Possible Unilateral Actions under US Law | White & Case LLP International Law Firm, Global Law Practice
Possible Unilateral Actions under US Law

Possible Unilateral Actions under US Law

Current US law provides several mechanisms for the President to impose unilateral trade measures (e.g., duties or quotas) on foreign imports. We discuss below each potential mechanism, its requirements and limitations, and an assessment of the likelihood the Trump administration ultimately utilizes the measure.

As with previous administrations, the Trump administration could continue to utilize several provisions of the Trade Act of 1974 or Tariff Act of 1930, which involve agency investigations and proceedings. Most of these actions, notably trade remedies, would raise few legal concerns outside of the investigations at issue. On the other hand, other, less-used US laws potentially authorize President Trump to take broad, unilateral trade actions against imports – actions that would raise far more serious economic and legal concerns among, and likely opposition from, US business groups, trading partners and even the US Congress. In order to achieve Mr. Trump's trade promises using these less-utilized statutory provisions, the Trump administration would likely need to apply a liberal interpretation of the relevant legal standards, thus defying past agency practice. For these reasons, it is more likely that the Trump administration will utilize more traditional unilateral trade mechanisms under US law, albeit in a more aggressive manner than that utilized by recent US administrations.

 

AD and CVD Measures, Customs Enforcement, and Other Trade Remedy Actions

AD and CVD Investigations

It is likely that the Trump administration will aggressively pursue actions taken under the US AD and CVD laws.

Under US law, domestic industries may petition the government for relief from imports that are sold in the United States at less than fair value (i.e., "dumping") or that benefit from foreign government subsidies. Two separate government agencies are involved in administering US AD/CVD investigations. DOC determines whether dumping or subsidization exists, and if so, the margin of dumping or the amount of the subsidy.[1] The US International Trade Commission (ITC) determines whether there is material injury or threat of material injury to the domestic industry by reason of the dumped or subsidized imports. Material injury is loosely defined as "harm which is not inconsequential, immaterial, or unimportant."[2] For industries not yet established, the ITC also may be asked to determine whether the establishment of an industry is being materially retarded by the dumped or subsidized imports.

The United States currently enforces more than 370 AD/CVD orders on foreign imports. In 2015, more than 60 investigations were initiated. The Obama administration implemented significant regulatory changes to DOC's trade regulation practice regarding foreign exporters, including measures aimed at Chinese state-owned companies in non-market economy (NME) investigations. These measures have led to the application of high duties in AD investigations where Chinese companies have failed to cooperate in investigations. The Trump administration could continue these actions, as well as implement other policies that would amplify the scope and effect of US AD/CVD investigations:

  • Self-initiation. While DOC's current practice is to initiate AD/CVD investigations as a result of a petition filed by a domestic interested party or parties, DOC's regulations also allow for initiation of AD/CVD investigations at the "Secretary's own initiative."[3] President Trump could encourage DOC to self-initiate AD/CVD investigations for particular products from particular countries in an effort to halt imports and impose high duties on these products and countries. However, self-initiation has not been utilized in the United States and is controversial: the European Union in 2012 sought to self-initiate AD and CVD investigations against China's telecommunication industry and mobile network equipment manufacturers, but ultimately did not go forward with the investigations due to industry and Chinese government pushback. Similar opposition would likely materialize in response to US self-initiations.
  • China NME status. The Trump administration will have an important policy choice to make with respect to China's NME status under the US AD law. NME status permits DOC to use third country prices and costs to determine whether Chinese imports are dumped, thus leading to higher dumping margins and increased uncertainty. Certain provisions in China's WTO Accession Protocol that permit NME methodologies with respect to Chinese imports expire on December 11, 2016. Although the Chinese government has demanded that all WTO Members cease treating China as an NME, it is highly likely that DOC will continue to do so after December 11. It is also likely that the Trump administration will resist any changes to China's NME status, and that China will challenge this move at the WTO.
  • Currency undervaluation. The Trump administration might also seek to address any alleged currency "manipulation" by China or other countries through changes to DOC's long-standing practice of not using a country's currency practices as grounds to apply countervailing duties or anti-dumping duties. In particular, DOC could begin to treat currency undervaluation as (i) a countervailable export subsidy or (ii) grounds to modify market economy exporters' record costs when calculating dumping (thus leading to higher anti-dumping duties). This change could be implemented through congressional legislation or unilaterally, though the latter approach would likely generate US court challenges. Either action also would almost certainly lead to a WTO challenge by China or other targeted countries.

Other methodological changes, for example with respect to state-owned exporters, might also be implemented to ensure higher duties.

Beyond AD/CVD investigations, several other provisions of the Trade Act of 1974 and Tariff Act of 1930 could permit the Trump administration to treat foreign imports more aggressively than its predecessors, or to take credit for independent agency decisions outside the President's control.

Anti-Circumvention Investigations

The anti-circumvention laws prohibit the circumvention of existing AD/CVD orders where there is further assembly or manufacturing in the United States, minor or insignificant processing of the merchandise, or completion of the merchandise in a third country.[4] In mid-September 2016, several domestic steel producers filed anti-circumvention petitions with DOC, arguing that Chinese-made steel inputs were being shipped to Vietnam for minor processing in order to circumvent existing AD and CVD orders on Chinese hot-rolled and corrosion-resistant steel products. The domestic industry's requests followed successful petitions resulting in AD/CVD orders on Chinese cold-rolled steel, hot-rolled steel and corrosion-resistant steel. DOC has initiated these anti-circumvention investigations, and will investigate whether the Chinese-origin inputs completed in Vietnam for export to the United States are circumventing the underlying AD/CVD orders on corrosion-resistant steel from China.

An affirmative determination of circumvention by DOC could signal stricter enforcement of AD/CVD orders. Moreover, the number of requests filed with DOC for circumvention investigations and rulings has increased in recent years. For example, the US aluminium industry recently requested that DOC investigate circumvention of existing Chinese AD and CVD orders on aluminium products.

The Trump administration could take a more aggressive approach to enforcement of existing AD/CVD orders under the anti-circumvention statute, but this approach is limited by the fact that each anti-circumvention investigation would be fact-intensive and require specific evidence of circumvention. For example, in the recently-initiated investigations on Vietnamese steel products, Vietnamese steel producers could successfully defend the allegations by establishing that the processing in Vietnam constitutes a "substantial transformation" of the merchandise in questions, and thus, no circumvention occurred. These investigations also require significant agency time and resources, though less so than new AD/CVD investigations.

Safeguard Investigations

Given Mr. Trump's rhetoric regarding import restrictions, the Trump administration could also pursue safeguard measures under Section 201 of the Trade Act of 1974. Administered by the ITC, Section 201 allows for the temporary restriction of a product through higher tariffs or other measures if a domestic industry is seriously injured or threatened with serious injury by increased imports.[5] The increased imports must be a substantial cause of the serious injury or threat of serious injury. The serious injury and substantial cause standards for safeguard investigations are higher than the material injury and "by reason of" subject imports standards in AD/CVD investigations. Safeguard measures apply to all imports from all countries rather than a particular country (AD/CVD orders apply to a single country).

Safeguard measures are subject to significant limitations. First, they are temporary, apply to narrow product categories, and cannot be used to target individual countries (e.g., China). Second, safeguards are administered by the ITC, which is an independent agency that is generally less susceptible to political pressures. Third, recent WTO jurisprudence has limited the terms under which safeguard measures are permitted under WTO rules. The last US safeguard measure on steel was imposed by President Bush in 2002, and was terminated in 2003 after a successful WTO challenge by the European Union, China and several other countries. Accordingly, target countries could challenge any safeguard measure taken by the Trump administration at the WTO, and the United States would have to demonstrate that there is an increase in imports, and that the increased imports are the result of "unforeseen developments" to survive a WTO challenge. Such challenges to new US safeguard measures are highly likely.

Furthermore, safeguard measures might elicit retaliation by other WTO Members. For example, China's Ministry of Commerce (MOFCOM) recently initiated safeguard investigations on sugar in what many believe is a retaliatory action in light of trade remedy actions on sugar taken by other countries around the world that have impacted China's domestic sugar industry.

Section 337 Investigations

Under Section 337 of the Tariff Act of 1930, the ITC has typically investigated claims of unfair trade practices pertaining to intellectual property rights, including patent infringement and trademark infringement of imported goods.[6] For the most part, this tool has been used by companies in the electronics and consumer goods sector – especially producers of cell phones and other personal devices – given the number of patents and other intellectual property used in the sector. However, Section 337 can be used effectively in other sectors also as a powerful legal and commercial tool. For example, in September 2014, an Indiana-based stainless steel producer and its Italian parent initiated a Section 337 proceeding against an Indian competitor based on trade secret misappropriation, a claim which led to the 2016 ITC Orders excluding the Indian company's products from entering the United States for 16.7 years.[7] Also, in April 2016, US Steel filed a Section 337 complaint against virtually all Chinese manufacturers and importers of carbon and alloy steel products. The ITC initiated the investigation on June 2, 2016.[8] While the ITC recently rejected one of the three claims brought by US Steel, the case will continue on the basis of the remaining claims. If the ITC finds a violation, the resulting remedy could bar from the US market all carbon and alloy steel products from the targeted Chinese producers. Thus, Section 337 is a powerful tool available to US industries, and recent cases may signal a move toward the use of the tool in sectors which have not been traditional users.

However, President Trump himself would have little, if any, control over the Section 337 process, particularly in the near term. The ITC is, as noted above, an independent, bipartisan agency that would not be beholden to President Trump, and Section 337 cases are adjudicated principally before the agency's Administrative Law Judges, who run the proceeding much more like a trial than the traditional trade administrative proceeding. The Trump administration thus could not, as official policy, promise or initiate additional Section 337 actions. However, the President could, and likely would, take credit for any significant Section 337 outcomes, including the pending steel case. He might also seek to influence the ITC's work over the longer term though his power to appoint sympathetic Administrative Law Judges and ITC Commissioners who oversee Section 337 actions, as well as AD/CVD and safeguards cases.

Furthermore, assuming the ITC found violations of Section 337 and imposed the broad remedy of excluding imports of Chinese carbon and alloy steel products, China would almost certainly challenge the decision at the WTO, arguing that Section 337 and any remedy imposed constitutes a non-tariff barrier in violation of GATT/WTO rules, or violates obligations provided for by the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs Agreement) regarding principles of national treatment and special requirements related to border measures.

 

Less-Used Statutory Provisions for Unilateral Trade Actions

Beyond the aforementioned traditional methods of imposing unilateral trade measures on imports, President Trump could seek unilateral action under other, less-used statutory provisions. Doing so, however, would likely require a liberal interpretation of the legal provisions at issue (and thus the power delegated to the President by Congress), thus generating domestic legal challenges and economic uncertainty. This approach also would very likely elicit unilateral retaliation by target countries or challenges under US trade agreements, most notably the WTO Agreements. For these reasons, we view President Trump's use of these measures to be unlikely.

Section 338 of the Tariff Act of 1930

Section 338 of the Tariff Act of 1930 permits the president to impose new or additional duties of up to 50 percent ad valorem on imports from countries that have "discriminated" against the commerce of the United States as compared to another foreign country. In particular, Section 338 permits the president to impose duties on imports from foreign countries that have been found to (1) impose on U.S. products “any unreasonable charge, exaction, regulation, or limitation which is not equally enforced upon the like articles of every foreign country”; or (2) discriminate "against the commerce of the United States…in such manner as to place the commerce of the United States at a disadvantage compared with the commerce of any foreign country."[9] In certain instances, Section 338 also allows the president to issue a proclamation wholly excluding such imports from entry into the United States,[10] or to target third countries that benefit from the discriminatory conduct of the primary target country.[11]

Despite Section 338's theoretical tariff authority, significant legal and practical limitations render its use unlikely. First, the provision requires findings of discrimination against the United States in favor of other countries, a finding that might be difficult where the target country is a WTO Member subject to "most favoured nation" obligations that prohibit discrimination among Members. On the other hand, Section 338's vague wording (e.g., place the commerce of the United States at a disadvantage”) and lack of precedent could permit arguments that it is broader than the discrimination governed by WTO Members' MFN obligations. Second, Section 338 has never actually been used to impose duties on imports from a foreign country, and has not been utilized at all since 1949.[12] Indeed, there are no regulations governing presidential proclamations under Section 338, even though Section 338(h) expressly provides such rulemaking authority to the US Treasury Department.  Instead, the law appears to be defunct and has arguably been supplanted by Section 301 of the Trade Act of 1974.[13] Third, because Section 338(g) entrusts the U.S. International Trade Commission with ascertaining whether "discrimination" by a foreign country exists[14], unilateral actions without ITC participation could result in legal challenges asserting that the president does not have legal authority under Section 338 to find discrimination and to impose duties without ITC input. Finally, any use of Section 338 by President Trump would almost certainly be met with an immediate WTO challenge, and found to be inconsistent with the United States’ WTO obligations; it would almost certainly face domestic legal challenges on the grounds outlined above.

Section 232 of the Trade Expansion Act of 1962

Section 232 authorizes the Secretary of Commerce to investigate whether imports pose a threat to "national security." In Section 232 investigations, the Bureau of Industry and Security (BIS) within DOC investigates the effects of certain imports on US national security. DOC is required to initiate an investigation to determine the effects on the "national security of imports" (i) upon the request of the head of any department or agency; (ii) upon application of an interested party; or (iii) on the Secretary's own motion (typically, these investigations are initiated at the request of a specific industry). The Secretary issues a report, based on which the President is authorized to negotiate agreements to limit or restrict imports, or to "take such actions as the president deems necessary to adjust the imports of such article so that such imports will not threaten or impair the national security." The statute places no limit on the nature of the restrictions or the height of tariffs.

The key requirement for action under Section 232 is a threat or impairment of "national security," which is not defined in the law or in its implementing regulations. BIS in the most recent (2001) Section 232 investigation found, based on the statutory language and congressional intent, that the standard would be met where imports of the product at issue threaten to impair US national security either: (i) "by fostering US dependence on unreliable or unsafe imports"; or (ii) "by fundamentally threatening the ability of US domestic industries to satisfy national security needs."

Historically, Section 232 has been invoked to limit imports of specific items. There have been only two Section 232 investigations since the United States joined the WTO in 1995 – on crude oil in 1999 and iron and steel in 2001 – and in both cases BIS declined to recommend that the President take action under Section 232.[15] However, Section 232 measures were imposed several decades ago. President Nixon imposed an across-the-board 10 percent surcharge program in 1971 pursuant to Section 232(b). In addition, by presidential proclamation in 1975, President Ford found that it was "necessary and consistent with the national security to discourage importation into the United States of petroleum, petroleum products, and related product...", and invoking Section 232(b), issued a proclamation to raise licensing fees on petroleum products.[16] The proclamation also imposed on all imported oil a supplemental $1 per barrel fee for oil entering the US after March 1, 1975, and a $3 fee for oil entering the US after April 1, 1975. However, following the imposition of these fees, on April 10, 1975, Congress passed the Emergency Petroleum Allocation Act of 1973 to prohibit the President from using Section 232(b) of the Trade Expansion Act of 1962 or any other provision of law to establish minimum prices for crude oil without congressional authority.

President Trump could instruct his administration to investigate the national security implications of specific imports (such as Chinese steel imports) under Section 232, but doing so would face significant legal and practical constraints. First, legal challenges to these unilateral actions are likely because such measures could contradict both past BIS practice and the original intent of the statute – indeed, it is difficult to imagine how BIS' current standard would be met today in the case of almost all globally-traded commodities. However, courts could decline to intervene given that this provision aims to safeguard national security interests, an area where courts have shown great deference to the executive branch.[17]

Second, the foreign target countries of a Section 232 action also would have recourse to bring a complaint to the WTO. In response, the US could cite to the little-used GATT Article XXI Security Exceptions, which permit a member country to depart from GATT obligations in "time[s] of war or other emergency in international relations."[18] However, the United States' use of Article XXI would be highly controversial and could encourage other WTO Members to rely thereupon, thus breeding tit-for-tat protectionism under the guise of "national security" and undermining the efficacy of WTO dispute settlement. These concerns have historically acted as a check on WTO Members' invocation of Article XXI.

Third, President Trump's use of Section 232 could have severe economic repercussions. A target country would likely retaliate with equivalent measures on US goods, similar to when China initiated retaliatory AD investigations of imports of US cars and poultry in response to President Obama's imposition of new duties on imports of Chinese tries under Section 421 of the Trade Act of 1974. This risk may be even more serious for President Trump with respect to China, for example, as the country's AD enforcement agency has become more sophisticated and experienced in bringing an increasing number of trade cases against foreign products in recent years. The emergence of such actions would not only hurt US exporters and consumers, but also likely rattle financial markets that currently expect President Trump to pursue a far less aggressive US trade policy.

Section 122 of the Trade Act of 1974

Section 122 of the Trade Act of 1974 authorizes the President to deal with "large and serious United States balance-of-payments" deficits by imposing temporary import surcharges not to exceed 15 percent ad valorem on imported goods; impose temporary import quotas; or both.[19] The authority to impose temporary import quotas (including the authority to impose both a temporary import quota and a temporary import surcharge) can be exercised only if international trade or monetary agreements to which the US is a party permit the impost of quotas as a balance-of-payments measure, and only to the extent that the fundamental imbalance cannot be dealt effectively by a surcharge.[20] The duration of such restrictions is limited to 150 days unless Congress authorizes an extension of the restriction, and import restriction actions under Section 122 are to be "applied consistently with the principle of nondiscriminatory treatment."[21]

Unlike Section 232 of the Trade Expansion Act of 1962, President Trump could take action under Section 122 of the Trade Act of 1974 without making a finding of a threat to national security. However, such action would likely be challenged in US courts by plaintiffs who argue that the statutory standards for any such measures have not been met. For example, one could argue that the floating Dollar exchange rate prevents the United States from ever having a "large and serious balance of payment deficit," as capital inflow surpluses would offset any current account deficit. Furthermore, target countries could challenge any action under Section 122 at the WTO, but doing so would take far longer than the temporary 150-day duration of any restrictions under the law.

Section 301 of the Trade Act of 1974

Section 301 of the Trade Act of 1974[22] gives USTR broad authority to respond to unfair trade practices, at the direction of the President. Such "unfair trade practices" include violations of trade agreements, or "an act, policy, or practice of a foreign country that is unreasonable or discriminatory and burdens US commerce."[23] The types of action or foreign conduct subject to Section 301 include (i) trade agreement violations; (ii) unjustifiable actions (acts, policies or practices that violate or are inconsistent with US international legal rights, such as the denial of national treatment or normal trade relations treatment); and (iii) unreasonable acts (acts, policies or practices that are not necessarily in violation of or inconsistent with US international rights, but are otherwise unfair and inequitable). In other words, President Trump could pursue action under Section 301 if the purpose of tariffs is to retaliate for unfair trade practices, including currency manipulation, market access restrictions, or other obstacles to US exports.

Section 301 investigations may be initiated by USTR based on the filing of a petition by any interested party. USTR may also self-initiate an investigation after consulting with the appropriate private sector advisory committees. USTR is authorized to take two different types of action under Section 301, as the statute provides for both mandatory and discretionary action.

Section 301(a) involves "mandatory action" by which the USTR must take certain actions if USTR finds that unfair trade practices exist.[24] However, USTR is not required to act in instances where (i) a WTO panel report, or a dispute settlement ruling under a trade agreement, finds that the US trade agreement rights have not been denied or violated; (ii) USTR finds that the foreign country is taking satisfactory measures to grant US trade agreement rights or has agreed to eliminate or phase out the practice, there is an imminent solution to the burden or restriction on US commerce, or the country has provided satisfactory compensatory trade benefits; and (iii) USTR finds, in extraordinary cases, that action would have an adverse impact on the US economy substantially disproportionate to the benefits, or finds that action would cause serious harm to national security. Section 301(b) involves "discretionary action" by which USTR may take action if it finds an act, policy or practice of the foreign country is unreasonable or discriminatory and burdens US commerce.[25] USTR has discretionary authority to take all appropriate and feasible action, subject to the specific direction of the President, to obtain the elimination of the act, policy or practice.

USTR is authorized to take certain types of action under Section 301: suspend, withdraw or prevent the application of benefits of trade agreement concessions to carry out a trade agreement; impose duties or other import restrictions on the goods or services of the foreign country for such time as USTR deems appropriate; withdraw or suspend preferential duty treatment; or enter into binding agreements that commit the foreign country to eliminate or phase out the act, policy or practice, eliminate any burden on US commerce, or provide the United States with compensatory and satisfactory trade benefits. If USTR determines that import restrictions are the appropriate form of action, it must give preference to tariffs over other forms of import restrictions and consider substituting on an incremental basis an equivalent duty for any other form of import restriction imposed.

There are several limitations to taking action under Section 301. Any action taken must affect goods or services of the foreign country in an amount equivalent in value to the burden or restriction being imposed by that country on US commerce. Section 301 also requires that the United States engage in international dispute resolution efforts, most notably at the WTO, in parallel with Section 301 procedures. USTR must on the same day as a determination to investigate also request consultations with the foreign country concerning the issues involved. For trade agreement violations, if the issues are not resolved through consultations, then USTR must promptly request formal dispute settlement under the agreement before the earlier of the close of the consultation period or 150 days after the consultation commenced. USTR must seek information and advice from the petitioner and from appropriate private sector advisory committees in preparing for consultations and dispute settlement proceedings.

Importantly, USTR has interpreted Section 301(a) to require it to take any potential violations to the WTO, and has been reluctant to challenge any "unreasonable" or discriminatory practices that are not covered by the WTO rules. This practice has been codified into US law in the Statement of Administrative Action (SAA) accompanying the Uruguay Round Agreements Act (URAA). Thus, US law restricts USTR from taking action under Section 301 in connection with any claims covered by the WTO agreements without first bringing a challenge to the WTO and receiving panel or Appellate Body authorization to impose commensurate countermeasures.[26] However, the SAA does not restrict USTR's ability to challenge discriminatory practices that are not covered by the WTO agreements.[27]

The Trump administration USTR thus could more aggressively pursue Section 301 challenges to certain foreign government actions by claiming that the conduct in question is not covered by WTO rules, but almost all such actions - i.e., all actions other than those expressly mentioned in the SAA ("government measures that encourage or tolerate private, anticompetitive practices") – could be challenged under both US law and WTO rules due to the breadth of the United States' WTO commitments.

The success of a potential US court challenge to a Section 301 action is unclear. When USTR entered into the Softwood Lumber Agreement between the United States and Canada in 2006, it did so in part pursuant to Section 301.[28] Domestic producers of softwood lumber in the United States filed suit challenging the decision of USTR to enter into the agreement in the US Court of International Trade. Thus, private litigants could  challenge any decision taken by USTR pursuant to Section 301(b) in US courts, but private parties may find it difficult to convince courts to consider such a challenge given that any action by USTR could be found by a court to be a non-justiciable "political question."[29] Nevertheless, any significant unilateral actions taken under Section 301 would almost certainly result in US court challenges, further complicating their implementation.

Aside from the risk of court challenges by private parties, target countries could claim a violation of GATT Article XXIII Nullification or Impairment at the WTO by arguing that the US is nullifying or impairing the benefits and objectives of the GATT by pursuing such action.[30] When Europe brought a WTO complaint against the United States regarding Section 301 in 1999, the WTO panel found that US failure to pursue WTO actions in lieu of unilateral trade measures would violate the United States' WTO commitments. For this reason, any unilateral Trump administration action under Section 301 would almost certainly result in a WTO challenge and eventual US loss where it also addressed a matter falling under the WTO Agreements.[31] USTR has therefore pursued Section 301 actions at the WTO, and with some success.[32] Moreover, since the establishment of the WTO dispute settlement process in 1995, Section 301 has rarely been invoked and has not produced any unilateral sanctions or WTO cases.

Instead of or concurrent with WTO disputes, target countries might also retaliate unilaterally against US exporters or investors – using the same justifications regarding WTO applicability that the Trump administration applied in its Section 301 actions. As discussed above, such retaliation is relatively common and would have serious economic and legal implications.

Trading with the Enemy Act of 1917 (TWEA) and International Emergency Economic Powers Act of 1977 (IEEPA)

TWEA authorizes the President to regulate all forms of international commerce and to freeze and seize foreign assets during times of war. However, President Trump's ability to impose tariffs or other trade-restrictive measures under TWEA appears limited because TWEA does not specifically authorize the President to raise tariffs. In addition, if President Trump were to seek action under TWEA, he would very likely face a court challenge where the United States was not at war with the target country. Whether a party could successfully challenge the President's action would likely turn on whether the 1976 amendments to TWEA limiting the act to times of war were intended to limit the scope of TWEA to wars declared by Congress or intended to include military action without prior congressional authorization.

IEEPA authorizes the President to regulate all forms of international commerce and to freeze assets. Congress delegated this authority under IEEPA to the President to deal with "unusual or extraordinary" international threats to the national security, foreign policy, or the economy. Thus, IEEPA is supposed to be limited to situations involving an "unusual or extraordinary threat." If "regulate" were interpreted broadly to include raising tariffs, President Trump could rely on IEEPA to impose tariffs on imports. However, the President may exercise authority under IEEPA in response to an external threat only if a national emergency under the National Emergencies Act has been declared. Such authority may not be exercised for any other purpose. IEEPA also imposes reporting and consultation requirements on the President. Although President Trump would be required to consult with Congress, submit a report, and provide periodic follow-up reports, IEEPA does not require congressional approval. In fact, the United States has maintained a system of export controls pursuant to IEEPA. In the past, IEEPA has provided the authority for various US embargoes and sanctions, including a prohibition on all imports of Nicaraguan goods and services and all export to Nicaragua, and the blocking of Iraqi and Kuwaiti government property and the prohibition on all transactions with Iraq. Using such provisions to target, for example, all Chinese imports on economic grounds would arguably require an expansive interpretation of the statute.

Target countries of any action under TWEA or IEEPA could challenge such action at the WTO. As with Section 232, the United States could defend a WTO challenge to both TWEA and IEEPA actions by citing to GATT Article XXI, but to do so would raise similar institutional concerns. Retaliation from targeted countries would also be likely, thus resulting in substantial economic distress for US exporters and consumers, as well as an adverse market response.

Declaring China (or Other Countries) a "Currency Manipulator"

The US Treasury Department currently addresses the foreign exchange policies of major trading partners under two US laws:

  • Section 3004 of the Omnibus Trade and Competitiveness Act of 1988 directs the Secretary of the Treasury to analyze on an annual basis the exchange rate policies of foreign countries and consider whether countries manipulate the rate of exchange between their currency and the United States dollar "for purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade."[33] If the Secretary considers that such manipulation is occurring with respect to countries that (i) have material global current account surpluses; and (ii) have significant bilateral trade surpluses with the United States, the Secretary may take action to initiate negotiations with such foreign countries for the purpose of ensuring that such countries adjust the rate of exchange between their currencies and the United States dollar to permit effective balance of payments adjustments and to eliminate the unfair advantage.
  • Section 701 of the Trade Facilitation and Trade Enforcement Act of 2015 directs the US Treasury Department to submit biannual reports to Congress containing analyses of the macroeconomic and exchange rate policies of major US trading partners – expanding on the existing biannual reporting requirement established by the Omnibus Trade and Competitiveness Act of 1988.[34] The new reports must provide "enhanced analyses" of the policies of any major US trading partner that: (i) has a significant bilateral trade surplus with the United States; (ii) has a material current account surplus; and (iii) has engaged in "persistent one-sided intervention in the foreign exchange market."

Mr. Trump's campaign has stated that "on day one of the Trump administration the US Treasury Department will designate China as a currency manipulator", and that "this will begin a process that imposes appropriate countervailing duties" on Chinese products. However, subsequent statements from Trump-aligned individuals, including Treasury Secretary nominee Steve Mnuchin, have softened this stance.

Furthermore, it is unclear whether China currency meets the aforementioned legal standards, and these laws do not authorize the President to impose countervailing duties in response to a finding of currency manipulation. Instead, Treasury is only required to initiate "enhanced bilateral engagement" with each country meeting the Section 701 criteria to express the concern of the United States, to urge policy reforms, and to advise the country that the United States may take remedial actions. If, within one year after enhanced bilateral engagement begins, Treasury determines that the country has failed to adopt appropriate policies to correct the alleged undervaluation and surpluses, the President is required to take one or more of the following actions: (i) prohibit the Overseas Private Investment Corporation (OPIC) from approving any new financing with respect to a project located in that country; (ii) prohibit the US federal government from procuring goods or services from that country (except where such action would be inconsistent with US obligations under international agreements); (iii) instruct the US Executive Director of the IMF to call for rigorous surveillance of the macroeconomic and exchange rate policies of that country (and, as appropriate, formal consultations on findings of currency manipulation); and/or (iv) instruct USTR to take into account the country's alleged failure to cooperate when assessing whether to enter into a bilateral or regional trade agreement with that country. (The President also may choose not to take any remedial action, however, if doing so would adversely impact the US economy or national security.)

Thus, the Trump administration would have to pursue countervailing duties on imports from countries designated as "currency manipulators" by the Treasury Department under the US CVD law, as noted above.

Measures to Combat Outsourcing

None of the above mechanisms or actions directly addresses one of the primary targets of Mr. Trump's campaign: American companies outsourcing jobs and manufacturing to other countries, in particular Mexico. It is unclear what mechanism could be used to combat outsourcing, as several of the proposals discussed on the campaign trail would face substantial legal hurdles. First, none of the statutory provisions discussed above expressly permits the targeting of specific US companies, particularly on the grounds that they are investing overseas. Second, a punitive tax on named corporations (as opposed to a class of companies) for outsourcing could be challenged as a bill of attainder, which is prohibited by the US Constitution. Third, determining whether a multinational company's day-to-day investment decisions constitute "outsourcing" would raise serious practical constraints. Finally, seeking to impose tariffs on a particular country's imports (such as China or Mexico, which have traditionally been destinations for outsourcing) would very likely violate US obligations under the WTO agreements and would face a WTO challenge by the target country.

For these reasons, any such measures would likely need to take the form of the revocation of various US tax law benefits pursuant to objective criteria, implemented as a new US law passed by Congress and signed by the President. The measures therefore appear unlikely, though President Trump might continue to make such threats in order to influence US companies' multinational investment decisions. President Trump and congressional Republicans might also claim to have "fixed" the United States' "outsourcing problem" through US corporate tax and regulatory reforms or state-level incentives that encourage investment in the United States. Indeed, there is substantial speculation that the House Republican plan to reform the US corporate tax code will be touted as a “solution” to the outsourcing issue because the new "destination-based" tax envisioned by the plan would be border-adjustable.[35]

 

Likelihood of Unilateral Trade Measures

Although the course of Trump administration trade policy remains unclear, we see future unilateral actions falling into three categories:

  • Most likely. The most likely unilateral actions involve the increased use of trade remedies and enforcement mechanisms, including the AD/CVD laws (though self-initiated AD/CVD investigations may be less likely), anti-circumvention proceedings, and safeguards. These mechanisms are well-known and frequently utilized, though subject to significant legal and practical constraints that would limit their overall economic impact. In addition, the continued treatment of China as an NME country would allow DOC to continue to impose strict measures and exacting requirements on Chinese companies subject to AD/CVD investigations.
  • Less likely. It is possible, though less likely than the aforementioned actions, that the Trump administration utilizes Section 301 of Trade Act of 1974, which would allow USTR to take specific and direct action to counter perceived unfair trade practices by foreign countries while a WTO dispute over those practices is pending. These unilateral actions, however, would require a shift in USTR's treatment of Section 301 and would almost certainly face WTO litigation and possible US court challenges. Section 301 sanctions might also be met with unilateral retaliation from countries like China, thus potentially rattling markets and inciting concerns from Congress. Declaring China or another country to be a "currency manipulator" also appears possible, as it would achieve a core Trump campaign promise though it would not result in any new import barriers. On the other hand, key Trump officials appear to have walked-back this promise for China, and it may be difficult to justify such a designation under current market conditions.
  • Least likely. The least likely unilateral actions are those under Section 338 of the Tariff Act of 1930. Section 232(b) of the Trade Expansion Act of 1962, Section 122 of the Trade Act of 1974, TWEA and IEEPA. These provisions have not been utilized for decades (if at all), and doing so would in most cases require a broad interpretation of the law given the current market situation. Any such usage by the Trump administration would likely produce challenges either in domestic courts or at the WTO, unilateral retaliation by aggrieved trading partners, and serious market turmoil. It also would likely create frictions with the Republican-controlled Congress, thus jeopardizing other, more important policy priorities such as tax reform or infrastructure spending.

One additional possible outcome is that President Trump could seek changes to existing US trade laws or seek the passage of new US trade laws rather than acting unilaterally. For example, the President could seek to lower thresholds for successful AD/CVD investigations, or seek more robust trade enforcement by US Customs and Border Protection. The Obama administration was active in this regard, and in 2015, Congress passed the Trade Facilitation and Trade Enforcement Act of 2015, giving CBP significant power to enforce AD/CVD orders and prevent evasion. President Trump could pursue similar legislative initiatives to further strengthen the trade laws, and would likely find the Republican Congress amenable to his proposals.

 

Implications of the 2016 US Presidential Election for Trade Policy

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[1] 19 U.S.C. § 1671 (CVD); 19 U.S.C. § 1673 (AD).

[2] 19 U.S.C. § 1677(7)(a).

[3] 19 C.F.R § 351.201(a).

[4] 19 U.S.C. § 1677j.

[5] 19 U.S.C. § 2251.

[6] 19 U.S.C. § 1337.

[7] Certain Stainless Steel Products, Certain Processes for Manufacturing or Relating to Same, and Certain Products Containing Same Commission's Final Determination Finding a Violation of Section 337; Issuance of a Limited Exclusion Order and Cease and Desist Order, 81 FR 35058 (June 1, 2016).

[8] Certain Carbon and Alloy Steel Products; Institution of Investigation, 81 FR 35381 (June 2, 2016).

[9] 19 U.S.C. § 1338 (a).

[10] 19 U.S.C. § 1338 (b).

[11] 19 U.S.C. § 1338(c).

[12] 19 U.S.C. § 1338(h).

[13] A U.S. International Trade Commission report in 1979 explained that Section 338, "an obscure and never-used provision of the law,” has been “overshadowed by more recent enactments, Section 252 of the Trade Expansion Act of 1962 and its successor, section 301 of the Trade Act [of 1974]."  Agreements Being Negotiated at the Multilateral Trade Negotiations in Geneva—U.S. International Trade Commission Investigation No. 332-101, Analysis of Nontariff Agreements, Introduction and Overview of Legal Issues and Subsidies Countervailing Duty Measures Agreement (August 1979) at 42.

[14] 19 U.S.C. § 1338(g).

[15] bis.doc.gov/index.php/other-areas/office-of-technology-evaluation-ote/section-232-investigations

[16] Federal Energy Administration v. Algongquin SNG, Inc., 427 U.S. 548 (1976).

[17] In FEA v. Alqonquin SNG, Inc., the Supreme Court held that the legislative history of Section 232(b) belies any suggestion that Congress intended to limit the President's authority to the imposition of quotas, and upheld the imposition of a license fee system. 426 U.S. at 571. However, the Court explicitly noted that its holding was a "limited one." Id. In no way did the Court's holding compel the conclusion that "any action the President might take, as long as it has even a remote impact on imports, is also authorized." Id.

[18] GATT Article XXI (a)(iii).

[19] 19 U.S.C. § 2132.

[20] Id. at § 2132(a).

[21] Id. at § 2132(d).  In addition, Section 122 also provides the President authority to proclaim import liberalizing measures, such as temporary reductions (again, 150 days) in the rate of duty for an article, or temporary increases in the value or quantity that may be imported under an import restriction.  Id. at § 2132(c).

[22] 19 U.S.C. §§ 2411-2420

[23] 19 U.S.C. § 2411.

[24] 19 U.S.C. § 2411(a).

[25] 19 U.S.C. § 2411 (b).

[26] SAA at 1034.

[27] SAA at 1035.

[28] Almond Bros. Lumber Co. v. United States, 651 F.3d 1343 (Fed. Cir. 2011). 

[29] See, e.g., Almond Bros. Lumber Co. v. United States, 2012 U.S. Ct. Int’l Trade LEXIS, No. 08-00036, slip op. 2012-51 (Ct. Int’l Trade 2012) (holding that the U.S. producers’ challenge was not justiciable and dismissing the complaint).

[30] GATT Article XXIII.

[31] wto.org/english/tratop_e/dispu_e/cases_e/ds152_e.htm

[32] When USTR accepted a petition filed by United Steel Workers under Section 301 in 2010 alleging that China had violated WTO commitments in connection with the development of its green technologies sector through unfair trade practices, USTR was able to achieve the elimination of Chinese domestic content subsidies for wind power equipment manufacturers through WTO consultations.

[33] 22 U.S.C. § 5305

[34] 19 U.S.C. § 4421

[35] The Republican plan, which is expected to be introduced in the coming weeks, would covert the current worldwide corporate income tax into a “destination-based” tax on corporations’ US sales (including imports), accompanied by a "border adjustment" that excludes exports from the tax base. By making the tax border-adjustable, the plan would essentially impose a tax on imports for the first time in the United States while permitting a rebate or exemption for exports.

 

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