Suniva and Whirlpool trade cases clearly show safeguard laws are broken
In light of the two decisions the president will confront, it’s become increasingly apparent that some of our trade remedy statutes are badly outdated and in need of reform.
After laying dormant for more than 15 years, Section 201 of the Trade Act of 1974 is suddenly back in vogue with the Washington trade petitioners’ bar. Earlier this year, Suniva, a bankrupt solar company, filed a Section 201 petition with the International Trade Commission seeking stiff duties on imported solar products. Shortly thereafter, Whirlpool filed a similar claim under Section 201, seeking duties on imported washing machine products. If granted, each request would harm far more consumers and American businesses than it would benefit.
Based on Article XIX of the General Agreement on Tariff and Trade, or GATT — the precursor to the World Trade Organization — the theory behind Section 201 was to give domestic companies “breathing room” to adjust to increased competition from abroad. The statute can provide temporary relief — tariffs, tariff-rate quotas, and price floors, among others — known as a “safeguard” to a petitioner, if the petitioner can show that an increase in imports is injuring or threatening injury to a domestic industry. Unlike antidumping and countervailing duties laws, safeguards apply to “fairly traded” imports and allow the president to levy tariffs or other restrictions on imports from every country, not just those from individual countries.
The last time the U.S. utilized its safeguard power was in 2002 when the Bush administration imposed tariffs on imported steel. These steel safeguards caused an estimated 200,000 job losses and cost $4 billion in lost wages. The tariffs were challenged at the WTO and eventually withdrawn after the U.S. lost the case. In fact, the WTO has ruled against the U.S. in every safeguard measure it has imposed since 1994.
In light of the damage safeguards have done to America’s economy and international relations, Congress should reform Section 201 by adding three additional requirements that would modernize the law and make safeguards more difficult to impose.
First, Section 201 should be amended to make it consistent with the WTO’s Agreement on Safeguards, which has been interpreted to require that the increase in imports is due to an “unforeseen development.” Currently, Section 201 makes no mention of “unforeseen developments.” By adding a requirement similar to that of the WTO Agreement, Congress would raise the threshold for an injury determination and bring it into alignment with international law, making future safeguards more likely to survive WTO scrutiny.
Next, Congress should require ITC economists to balance the benefit of import restrictions to the petitioners versus the burden on consumers and the broader economy. The ITC has the technical capabilities to make these determinations. If the ITC’s economists find that import restrictions would cause more harm to the broader economy than benefit to the petitioners, the petition would be dismissed and no restrictions imposed. The Suniva and Whirlpool cases would surely fail to meet this standard, as the costs to consumers and other businesses far outweigh any benefit the petitioners may accrue.
Finally, Congress should mandate that any tie vote at the ITC results in no injury finding. Given that the ITC has six commissioners, tie votes can happen. Though the Suniva and Whirlpool injury determinations were unanimous, given the potential for widespread harm, there should be a bias against import restrictions in close calls.
Now that the ITC has found injury in the Suniva and Whirlpool cases, it is up to the president to fashion a policy response. And, based on their history, the president would be wise to avoid import restrictions.
The Bush administration’s 2002 venture into trade safeguards demonstrated the potential costs: tens of thousands of jobs and billions in lost wages. And, given that solar panels and washing machines “would be the third ($8.5 billion) and seventh ($1.8 billion) largest import value cases, respectively, under the law’s history to result in trade barriers,” the stakes are high.