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Tuesday, January 9, 2018

ANALYSIS/OPINION:

For the second time in a month the International Trade Commission (ITC) has invoked a rarely used provision of the 1974 International Trade Act to protect a U.S.-based company from “unfair” competition from foreign suppliers — in this case South Korean producers of large residential washing machines or LRWs.

But a coalition of American business conservatives led by the American Legislative Exchange Council, or ALEC, has announced its opposition to the ITC decision. ALEC wants President Trump, who has pledged to shore up domestic industry, to overturn the ITC decision, on the grounds that it will end up killing more jobs than it protects.


Who’s right? At issue are competing philosophies about free trade and what to do about countries that manage to evade existing trade laws. The two South Korean companies, Samsung and LG, were accused in 2013 and 2014 of “dumping” their underpriced LRWs on the U.S. market, causing “injury” to US-based Whirlpool. U.S. trade authorities imposed import duties on South Korean LRWs but rather than comply, the two companies simply relocated production and began exporting the same goods from China and Vietnam, evading the new restrictions.

In response, Whirlpool last May filed a new complaint with the ITC asking that Section 201 of the 1974 Trade Act be invoked. Section 201 allows the ITC to impose duties on products no matter where they are produced. However, the provision has been invoked sparingly in the past. Economists are divided over whether it actually functions as intended.

In 2002, President George W. Bush invoked Section 201 to limit steel imports. But he rescinded the designation after less than a year when the domestic steel industry failed to benefit. Critics of Section 201 say its sweeping protections may benefit some companies in the short term but can also harm industries as other domestic and foreign producers react to the new trade restrictions, sometimes withdrawing from the U.S. market altogether.

Some of those companies may be genuine innovators, which means measures like Section 201 may keep out some of the industry’s most productive companies while propping up less competitive ones.

In 2002, even with duties imposed on steel imports, domestic steel producers failed to enlarge their share of the market, which resulted in massive layoffs. Some 200,000 steel workers eventually lost their jobs. In 2003 Mr. Bush rescinded Section 201 for domestic steel citing the measure’s unintended consequences.

LG and Samsung argue that Section 201 will discourage them from building new LRW plants in the United States in addition to expanding their exports. They say the measure will end up reducing job growth.

Whirlpool, backed by the ITC, says that argument is nonsense. LG and Samsung are “serial violators” of U.S. trade laws, the company notes. Section 201 was invoked only because LG and Samsung thumbed their noses at earlier U.S. trade decisions. They could well have agreed to new import duties and still sold their LRWs in the U.S. market at a profit. The two companies are simply greedy, Whirlpool says.

And Whirlpool’s own expansion plans are threatened by an influx of cheap LRWs. The company has plans to hire 1,300 new workers next year, says Whirlpool chairman Jeff Fettig. Without effective trade barriers, the company could eventually move its operations offshore.

What constitutes “unfair” trade? Samsung and LG receive large subsidies from the South Korean government that allow them to produce at a low cost. Those subsidies are so generous that the two companies can sell their LRWs overseas for less than it cost to produce them — and still earn a profit. Companies like Whirlpool, which operate in the free market, are simply too disadvantaged to compete on a level playing field.

From this perspective, it is the South Korean government’s aggressive export-promotion on behalf of favored companies that constitutes the real form of “protectionism” — not the ITC’s defense of Whirlpool.

This is not the first Section 201 case to emerge in recent months. Another involving the importation of cheap solar panels led to an ITC decision to impose duties on foreign suppliers. In the South Korean case, the ITC is proposing three years of gradually lower duties, starting with 50 percent next year and falling to 40 percent in 2020. Moreover, the duties only apply to imports of LRWs that exceed 1.2 million units annually.

President Trump is scheduled to rule on the ITC’s South Korea decision next week. Earlier this year he appointed two new ITC commissioners — both trade policy veterans — to bring the total members of the body to six. One appointee was closely involved in the congressional deliberations that led to the 1974 trade law. Their presence should add momentum to an interpretation of fair trade that discourages heavily subsidized foreign suppliers from evading legitimate trade protections.

Critics of sweeping “protectionism” are right in one sense. Mr. Trump should treat Section 201 as an exceptional measure rather than one to be imposed anytime foreign suppliers seem to threaten domestic producers. Each challenge should be weighed on its merits on a case-by-case basis. The White House should factor in the long-term health of an industry. Fair competition and innovation must be encouraged.

In this case, siding with Whirlpool, an emerging industry giant, makes sense. But “America First” shouldn’t turn into “America only.”

• Stewart Lawrence is a Washington writer.


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