Managed Trade and Quantitative Restrictions: Issues for Congress

Managed Trade and Quantitative Restrictions: Issues for Congress

Updated February 22, 2024
Managed Trade and Quantitative Restrictions: Issues for Congress
Background
targeted approaches—specific market shares or targets for
Congress plays a prominent role in shaping U.S. trade
certain products. These are met through mutual agreement
policy, due in part to trade policy’s impact on the overall
or under threat of trade action (e.g., increased tariffs). There
health of the U.S. economy and specific sectors, the success
are various types and degrees of government involvement
of U.S. businesses and workers, and Americans’ standard of
in trade which might be termed managed trade, and
living. Some Members of Congress contend that past trade
governments often use different types of QRs to achieve
negotiations and agreements have failed to address
their trade policy objectives (see textbox).
effectively foreign protectionist practices and enhance
reciprocal market access for U.S. firms, farmers, and
Quantitative Restrictions on Trade
workers. They cite as evidence the disruption of some U.S.
Quantitative restrictions (QRs) on trade in goods are
industries, difficulties of U.S. firms in penetrating some
measures that limit the quantity of a product that may be
foreign markets, and large U.S. merchandise trade
imported or exported. They may be based on the number of
deficits—even with countries with which the United States
units, weight, volume, and value. Major types of QRs include:
has a free trade agreement. They argue that the main goals
of U.S. trade policy should be to achieve “fair” and
•
Prohibitions. Bans on the importation or exportation of
“balanced” trade and to place more emphasis on measurable
a product; such provisions may be absolute or
conditional.
results (e.g., increased exports and market share abroad).
•
Quotas. Measures indicating the quantity that may be
To some observers, the United States has been pursuing—
imported or exported; quotas can be global or bilateral.
in certain areas—a “managed trade” policy that seeks
•
Licensing requirements. Procedures that require an
specific or numerical outcomes of trade by using, among
application or document (other than that required for
other things, the size of the U.S. economy as leverage. The
customs purposes) as a prior condition for importation.
concept drew attention in the 1980s and early 1990s in
reaction to proposals and actions by Congress and the
•
Voluntary export restraints (VERs). Actions taken by
Reagan and Clinton Administrations to address the large
exporting countries involving a self-imposed QR of
U.S. trade deficit with Japan and the market-entry
exports; VERs are taken unilaterally or under the terms
restrictions faced by U.S. firms there. Critics contend that
of an agreement between two or more countries.
the most recent manifestations of a managed trade approach
Source: P. Van den Bossche and W. Zdouc, The Law and Policy of the
by the Trump and Biden Administrations are the quotas
World Trade Organization, 3rd ed., 2014.
negotiated in the U.S.-Mexico-Canada Agreement
(USMCA) on autos (through side letter agreements); the
The Trump Administration, for example, stated that, by
quota arrangements that have allowed certain U.S. steel and
negotiating quota arrangements on steel and aluminum with
aluminum imports from South Korea, Brazil, Argentina,
South Korea, Brazil, and Argentina, purchasing targets with
and more recently, the European Union, Japan, and the
China, and potentially similar measures with other
United Kingdom, avoid U.S. tariff increases stemming from
countries, the United States could ensure that trade with
the use of Section 232; and more prominently, the “Phase
these countries was fair and balanced, and that U.S. imports
One Agreement” with China, which committed China to
were reduced to strengthen certain U.S. industries and boost
increase purchases of U.S. goods and services by no less
employment. Some Members see this approach as a move
than $200 billion between 2020 and 2021.
away from a market-driven, multilateral rules-based system
to a unilateral managed approach driven by arbitrary
Today, some proponents of this approach argue, as they did
numerical outcomes and targets—one that could lead to
three decades ago, that many trading partners are not
increasing trade restrictions, retaliation or replication by
fulfilling their trade obligations or that current trade rules
other countries, rising prices, lower global economic
do not address many barriers and distortive practices.
growth, and erosion of the global trading system.
Therefore, the most effective way to promote U.S.
economic interests, they argue, is to pressure countries to
Can Managed Trade be Economically
agree to specific trade results.
Justified?
As the Biden Administration implements or seeks to
Few, if any, nations completely practice free trade. Some
enforce recent trade agreements and quota arrangements,
governments intervene more than others in markets by
the implications of this approach may be of interest to
providing subsidies to domestic firms, restricting foreign
Members of Congress.
imports, or promoting exports. U.S. trade policy over time
has sought the elimination of these discriminatory or
What is Managed Trade?
“unfair” practices through trade agreements and rules-
Generally, managed trade refers to government efforts to
setting. Advocates of managed trade policies have called
achieve measurable results by establishing—through
for increased efforts to influence trade flows between the
quantitative restrictions (QRs) on trade and other numerical
United States and certain trading partners, particularly
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Managed Trade and Quantitative Restrictions: Issues for Congress
China, in order to rectify market distortions and create a
out a general prohibition on QRs (de jure and de facto) on
“level trading field” for U.S. firms. Such proposals reflect a
exports and imports—a core U.S. objective during the
belief that the current level and composition of trade
Uruguay Round of multilateral trade negotiations (1986-
between countries either provides unequal benefits to the
1994). The Agreement on Safeguards prohibits VERs,
partner or is not at an optimal level for the United States.
stating that “Member[s] shall not seek, take or maintain any
Thus, QRs can help produce results which will both rectify
voluntary export restraints, orderly marketing arrangements
distortions and provide net benefits to the U.S. economy.
or any other similar measures on the export or the import
side,” and requiring that any such existing measure be
In addition, there is a perception that the economic systems
phased out or brought into compliance with the agreement.
of some U.S. trading partners are fundamentally different
Also, the Agreement on Agriculture and the Agreement on
from that of the United States. Rather than try to harmonize
Textiles and Clothing (ATC) contain specific rules
their trade laws and business practices with those of the
regarding the elimination of QRs. With agriculture, QRs
United States, some advocates argue that the United States
had to be converted into tariff equivalents or tariff rate
should negotiate agreements that specify results that are
quotas—which in the strict sense of the term are neither
roughly consistent with what might be expected under open
quotas nor QRs. In terms of textiles, ATC provided a ten-
market conditions. Others also contend that past trade
year “integration process,” terminating all QRs by 2004.
negotiations—which focused on reducing barriers rather
than on results—have not yielded the benefits that were
While QRs are, as a rule, prohibited, there are exceptions to
promised or expected. They argue that some countries are
this prohibition and rules on their administration. For
neither doing enough to stimulate their economies nor
instance, if and when in place, QRs are to be administered
removing barriers directly under their control to reduce
in a nondiscriminatory manner, and the distribution of trade
imbalances in their economic ties with the United States. In
still allowed is to be as close as possible to what trade
this view, using QRs and other policy tools gives the United
would have been in their absence. In addition, the rules for
States leverage to force these countries to change their
import-licensing procedures are to be neutral in application
distortive economic policies, which will ultimately lead to
and administered in a fair and equitable manner.
“freer” and “fairer” trade.
A basic principle of the rules-based multilateral trading
Some policymakers have also long perceived growing
system underpinned by the WTO has been that “tariffs are
bilateral U.S. trade deficits as an indication that U.S. trade
the preferred and acceptable form of protection.” The
with other nations is uneven or unfair. They believe that
reasons for this preference are both economic and practical.
policies that restrict U.S. imports and boost U.S. exports
Unlike QRs, tariffs are more transparent (and verifiable)
can help decrease the size of the U.S. trade deficit.
and their impact on imported products is immediately clear.
However, many economists disagree with this assessment,
Also, QRs impose absolute limits on imports, while tariffs
noting instead that the overall U.S. trade deficit is primarily
do not. It is also considered easier to negotiate the gradual
the result of macroeconomic forces, including the low level
reduction of tariffs than it is to negotiate the elimination of
of U.S. savings relative to total investment. While
QRs. While the price increase resulting from tariffs goes to
managing bilateral trade flows may affect bilateral trade
the government as revenue, the price increase resulting
imbalances, they have little impact on the overall U.S. trade
from QRs generally benefits foreign producers.
balance. Bilateral imbalances may also reflect the impact of
global supply chains, and such data excludes services trade.
Issues for Congress
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 encourage the Biden Administration to
of scarce resources, even when attempting to respond to
prod additional U.S. trading partners into negotiating or
trade-distorting measures by trading partners. They warn
accepting QRs. Others may see it as an undesirable shift in
that while QRs and similarly trade-distorting policies could
U.S. trade policy. While increased government intervention
raise production in some sectors (e.g., steel), they may
on trade flows may not provide long-term net gains to the
decrease it in others (e.g., autos), leading to net economic
U.S. economy—as many economists contend, some
losses. In addition, they point to lessons from the limited
Members may view the nature of U.S. trade concerns with
experience that the United States had managing trade
some partners as so unique that managed trade outcomes,
relations with Japan in the 1980s. Auto VERs, for example,
particularly through the use of QRs, can be justified in the
curtailed imports of Japanese cars, but they also may have
short-term to level the playing field. Meanwhile, U.S.
helped push car prices upward, which ultimately benefitted
trading partners may see U.S. actions as “beggar-they-
the Japanese auto industry. Also, the major U.S. automakers
neighbor” policies that seek to enhance U.S. economic
still faced strong Japanese competition, since Japanese
interests over those of other trading partners. In addition,
manufacturers moved some of their production to the
other countries may seek to adopt managed trade policies of
United States. Policymakers typically weigh the unintended
their own, increasing protectionism that could undermine
effects against the main objective of controlling trade flows.
U.S. and global economic growth and the rules-based
The WTO and QRs
global trading system.
While World Trade Organization (WTO) agreements do not
explicitly include specific references to managed trade, they
Andres B. Schwarzenberg, Analyst in International Trade
include language that limits the ability of members to
and Finance
pursue such an approach to trade policy. For example, the
IF11035
1994 General Agreement on Tariffs and Trade (GATT) sets
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Managed Trade and Quantitative Restrictions: Issues for Congress

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