For almost a century, U.S. laws have called for extra tariffs to be slapped on imports that steal markets from American-made goods by taking advantage of subsidies handed out by the governments of the countries where they are manufactured. But now domestic manufacturers are asking for a new interpretation of that old concept that could affect virtually every item shipped here from abroad.
The new interpretation was roundly rejected two months ago in the only court ruling ever handed down on the question. But the plaintiff in that case is asking for a second chance to make its arguments, and whatever the outcome of that petition, further litigation seems sure.
Until now, the rule that Washington should impose a countervailing duty on imports priced low because of what the law traditionally called a "bounty or grant" given the exporter has been used only when the foreign help was narrowly tailored. Benefits given only to particular industries or to plants in particular regions triggered such extra import taxes.
What U.S. manufacturers are now arguing is that the law does not specify that countervailing duties are only for special subsidies, and that in fact they should be used to wipe out advantages given overseas producers even if those advantages are generally available. Just last year, the issue came up in at least 22 cases being considered by the Commerce Department. Among the products involved: Italian glass, Mexican lead, French nitrocellulose, and steel from countries as diverse as South Africa, Brazil and Luxembourg.
The May decision by the U.S. Court of International Trade in New York involved bicycle tires and tubes made by Hung-A Industrial Co. Ltd., a Korean concern. Carlisle Tire and Rubber Co.--the last U.S. manufacturer of bike tires--objects to two tax breaks written into Korean law and claimed by Hung-A. One is a special 20 percent depreciation rate allowed companies for machinery that is used at least 12 hours a day. Together, calculations by Commerce suggest, the twin breaks save Hung-A about 50 cents on each $100 of goods it produces.
A decision to try to recapture that 50 cents through an extra duty "will affect nearly every respondent and petitioner in a countervailing duty investigation conducted by the U.S. government," says Eugene L. Stewart, Carlisle's lawyer. "The number of nonpreferential subsidies granted by the trading partners of the U.S. is enormous," he told the Trade Court. "The legal, economic, and political consequences of permitting these benefits to be subject to potential countervailing duties are immense."
So immense, in fact, that to Senior Judge Herbert N. Maletz, who heard the Carlisle case, it is simply not good sense to think that so revolutionary an interpretation could have been lurking in the law for all these decades without having come to the surface before. He ruled against the "any-aid-is-a-subsidy" theory because, he explained, it "would, if taken to its logical extreme, lead to an absurd result." Carlisle insists that it never suggested pushing the theory to an extreme. But Maletz sees an inevitable result, forcing Washington to collect duties to make up for the benefits overseas manufacturers receive from "such things as public highways and bridges, as well as a tax credit for expenditures on capital investment."
It may be that the possibility of calling such general governmental help for business "bounties" has arisen only lately because the issue is uniquely a modern one. In the days when governments were more prone to leave investment and marketing decisions up to corporate managers, there was much less fiddling with the tax laws and other incentives to goad firms into following national economic policies.
"It is safe to say that there is now no government professing to adhere to the private-enterprise system which does not to an ever-increasing extent insinuate itself into the macroeconomics of a country," Maletz noted. Rather than argue that an old policy of not calling such devices bounties now should be reexamined, however, the pervasiveness of the schemes cuts just the other way: they are so common, the decision concludes, that it would be courting chaos to try to do anything about them.
That is just the result the Reagan administration wanted. Commerce is willing to move against not only foreign economic policies that single out a particular industry for help, but also those giving special breaks to plants in a region that the central government wants to boost. But Washington isn't willing to look into schemes that are routinely available to any company that meets general qualifications.
It may be that, given the size of the Korean market for bike tires, any factory that operates for 12 hours a day has to be producing for export. But none of the bureaucrats want to probe behind the wording of foreign economic policies to see how they actually operate in another country. For now, the Court of International Trade has said that they don't have to.