Unilateral Retaliation

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Unilateral Retaliation
Jessica CadimaWalter ChubrickTracie Flora

• November 20, 2007

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Overview

• Section 301 of the 1974 Trade Act
• The United States may impose trade sanctions
  against foreign countries that maintain acts,
  policies and practices that violate, or deny U.S.
  rights or benefits under, trade agreements, or
  are unjustifiable, unreasonable or discriminatory
  and burden or restrict U.S. commerce.

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Overview

• The range of potential enforcement actions under
  Section 301 encompasses any action that is within
  the power of the President with respect to trade
  in goods or services or with respect to any other
  area of pertinent relations with a foreign
  country. Specifically the U.S. government may
• suspend concessions given under trade agreements
• Impose duties or other import restrictions
• Impose fees or restrictions on services
• Enter into agreements with the subject country to
  eliminate the offending practice or to provide
  compensatory benefits for the United States
  and/or
• Restrict service sector authorizations

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Legislation Parties involved

• European Union
• Trade Barriers Regulation TBR (EUs equivalent
  of Section 301)
• The TBR aims to support the activities of
  European enterprises in foreign markets and from
  foreign unfair trade practices.

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Legislation Parties involved

• Canada
• Section 59(2) of Canada's Customs Tariff Act
  (Canadas equivalent to Section 301 of the 1974
  Trade Act)
• permits retaliatory action to be taken for the
  following purposes
• enforcing Canada's rights under a trade agreement
  with another country, or
• responding to acts, policies, or practices that,
  as a result of discrimination or otherwise,
  adversely affect trade in Canadian goods or
  services

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Legislation History

• Section 301 of the Trade Act of 1974 (amended)
• authorized the United States Trade Representative
  (USTR) to
• investigate
• take action against unreasonable, unfair or
  discriminatory practices or violations of
  international agreements
• Omnibus Trade and Competitiveness Act of 1988
• transferred authority for recognizing unfair
  practices and invoking retaliatory measures from
  the President to USTR
• theoretically divorcing actions from other
  political considerations and thus making them
  easier to invoke

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Legislation History (contd)

• Uruguay Round Agreements Act of 1994
• clarified existing provisions
• delineating the scope of the retaliatory measures
  to be taken and the priorities to be operated
  under.
• added interpretive information
• what constitutes "unreasonable actions, policies,
  and practices" that may trigger retaliatory
  measures.
• enhanced the requirements for invoking
  retaliatory measures against infringements of
  intellectual property rights and anti-competitive
  behavior.

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Legislation History (contd)

• Special 301 (part of Act of 1988)
• Focuses on IPR
• Same statutory enforcement authority in normal
  Section 301
• USTR
• Identify countries that
• 1. deny adequate protection for IPRs
• 2. deny fair market access for persons who rely
  on IPRs
• Investigation and enforcement
• Negotiations
• If fails, normal Section 301 action is triggered
  automatically may result in sanctions.

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Legislation Key Provisions

• 1. Mandatory retaliatory action
• Required if USTR determines foreign govt
  violates/denies U.S. rights under a trade
  agreement
• May be waived
• 2. Discretionary retaliatory action
• Where USTR determines act, policy or practice in
  unreasonable, discriminatory, or burdens U.S.
  commerce
• 3. Scope of authorized retaliatory action USTR
  may
• Suspend or withdraw trade concessions
• Impost duties or other import restrictions
• Suspend benefits
• Negotiate agreements to phase out

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Legislation Key Provisions

• 4. Development of retaliatory action
• Assess damage
• Proposed retaliation listed in the Federal
  Register
• Final retaliation implemented
• 5. Implementation of retaliatory action
• USTR within 30 days
• 6. Termination of retaliatory action
• automatically after 4 years unless petitioner
  requests continuation
• 7. Carousel retaliation
• USTR required to review and revise

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Major Problems

• Most hated provision of US Trade legislation
  because it allows the United States president to
  impose unilaterally trade sanctions without the
  involvement of WTO
• Irritates our trading partners
• Acts as disincentive and creates resentment from
  U.S. trading partners
• Unilateral measures are not an effective means of
  achieving enhanced free-trade that benefits all,
  as sought by the WTO

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Major Problems

• Act delegates significant power to the president
  to invoke measures to protect American industries
  from increased imports from other nations,
  whether or not injury was being caused by unfair
  trade practices.
• Vague Terms- Discretionary Retaliatory Action-An
  act can be found unreasonable even if it does not
  violate the specific rules of a trade agreement,
  as long as it is unfair and inequitable.

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Major Problems

• Issues
• Retaliation measures on trade can sometimes be
  used for non-trade issues (foreign policy and/or
  national security)
• Use of 301 means-Other countries have to
  negotiate on the basis of a US agenda-departing
  from basis of international law
• LDCs are more easily intimidated by larger
  countries (US, EU, Canada) with unilateral
  retaliation.
• Effectiveness? The real cost-benefit of trade
  sanctions do not benefit us in the long run.
  (Possible Trade-wars?)

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Major Problems

• Economic Implications
• threat of section 301 used to promote the export
  of their products regardless of economic
  rationality
• tendency to distort trade by forcing an expansion
  of imports from the exporting country not for
  market reasons but to avoid extraterritorial
  application.
• countries who are not involved in the dispute may
  lose export opportunities and consumers in the
  importing country may suffer because they do not
  have access to products which are the most
  competitive in terms of price or quality.

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Major Problems

• Economic Implications (contd)
• The exporting country may also suffer in the long
  run, since it will be under less pressure to
  implement efficient industry changes according to
  market forces and as a result be less
  competitive.
• Diminishes predictability of trade and
  investment, leading to less predictable trade
  environment if trade activities are regulated
  differently under the competition laws of
  different countries.

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Biggest Problem

• Unilateral measures are inconsistent with the WTO
• Dispute Settlement Understanding (DSU) Article 23
  explicitly prohibits member countries from
  invoking unilateral retaliatory measures which
  are not based on the WTO dispute settlement
  procedures.
• The U.S. law does not require that the U.S.
  government wait until it receives authorization
  from the WTO to take any unilateral measures.
• U.S. justifies use by citing issues as not
  covered by the WTO

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Policy Proposal

• Amend Section 301 of the Trade Act of 1988.
• Section 301 needs to remove the following
  language
• the President is authorized to retaliate against
  foreign countries that impose trade burdens by
  suspending the benefits of trade or restrictions
  or fees on the trade of the offending nation.
• Section 301 needs to have a multilateral focus.
• Section 301 needs to incorporate that all
  countries have to abide by WTO rules and
  regulations.
• WTO open door policy

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Policy Proposal

• Impacts on United States
• The United States will not have the power to
  issue a unilateral retaliation
• The United States will have to follow the WTO
• Improved trade relations
• Improved worldwide image

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Policy Proposal

• Impacts on the trading system
• Countries targeted by the U.S. can abide by WTO
  rules instead of having to comply with U.S.
  demands.
• Level playing field for all trading partners
• Predictability
• Trade liberalization
• Economic growth

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Conclusion

• The United States has exploited its global
  economic power with the use of Section 301 and
  Special 301

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Questions ??