Trade Act of 1974

W. Eric McElwain

Excerpt from the Trade Act of 1974

If the United States Trade Representative determines ... that ... (B) an act, policy, or practice of a foreign country—(i) violates ... the provisions of, or otherwise denies bene fits to the United States under, any trade agreement, or (ii) is unjustifiable and burdens or restricts United States commerce; the Trade Representative shall take action authorized in subsection (c) of this section subject to the specific direction, if any, of the President..., and shall take all other appropriate and feasible action ... that the President may direct the Trade Representative to take ... to obtain the elimination of such act, policy, or practice.

The Trade Act of 1974 (P.L. 93-618, 88 Stat. 1978) is the centerpiece of a series of acts passed by Congress with the intent of promoting worldwide reductions in economic barriers to trade, while at the same time protecting and promoting the interests of American-owned businesses. United States trade law is not contained in any one law but in a series of laws, from the Tariff Act of 1930 to the Agreement Establishing the World Trade Organization (WTO) in 1994. The Trade Act of 1974 gave the president authority to negotiate trade agreements with other countries, particularly with regard to multilateral trade negotiations under the General Agreement on Tariffs and Trade (GATT), which led to today's WTO. The act's primary importance, however, lies in Title II, Section 201, which gives the president authority to take actions to protect U.S. businesses from injury caused by increased quantities of imports, even though the increase in imports violates no ban on unfair trade practices; and Title III, Section 301, which allows retaliatory measures to be taken against imports from countries that injure U.S. economic interests by using unfair trade practices. Other provisions governed trade relations with nonmarket-economy countries, a reference to countries that were then under communist rule, and created the general system of preferences, which allows the president to favor products from specific developing countries in order to aid their development and to discourage them from engaging in protective trade practices.

CONSTITUTIONAL BASIS FOR THE ACT

Article II of the U.S. Constitution has been interpreted to vest authority to conduct foreign policy in the president, but Article 8, Section 1 gives Congress the power to lay and collect duties and the power to regulate foreign commerce. Therefore the power to regulate trade with other nations must be delegated by Congress to the president. While the Trade Act of 1974 granted the president authority to engage in trade negotiations, Congress limited the president's authority by requiring a determination that any agreement will not endanger national security and will promote the purposes of the act.

POLITICAL BACKGROUND OF THE ACT

The Trade Act of 1974 was a response to changes that had occurred in the international economic framework under which U.S. trade laws had been created. Tariffs had lessened as a barrier to trade, but there had been growth in the use by other nations of nontariff trade barriers, such as special subsidies to protect local industries by allowing goods to be sold abroad at lower cost. Also, developing countries had become a major force in international markets, and a need was perceived for a legal response to such actions as the oil embargo imposed by the OPEC nations in 1973. Dissatisfied with the time-consuming procedures for resolving disputes under the GATT, Congress wanted the president to use executive power more proactively to influence trade practices and policy worldwide. Congress deliberated on a new trade bill for twenty months before the Trade Act was ultimately passed on December 20, 1974. The act delegated 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.

SUBSTANCE OF THE ACT

Section 201, known as the "Escape Clause," creates a mechanism for the president to grant relief measures to industries, workers, firms, and communities injured by increased imports from foreign industries producing competing products. Any industry can ask the U.S. International Trade Commission (ITC) to recommend that measures be taken to protect it from competing imports, even though those goods are being imported legally. If the ITC recommends invoking the Section 201 Escape Clause to protect the affected industry, the president may deny the request only on grounds of the "national economic interest" (Trade Act, Section 202[a][1][A]). Because of the protectionist nature of Section 201, only a handful of requests for action have resulted in protective measures being imposed by the president. Since the "escape clause" does not require a finding of any unfair trade practices by the exporting nation, that nation can then freely retaliate against measures imposed by the United States. Therefore, it is often not in the "national economic interest" to pursue such measures.

Section 301 expanded presidential authority to retaliate against trade practices by other nations that unfairly burden or restrict U.S. commerce, whether through high tariffs or through nontariff trade barriers. The president may suspend trade concessions, impose new higher tariff rates on a selective basis, or take other retaliatory actions. Such actions include the imposition of antidumping duties (special assessments against imports sold in the United States at less than fair value, thereby harming a U.S. industry); countervailing duties, which are assessments against imported goods receiving subsidies from their governments so that they can be sold in the U.S. at an unfairly low price, thereby injuring a U.S. industry; and cease and desist orders (demanding that the unfair practice be stopped) or exclusion orders (that bar a product from being imported into the United States), which can be imposed directly by the International Trade Commission, subject to presidential veto.

Section 301 was strengthened in the Trade Agreements Act of 1979 by the imposition of time limits for investigation by the United States Trade Representative (USTR) of complaints filed by private parties and for action by the president on such complaints. The Omnibus Trade and Competitiveness Act of 1988 transferred decision making power from the president to the USTR, and it made retaliatory action mandatory whenever illegal trade practices were identified. It also created the so-called "Super 301" procedure, which requires the USTR to undertake actions against certain countries deemed to be blocking access to imports of critical American goods (for example, Japanese restrictions that existed on American supercomputers and space satellites).

IMPACT OF THE ACT

Primarily because of Section 301, the Trade Act has been used more to open foreign markets to U.S. exports and investments than to protect American industries from unfair competition. Section 301 is a unilateral provision in U.S. law that can be invoked irrespective of any remedies available under the multilateral GATT or WTO. Although the United States has generally upheld its treaty obligations under the GATT, Section 301 actions or threats of action, despite at times creating resentment from U.S. trading partners, have been highly effective tools in negotiating trade concessions.

See also: North American Free Trade Agreement Implementation Act; Smoot-Hawley Tariff Act; Tariff Act of 1789.

BIBLIOGRAPHY

Barton, John H., and Bart S. Fisher. International Trade and Investment: Regulating International Business. Boston, MA: Little Brown, 1986.

Folsom, Ralph H.; Michael Wallace Gordon; and John A. Spanogle. International Trade and Investment in a Nutshell, 2d ed. St. Paul, MN: West Group, 2000.

Low, Patrick. Trading Free: The GATT and U.S. Trade Policy. New York: Twentieth Century Fund Press, 1993.

Nanda, Ved. P. The Law of Transnational Business Transactions. Deerfield, IL: Clark Boardman, 2002.