International Trade Theory and Policy
by Steven M. Suranovic

Trade 20-4

US Trade Law Highlights

Nations are not legally bound by the tariff reduction commitments made during GATT rounds or to the administered protection procedures, like antidumping, unless it is codified by national legislation. Below is a list of some of the major US trade laws currently on the books.

Section 201 - Escape Clause

The escape clause first appeared in the Reciprocal Trade Agreement with Mexico in 1943. It was codified as section 201 of the 1974 Trade Act and has been amended several times since then.

The law allows any group representing a domestic industry to petition the US International Trade Commission (ITC) for protection against foreign imports when those imports cause injury to the import-competing industry. To receive protection, imports must be shown to cause or threaten to cause "serious injury," as measured by growing inventories and reductions in sales, profit, wages and/or employment. If serious injury is established, it must also be shown that the imports were a "substantial cause" of the injury, where "substantial" means one that is not less important than any other cause.

After collecting the relevant information, the ITC commissioners make a judgement on the case and offer recommendations to the President for an appropriate remedy. The remedy may include a tariff, quota or trade adjustment assistance. If the President rejects the ITC's recommendation for protection, the US Congress can override the decision.

Section 232 - National Security

This section of the 1962 Trade Act gives the President authority to restrict imports of any product that threatens to impair national security. Petitions for protection under this clause are investigated by the US Commerce Department. Commerce must assess whether imports inhibit the domestic production of products necessary to maintain national defense objectives. Their assessment is then passed to the President, who makes the final determination.

Section 301 - Unfair Foreign Trade Practices

This section of the 1974 Trade Act gives the President the authority to retaliate (with selected protection) against any country found to maintain unfair, unreasonable, or discriminatory practices that restrict US exports to their markets. Petitions can be filed by domestic interest groups, and are then investigated by the US Trade Representative's (USTR) office. The USTR, under the direction of the President, can withdraw previous GATT tariff concessions or impose new tariffs if the foreign country is judged to be in violation of the law, and if consultations between the USTR and the foreign government do not lead to a negotiated settlement. Most Section 301 cases have resulted in a negotiated settlement, sometimes on the day the deadline for retaliatory action is reached.

This section of US trade law is sometimes referred to as the "crowbar" approach to trade liberalization. Essentially, the US threatens foreign governments with trade actions that will negatively affect foreign export industries if the foreign country does not take actions to eliminate their own restrictions on trade. Many foreign countries have complained that Section 301 violates the GATT because of its bilateral nature.

Super 301 - The 1988 Omnibus Trade and Competitiveness Act amended section 301 to include a clause known as Super 301. This clause required the USTR office, subject to a specified timetable, to investigate unfair foreign trade practices by major US trade partners. The most egregious of these were to become subject to retaliatory action unless a negotiated settlement was reached, also within a specified time.

A number of unfair trade practices were ultimately identified for Japan, Brazil and India. In all cases a negotiated settlement was reached. In 1993, President Clinton passed an executive order which reinitiated Super 301 for a second time.

Section 337 - Unfair Trade Practices and Intellectual Property Rights

This act is most often applied against imported products that infringe on US patents or trademarks. The International Trade Commission investigates these petitions. Until 1988, it was required that intellectual property infringements caused injury to domestic firms. The 1988 Trade Act eliminated the injury requirement. The 1988 Trade Act also directed the USTR office to identify countries that inadequately protected US intellectual property.

Section 303 - Countervailing Duties

The first countervailing duty law was enacted in 1897. It became section 303 in the 1930 Trade Act. It allows for retaliatory action against any imported product which enjoys a government subsidy and when imports cause or threaten to cause material injury to the import-competing firms.

Any industry group or the US government can file a petition. The subsidy margin is determined by the International Trade Administration at the US Department of Commerce. The injury determination is made by the ITC. If the ITC judges that injury has occurred, then an countervailing duty (tariff), equal to the exporter's subsidy, is automatically implemented.

Section 731 - Antidumping

The first antidumping law was enacted in the US in 1921. Section 731 appears in the Trade Act of 1930. The requirements to demonstrate dumping are: 1) sales of a foreign good in the domestic market occur at "less than fair value," 2) the sales result in material injury to the domestic import-competing firms. "Less than fair value" sales are defined as sales in the import market at a price that is less than the price of the product in the exporting market. If no exporting market sales exist, then the ITA can consider the price in a third country market. Only rarely does the ITA use the third allowable definition, namely sales at less than the cost of production.

Any industry group or the US government can file a petition. The dumping margin is determined by the International Trade Administration at the US Department of Commerce. The injury determination is made by the ITC. If the ITC judges that injury has occurred then an antidumping duty (tariff), equal to the dumping margin, is automatically implemented.

International Trade Theory and Policy - Chapter 20-4: Last Updated on 6/14/06