May 17, 2000
The Consumer Industry Trade Action Coalition ("CITAC"), of which I am Chairman, has noted the May 10 decision of the WTO Appellate Body which rules the Commerce Department methodology on "change of ownership" is contrary to the WTO Agreement on Subsidies and Countervailing Measures. We believe it is in the interest of the United States to comply promptly with this decision, not only because WTO dispute settlement system requires compliance, but because this decision is good for U.S. business as a whole.
CITAC is composed of U.S. companies that rely on open markets and open channels of trade so that they can be competitive in the U.S. and export markets. My association, the Precision Metalforming Association, includes metal fabricators who are in this category. Metal formers alone employ twice as many U.S. workers as the U.S. steel industry. Overall, there are now more than 50 jobs in four major steel using industries (transportation equipment, construction, metal fabricating and heavy machinery) for every steelworking job in the U.S. economy. The interests of steel users therefore must be considered in formulating trade policy.
CITAC opposes subsidization. We believe that where subsidies currently benefit a producer of goods, U.S. countervailing duty laws may legitimately be used to offset that benefit. For example, a company privatized at less than fair market value would benefit to the extent of any difference between the fair market value and the price actually paid.
However, if a company is purchased in the open market for fair value, old subsidies simply do not provide a competitive advantage. Imposing countervailing duties in the absence of a current benefit is raw protectionism, which hurts consuming industries, individual consumers and, more to the point, the very producers you are attempting to aid.
We believe that the Department of Commerce for too long has labored under an erroneous assumption that past subsidies necessarily distort current markets. Most economists do not believe this. I attach a recent paper by Richard Cooper, a distinguished professor of economics at Harvard University, to illustrate the point.
Now that the WTO has ruled definitively that the previous Commerce Department change of ownership methodology is contrary to WTO requirements, it is time to replace it with a WTO-consistent approach that helps the American economy as a whole. The first principle must be that private companies, even if they were purchased from governments, do not benefit from past subsidies unless they were purchased on more favorable terms than would be available on the open market.
We look forward to working with you to develop a new policy that meets the needs of American industry, the requirements of U.S. law and the international obligations of the United States.
Very truly yours,