By: Michael Glasser
Who doesn’t like buying American made products? The International Trade Commission (ITC) and other domestic bodies believe that recent measures taken to encourage sales of domestically manufactured goods will positively affect struggling American industries.[i] Over the past several months, under both the Obama and Trump administrations, domestic policy has taken several steps in the aluminum[ii] and solar panel[iii] industry through action taken against foreign producers.
Most recently, the ITC has approved a bid from Whirlpool to levy tariffs against Korean washing machine producers LG and Samsung.[iv] The action commenced June 5, 2017 claiming that Whirlpool was in need of relief pursuant to Section 201 of the Trade Act of 1974,[v] which is legislation that was enacted in 1974 to foster domestic growth and maintain overall health in an increasingly globalized world.[vi] Under Section 201 of the Trade Act, if the ITC determines that a challenged good is being imported into the United States at such quantities as to be a “substantial cause of serious injury or threat to domestic industry,” the President may take any appropriate action that would facilitate stimulus to that domestic industry.[vii] A substantial cause is any cause that is determined by the commission to be important and not less than any other cause.[viii] After making a preliminary determination that cause exists, the ITC enters into a remedy phase in which it deliberates remedies that it will recommend to the President.[ix] However, as stated above, the President may take any action that he deems appropriate, even if that action is contradictory to the ITC recommendations.[x]
The question then becomes, why is this problematic? There are two interesting trends of note that should raise some concerns. First, Section 201 is considered a “safeguard” provision, which lends itself to overly broad interpretation.[xi] Second, the President has sole discretion in determining the remedy for any substantial cause of injury to American industry, which lends itself to unilateral and unchecked decisions from the Executive office.[xii]
Section 201 is considered a safeguard provision because it has relatively lower thresholds for success than other Federal anti-dumping and foreign subsidy laws.[xiii] Under anti-dumping and foreign subsidies laws, which regulate to protect domestic industry from subsidies by foreign governments that create unfair price discrepancies on imported goods), countervailing duties may only be imposed against a single nation or territory that is determined to be causing material harm to an American industry.[xiv] The bar is set much higher in those laws to make a successful petition.
One reason the bar is lower for Section 201 is that the claim has to be against a specific nation or entity in a specific nation.[xv] This means that a corporation that is challenged under Section 201 can defeat the challenge by shifting locations, similar to how both LG and Samsung have moved manufacturing from Mexico and South Korea to China.[xvi]
Another reason is that under anti-dumping and foreign subsidy laws, the petitioning party must show a material harm stemming from an unfair trade practice.[xvii] Under 201, the requirement is only a showing that a challenged party is a substantial cause to a downturn in the market.[xviii] The difference is that the party challenging under Section 201 does not need to show that any unfair practice exists; they merely need to show that enough quantities of imports exist to cause a downturn in the market for American produced goods. A potential cause for that type of behavior is cheap pricing that is not caused by malicious acts of a foreign entity.
It is clear that the Section 201 safeguard provision is an easier standard to meet. However, LG released a statement pointing out the problem with Section 201’s lower threshold, stating that “Whirlpool is once again seeking government protection rather than competing in the marketplace.”[xix] Section 201 runs against the stricter standards set forth in anti-dumping laws and runs afoul of the realities of a global market. The result of a Section 201 investigation, if successful, can lead to “limit[ed] consumer choices,” which would force upward the price of goods everyday consumers face.[xx]
On the other hand, Section 201 protects American industry from entities that engage in unfair practices and can afford to move around their company locations to contravene anti-dumping laws.[xxi] While this may seem like a catchall provision, it does add an additional layer of protection to American industry in the face of increased global mobility. It is unclear whether Section 201 is an outdated piece of legislation since it was drafted in 1974 or if it still has important ramifications in an increasingly mobile world.
Sole Presidential Discretion
The second large issue with Section 201 is that it grants the President sole discretion on how to appropriately handle a petition the ITC determines is in fact a substantial cause of injury to American injury.[xxii] This is despite the fact that the ITC goes through a rigorous process of forming recommendations for appropriate and feasible remedies, offering a preference for increasing or imposing duty on imports.[xxiii] This becomes problematic when you look at the recent history of Section 201 challenges brought to the ITC.
Up until this year, the last time Section 201 was used was by the Bush Administration in 2002 to seek help for the ailing steel industry.[xxiv] However, when the ITC came down with its unanimous decision finding that LG and Samsung seriously injured Whirlpool, this marked the second time in less than two weeks that a successful 201 petition had passed through the ITC.[xxv] This is on the heels of new Commerce Secretary, Wilbur Ross, taking office and vowing to create a much tougher trade enforcement agenda.[xxvi] This indicates that more companies and industry groups will seek safeguard protection under Section 201 due to the current administration’s willingness to pursue such petitions. However, the eagerness to pursue tougher trade enforcement could lead to inflated responses from the presidential office over and beyond the recommendations of the ITC. The idea that there is a much easier threshold to succeed with a 201 petition and potentially overinflated enforcement from the Executive office is a combination that could have potentially dangerous outcomes, severely damaging US trade relations globally.
It is important to note that despite these successful 201 petitions and potential remedies from the White House, the United States’ WTO obligations could impede long-term enforcement from any Presidential orders.[xxvii] An example of this is the WTO openly opposing the United States’ imposed tariffs brought under a 201 petition during the Bush Administration in 2003.[xxviii] The WTO held that such tariffs levied under 201 were in violation of article XIX:1(a) of the GATT and article 3.1 of the Agreement on Safeguards, because the United States failed to provide a reasoned and adequate explanation demonstrating that unforeseen developments had resulted in increased imports, causing serious injury to the relevant domestic producers.[xxix] Under article XIX of the GATT, the party seeking remedy must make a showing that increased quantities of imports that are leading to the injurious results to the local market, which are caused by unforeseen events.[xxx] This decision shows that there is precedent within WTO case law that it is unwilling to uphold the use of Section 201 by the United States without significant evidential showing of unforeseen developments that led to the flood of imports injuring the domestic market.
While these measures may temporarily benefit domestic manufacturers, only time will tell how these recent measures will affect American industry in the future. Additionally, the WTO is likely to closely scrutinize the recent 201 decisions as the office of the President starts making remedial decisions regarding Whirlpool and the solar panel industry. There are two other potentially large problems that can arise. First, domestic consumers will bear the cost for higher priced products, which could stymie sales. Second, the United States could burden foreign producers enough that they take similar retaliatory measures that will result in tariffs that shrink US exportation numbers. These problems, coupled with any other potential issues that will arise, require close attention and consideration in the immediate and long-term future.
[i] See Julia Horowitz, Trump Moves to Slap Duties on Chinese Aluminum Foil, CNN Money (Aug. 9, 2017), http://money.cnn.com/2017/08/08/news/trump-aluminum-tariffs/index.html.
[iii] Keith Goldberg, 4 Things to Know About Suniva’s Solar Cell Tariff Bid, Law360 (May 17, 2017), https://www.law360.com/articles/925034/4-things-to-know-about-suniva-s-solar-cell-tariff-bid.
[iv] Jacob Schlesinger & Andrew Tangel, Whirlpool Wins Backing for Import Protection From Key Government Panel, Fox Business (Oct. 5, 2017), http://www.foxbusiness.com/features/2017/10/05/whirlpool-wins-backing-for-import-protection-from-key-government-panel-2nd-update.html.
[v] See Large Residential Washers, Inv. No. TA-201-76 (June 7, 2017) (Preliminary).
[vi] See 19 U.S.C. § 2102.
[vii] See 19 U.S.C. § 2251(a).
[viii] See 19 U.S.C. § 2242(b)(B).
[ix] See 19 U.S.C. § 2242(d)(E).
[x] See 19 U.S.C. § 2251(a).
[xi] Keith Goldberg, 4 Things to Know About Suniva’s Solar Cell Tariff Bid, Law360 (May 17, 2017), https://www.law360.com/articles/925034/4-things-to-know-about-suniva-s-solar-cell-tariff-bid.
[xii] See 19 U.S.C. § 2251(a).
[xiii] Kylie Jahner, ITC Probe Adds to Whirlpool Feud with Samsung, LG, Law360 (June 13, 2017), https://www.law360.com/articles/933624/itc-probe-adds-to-whirlpool-feud-with-samsung-lg.
[xiv] See 19 U.S.C. § 1671(a)
[xvi] See Jahner, supra note 11.
[xvii] See 19 U.S.C. § 1671d(b).
[xviii] See 19 U.S.C. § 2251(a).
[xix] See Jahner, supra note 11.
[xx] See id.
[xxi] See 19 U.S.C. § 1671(a).
[xxii] See 19 U.S.C. § 2251(a)
[xxiii] See 19 U.S.C. § 2252(d)(2)(B).
[xxiv] See Schlesinger & Tangel, supra note 3.
[xxv] Alex Lawson, Whirlpool Scores Victory in Trade Case Against LG, Samsung, Law360 (Oct. 5, 2017), https://www.law360.com/articles/971852/whirlpool-scores-victory-in-trade-case-against-lg-samsung.
[xxvi] Lesley Wroughton, Whirlpool’s Washer Battle with Samsung, LG Heats Up at Trade Hearing, CNBC (Sept. 7, 2017), https://www.cnbc.com/2017/09/07/reuters-america-whirlpools-washer-battle-with-samsung-lg-heats-up-at-trade-hearing.html.
[xxvii] Alex Lawson, Another Dormant Trade Law Gets a Trump-Era Awakening, Law360 (Sept. 14, 2017), https://www.law360.com/articles/962909/another-dormant-trade-law-gets-a-trump-era-awakening.
[xxviii] See Appellate Body Report, United States – Definitive Safeguard Measures on Imports of Certain Steel Products, sec. XII ¶ 513, WT/DS248/AB/R (Nov. 10, 2003).
[xxix] See Id.
[xxx] General Agreement on Tariffs and Trade, WTO, 1994, art. XIX sec. (1)(a).