Protectionism fails again

Aug. 16, 1999
Only Congress can fix the dilemma created by the U.S. oil producers who failed last week to win protection against foreign competition. Congressional oblivion helped create the impasse.

Only Congress can fix the dilemma created by the U.S. oil producers who failed last week to win protection against foreign competition. Congressional oblivion helped create the impasse.

In declining to act on the antidumping petition filed by a group called Save Domestic Oil, the Commerce Department made the right choice. But the precedent remains: Crude prices fall; producers seek relief under the Tariff Act of 1930.

New tactic
This wasn't the first appeal by independent producers for protection against imported oil. Acting in past price slumps under the Trade Expansion Act of 1962, producers won nothing beyond official statements that imports threaten national security.

Save Domestic Oil's petition under the Tariff Act represents a new tactic-and a dangerous one. The group alleged that Venezuela, Mexico, Iraq, and Saudi Arabia sold oil in the U.S. below cost. Affirmation by the Commerce Department of that claim would have compelled the government to take retaliatory action. First, however, Commerce had to rule that the petitioners represented a large share of U.S. production and had broad industry support. It rejected the petition because it found industry support lacking.

Sabers of a potential trade war already were rattling, however. Mexico delayed action to lower tariffs on natural gas from the U.S. and raised tariffs on selected manufactured goods. Officials of other countries named in the petition expressed alarm.

The petition also attracted opposition in the U.S. Oil companies with production outside the country objected. A group of 101 organizations representing a wide range of industries wrote the Secretary of Commerce and chairman of the U.S. International Trade Commission to oppose the move. The group included the American Petroleum Institute, National Petrochemical & Refiners Association, and oil marketing organizations. The Independent Petroleum Association of America, members of which were divided on the issue, filed as an "interested party" in the case.

Opponents to the petition were right. The large duties sought by Save Domestic Oil would have distorted oil movement, raised costs, and hurt consumers and the economy. Imposition of them would have damaged the otherwise good relations that the U.S. maintains with oil importers. It thus would have weakened security of U.S. oil supply-the basis for past protectionist efforts.

The Save Domestic Oil petition jeopardized national interests for the sake of narrow commercial goals. It also hurt the oil industry by fortifying an image of anticonsumer selfishness hardly representative of the whole. For those missteps the petitioners deserve rebuke.

It must be said, however, that desperate people do desperate things. Last year's plunge in oil prices made producers everywhere desperate-and some producers willing to trample the interests of others in pursuit of survival.

Congress should make sure the U.S. doesn't again draw so close to a trade war over oil. It should review the Tariff Act with the aim of making it applicable to modern trade. If that means repeal, so be it.

Tax relief
Congress also should consider tax relief for producers in times of price slumps. By helping to keep marginally economic production on stream through threatening times, relief would preserve an otherwise jeopardized tax base. The idea arises when prices fall but fades before lawmakers can act once prices rebound. Sliding-scale tax relief would amount to insurance against lost tax revenues and would forestall desperation of the type that propelled Save Domestic Oil this year.

Whether or not Congress acts, the producers who cry "unfair" at the bottom of every price cycle should find a new agenda. Far more people benefit from competition than suffer from it. Producers do themselves and their industry no economic or political good when they claim to find virtue in protectionism.