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`Safeguard' loophole abused by US, EU

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 EU in turn invoked it to justify countermeasures. The spat 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 the safeguard agreement was in effect, it 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.

This surge comes despite the fact that the WTO, 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 won't 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 pledge to keep their markets open when they join the group. But nearly all of them also look for ways to run interference for domestic industries struggling to adjust to liberalized trade.

"The WTO is not a free-trade steamroller," explained David Woods, a former organization 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 safeguards measures, there are also "anti-dumping" 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 anti-dumping 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 circumstance.

The US 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 anti-dumping 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 anti-dumping cases compared to safeguards," said Scott 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 EU's intense irritation. The rules permit nations to claim compensation for their injured industries rather than retaliate against imports, which many smaller countries lack the market clout to do effectively.

"Their beauty is that you can give a lot more protection to your industry," Stevenson said.
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