Before the WTO, There Was Section 301
When the United States has a disagreement with a trading partner, it generally takes a case to the World Trade Organization (WTO) Dispute Settlement Body. (See our Essential “How the WTO Settles Disputes”.) But before there was a WTO, the United States developed the tools to take matters into its own hands, using a trade tool known as Section 301 of the Trade Act of 1974. The Trump Administration appears to be ready to dust off and deploy Section 301 in its bid to maximize leverage in its trade negotiations with China.
What is Section 301?
Section 301 provides legal authority for the U.S. Trade Representative (USTR) to deny U.S. trade benefits or impose import duties in response to foreign trade barriers. The barriers can be violations of trade agreements, or “unreasonable or discriminatory” actions that harm U.S. exporters, service providers, or intellectual property rights holders.
The USTR has broad discretion to initiate a Section 301 investigation in response to a stakeholder petition or on his or her own initiative. If the USTR chooses to initiate an investigation, the U.S. must consult with the country that is the subject of the complaint to try to resolve it. If those consultations fail, and the investigation involves a trade agreement such as the WTO or a free trade agreement, Section 301 requires the USTR to bring a case using the procedures of the trade agreement. Section 301 investigations not involving a trade agreement do not rely on such trade agreement procedures and are instead conducted by an interagency U.S. government team led by the USTR.
Section 301 Packs a Punch
The deadline for completion of a Section 301 investigation is either 30 days after trade agreement dispute procedures conclude, or, in investigations not involving a trade agreement, 6 or 12 months, depending on the topic. At the conclusion of the investigation, the USTR must determine whether a trade agreement has been violated, or there is a harmful act that is unreasonable or discriminatory. If there is no agreement with the offending country to resolve the dispute, the USTR determines what retaliatory action is appropriate. He or she is then required to take that action within 30 days against the country. Except in certain cases involving intellectual property rights, the USTR has discretion to delay retaliating if he or she believes that progress towards a solution is being made or that delay will serve that purpose.
The retaliatory actions can include: raising duties or restrictions on the country’s goods; fees or restrictions on its services; denying trade agreement rights to the country (for example, failing to protect the intellectual property of its nationals); or restricting or denying permission for the country’s service providers to have access to the U.S. market. At the direction of the President, the USTR may also take other actions within the power of the President “with respect to any other area of pertinent relations” with the country.
Getting Back in the Ring
There have been very few Section 301 investigations since 1995, when the WTO was established. At the insistence of U.S. negotiators, the WTO created much more effective dispute settlement procedures than those of its predecessor, the original General Agreement on Tariffs and Trade. The WTO also includes a much broader set of commitments than the General Agreement. As a result, the United States has turned to WTO dispute settlement to handle its WTO-related trade complaints rather than resorting to unilateral action under Section 301 – setting an example for other WTO Members who have trade complaints against us and who may be tempted to act unilaterally. Therefore, Section 301’s principal function since 1995 has been to provide statutory authority for imposing WTO-authorized retaliation.
However, as already noted, Section 301 is not limited to trade barriers that are violations of the WTO or other trade agreements. In particular, Section 301 singles out as unreasonable a country’s denial of adequate and effective protection of intellectual property rights, even where the country is complying with its WTO obligations – a criticism frequently leveled against China.
Section 301 provides the USTR with direct control over the outcome, without relying on a neutral third-party arbitrator. This unilateral element came under heavy foreign criticism during Section 301’s heyday of the 1980s and early 1990s, and is likely to be criticized by potential targets should Section 301’s use be revived.
If retaliation under a revived Section 301 were to take the form of duties or fees in excess of U.S. WTO commitments or to otherwise violate WTO rules, criticism of Section 301 would likely extend well beyond the targeted country to numerous WTO countries. In fact, the WTO countries targeted by a Section 301 action may be authorized to suspend trade concessions to the United States in response, escalating the controversy. On the other hand, if USTR were able to identify retaliation that is not WTO-inconsistent – a challenging task – criticism could be more muted and the risk of tit-for-tat retaliation reduced.
The Office of the U.S. Trade Representative’s explanation of Section 301 can be found at page 174 of its 2017 Annual Report.
The 2017 Special 301 Report details U.S. concerns with foreign intellectual property practices and serves as a potential basis for initiating Section 301 investigations.
Information on current Section 301 investigations can be found here.
An earlier Politico article by the author on Section 301 can be found here.
Bruce Hirsh is principal with Tailwind Global Strategies LLC. Over an 18-year government career, he served in various roles including Assistant U.S. Trade Representative for Japan, Korea and APEC, Chief International Trade Counsel on the Senate Finance Committee, lead U.S. negotiator for the WTO Trade Facilitation Agreement, and supervisor on dispute settlement matters in Washington and Geneva.