Safeguards: Section 201 of the Trade Act of 1974

Updated December 31, 2018 Safeguards: Section 201 of the Trade Act of 1974 On January 23, 2018, President Trump proclaimed a fouryear safeguard measure on imports of certain crystalline silicon photovoltaic cells (solar cells) and modules, and a three-year safeguard on large residential washing machines. These safeguards, issued under Section 201 of the Trade Act of 1974 (19 U.S.C. §2251), imposed additional tariffs and quotas on U.S. imports of these products. The safeguards were instituted based on findings by the U.S. International Trade Commission (ITC) that these goods are being imported into the United States in such increased quantities that they are a substantial cause of serious injury to U.S. manufacturers. The ITC also recommended possible steps to remedy the injury. Factors the ITC must consider when determining injury include (1) the significant idling of production facilities; (2) the inability of a significant number of firms to carry out domestic production at a reasonable level of profit; and (3) significant unemployment or underemployment within the U.S. industry. The ITC also considers import trends and other factors, as well as declines in production, profits, wages, productivity, and employment. The ITC makes its injury determination based on a vote of the Commissioners. If the Commission is equally divided, the President may select either option. Figure 1. Section 201 Timeline What Is Section 201? Section 201 or “safeguard” actions are designed to provide temporary relief for a U.S. industry (for example, additional tariffs or quotas on imports) in order to facilitate positive adjustment of the industry to import competition. “Positive adjustment” in the law means the ability of the industry to compete successfully with imports after termination of the safeguard measure, or the industry’s orderly transfer of resources to other productive pursuits; and the ability of dislocated workers to transition productively. Section 201 actions are deemed consistent with U.S. international obligations provided that they conform to the World Trade Organization (WTO) Agreement on Safeguards. Section 201 Process Section 201 investigations are generally initiated by a written petition filed by a trade association, firm, union, or group of workers representing a U.S. industry. Petitioners must also include (with the petition or within 120 days) a plan to facilitate the industry’s positive adjustment to import competition. Investigations may also be triggered by House Ways and Means or Senate Finance Committee resolutions, at the request of the U.S. Trade Representative (USTR), or at the ITC’s own initiative. Injury Investigation The ITC’s investigative process occurs in two phases. In each phase, the ITC must hold hearings, solicit public comments, and publish all findings in the Federal Register. In the first phase, the focus is on the affected U.S. industry and whether it is being seriously injured or threatened with serious injury; and, if so, whether an increase in imports are a “substantial cause” thereof. This phase must be completed within 120 days after the filing of the petition, unless the ITC determines that the investigation is “extraordinarily complicated.” In this case, it may take up to 30 additional days to make an injury determination. The timeline may be further extended if the petitioner has alleged “critical circumstances” or the product is perishable; because temporary relief may be provided in these cases. Source: Chart by CRS. Note: Timeline is extended if ITC determines case is complicated, critical circumstances are alleged, or merchandise is perishable. Remedy Recommendations If the ITC makes an affirmative injury determination, it considers actions that would address the serious injury and would be most effective in facilitating the industry’s positive adjustment to import competition. It may recommend: (1) an increase in, or imposition of, a duty on the imports; (2) a tariff-rate quota on the product; (3) a modification, or imposition of, any quantitative restriction on imports; or (4) any combination of these actions. In addition to these remedies, the ITC may also recommend that the President initiate international negotiations or otherwise alleviate the injury or threat, or implement any other action authorized under law to facilitate positive import competition. Only those Commission members who concurred in the affirmative injury determination may vote on the recommended remedy, although other Commissioners may submit separate views. ITC Report to the President Unless an extension is granted, the ITC must report its findings to the President within 180 days of the petition filing. After submission, the ITC must also release its findings (business confidential information redacted) in the Federal Register. https://crsreports.congress.gov Safeguards: Section 201 of the Trade Act of 1974 Presidential Action After receiving the ITC’s report, the President has 60 days to decide which, if any, of the ITC’s recommendations to implement. The deadline may be extended another 15 days if the President requests additional information from the ITC. The President may opt to implement the ITC’s recommendations, modify them, or do nothing. When making a determination under Section 201, the President must consider the:       recommendations and report of the ITC; degree to which workers and firms are already benefiting from adjustment assistance and worker retraining programs; industry’s efforts (including proposals outlined in the adjustment plan) to make a positive adjustment to import competition; probable effectiveness of the ITC’s proposed actions to facilitate the industry’s positive adjustment; short- and long-term economic and social costs of the actions as opposed to the potential benefits; and position of the domestic industry in the U.S. economy. The President must also weigh U.S. national economic and security interests, including the proposed remedy’s possible impact on U.S. consumers and on other U.S. industries. If the President decides to impose a remedy, he has several options. He may: After the President receives the ITC review and consults with the Secretaries of Commerce and Labor, he may modify, reduce, or terminate the action if he determines that the industry has not made adequate efforts toward positive adjustment or if the action is no longer effective due to economic circumstances. The President may also terminate or change the remedy if the industry petitions him to do so on the basis of positive adjustment to import competition. Section 201 Actions The ITC conducted 75 Section 201 investigations between 1975 and 2018. There were no new Section 201 investigations initiated between 2001 and the cases initiated in the Trump Administration. In these investigations, the ITC determined in the negative in 33 cases (including 3 tie votes for which the President accepted the ITC’s negative determination, meaning that the investigation ended). The President did not grant relief in 14 cases. The 28 times in which the President granted relief, it was in the form of tariff increases (9), adjustment assistance (6), tariff-rate or import quotas (3), marketing agreements (1), combinations of these actions (6); and in 3 instances, more open-ended types of relief (voluntary restraint agreement, income supports, retraining/relocation of workers). Figure 2. Section 201 Outcomes, 1975-2018  proclaim a tariff, tariff increase, tariff-rate quota, or quota on imports;  implement adjustment measures for U.S. firms and       workers; negotiate and implement agreements limiting exports with other countries; proclaim procedures for the auction of import licenses; initiate international negotiations; submit legislative proposals to Congress; take any other actions under the President’s legal authority; or use any combination of these actions. Congressional Role On the day the President takes action (or decides to take no action) under Section 201, he is required to report to Congress in writing, describing the action and the reasons for it. If the President’s action differs from the ITC’s recommendation, or if the President opts to take no action, Congress may enact a joint resolution of disapproval within 90 days of receiving the President’s report. If a resolution is enacted, the ITC’s recommendation becomes the remedy, and the President must proclaim it within 30 days. Duration and Review The President may grant import relief for an initial period of up to four years and extend it one or more times, up to a maximum of eight years. The ITC must monitor Section 201 actions as long as they are in effect, especially with respect to the efforts and progress of the domestic industry and workers to adjust positively to import competition. If the initial period of the action exceeds three years, the ITC is also required to submit a midterm review to the President and Congress. Source: CRS Chart based on GAO and Federal Register documents. Solar Exclusions In the President’s determination on solar cells and modules, he directed the USTR to establish procedures for excluding particular products from the safeguard measure based on requests from the public. Based on procedures announced on February 14, 2018, in September 2018 the USTR excluded several products from the safeguard measure, including off-grid panels of 45 watts or less; and flexible and semi-flexible panels generally used on boats and RVs. WTO Challenges On May 14, 2018, South Korea requested WTO consultations with the United States regarding both of the U.S.-implemented safeguards on washing machines (DS546) and solar products (DS545), and on August 16, formally requested that WTO dispute settlement panels be established. On August 14, 2018, China requested consultations with the United States on the safeguard on solar products (DS562). Vivian C. Jones, Specialist in International Trade and Finance IF10786 https://crsreports.congress.gov Safeguards: Section 201 of the Trade Act of 1974 Disclaimer This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress. Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the United States Government, are not subject to copyright protection in the United States. Any CRS Report may be reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you wish to copy or otherwise use copyrighted material. https://crsreports.congress.gov | IF10786 · VERSION 7 · UPDATED