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W.T.O. Loophole Allows a Surge in Protectionism

By ELIZABETH OLSON

GENEVA, June 12 The "safeguard" exception was supposed to be a small, minor loophole in global trade rules, allowing a country to head off a sudden wave of imports without having to wait for the slow, cumbersome trade dispute resolution process to do its work.

Then the Bush administration invoked it in March to justify selective tariffs on imported steel, and the European Union in turn invoked it to justify countermeasures. The dispute highlighted what experts say is a developing stampede to stretch and exploit the loophole for protectionist ends, putting at risk decades of progress in liberalizing world trade.

In 1995, the first year that the safeguard agreement was in effect, the provision was used in two cases. Last year, there were 53, according to Mayer, Brown, Rowe & Maw, a Chicago-based law firm specializing in trade matters, and the trend is upward again this year.

But this surge comes despite the fact that the World Trade Organization, the global arbiter of trade disputes, has yet to bless a single safeguard measure that has been challenged before it. Many experts say the Bush steel measures will not pass muster either.

"There's a view right across the globe now that there is a place for protective trade measures," said Cliff Stevenson, an economist with Mayer, Brown's London office. "And that's a change in attitude."

All 144 members of the trade organization pledged to keep their markets open when they joined the group. But nearly all of them also look for ways to run interference for domestic industries struggling to adjust to liberalized trade.

"The W.T.O. is not a free trade steamroller," explained David Woods, a former W.T.O. employee who runs the Geneva-based consulting firm, World Trade Agenda, defending safeguard provisions. "It gives you an escape door," he said.

More than one, in fact. Besides safeguard measures, there are also antidumping measures, which countries can impose to ward off foreign products sold in their markets below cost, and there are countervailing duties to protect against subsidized goods. Mayer, Brown found that two dozen countries initiated a total of 348 antidumping actions last year involving nearly 140 products.

But widespread use of safeguard measures is a newer and more worrisome phenomenon, free trade advocates say, because the vague wording of the agreement is being stretched to justify protective tariffs in almost any circumstances.

The United States has been by far the most active of the 21 countries that have invoked the safeguard agreement so far; from 1995 to 2001 it did so 42 times. But Chile and India have also been frequent users, Mayer, Brown found.

Nations like India, with limited resources and few trade experts, are turning to safeguards as an easier and cheaper alternative to other measures. Pursuing an antidumping case, for example, requires sending officials abroad to investigate the true cost of manufacturing the goods in question; data to support a safeguard action is mainly concerned with injury to domestic industry and can be gathered at home.

"You have to go through burdensome procedural hoops in antidumping cases compared to safeguards," said Scott D. Andersen, a lawyer in Sidley, Austin, Brown & Wood's Geneva trade law practice.

Safeguard measures usually apply across the board to all exporters of a given product, though the Bush administration has exempted many countries from the steel tariffs, to the European Union's intense irritation. The rules permit nations to claim compensation for their injured industries rather than have to retaliate against imports, which many smaller countries lack the market power to do effectively.

"Their beauty is that you can give a lot more protection to your industry," Mr. Stevenson said of safeguard actions, adding that he expects them to keep proliferating. But he noted that so far, the trade organization panels that hear challenges to safeguard actions have found "all of them to be W.T.O.-inconsistent" meaning impermissible under global trade rules.

The safeguard agreement part of the package of accords that created the trade organization in 1995 set no specific criteria, leaving the precise circumstances under which safeguards could be applied open to interpretation.

Since then, dozens of the measures have been challenged, and 11 cases have been heard and decided, according to the trade group's statistics. Five of those were brought against the United States, challenging restrictions on imports of wheat gluten, lamb, cotton yarn, underwear and steel piping. All were thrown out.

Other nations have had no better luck. South Korea failed to persuade a W.T.O. panel that its dairy products safeguards were justified; Argentina lost on shoes.

The accumulating case law is doing what the diplomats who drafted the agreement did not, setting specific limits on when safegaurds can be applied and narrowing them with nearly every new decision. In the Argentine footwear case, for example, a December 1999 ruling said an import surge "must have been recent enough, sudden enough, sharp enough and significant enough, both quantitatively and qualitatively, to cause or threaten to cause serious injury" before safegaurds were warranted.

The Bush steel tariffs probably fail that test, trade lawyers said. Steel imports to the United States actually fell by about 30 million tons last year, undercutting the claim of an immediate threat to domestic steel producers.

"To win," Mr. Andersen said, "countries need a real emergency, not just complaints from industry that they're being hurt."


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