The U.S. Constitution grants to Congress the power to regulate trade with foreign nations and levy tariffs. Since 1922, U.S. law and foreign policy have favored applying tariffs and duties equally to all trading partners. This principle, known as most-favored-nation (MFN) treatment, has been central to the rules-based global trading system since 1947.
One of the most frequently invoked exceptions to MFN treatment are three “trade remedy” laws. These laws are enforced primarily through administrative investigations of two U.S. government agencies: the International Trade Administration of the Department of Commerce (ITA) and the U.S. International Trade Commission (USITC). Trade remedy laws enable the United States to impose additional duties aimed at specific producers or countries to remedy unfair trade practices and to help domestic industries adjust to sudden surges of fairly traded goods.
The three types of laws traditionally classified as “trade remedies” are:
Antidumping (AD) laws provide relief to domestic industries that have been, or are threatened with, material injury caused by imported goods sold in the U.S. market at prices that are shown to be less than fair market value. The relief provided is an additional import duty placed on the dumped imports based upon calculations made by the ITA. Antidumping orders are the most frequently used and the most controversial trade remedy.
Countervailing duty (CVD) laws give a similar kind of relief to domestic industries that have been, or are threatened with, material injury caused by imported goods that have been found to have received WTO-inconsistent government subsidies, and can therefore be sold at lower prices than similar goods produced in the United States. The relief provided is an additional import duty placed on the subsidized imports.
Safeguard (also referred to as escape clause) laws give domestic industries relief from surges of imported goods that are fairly traded if serious injury is found or is threatened to the domestic industry. The most frequently applied safeguard law, Section 201 of the Trade Act of 1974, is designed to give domestic industry the opportunity to adjust to the new competition and remain competitive. The relief provided is generally an additional temporary import duty, a temporary import quota, or a combination of both. Safeguard laws also require presidential action in order for relief to be put into effect.
Economists have generally seen antidumping laws and policies as economically inefficient. Some, however, have acknowledged the role that these economically inefficient policies have played in making trade liberalization more politically feasible by providing protection for industries that might otherwise oppose such measures. In recent years, U.S. exports have increasingly become a target of AD measures by several major emerging economies, including India and China. Antidumping laws and policies have also been at the center of dozens of trade disputes between the United States and its trading partners in the WTO. Reports issued by the WTO’s Appellate Body (AB) on the subject have been one of the primary targets of the U.S. Trade Representative’s criticisms of the AB mechanism in the broader WTO dispute settlement system.
If Congress wishes to maintain a functional dispute settlement system at the WTO it may consider either directing the President to seek amendments to underlying WTO agreements such that U.S. practices are internationally compliant or direct the ITA to bring its AD policies into conformity with the AB’s interpretation of the WTO’s Antidumping Agreement. Purchase this volume