On March 1, the U.S. Trade Representative (USTR) issued the 2017 Trade Policy Agenda, the first official statement of the new Administration’s trade policy. It essentially rejects the policy of more than two decades, concluding that the United States needs a new trade policy that “defends American sovereignty, enforces U.S. trade laws, uses American leverage to open markets abroad, and negotiates new trade agreements that are fairer and more effective”. Citing Section 301 of the Trade Act of 1974 as “a powerful lever to encourage foreign countries to adopt more market-friendly policies”, it suggests the revival of a trade tool that has been largely dormant for the past 20 years, since the establishment of the WTO dispute settlement mechanism. This post examines the purpose and scope of the controversial Section 301, the threat of sanctions resulting in negotiations of trade agreements, especially with Japan, and its potential use by the Trump Administration.
The Congress enacted Section 301 as negotiating leverage, to strengthen the President’s ability to respond to unfair trade practices, by authorizing retaliation against foreign countries, which impose unjustifiable, unreasonable or discriminatory restrictions that burden or restrict U.S. commerce. It also provides authority for sanctions against foreign governments that violate a trade agreement. The 1988 Trade Act strengthened Section 301 and created several variations, including “Super 301” (no longer in effect), “Telecommunications 301” (Section 1377 review of telecommunications agreements) and “Special 301” (targeted at foreign intellectual property regimes), all of which rely on Section 301 for authority to impose sanctions. The 1988 Act also transferred Section 301 authority from the President to the USTR.
The Section 301 process includes an investigation, which can be triggered by a petition from private parties or self-initiated by USTR. Before USTR can take action under this statute, it must seek consultations with the foreign government involved. Section 301 provides broad authority for the USTR to: (i) suspend trade agreement concessions, (ii) impose duties or other import restrictions on goods; (iii) impose fees or restrictions on services; and (iv) negotiate trade agreements to eliminate or phase out the offending practice or the burden or restriction on U.S. commerce, or to provide the U.S. with compensatory trade benefits.
Section 301 was frequently used in the 1980s, with the threat of retaliation bringing foreign trading partners to the negotiating table, where agreements were generally reached, with few cases actually resulting in retaliation. The threat of retaliation was particularly effective against Japan in the late 1980s, when its trade practices were at the forefront of the U.S. trade agenda. As a result, the U.S. was able to negotiate a number of trade agreements with Japan in a wide variety of sectors, including telecommunications, supercomputers, satellites, wood products and infrastructure projects.
After its active employment of Section 301 in the 1980s, the U.S. indicated that it would generally curb its use with the establishment of an effective dispute settlement mechanism under the WTO. Since then, little use has been made of Section 301. In USTR’s 2016 Annual Report, which was also issued on March 1, it noted only one case involving Section 301 – the European Union’s beef hormones case. In that dispute, the U.S. used Section 301 authority to impose sanctions on the EU when it failed to comply with a WTO dispute settlement panel finding that the EU ban on U.S. beef was inconsistent with WTO rules.
As a consequence of its broad scope, Section 301 could be asserted as the basis for implementing a number of President Trump’s threats against trading partners. Will the President wield Section 301 as a threat or will he use it to impose higher tariffs and take other actions? And if he imposes sanctions, how will America’s trading partners react? Will they respond with their own retaliation? Unfortunately, unfettered use of Section 301 could bring more harm than gain to the United States and the international trading community.
Jean Heilman Grier
March 7, 2017
“The Use of Section 301 to Open Japanese Markets to Foreign Firms“, published by the North Carolina Journal of International Law