Unilateral Retaliation

1. Unilateral Retaliation Jessica CadimaWalter ChubrickTracie Flora November 20, 2007

2. 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.

3. 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

4. Legislation – Parties involved • European Union • Trade Barriers Regulation – TBR (EU’s equivalent of Section 301) • The TBR aims to support the activities of European enterprises in foreign markets and from foreign unfair trade practices.

5. Legislation – Parties involved • Canada • Section 59(2) of Canada's Customs Tariff Act (Canada’s 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

6. 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

7. Legislation – History (cont’d) • 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.

8. Legislation – History (cont’d) “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.

9. 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

10. 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

11. 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

12. 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.”

13. 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 • LDC’s 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?)

14. 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.

15. Major Problems Economic Implications (cont’d) • 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.

16. Biggest Problem • Unilateral measures are inconsistent with the WTO • Dispute Settlement Understanding (DSU) Article 23explicitly 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”

17. 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

18. 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

19. 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

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

21. Questions ??