Solar panels, washing machines and free-trade cronyism
On first blush, not much. One was a short-lived solar firm, the other is a long-time player in the home-appliance market. What ties these two companies together, however, is that both currently are pushing the International Trade Commission to invoke a powerful, but rarely used, trade remedy statute in violation of the World Trade Organization’s rules.
In 1947, the United States joined the General Agreement on Tariffs and Trade in order to create a post-war, rules-based trading system. Among other measures, GATT provided a powerful exception, known as a “safeguard” measure, to our trade commitments. This exception was codified domestically in Section 201 of the Trade Act of 1974 and then ratified by the Uruguay Round, which created the WTO as the successor to GATT, in 1994.
The purpose of safeguard measures is to provide a temporary safety valve to a domestic industry that is threatened by a surge of competing imports. They provide relief in the form of tariffs, quotas, or other restrictions on a particular product. Safeguards are unlike anti-dumping and countervailing duties (AD/CVD) laws, which are designed to counteract “unfair” activities undertaken abroad, such as a foreign company exporting a product at a lower price than it would normally charge in its own market or a foreign government subsidizes a particular industry or product.
In contrast, safeguard measures are applied to fairly-traded imports from all countries, based entirely on market circumstances within the U.S.
Given the extreme nature of the remedy, safeguards are rarely employed. In fact, the last time the U.S. imposed import restrictions under its safeguard powers was in 2002, in a case involving imported steel. The results weren’t pretty, as they included 200,000 lost jobs in industries that use steel and formal sanction from the WTO. After laying dormant for 15 years, however, safeguards are back in vogue among Washington’s trade petitioners’ bar and once again are being misused.
In April, Suniva filed its safeguard petition with the International Trade Commission, seeking large tariffs and a minimum price floor for imported solar products from all countries. Underlying Suniva’s safeguard petition is the claim that, in order to circumvent tariffs imposed by two prior AD/CVD orders, foreign solar manufacturers are moving production facilities to countries not subject to the tariffs.
Shortly after Suniva filed its petition, Whirlpool filed a safeguard petition with the ITC that seeks protection from imports of large residential washing machines. In particular, Whirlpool’s petition is intended to shield itself from its primary competitors, LG and Samsung. In its filing, Whirlpool argued that LG and Samsung have dumped washing machines into the U.S. and have done “an end-run around the U.S. antidumping laws that are intended to remedy such behavior” by moving production facilities to countries not subject to the AD/CVD orders.
Irrespective of the merits of Suniva and Whirlpool’s claims that their foreign competitors unfairly moved production facilities in order to circumvent AD/CVD orders that impose tariffs, the safeguard statutes and rules simply aren’t written to counteract either dumping or subsidization. To be sure, both companies made additional legal arguments to the ITC, but the underlying crux of each petition is an attempt to change foreign trade practices.
Under existing laws, Suniva and Whirlpool have two choices.
First, they could simply refile their cases as AD/CVD petitions and, if successful, expand the list of countries to whom the tariffs apply. This could be costly, but it’s the appropriate way to remedy the allegedly “unfair” practices. The other option is to lobby Congress and WTO members to change safeguard rules. Neither option may be particularly satisfying to Suniva and Whirlpool, but misusing the safeguard power would undermine the rule of law.
By acting as a bulwark against protectionist impulses, both domestically and abroad, the rules-based trading system established after World War II has served America’s interests well. As its most important member nation and the largest global economy, the U.S. has a special responsibility to respect the rule of law and judiciously apply various remedies. Misapplying rules to serve the protectionist agendas of two companies would undermine U.S. credibility at a time of rising protectionist sentiments.
Image by NoonBuSin