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SECTION 301: Unilateral Retaliation

SECTION 301: Unilateral Retaliation. U.S.-Japan Auto Dispute. Presented by: Marina Belozerova & Anupama Chettri November 19, 2007. Overview. Article 301 of The Trade Act of 1974 is a legislative tool developed for self help designed to force open other country’s markets

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SECTION 301: Unilateral Retaliation

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  1. SECTION 301: Unilateral Retaliation U.S.-Japan Auto Dispute Presented by: Marina Belozerova & Anupama Chettri November 19, 2007

  2. Overview • Article 301 of The Trade Act of 1974 is a legislative tool developed for self help designed to force open other country’s markets • Section 301 forced open some markets and pushed the world trading system into the most recent set of the Uruguay Round negotiations, which resulted in the: • expansion of GATT law • establishment of a more adjudicative dispute settlement system governed by the World Trade Organization’s (WTO) Dispute Settlement Understanding (DSU)

  3. Overview (continued) • Article 301 attempts to address and answer two main questions: • (1) Are there limits (and if so, what kind of limits) to economic power when exercised as unilateral sanctions?; and • (2) Is the new multilateral dispute settlement system under the WTO’s DSU a complete and effective alternative to U.S. unilateral activity?

  4. Overview (continued) • Section 301 takes its name from the section number of the original legislation, Section 301 of The Trade Act of 1974. • The original section 301 gave the President broad authority to take retaliatory actions against “unjustifiable” as well as “unreasonable” import restrictions by other countries

  5. Legislation • Section 301 was designed to allow the President to take retaliatory action against countries that did not agree to end such unjustifiable and unreasonable practice • Congress decided that some retaliatory actions would not be consistent with U.S. obligations under GATT • Congress also stated that GATT obligations were constantly breached and that the decision-making process of GATT frustrated the ability of the U.S. to protect its rights and benefits under GATT

  6. Legislation (continued) • Section 301 was amended in 1979, 1984, 1988, and most recently in 1994 in the Uruguay Round implementing legislation • Early legislative revisions focused on the time limits for Section 301 cases and procedures for initiation of such cases • 1988 revision also broke Section 301 into two categories: mandatory retaliation and discretionary retaliation • 1988 revisions in the Omnibus Trade and Competitiveness Act created two new forms of Section 301 cases: Special 301 and Super 301

  7. Legislation (continued) • Each Congressional revisions of Section 301 has confronted the same issue of clarifying the meanings of “unjustifiable” and “unreasonable” • Unjustifiable acts are now considered to be those that violate international trade agreements or otherwise nullify or impair U.S. benefits under international agreements • Unreasonable has been defined as covering practices that are “not necessarily in violation of or inconsistent with U.S. legal rights,” but which are “deemed to be unfair and inequitable.”

  8. Legislation (continued) The current list of practices defined as “unreasonable” in the 1994 amendments to Section 301 include the following: - unfair or inequitable practices - activity which denies fair and equitable “opportunities for the establishment of enterprise” - intellectual property rights not covered by the TRIPs agreement - nondiscriminatory market access opportunities - toleration of “systematic anti-competitiveness” activities - export targeting - inadequate labor rights

  9. Legislation (continued) Interest Groups - U.S. Manufacturers - Textiles and Clothing - Automotive -Telecommunications - Agriculture - U.S. Workers Group

  10. Legislation (continued) Section 301 Investigation Procedures • Initiation of Section 301 Investigation • Publication of Initiation • Public Comments and Public Hearing • Consultations with the Foreign Government • Formal Dispute Settlement • Conclusion of Investigation

  11. Legislation (continued) Section 301 Action • Mandatory Retaliatory Action • Discretionary Retaliatory Action • Scope of Authorized Retaliatory Action • Development of Retaliatory Action • Implementation of Retaliatory Action • Termination of Retaliatory Action • Carousel Retaliation

  12. Legislation (continued) “Special 301” (Section 1303 of Omnibus Trade and Competitiveness Act of 1988) • Description • Annual Review • Investigation of Priority Countries • Affirmative Determination

  13. Legislation (continued) “Telecommunications 301”(Section 1377 of Omnibus Trade and Competitiveness Act of 1988) • Description • Annual Review of Trade Agreements • 1377 Determination

  14. Legislation (continued) “Super 301” The Super 301 process was initially mandated by the Omnibus Trade and Competitiveness Act of 1988 (for a two-year period). It was re-instituted by Executive Order in 1994 for a two-year period, and extended in 1995 to calendar years 1996 and 1997.  On April 1999, Super 301 was again re-instituted by Executive Order for the years of 1999-2001. It expired and has not been renewed.

  15. Major Problems of the Section 301 Experience has shown that the power of Section 301 lies in the threat of a trade sanction, rather than sanction itself. The threat of retaliatory measures alone has been powerful enough to persuade U.S. trading partners, particularly smaller developing countries, to voluntarily open their markets or enter into bilateral agreements to resolve their trade disputes.

  16. Major Problems of the Section 301 (continued) • U.S. officials take the view that a mere threat of retaliation is not contestable in the DSU procedures unless the threat is formally materialized by a retaliatory measure. • If the United States would be free to rely on the threat of trade sanctions under Section 301 without the risk of facing legal challenges before the WTO, effectively and routinely bypass the DSU procedures to negotiate bilateral agreements and successfully resolve disputes, a serious problem would exist. • This is precisely what occurred in the Japan-Auto dispute…

  17. Major Problems of the Section 301: Japan-Auto dispute • Even if the United States followed the procedures under Article 22 of the DSU (Article 22) and obtained the DSB's authorization to retaliate, in the end the threat problem would still remain. • A threat to retaliate can also alter the market for targeted goods long before DSB authorization.

  18. The 1995 United States-Japan Auto Dispute The automobile dispute between the United States and Japan did not materialize overnight: • Before the United States initiated investigation into the Japanese automobile market in October 1994, the U.S. had conducted a series of bilateral negotiations with Japan for several years. • During these negotiations, the United States consistently criticized the closed Japanese automobile market.

  19. The 1995 United States-Japan Auto Dispute(continued) The United States wanted Japan to open its automobile market by: • changing its "genuine parts" certification rules • enabling Japanese distributors to carry U.S. automobiles • implementing the Japanese automobile manufacturers' voluntary plan to expand the purchase of U.S. automobiles

  20. U.S.-Japan Auto Dispute Timeline • September 30, 1994: the USTR initiated investigation into the Japanese aftermarket for auto parts. • October 1994 - May 1995: bilateral talks broke down three times. • May 10, 1995: the USTR officially determined under Section 301 that certain acts, policies and practices of Japan with respect to the aftermarket for auto parts were "unreasonable and discriminatory and burdened or restricted U.S. commerce.”

  21. WTO Involvement • Japan refused to meet with the United States under the threat of retaliation and made clear its intention to refer the case to the WTO. • May 1995: the United States formally published a retaliation list and indicated its intention to withhold the liquidation of customs entries with respect to sixteen different types of Japanese luxury-model automobiles.

  22. WTO Involvement (continued) • Japan requested consultation with the United States pursuant to Article 4 of the DSU and Article XXIII: 1 of the GATT 1994 with respect to these measures. • The representatives of the United States and Japan met twice in Geneva for formal consultations. • The USTR held a public hearing as required under Section 301 on the proposed sanctions. • A series of high-level negotiations, including meetings between U.S. and Japan were conducted from mid-June right up to the June 28, 1995, deadline for implementing the proposed sanctions when they dramatically settled their dispute by entering into a bilateral agreement.

  23. U.S.-Japan Auto Dispute Result The proposed retaliatory duties were never imposed, and Japan never requested the establishment of a panel to resolve the matter. Accordingly, the question of whether a threat of retaliation under Section 301 was inconsistent with the WTO Agreement remained untested under the WTO dispute settlement procedure.

  24. Section 301: Recommendations • Most importantly, after U.S.-Japan dispute and similar case with EC (Banana dispute)DSB Panel recommended United States not to employ the threat of retaliation in order to achieve its goals prior to the completion of relevant DSU procedures. • Also, the U.S. was recommendedto accept that its decision as to whether to refer to DSU rules and procedures after initiating a Section 301 investigation shall not be unilateral, and instead be subject to the panel and/or Appellate Body's review.

  25. Section 301: Recommendations (continued) • Accordingly, it was recommended that the United States not repeat its practice in this regard as it did in the Japan-Auto dispute. • In addition, the United States should be restrained from invoking a Section 301 (b)-unreasonable/discriminatory determination-rather than Section 301 (a), with an intent to avoid the WTO dispute settlement procedures, as it did in the JapanAuto case.

  26. Section 301: Final Observations With the adoption of the Panel's ruling by the DSB, the U.S. Section 301can coexist with the multilateral trading system. It is true that Section 301 serves legitimate objectives and performs valuable functions as a domestic trade policy tool. It also requires the USTR to participate in the WTO dispute settlement proceedings in a transparent manner. Should it be misused or overused, however, specific actions and determinations under Section 301 procedures might constitute a violation of WTO obligations.

  27. References • AFL-CIO, America’s Union Movement, An Introduction to Section 301 http://www.aflcio.org/issues/jobseconomy/globaleconomy/intro301.cfm • Chang, Seung Wha, “Taming unilateralism under the multilateral trading system: Unfinished job in the WTO panel ruling on U.S. sections 301-310 of the Trade Act of 1974”, Law and Policy in International Business (Summer 2000), http://findarticles.com/p/articles/mi_qa3791/is_200007/ai_n8894319/pg_39 • Grier, Jean Heilman, Section 301 of The 1974 Trade Act, http://www.osec.doc.gov/ogc/occic/301.html • Jagdish Bhagwati, “Aggressive Unilateralism: An Overview”, Aggressive Unilateralism: America’s 301 Trade Policy and the World Trading System, 1-45 (jagdish Bhagwati & Hugh T. Patrick eds., 1990), http://links.jstor.org/sici?sici=00130133(199201)102%3A410%3C185%3AAUA3TP%3E2.0.CO%3B2-1

  28. References (continued…) • Taylor, Cherie O’Neal, The Limits of Economic Power: Section 301 and the World Trade Organization Dispute Settlement System, Vanderbilt Journal of Transnational Law, 30.n2 (March 1997): p209-348. • Trade Act of 1974, 19 U.S.C. § 2411, Actions by United States Trade Representative. • “U.S. Fact Sheet on Auto Dead”, Inside US Trade, (June 30,1995) at 17-19. • World Trade Agreement 1994 (establishing the WTO and including GATT Uruguay 1994), http://www.jus.uio.no/lm/wta.1994/iia1b.html#2724

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