American Trade Laws After the Uruguay Round

Greg Mastel

• Publisher: Routledge
• Year: 2019
• ISBN:
  9781315479910
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

This text seeks to anaylze the three pillars of US trade law: Section 301, aimed at opening foreign markets for US exports; anti-dumping law, which seeks to counter anti-competitive tactics by foreign firms; and counterveiling duty law that aims to counter foreign governmental law.

Chapter One
A Pragmatic Approach to Free Trade

Anyone watching the heated public debate over such issues as the North American Free Trade Agreement (NAFTA) and trade relations with Japan might wonder, Why the fuss? Surely, free trade is one of the most universally endorsed concepts in the public policy arena. Even in an era when economic nationalism and related political movements are thought to be on the rise, the vast majority of politicians—with a few notable exceptions—endorse the principle of free trade. Modern U.S. newspaper editorial writers are almost universal in their support for it. Every economics 101 course turns out a new wave of free trade advocates each semester. Public opinion polls indicate that, despite the often cited protectionist tendencies of the American public, most Americans also endorse the concept of free trade. With free trade as universally popular as motherhood and apple pie, what’s to debate?

The answer is that free trade means very different things to different people. There are two main schools of thought. First, there are unconditional free traders. Supporters of this school of thought—chiefly U.S. and British academic economists—hold that free trade is almost always positive. Consequently, they support elimination of U.S. trade barriers, even in the face of foreign protectionism. From their perspective, if other countries choose to decrease the welfare of their consumers and make themselves poorer, there is no reason for the United States to follow suit. Following a tortured extension of David Ricardo’s economic thinking two centuries ago, they oppose taking any action to counter foreign governmental subsidies or predatory pricing of imports, arguing that, if foreign producers want to give U.S. consumers an inexplicably good deal on a product, the United States should take it and count its blessings. Underpinning this notion is an economic model that assumes, among other things, full employment and no barriers to industry entry—i.e., a new firm can simply enter the automobile or computer market at will.¹

The other notion of free trade—the one to which most businessmen, most government officials, and most Americans subscribe—is a bit different. It can best be described as a reciprocal free trade. Those who subscribe to this concept believe the market is the most efficient system for allocating resources and acknowledge that international specialization can benefit all countries. They support the lowering of U.S. trade barriers, provided U.S. trading partners are willing to do likewise, but they have little interest in opening the U.S. market to countries that practice protectionism. They certainly seek the lowest price in the competitive marketplace, but—growing out of a commitment to antitrust laws and competitive markets—they are concerned about foreign efforts to gain control of markets using subsidies or predatory pricing. Consequently, they are willing to make exceptions to the general principles of free trade to counter these objectionable practices.

Supporters of the unconditional-free-trade school would have one believe that their views are derived directly from basic economic principles first outlined by Adam Smith and David Ricardo, principles as incontrovertible as the law of gravity. Their history is shaky, however. Adam Smith, for example, would clearly have put himself in the reciprocal-free-trade camp. Consider this passage from The Wealth of Nations:

There may be good policy in [trade] retaliations of this kind, when there is a probability that they will procure the repeal of the high duties or prohibitions complained of. The recovery of a great foreign market will generally more than compensate the transitory inconvenience of paying dearer during a short time for some sorts of goods.²

Adam Smith also had strong criticism for subsidies—the targets of U.S. countervailing duty law. In fact, the notion that free trade should be unconditional has much more recent roots and is based on questionable assumptions.

The unconditional-free-trade camp has never really had much influence on public policy in the United States or in most other countries. The entire global trading system—as enshrined in the General Agreement on Tariffs and Trade (GATT)—and the dozens of major free trade agreements that have sprung up around the world are based on the concept of reciprocal free trade, not unconditional free trade. In these agreements, countries agree to lower tariffs provided that other countries do likewise. The few examples of countries pursuing unilateral free trade strategies generally are short lived, involve only a part of the overall trade picture (e.g., countries unilaterally lower tariffs in one area while raising them elsewhere or adopting new trade barriers), or, most frequently, involve countries that begin from a position of having much higher trade barriers than their trading partners. The GATT, clearly borrowing from the reciprocal-free-trade camp, includes provisions explicitly allowing countries to raise retaliatory tariffs if trading partners subsidize, engage in predatory pricing, or raise new trade barriers.

The United States’ own trade laws are cut from the same cloth. The United States for decades has had legislation providing for offsetting duties on imports that are subsidized or predatorily priced—legislation known as countervailing duty law and antidumping law, respectively. Although it had been common practice for years, the United States adopted, in 1974, a formal grievance procedure that U.S. companies and others could trigger if they felt disadvantaged by foreign trade barriers. This procedure has become known as Section 301. These three trade laws—countervailing duty law, antidumping law, and Section 301—are the central pillars of American trade law.

Despite their long history, the three pillars of American trade law face continuing challenge. Many of the unconditional-free-trade school of thought have launched sharp attacks on them in recent years. Countervailing duty and antidumping laws are assailed as “process protectionism” and “monsters.”³ Section 301, which aims to open foreign markets, is denounced with more colorful terms and dubbed “aggressive unilateralism.”⁴ The reason for initial resistance to countervailing duty and antidumping law, from a free trade perspective, is understandable, since both result in the imposition of duties on imports. But critical analysts give scant attention to the equally large violations of free trade principles involved in government subsidies and dumping, or the foreign trade barriers that are the target of Section 301. The tone of some critics often seems uncharacteristically sharp for academic discussions. For example, one critic referred to antidumping laws as nothing more than “ordinary trade with a grand public relations strategy.”⁵

When he wrote The Wealth of Nations 250 years ago, Adam Smith obviously was not speaking about modern American trade laws. Nonetheless, the logic he used then, which is quoted above, provides the intellectual underpinnings for the three pillars of American trade law. He would likely have viewed American trade laws not as “ordinary trade protection with a grand public relations strategy,” but rather as logical tools to promote free trade. Unfortunately, Adam Smith has not played an active role in the recent debate on U.S. trade laws, and his absence has been felt. The voices of critics often seem to drown out those of defenders.

Against the background of strong criticism and attack at home and abroad, U.S. trade laws have become a major focus of international trade negotiations. In the 1988 negotiations on the U.S.-Canada Free Trade Agreement (FTA), the Canadian government made clear that its major objective was curbing the operation of U.S. antidumping and countervailing duty laws. As is explained in appendix D, Canada’s efforts met with some success. Mexico demanded similar treatment when the free trade area was extended to it in 1994.

In the Uruguay Round of multilateral negotiations, Section 301 was strongly attacked by the European Community, Japan, and other trading partners—not coincidentally the targets of many Section 301 actions. Limits on antidumping laws and countervailing duty laws were also sought by some trading partners—again not coincidentally the targets of many actions under those laws. The primary objectives of the U.S. government in this latest round of multilateral trade negotiations were to gain stronger trading rules on agricultural goods and services and to win better protection of intellectual property. The United States made progress toward both of those objectives but initially made concessions that threatened American trade laws in order to achieve that progress. When the Clinton administration took over the negotiations in 1993, it fought to win back some lost ground on U.S. trade laws, but it was still forced to accept provisions that affected the operation of each of the major trade laws.⁶

In implementing the Uruguay Round, the U.S. Congress took care to minimize the adverse impact the new trade agreement had on U.S. trade laws. In some areas it was successful, but U.S. trade laws have been weakened in other areas. Fortunately, the Uruguay Round also contained provisions that could effectively strengthen U.S. trade laws. For example, new multilateral disciplines on subsidies were introduced, and multilateral dispute settlement could, if used correctly, actually strengthen Section 301.

The net effect of the agreement will probably vary from law to law and will not fully be known until the new Uruguay Round system has had some years to operate, but clearly the Uruguay Round sparked the most significant revisions in the three pillars of American trade law in their history. With aggressive and well-considered application and defense before the WTO, however, the essential features of the three pillars can be preserved.

This book aims to analyze in detail the function of the three pillars of U.S. trade law, explain the role they play in U.S. trade policy, review the relevant provisions of the Uruguay Round, and recommend a future strategy for using Section 301, antidumping law, and countervailing duty law.⁷ In short, this is an attempt to articulate once again the guiding principles behind the reciprocal-free-trade school of thought and explain how the three pillars of American trade policy can continue to provide the basis for a strong and vigorous American trade policy well into the next century.

Notes

1. Analysis of Ricardo drawn from Todd G. Bucholz, New Ideas from Dead Economists: An Introduction to Modern Economic Thought (New York, NY: Penguin Books, 1990), 62–85.

2. Adam Smith, The Wealth of Nations, book 4, chapter 2.

3. J. Michael Finger, The Origins and Evolution of Antidumping Regulation (Washington, DC: The World Bank, Policy, Research, and External Affairs Working Paper, 1991), 27.

4. Jagdish Bhagwati and Hugh T. Patrick, Aggressive Unilateralism (Ann Arbor, MI: University of Michigan Press, 1990).

5. Finger, The Origins and Evolution of Antidumping Regulation, cover.

6. Labor Industry Coalition for International Trade, Implementing the Uruguay Round: What Was Achieved and How to Enact It into Law, March 1994, 1–2.

7. It is important to note at the outset that this text does not attempt to analyze all U.S. trade laws. A number of trade laws—such as Section 201, which provides temporary import relief; Section 337, which blocks imports that infringe upon U.S. patents, trademarks, and copyrights; Section 232, which can block imports that may undermine an industry deemed critical to U.S. national security; and Section 406, which can be used to regulate imports from a nonmarket economy—are mentioned in passing but not carefully analyzed. These laws are not included for two primary reasons. First, either because the threshold for action under these statutes is very high or because administrations shy away from using these laws, they are seldom used. Second, these laws are not substantially affected by the Uruguay Round. (Section 337 is an exception to both reasons, but it was rewritten to respond to GATT decisions made before the Uruguay Round was completed and is thus beyond the scope of this book.)

Part I
Section 301 Laws

Chapter 2
U.S. Section 301 Laws^*

When Carla Hills was named U.S. trade representative in 1989, President Bush jokingly handed her a crowbar as a symbol of what he wanted her to do to closed markets. Markets are not opened with crowbars, however. The actual tool used by the United States is a piece of trade legislation commonly referred to as Section 301, the trade crowbar. Over the years, the term “crowbar” has often been used to describe Section 301. It has also been described with less positive terms, ranging from “aggressive unilateralism” with the United States acting as “judge, jury, and executioner”¹ to the less charitable description of the 301 process as that of “a corrupt, bribe-taking bully.”² All of this colorful hyperbole would lead the uninformed to think of Section 301 as a juggernaut inevitably pushing the world toward a cataclysmic trade war.

In fact, Section 301 is neither a carpenter’s tool nor the trade equivalent of gunboat diplomacy. The statute and its close relatives, “Super 301” and “Special 301,” are little more than a formal articulation of the powers the president has always possessed under the Constitution—the power to negotiate with foreign governments. Section 301 is simply a process whereby the administration, on its own volition or in response to a petition from U.S. parties, seeks to eliminate a foreign trade barrier. Since the passage of the Uruguay Round, the time limits and procedures for Section 301’s operation have been modified to correspond with those of the dispute settlement procedure of the new World Trade Organization—the ultimate achievement of trade multilateralism—so that the WTO and Section 301 can work together. The harshest critic of Section 301—the European Union—is considering adoption of a similar procedure to ensure that its trade policy can work effectively with the WTO.³

In order to put to rest many of the misconceptions s...