

            By then, DiMicco and his crowd will be on to other charges that the WTO is biased against America . The late, unlamented Sen. Joe McCarthy would have appreciated the tactics.

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