Trade disputes -- delay is a given

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Thursday, December 16, 2004

Trade disputes -- delay is a given

By BILL VIRGIN
SEATTLE POST-INTELLIGENCER COLUMNIST

For those hoping that the filing by the United States of a trade complaint against Airbus (over its alleged subsidies from European governments) will be quickly resolved, bringing some competitive relief to Boeing, here is a holiday-themed tip:

The odds are better that by holding an all-night vigil by the fireplace Christmas Eve you will see Santa Claus, who will stop to have a chat with you.

If that seems an unnecessarily bleak view of the potential outcome of the case, consult your buddies in the softwood lumber industry on how fast that Canadian imports case got resolved.

You do remember the softwood lumber case, don't you?

Those who do not spend their existence tracking the intricacies of international trade cases -- in other words, most of you -- might be excused for believing that the case had been resolved long ago, or forgetting that it existed in the first place.

After all, it's been more than three and a half years since the first petitions were filed in the current case. If you throw in previous U.S.-Canada disputes on softwood lumber, this brouhaha dates back to the 1980s.

And still it drags on, at a pace roughly matching the speed at which a Douglas fir grows skyward. Just this week, the U.S. Commerce Department reduced tariffs on Canadian softwood lumber imports, a response to previous rulings by trade panels in response to Canadian protests, with the latest decision likely to prompt yet another round of protests through the World Trade Organization and the North American Free Trade Agreement, which will lead to further consideration of the issue by the U.S. government, followed by still more protests. ...

Of course, there are things worse than a case that never gets resolved.

There are, for example, those cases that prompt retaliation. William Perry, a trade attorney with the Seattle law firm of Garvey Schubert Barer, says China has answered U.S. cases against China on imports of shrimp, televisions and wooden bedroom furniture with cases against U.S. shipments of fiber optics, and the two countries have traded filings on chemicals.

Then there are those cases that produce unintended consequences, those responses to the filing of trade cases or the imposition of import duties or tariffs far different from what was anticipated.

That happened in the softwood lumber case. The U.S. government, at the prompting of American lumber mills, imposed duties on Canadian shipments of lumber to this country, to compensate for what domestic mills saw as unfair pricing policies on timber up north. The idea was that with Canadian imports reduced, U.S. mills would be able to raise their prices.

Instead, lumber prices tumbled in the U.S. market. Why so?

Among the reasons speculated: Other countries moved to fill the void. Canadian mills ramped up production to cover the cost of increased tariffs. With the expiration of a quota system (agreed to as part of an earlier softwood lumber case), Canadian mills figured that if another system was put in place, they wanted those allocations computed on as large a base as possible.

Next come the trade cases with domestic political consequences, those that not only make other countries mad (and inspired to retaliate) but irritate some interests at home. That happened in the steel tariffs case. While the imposition of duties on steel imports played well politically in steel country, it infuriated those companies that found themselves paying more for the steel they used to make other products.

That also happened in the softwood lumber case; while domestic lumber mills were pushing for duties on Canadian imports, homebuilder groups said those charges were driving up the cost of a new house.

Then there's the worst outcome of all -- that a case actually does get resolved, with the party filing it on the losing end.

So where does the Boeing- Airbus contretemps figure in these scenarios we've laid out?

It probably won't produce much in the way of domestic repercussions, although there are U.S. airlines that buy Airbus planes for their fleets and would be happy not paying more for them.

It definitely will produce retaliation and unintended consequences -- and already has. The Europeans have answered with their own allegations of U.S. subsidies to Boeing, and one bit of fallout from that retaliation might be the $3.2 billion-dollar deal the state of Washington made with Boeing to get 7E7 assembly work at Everett. The Europeans may also be tempted to go sniffing for opportunities with other goods and services to take a retaliatory whack at the United States.

The best bet for the outcome of this case is ... more delay. Already the United States and the European Union, after an initial round of bluster, have mutually agreed not to ask for a WTO panel to hear their complaints until next month at the earliest.

The airplane fight could devolve into a multiyear staring case in which the two sides try to outwait each other. It could wind up with a mushy settlement in which each side gives up something meaningless. Or it could deteriorate into a nasty trade war involving not just the plane makers but people who thought they had no connection at all to the underlying dispute.

Whatever other adjectives may be used to describe the course and eventual outcome of this dispute, "speedy" won't be among them. Given some of the less attractive outcomes, protracted and inconclusive look positively shiny by comparison. That's what Santa will tell you if you wait up for him.

P-I reporter Bill Virgin can be reached at 206-448-8319 or billvirgin@seattlepi.com. His column appears Tuesdays and Thursdays.

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