Trade Remedy Law Reform in the 108th Congress
Released: 2003-07-22T00:00:00

What are Trade Remedies and How do They Work?

U.S. law provides for a range of administrative measures to reduce the adverse effects offoreign trade policies and practices on U.S. industries. Three forms of relief -- safeguards,antidumping, and countervailing duty remedies -- have been the subjects of recent legislation andare the subject of the report. (1)

Trade Remedies Overview

Safeguard (also referred to as escape clause and Section 201) relief provides for temporaryduties, quotas, or other restrictions on imports that are traded fairly but cause or threaten to causeserious injury to a domestic industry. The relief is intended to give the domestic industry theopportunity to adjust to the new competition and remain competitive. The authority for thesafeguard relief is found in sections 201-204 of the Trade Act of 1974, as amended. (2)

Antidumping (AD) is relief to remedy the adverse price impact of imports sold on the U.S.market at "less than fair value." The relief is in the form of extra duties on the dumped imports. Theauthority for AD relief is found in sections 731-739 of the Tariff Act of 1930, as amended. (3)

Countervailing duty (CVD) is relief from the adverse price impact of imports that receiveforeign government subsidies. The relief is in the form of extra duties on those imports. Theauthority for CVD relief is found in sections 701-709 of the Tariff Act of 1930, as amended. (4)

Objectives of Trade Remedies

The three programs are designed to "level the playing field," for adversely affected industriesin the face of unfair foreign competition or rapidly increasing fair foreign competition. Specifically,AD and CVD relief eliminates the price advantages that foreign competitors attain through unfairtrade practices. The rationale underlying safeguard relief is that while the benefits of tradeliberalization are distributed throughout a national economy, the adverse effects -- loss of profits,worker layoffs, firm and plant closures -- are concentrated in specific, import-sensitive industries.Safeguard relief is designed to give the injured industry the opportunity to adjust, minimizing thedestabilizing effects of trade.

In addition to these "economic" arguments, many trade specialists have argued that traderemedies are means by which the United States has been able respond to the concerns of theadversely affected sectors of the economy and achieve a domestic political consensus on tradeliberalization. Without these remedies, they argue, the Congress would not have approved majoragreements, such as the General Agreement on Tariffs and Trade (GATT) and the WTO that becamethe foundation for the post-war international trading system. (5)

Economics of Trade Remedies

Many economists assert, on the other hand, that while trade remedies may assist injuredindustries they do so at a cost to the economy as a whole. They argue that, whether imposed tomitigate the negative effects of unfair trade or fair trade, trade remedies lead to higher costs toconsumers. From this perspective, higher costs reduce the real income and, therefore, the standardof living of American consumers.

Trade remedies can also adversely affect U.S. domestic industries, especially those that relyon imports as inputs in production. In 1991, for example, major U.S. computer manufacturersobjected when a U.S. manufacturer of flat-panel screen displays won an AD case against Japanesedisplay manufacturers. Japanese-made computer displays dominated the U.S. market. The U.S.computer manufacturers argued that the higher production costs resulting from the AD duties madeit unprofitable for them to manufacture in the United States and forced them to move productionabroad. (6)

Eligibility Criteria and Procedures for AD and CVD(7)

U.S. trade remedy statutes and obligations under the World Trade Organization Agreementrequire that an investigation be conducted of the relevant circumstances surrounding the traderemedy petitions. For the investigation, the petitioning industry must provide information andundertake certain measures. The government must adhere to specific criteria and procedures. ForAD cases and most CVD cases, industries must go through a multi-stage investigation conducted bythe Department of Commerce (DOC) and the U.S. International Trade Commission. (ITC).

The process begins when an industry, a union or other representative group of the industryfiles relevant petitions with the Office of Import Administration of the DOC and with the ITC. TheDOC may also initiate an investigation. Successful completion of the process is contingent on fouraffirmative decisions. The ITC makes a preliminary determination whether there is a "reasonableindication" that imports in question are causing or threaten to cause "material" injury to theindustry. (8) An affirmativedecision allows the investigation to continue. A negative decision terminates the investigation.

The DOC then must make a preliminary determination whether dumping or subsidies havetaken place and, if so, make a preliminary calculation of what the dumping or subsidy margin wouldbe. Regardless of whether the DOC's determination is positive or negative, the DOC continues theinvestigation and makes a final determination of dumping or subsidies and a final calculation of dutymargins. The investigation is terminated if DOC makes a negative final determination. If the DOCmakes an affirmative final determination, then the ITC continues its investigation and renders a finaldetermination of material injury or threat thereof. A negative ITC determination terminates theinvestigation. If the two final determinations are affirmative, then extra duties are placed on importsto be paid by the importer. The determinations are subject to judicial review.

Both the DOC and the ITC must take into account a number of criteria in making theirrespective determinations. In CVD cases, the DOC must consider evidence of direct subsidies orupstream subsidies (subsidies provided to inputs the benefits of which are passed on to the finalproducer) and, if found, what would be the net countervailable subsidy. In AD cases the DOC mustfirst determine the "normal value" of the import (based on the price in the exporting country's homemarket, on the price of the export of the product to a third country market, or on a "constructed"price, depending on the availability of data). The DOC must compare the "normal value" with theactual price of the import in question to determine whether dumping is taking place and, if so, whatthe dumping margin is.In either procedure, the ITC must make two determinations: (1) Is thedomestic industry being materially injured or facing a threat of material injury? (2) Are the importsin question a cause of the material injury. U.S. law establishes deadlines under which the respectiveagencies must make their determinations.

Eligibility Criteria and Procedures for Safeguard Relief

The process for safeguard relief begins when ITC receives a petition from representatives ofan industry (firms, association, unions, etc) alleging that imports of a like product as produced bythe industry have surged at such a rate as to be a "substantial cause" of "serious injury" or the threatthereof. The ITC may also initiate an investigation on its own accord or as a result of a request fromthe President, the United States Trade Representative (USTR), the Senate Finance Committee orthe House Ways and Means Committee.

In the meantime, U.S. law encourages the domestic industry to submit a plan stipulating howit would use the relief, if granted, to make adjustments to become more competitive. In conductingits investigation, the ITC must consider the state of the domestic industry including a number offactors listed in the statute. If the ITC determines in the affirmative, it recommends appropriateremedial measures which must be an increase in tariffs on that product, a tariff-rate quota, aquantitative restriction, trade adjustment assistance, or a combination thereof.

The ITC submits its recommendation to the President who must decide whether to take therecommended action, an alternative action, or no action at all. In making his decision, the Presidentmust consider a number of factors, including the industry's adjustment plan if submitted, theprobable effectiveness of remedial action to promote adjustment, the national economic interest andthe national security interest. U.S. law requires the ITC to make its respective determinations withinspecified deadlines.

The President must report to Congress on the action he will take. If he decides to take actionother than that recommended by the ITC, or to take no action, the Congress may direct him toimplement the remedy recommended by the ITC by enacting a joint resolution of disapproval of hisproposed action.

Comparison of Injury Thresholds and Procedures

Procedures and injury thresholds applied in safeguard determinations are higher and stricterthan in the those applied in AD and CVD cases. The former require that the imports be a"substantial" cause or threat of "serious injury." "Substantial cause" is defined in law as "a causewhich is important and not less than any other cause." Serious injury is one that is a significant,overall impairment to the position of the domestic industry. AD and CVD statutes require thedetermination of "material injury" defined as injury which is "not inconsequential, immaterial, orunimportant." And AD and CVD statutes require that the injury occur "by reason of" the dumpedor subsidized imports, a less precise and lower causation threshold than under the safeguardstatute. (9)

In addition to stricter causation and injury standards, safeguard relief requires that finaldecisions be made at a higher policy level -- the President -- than in the AD and CVD. In addition,the President has wide discretion as to which safeguard relief to implement, including taking noaction. On the other hand, no discretion exists in CVD and AD cases -- relief as determined by theDOC is implemented by a DOC antidumping or countervailing duty order without Presidentialinvolvement.

The higher injury thresholds and more demanding procedures for safeguard relief reflect thefact the procedures involve fairly traded imports from all sources. In addition, the impact on overallU.S. national interests would likely be greater than in the case of AD and CVD determinations.

The stricter standards and procedures are probably a significant reason why U.S. industrieshave used and received relief much more often from AD and CVD programs than safeguard. Between 1984 and 2002, 397 AD cases and 120 CVD cases resulted in relief. (10) Whereas during the sameperiod, seven safeguard cases resulted in relief. (11) The most recent case was President Bush's imposition of highertariffs on the import of certain steel products. (12) The higher standards for section 201 have also led to criticismsthat U.S. safeguard relief does not meet the needs of U.S. import-sensitive industries and, therefore,must be reformed.

Changes in Trade Remedy Laws

The Congress has amended U.S. trade remedy statutes over the years largely in response toindustry concerns that the remedy procedures were not adequately meeting their needs. In general,Congress has amended criteria for determining injury which made it more likely that determinationswould be made in favor of the petitioning industry and has shortened the timeframes for agenciesto make determinations. (13) The Congress has comprehensively amended trade remedy lawsmost recently with legislation to implement the Uruguay Round agreements under the GeneralAgreement on Tariffs and Trade. (14) Specifically, the amendments brought U.S. laws into conformitywith the multilateral WTO agreements on antidumping, subsidies/countervailing, and safeguardprocedures.

U.S. International Obligations

AD, CVD and safeguard remedies reflect and are subject to U.S. international rulesestablished under the World Trade Organization (WTO) and under the North American Free TradeAgreement (NAFTA). The United States and other WTO members must adhere to the UruguayRound Agreement on Subsidies and Countervailing Measures, which delineates definitions,procedures, and other criteria for member CVD programs. (15) For example, the SubsidiesAgreement requires that a determination of material injury (or threat thereof) to a domestic industrymust be made before a subsidy is countervailable (when the subsidized imports are from anotherWTO member-country). The agreement also prohibits certain subsidies and allows others anddefines subsidies that are countervailable. In addition, the agreement provides for adjudication ofCVD disputes between WTO members. Similarly, the United States and other WTO members mustadhere to the Uruguay Round Antidumping Agreement which establishes procedures forimplementing national antidumping programs, including determinations of dumping, and materialinjury or the threat thereof. (16)

Article XIX of the General Agreement on Tariffs and Trade (1994) lays out the basicconditions under which a WTO member can apply safeguards remedies. The Uruguay Roundnegotiations resulted in an expansion of Article XIX by stipulating, among other things, sunsetrequirements for member safeguard actions already in effect, time limits on new safeguard actions,and criteria for determining "serious injury." Before the enactment of the Uruguay RoundAgreements, member countries that were the targets of safeguard actions could seek compensationfrom the country taking the action. Under the Safeguards Agreement such compensation is delayedfor three years.

The United States also has obligations regarding trade remedies vis-a-vis Canada and Mexicounder the NAFTA. Chapter Eight of the NAFTA provides, among other things, that escape clausemeasures against NAFTA members generally last no more than three years. Chapter 19 allows for CVD and AD final determinations involving another member's goods to be reviewed by a binationalpanel instead of in a domestic court.

A number of trading partners, including Japan, Korea, Chile, and Brazil, have criticized U.S.use of its trade remedy laws, especially AD, as not fully in line with WTO rules. They argued thata review of member-country trade remedy practices and policies should be on the agenda of theforthcoming WTO round of negotiations. The United States resisted this demand and manyMembers of Congress opposed it. However, in November 2001, at the WTO Ministerial Meetingin Doha, Qatar, the 142 WTO members agreed to include trade remedy laws on the agenda. (17)

Trade Remedy Reform Proposals in the 108th Congress

A number of bills have been introduced in the 108th Congress to the U.S. safeguard (section201) and the antidumping and countervailing duty laws. To date, no further congressional action hasbeen taken on them.

Safeguard Reform Proposals

H.R. 2365 (English), the Trade Reform Act of 2003, would make changes in anumber of U.S. trade remedy laws, including the section 201 safeguard law. Among other things,H.R. 2365 revises to the causal linkage that must be established between a surge in importsand serious injury. U.S. import-sensitive industries and other critics of trade remedy laws haveargued that the "significant cause" linkage to injury, that domestic industries must establish, is toodifficult and diminishes its utility. H.R. 2365 would lower the causal threshold to requirethat import surges be only "a cause" of injury to U.S. domestic industry. Supporters have assertedthe change would bring the U.S. the causation threshold in line with that required by the WTO,although such a conclusion would likely be subject to legal interpretation of WTO rules. Inpractical terms, the new threshold would mean that an investigation would have to find only thatimports have contributed to injury, not that they are "a cause which is important and not less that anyother cause."

In addition, under current U.S. safeguard statutes, the ITC must consider a number of factorswhen determining whether an industry faces serious injury or the threat of serious injury. Regardingserous injury, the ITC must examine whether there has been a significant idling of productivefacilities in the industry, there has been a significant number of firms to operate at a reasonableprofit, and there has been a significant level of unemployment or underemployment in the industry. H.R. 2365 would require additional factors be considered, including changes in the levelof sales and production, changes in productivity, changes in capacity utilization, changes in profitsand losses, and changes in employment levels.

Furthermore, under current law, the ITC must consider a number of factors in determiningwhether a surge in imports has been the cause of serious injury, including whether imports haveincreased either absolutely or relative to domestic production and whether the share of the domesticmarket supplied by imports has increased. H.R. 2635 would require the ITC to consider,in addition, the rate and timing of the increase in imports, especially if the increase has been over ashort period of time.

Current law permits provisional relief be provided under "critical circumstances," that iswhen failure to take expedited action would do irreparable injury to an industry. H.R. 2365 would require the ITC to make a determination whether critical circumstances exist within 45days of receiving the petition.

CVD and AD Reform Proposals

Several bills have been introduced in the 108th Congress that would change U.S.antidumping or countervailing duty laws. S. 136 (Lincoln)/ H.R. 2092 (Berry) would authorize an expedited antidumping investigation to take place if imports of a productthat is like a product already subject to an AD order increase "materially" from another supplier notsubject to the AD order. In the bills, increasing materially is defined as increased by at least 15%over a period of time that is comparable to the period of time that lapsed before the initiation of theoriginal AD investigation.

S. 219 (Craig) would amend U.S. antidumping law that would require the U.S.Department of Commerce, when calculating the "fair market value" of an import, to include anycountervailing duties that are applied to the import in the cost of production. The bill's sponsorsintend the legislation to remedy what they allege is Canada's practice of not including thecountervailing duties which are applied to U.S. imports of Canadian softwood lumber. They claimthat omitting the duties from the calculation lowers the fair market value of the product and thereforeunfairly lowers the antidumping duty that would be applied if dumping were determined to be takingplace. (18) H.R. 491 (Pickering) and Section 109 of H.R. 2365 (English) wouldimpose the same requirement.

S. 1155 (Grassley)/ H.R. 1073 (Sensenbrenner) would repeal theAntidumping Act of 1916 as would S. 1080 (Hatch). The Antidumping Act of 1916,a seldom-used statute, allows victims of dumped imports to sue for treble damages and provides forcriminal penalties if the intent of the dumping was to harm a U.S. industry or to restrain ormonopolize trade. The European Union and Japan filed a complaint against the United Statesclaiming that the law violates Article VI of the GATT 1994 and the Antidumping Agreement. AWTO dispute settlement panel rules against the United States in a April 2000 decision and the WTOAppellate Body upheld the decision. The WTO ruled that the U.S. law had to be repealed. Althoughthe United States had missed several deadlines on carrying out the decision, the EU and Japan agreedto delay any sanctioned retaliatory action. The three bills were introduced to put the United Statesin compliance with the decision. S. 1155 and H.R. 1073 would not only repealthe law but would also force the dismal of any cases pending under the law. S. 1080 wouldrepeal the law but would not affect pending cases.

S. 492 (Craig) would direct the Secretary of Commerce to impose 80% advalorem countervailing duties on dynamic random access memory (DRAM) semiconductorsproduced by the South Korean firm Hynix Semiconductor. Its sponsor claims that the South Koreagovernment has subsidized the company giving its products an unfair competitive advantage in theU.S. market. (19)

The Byrd Amendment

On October 28, 2000, President Clinton signed the Agriculture, Rural Development, Foodand Drug Administration, and Related Agencies Appropriations Act 2001 ( P.L. 106-387 ). Section1003 of the Act contained a provision, the "Continued Dumping and Subsidy Offset Act (CDSOA)of 2000," sometimes called the Byrd Amendment after its chief sponsor, Senator Robert Byrd.

The provision amended U.S. antidumping and countervailing duty laws by requiring thatantidumping and countervailing duties be re-distributed to the domestic industries that have beeninjured by the imports that are subject to the AD and CVD orders. The provision requires theCustoms Bureau to deposit the duties into a special account rather than into the general treasury. Itthen must distribute the funds to eligible firms, farmers, or other producers that were petitioners inthe original AD or CVD cases to offset certain expenses that they incurred as a result of the dumpedor subsidized imports. The provision was originally contained in S. 61 . (DeWine, et.al), and other bills. The Customs Bureau reported that in 2001 it had distributed around $206 millionin offsets to claimants. (20)

The "Byrd Amendment" is controversial because it was inserted into the legislation duringconference and had not received committee consideration in either house. In addition, theamendment has raised concerns about whether it conforms to WTO rules under the relevant WTOagreements. Eleven members of the WTO -- the European Union, Australia, Brazil, Canada, Chile,India, Indonesia, Japan, Mexico, South Korea, and Thailand, filed a complaint with the WTOcharging that the amendment violates WTO obligations. On September 2, 2002, the WTO disputesettlement panel announced its determination that the Byrd Amendment violates U.S. obligationsunder the WTO Antidumping Agreement and the Agreement on Subsidies and Countervailing DutyMeasures. The panel furthermore recommended that the law be repealed. The WTO Appellate Bodyreaffirmed the decision in a January 16, 2003 decision. However, the law has proved very popularin the Congress. In February 4, 2003 letter to President Bush, 70 Senators expressed support for thelaw and against the WTO ruling.

In his proposed FY2004 budget, President Bush recommended that the CSDOA be repealed. S. 1299 (Snowe) was introduced on June 19, 2003, and would repeal the CSDOA toput the United States in compliance with the WTO rulings but would also require that revenuescollected under AD and CVD orders be directed to a new trade adjustment program for communitiesadversely affected by trade.

TPA Debate

Treatment of trade remedy laws during U.S. trade agreement negotiations became a highlycontentious subject during the 107th Congress's debate on extending trade promotion authority (TPA)to the President. The Senate -passed version of the bill ( H.R. 3009 ) contained theso-called Dayton-Craig amendment. This amendment would have required that fast-track procedurescontained in the TPA would not apply to any provision of trade agreement implementing legislationthat would change any U.S. trade remedy law. The amendment grew out of concern by a numberof Members that the inclusion of trade remedies on the agenda of the Doha Development Agendawould result in weakening of U.S. laws. The House version of the bill did not contain thisprovision. The provision was not contained in the conference report that as enacted into law ( P.L.107-210 ), although it does contain a principal negotiating objective to preserve the ability of theUnited States to vigorously enforce its trade remedy laws and to avoid agreements that could weakenthose laws.

Potential Implications of Trade Remedy Reform and Alternative Options

At this time, it is difficult to determined what impact the "Byrd Amendment" will havealthough it has already proved controversial. Trade remedy legislation generally ignites a debate overthe direction of U.S. trade policy. Trade remedy legislation is largely supported by those industries,such as steel, that are most sensitive to foreign competition. The legislation is often opposed by thoseindustries and groups that are users of imports as inputs or consumers of final products. Increasedtrade relief would likely result in higher prices to these groups.

Changes in trade remedy laws could have an impact on U.S. relations with its major tradepartners, who might challenge the legality of some changes in U.S. trade remedy laws under theWTO. Along with their challenge of the "Byrd Amendment," the European Union and Japan arechallenging other U.S. antidumping laws and practices in the WTO. In 1999, the two tradingpartners filed disputes regarding the U.S. Antidumping Act of 1916, a law which allows U.S. firmsto sue foreign companies in U.S. court over dumping of imports and to collect damages if dumpingis found. They claimed it violates the WTO Antidumping Agreement. The WTO upheld theirclaim.

With the United States in mind, the European Union and Japan are advocating a review ofthe antidumping practices of WTO members as part of the agenda for a new round of WTOnegotiations. The United States opposes this position.

Amending U.S. trade remedy statutes is one option available to Congress to cushion theimpact of import competition on American industries. Some trade specialists have suggested, forexample, that the federally funded trade adjustment assistance (TAA) programs could be reformedand made more effective. TAA programs are available for workers (through the Department ofLabor) and for firms (through the Department of Commerce). They provide funds for training andother adjustment measures to those who can demonstrate an adverse impact from imports. Manyeconomists prefer this option over trade restrictive remedies because its directs assistance to thosemost affected and does so without distorting prices. But TAA programs as currently designed andadministered have been criticized by labor advocacy groups as ineffective in responding to workers'needs in a globalizing economy.

The Congress might also require the President to halt or quantitatively restrict imports. Sucha measure would resolve the immediate problem of adverse effects on the import-sensitive workersand firms and have been proposed and in some cases enacted in the past. But they would very likelybe challenged by other WTO members as violating WTO rules. They would also reducecompetitive pressures on a U.S. industry(ies) which might encourage inefficiency, higher costs anda decline in the general economic welfare.