On Friday, September 11, 2009, the Obama administration made an announcement that not only was a first for trade remedy law but also has become a fairly visible news media story: for the first time, the United States will impose “market disruption” safeguards on imports from China. The goods in question are passenger vehicle and light truck pneumatic tires. The Obama administration’s proclamation can be viewed here; New York Times and Wall Street Journal coverage can be linked to here and here. The result is that there will be increased duties on U.S. imports of these Chinese tires for three years. I want to discuss some of the broader policy aspects and implications of this safeguard action, but in order to do so I will first give a brief synopsis of the law in question.
U.S. safeguards laws are intended to temporarily protect adversely affected U.S. industries from the dislocating effects of rapid increases in imports. U.S. “global safeguards” are imposed against imports from all countries and are generally consistent with U.S. obligations under Article XIX of the General Agreement on Tariffs and Trade (GATT) and the WTO Safeguards Agreement. U.S. country-specific or regional safeguard provisions also in place. Most are pursuant to regional trade agreements, but the safeguard action in question here is being taken pursuant to section 421 of the Trade Act of 1974 (19 U.S.C. s. 2451), which permits safeguard actions against imports from China that are a “significant cause” of “material injury” or threat thereof to a U.S. industry. Section 421 was enacted in 2000 in anticipation of China’s accession to the WTO, and its protections were agreed to by China as part of its WTO accession package. U.S. safeguard actions are imposed (or not imposed) at the president’s discretion upon an affirmative determination of injury by the U.S. International Trade Commission, which means that safeguards are essentially a pure trade policy instrument, as opposed to antidumping and countervailing duty actions, which are intended to be corrective in nature.
All of this means that while there is general uproar in China about this particular safeguard action–China is in fact threatening to impose new import tariffs on U.S. chicken meat and automotive products in response–this safeguard action against Chinese tires is lawful both from a U.S. law and WTO perspective. What is more interesting to consider, therefore, is what this safeguard action suggests about current and future U.S. trade policy.
First, this is a fairly rare example of the type of “free but fair trade” action mentioned by President Obama during the 2008 campaign. The Obama administration’s trade actions have not matched the Obama campaign’s trade rhetoric–there has no move to renegotiate NAFTA or its side agreements, for example. I also doubt there will be many, if any, additional China-specific safeguards imposed in the near future: a healthy trade relationship between the U.S. and China is simply too important to both countries.
Second, and for the same reason, I doubt the action will lead to a large-scale (or even mid-scale) trade war. There may be retaliatory tariffs imposed by China, but matters will not escalate too far beyond that.
Third, and perhaps most interestingly, I believe this safeguard action can and should be thought of as an example of the Obama administration’s greater interest (as compared to the prior administration’s) in regulating markets to achieve particular outcomes thought by the administration to be more equitable than the market might otherwise achieve. Much attention, for example, has been paid to the Obama administration’s efforts to manage the financial crisis and reform health care–efforts, in other words, to regulate those important markets and achieve different outcomes. The imposition of U.S. safeguards on tire imports from China also regulates a U.S. market (and a large one at that) through the use of traditional (and overtly protectionist) tariffs. The desired outcome is to soften the blow of imports on the affected industry. Certainly it is true that this decision is also a nod to organized labor—and I would be remiss if I did not acknowledge that the tire safeguard investigation was in fact requested by the United Steelworkers. Still, the decision is consistent with a general increase in greater market regulation, and specifically in regulation that achieves outcomes that are perceived of as “fair” from some normative perspective other than efficiency.
Posted by gregory w bowman on September 15, 2009 at 12:27 AM
Comments
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Posted by: Breast Enlargement | Dec 9, 2009 1:37:49 AM
The good advantage here is the protection of goods starting with the tires.I see how the government work on to safeguard the whole country from the import products coming to other countries.
Posted by: tyre changers | Oct 26, 2009 9:05:27 AM
Thanks to Matt and James for the comments. I agree with Matt’s assessment of the likely outcome, and I think if the WTO were to find the U.S. tire safeguards to be permissible, any retaliation by China would have to be considered a violation.
The comment by James goes to heart of a larger underlying issue, which is that of the enormously broad delegations of power to the executive in this area of law (in this case, to the USITC, as an agency that per statute is “independent,” and to the president). The USITC’s independent agency status does provide some political insulation to its decisions regarding injury, but does not guarantee good analysis or decision-making. Still, the USITC’s investigatory process is quite proceduralized, which at least keeps the process from being a black box of sorts.
One other point to bear in mind is that unlike under antidumping and countervailing duty law, there is quite limited judicial review of safeguard decisions–typically limited to whether the president or USITC exceeded the scope of their statutory authority. (U.S. safeguards statutes do not expressly provide for judicial review.) This means that judicial challenges to safeguards have generally been unsuccessful. They can be challenged at the WTO level, of course, as U.S. steel safeguards were a few years ago, but such claims must be brought by a WTO member state.
Posted by: gregory bowman | Sep 15, 2009 3:27:43 PM
Gregory- thanks for this- it’s a much better discussion that most on the net or in newspapers now.
James- the ITC is (at least somewhat) independent, and it’s they, not the administration, that claim that the “surge” in Chinese tires are a “significant cause of material injury”. I’m not so naive as to think the ITC never acts for political reasons or is beyond book-cooking, but there is some real process here (one very similar to that followed in anti-dumping investigations.)
My impression on how this will play out (Gregory- please say if you think this is wrong) is that China will protest to the WTO on the grounds that the requirements of the agreement are not met, and will impose some new (potentially illegal) tariffs in retaliation in the mean-time. The US will protest those to the WTO. Then, the WTO will likely find the Chinese tariffs to be a violation and the US action okay, after which time there will be negotiations between the sides allowing each to save face while reducing the tariffs. That seems to be a normal pattern. Of course, if the WTO finds that proper methods and procedures were not used by the US and backs China, I expect the Obama administration will use that as a face-saving way to withdraw the tariffs, much like the Bush administration did with its crazy steel tariffs a few years before. Either way, I suspect Gregory is right that a trade war is unlikely. Talk of such things is mostly posturing. (This doesn’t mean I think the safeguard tariffs are a good idea, and certainly not a first-best policy.)
Posted by: Matt | Sep 15, 2009 9:05:38 AM
Before we can say that these new tariffs are lawful, don’t we need some kind of evidence that Chinese tires are in fact a “significant cause” of “material injury” to a U.S. industry? They can’t be lawful solely because the administration is invoking section 421, right?
Posted by: James Grimmelmann | Sep 15, 2009 6:19:52 AM