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Managed Trade and Quantitative Restrictions: Issues for Congress
Background
Table 1. Quantitative Restrictions on Trade
Congress plays a prominent role in shaping U.S. trade
Quantitative restrictions (QRs) on trade in goods are measures that
policy, due in part to trade policy’s impact on the overall
limit the quantity of a product that may be imported or exported.
health of the U.S. economy and specific sectors, the success
They may be based on the number of units, weight, volume, and value.
of U.S. businesses and workers, and Americans’ standard of
Major types of QRs include:
living. The Trump Administration and some Members of
Prohibitions. Bans on the importation or exportation of a
Congress contend that past trade negotiations and
product; such provisions may be absolute or conditional.
agreements have failed to address effectively foreign
Quotas. Measures indicating the quantity that may be imported or
protectionist practices and enhance reciprocal market access
exported; quotas can be global or bilateral.
for U.S. firms and workers. They cite as evidence the
disruption of some U.S. industries, difficulties of U.S. firms
Licensing requirements. Procedures that require an application
or document (other than that required for customs purposes) as a
in penetrating some foreign markets, and large U.S.
prior condition for importation.
merchandise trade deficits—even with countries with which
the United States has a free trade agreement. They argue
Voluntary export restraints (VERs). Actions taken by
that the main goals of U.S. trade policy should be to
exporting countries involving a self-imposed QR of exports; VERs
achieve “fair” and “balanced” trade and to place more
are taken unilaterally or under the terms of an agreement between
emphasis on measurable results (e.g., increased exports and
two or more countries.
market share abroad).
Source: P. Van den Bossche and W. Zdouc, The Law and Policy of the
World Trade Organization, 3rd ed., 2014.
To some observers, the Trump Administration is pursuing a
The Trump Administration has stated that, by negotiating
“managed trade” policy that seeks specific or numerical
quota arrangements on steel and aluminum with South
outcomes of trade by using the size of the U.S. economy as
Korea, Brazil, and Argentina, and potentially similar
leverage. The concept drew attention in the 1980s and early
measures with other countries, the United States can ensure
1990s in reaction to proposals and actions by Congress and
that trade with these countries is fair and balanced, and that
the Reagan and Clinton Administrations to address the large
U.S. imports are reduced to strengthen certain U.S.
U.S. trade deficit with Japan and the market-entry
industries and boost employment. To some Members,
restrictions faced by U.S. firms there. Critics contend that
however, this approach represents a move away from a
the most recent manifestation of a managed trade approach
market-driven, multilateral rules-based system to a
by the United States is the potential quotas negotiated by
unilateral managed approach driven by arbitrary numerical
the Trump Administration in the U.S.-Mexico-Canada
outcomes and targets—one that could lead to increasing
Agreement on autos (through side letter agreements), as
trade restrictions, retaliation or replication by other
well as the quota arrangements that allowed South Korea,
countries, rising prices, lower global economic growth, and
Brazil, and Argentina to avoid U.S. tariff increases on steel
erosion of the international trading system.
and aluminum imports stemming from the use of Section
Can Managed Trade be Economically
232. Today, proponents of this approach argue, as they did
Justified?
three decades ago, that many trading partners are not
fulfilling their trade obligations or that current trade rules
Few, if any, nations completely practice free trade. Some
do not address many barriers and distortive practices.
governments intervene more than others in markets by
Therefore, the most effective way to promote U.S.
providing subsidies to domestic firms, restricting foreign
economic interests, they argue, is to pressure countries to
imports, or promoting exports. U.S. trade policy over time
agree to specific trade results. As the Administration
has sought the elimination of these discriminatory or
“unfair” practices through trade agreements and rules
pursues new trade agreements, the implications of this
-
approach may interest the 116th Congress.
setting. Advocates of managed trade policies have called
for increased efforts to influence trade flows between the
What is Managed Trade?
United States and certain trading partners, particularly
Generally, managed trade refers to government efforts to
China, in order to rectify market distortions and create a
“level trading field” for U.S. firms. Such proposals reflect a
achieve measurable results by establishing—through
quantitative restrictions (QRs) on trade and other numerical
belief that the current level and composition of trade
targeted approaches—specific market shares or targets for
between countries either provides unequal benefits to the
certain products. These are met through mutual agreement
partner or is not at an optimal level for the United States.
or under threat of trade action (e.g., increased tariffs). There
Thus, QRs can help produce results which will both rectify
are various types and degrees of government involvement
distortions and provide net benefits to the U.S. economy.
in trade which might be termed managed trade, and
In addition, there is a perception that the economic systems
governments often use different types of QRs to achieve
of some U.S. trading partners are fundamentally different
their trade policy objectives (Table 1).
from that of the United States. Rather than try to harmonize
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Managed Trade and Quantitative Restrictions: Issues for Congress
their trade laws and business practices with those of the
VERs, stating that “Member[s] shall not seek, take or
United States, some advocates argue that the United States
maintain any voluntary export restraints, orderly marketing
should negotiate agreements that specify results that are
arrangements or any other similar measures on the export or
roughly consistent with what might be expected under open
the import side,” and requiring that any such existing
market conditions. Finally, others also contend that past
measure be phased out or brought into compliance with the
trade negotiations—which focused on reducing barriers
agreement. Also, the Agreement on Agriculture and the
rather than on results—have not yielded the benefits that
Agreement on Textiles and Clothing (ATC) contain specific
were promised or expected. They argue that some countries
rules regarding the elimination of QRs. With agriculture,
are neither doing enough to stimulate their economies nor
QRs had to be converted into tariff equivalents or tariff rate
removing barriers directly under their control to reduce
quotas—which in the strict sense of the term are neither
imbalances in their economic ties with the United States.
quotas nor QRs. In terms of textiles, the ATC provided a
Therefore, under this view, using QRs and other policy
ten-year “integration process,” terminating all QRs by the
tools gives the United States leverage to force these
end of 2004.
countries to change their distortive economic policies,
While QRs are, as a rule, prohibited, there are exceptions to
which will ultimately lead to “freer” and “fairer” trade.
this prohibition and rules on their administration. For
instance, if and when in place, QRs are to be administered
“[T]he Trump Administration will work aggressively
in a non-discriminatory manner, and the distribution of
to address trade imbalances, promote fair and
trade still allowed is to be as close as possible to what trade
reciprocal trade relationships, enforce U.S. rights
would have been in their absence. In addition, the rules for
under existing trade agreements, and work with like-
import-licensing procedures are to be neutral in application
minded countries to defend our common prosperity
and administered in a fair and equitable manner.
and security against economic aggression.”
Office of the U.S. Trade Representative, February 28, 2018.
A basic principle of the rules-based multilateral trading
system underpinned by the WTO has been that “tariffs are
Some policymakers have also long perceived growing
the preferred and acceptable form of protection.” The
bilateral U.S. trade deficits as an indication that U.S. trade
reasons for this preference are both economic and practical.
with other nations is uneven or unfair. They believe that
Unlike QRs, tariffs are more transparent (and verifiable)
policies that restrict U.S. imports and boost U.S. exports
and their impact on imported products is immediately clear.
can help decrease the size of the U.S. trade deficit.
Also, QRs impose absolute limits on imports, while tariffs
However, most economists disagree with this assessment,
do not. It is also considered easier to negotiate the gradual
noting instead that the overall U.S. trade deficit is primarily
reduction of tariffs than it is to negotiate the elimination of
the result of macroeconomic forces—namely the low level
QRs. Finally, while the price increase resulting from tariffs
of U.S. savings relative to total investment. While
goes to the government as revenue, the price increase
managing bilateral trade flows may affect bilateral trade
resulting from QRs generally benefits foreign producers.
imbalances, they have little impact on the overall U.S. trade
balance. Bilateral imbalances may also reflect the impact of
Issues for Congress
global supply chains, and such data excludes services trade.
Whether a managed trade approach will dominate future
Many economists question the ability of the state, rather
U.S. trade negotiations remains to be seen. Some Members
than market forces, to provide the most efficient allocation
of Congress may welcome the Trump Administration’s
of scarce resources, even when attempting to respond to
attempts to prod additional U.S. trading partners into
trade-distorting measures by trading partners. They warn
negotiating or accepting QRs. Others, however, may see it
that while QRs and similarly trade-distorting policies could
as an undesirable shift in U.S. trade policy. While increased
raise production in some sectors (e.g., steel), they may
government intervention on trade flows may not provide
decrease it in others (e.g., autos), leading to net economic
long-term net gains to the U.S. economy—as most
losses. In addition, they point to lessons from the limited
economists contend, some Members may view the nature of
experience that the United States had managing trade
U.S. trade concerns with some partners as so unique that
relations with Japan in the 1980s. Auto VERs, for example,
managed trade outcomes, particularly through the use of
curtailed imports of Japanese cars, but they also may have
QRs, can be justified in the short-term to level the playing
helped push car prices upward, which ultimately benefitted
field. However, U.S. trading partners may see U.S. actions
the Japanese auto industry. Also, the major U.S. automakers
as “beggar-they-neighbor” policies that seek to enhance
still faced strong Japanese competition, since Japanese
U.S. economic interests over those of other trading partners.
manufacturers moved some of their production to the
In addition, other countries may seek to adopt managed
United States. Policymakers typically weigh the unintended
trade policies of their own, increasing protectionism that
effects against the main objective of controlling trade flows.
could undermine U.S. and global economic growth and the
The WTO and QRs
rules-based global trading system.
While World Trade Organization (WTO) agreements do not
Wayne M. Morrison, Specialist in Asian Trade and
explicitly include specific references to managed trade, they
Finance
include language that limits the ability of members to
Andres B. Schwarzenberg, Analyst in International Trade
pursue such an approach to trade policy. For example, the
and Finance
1994 General Agreement on Tariffs and Trade (GATT) sets
out a general prohibition on QRs (de jure and de facto) on
exports and imports—a core U.S. objective during the
Uruguay Round. The Agreement on Safeguards prohibits
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Managed Trade and Quantitative Restrictions: Issues for Congress
IF11035
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