Managed Trade and Quantitative Restrictions: Issues for Congress

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Updated August 18, 2020
Managed Trade and Quantitative Restrictions: Issues for Congress
Background
in trade which might be termed managed trade, and
Congress plays a prominent role in shaping U.S. trade
governments often use different types of QRs to achieve
policy, due in part to trade policy’s impact on the overall
their trade policy objectives (Table 1).
health of the U.S. economy and specific sectors, the success
Table 1. Quantitative Restrictions on Trade
of U.S. businesses and workers, and Americans’ standard of
living. The Trump Administration and some Members of
Quantitative restrictions (QRs) on trade in goods are
Congress contend that past trade negotiations and
measures that limit the quantity of a product that may be
agreements have failed to address effectively foreign
imported or exported. They may be based on the number of
protectionist practices and enhance reciprocal market access
units, weight, volume, and value. Major types of QRs include:
for U.S. firms and workers. They cite as evidence the

Prohibitions. Bans on the importation or exportation of
disruption of some U.S. industries, difficulties of U.S. firms
a product; such provisions may be absolute or
in penetrating some foreign markets, and large U.S.
conditional.
merchandise trade deficits—even with countries with which

Quotas. Measures indicating the quantity that may be
the United States has a free trade agreement. They argue
imported or exported; quotas can be global or bilateral.
that the main goals of U.S. trade policy should be to
achieve “fair” and “balanced” trade and to place more

Licensing requirements. Procedures that require an
emphasis on measurable results (e.g., increased exports and
application or document (other than that required for
market share abroad).
customs purposes) as a prior condition for importation.

To some observers, the Trump Administration is pursuing a

Voluntary export restraints (VERs). Actions taken
“managed
by exporting countries involving a self-imposed QR of
trade” policy that seeks specific or numerical
exports; VERs are taken unilaterally or under the terms
outcomes of trade by using the size of the U.S. economy as
of an agreement between two or more countries.
leverage. The concept drew attention in the 1980s and early
1990s in reaction to proposals and actions by Congress and
Source: P. Van den Bossche and W. Zdouc, The Law and Policy of the
the Reagan and Clinton Administrations to address the large
World Trade Organization, 3rd ed., 2014.
U.S. trade deficit with Japan and the market-entry
The Trump Administration has stated that, by negotiating
restrictions faced by U.S. firms there. Critics contend that
quota arrangements on steel and aluminum with South
the most recent manifestations of a managed trade approach
Korea, Brazil, and Argentina, purchasing targets with
by the Trump Administration are the quotas negotiated in
China, and potentially similar measures with other
the U.S.-Mexico-Canada Agreement on autos (through side
countries, the United States can ensure that trade with these
letter agreements), the quota arrangements that allowed
countries is fair and balanced, and that U.S. imports are
South Korea, Brazil, and Argentina to avoid U.S. tariff
reduced to strengthen certain U.S. industries and boost
increases on steel and aluminum imports stemming from
employment. Some Members see this approach as a move
the use of Section 232, and more prominently, the Phase
away from a market-driven, multilateral rules-based system
One Agreement with China, which committed China to
to a unilateral managed approach driven by arbitrary
increase purchases of U.S. goods and services by no less
numerical outcomes and targets—one that could lead to
than $200 billion between 2020 and 2021. Today,
increasing trade restrictions, retaliation or replication by
proponents of this approach argue, as they did three decades
other countries, rising prices, lower global economic
ago, that many trading partners are not fulfilling their trade
growth, and erosion of the global trading system.
obligations or that current trade rules do not address many
barriers and distortive practices. Therefore, the most
Can Managed Trade be Economically
effective way to promote U.S. economic interests, they
Justified?
argue, is to pressure countries to agree to specific trade
Few, if any, nations completely practice free trade. Some
results. As the Administration pursues new trade
governments intervene more than others in markets by
agreements, the implications of this approach may interest
providing subsidies to domestic firms, restricting foreign
the 116th Congress.
imports, or promoting exports. U.S. trade policy over time
What is Managed Trade?
has sought the elimination of these discriminatory or
“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
targeted approaches—specific market shares or targets for
China, in order to rectify market distortions and create a
certain products. These are met through mutual agreement
“level trading field” for U.S. firms. Such proposals reflect a
or under threat of trade action (e.g., increased tariffs). There
belief that the current level and composition of trade
are various types and degrees of government involvement
between countries either provides unequal benefits to the
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Managed Trade and Quantitative Restrictions: Issues for Congress
partner or is not at an optimal level for the United States.
pursue such an approach to trade policy. For example, the
Thus, QRs can help produce results which will both rectify
1994 General Agreement on Tariffs and Trade (GATT) sets
distortions and provide net benefits to the U.S. economy.
out a general prohibition on QRs (de jure and de facto) on
exports and imports—a core U.S. objective during the
In addition, there is a perception that the economic systems
Uruguay Round. The Agreement on Safeguards prohibits
of some U.S. trading partners are fundamentally different
VERs, stating that “Member[s] shall not seek, take or
from that of the United States. Rather than try to harmonize
maintain any voluntary export restraints, orderly marketing
their trade laws and business practices with those of the
arrangements or any other similar measures on the export or
United States, some advocates argue that the United States
the import side,” and requiring that any such existing
should negotiate agreements that specify results that are
measure be phased out or brought into compliance with the
roughly consistent with what might be expected under open
agreement. Also, the Agreement on Agriculture and the
market conditions. Others also contend that past trade
Agreement on Textiles and Clothing (ATC) contain specific
negotiations—which focused on reducing barriers rather
rules regarding the elimination of QRs. With agriculture,
than on results—have not yielded the benefits that were
QRs had to be converted into tariff equivalents or tariff rate
promised or expected. They argue that some countries are
quotas—which in the strict sense of the term are neither
neither doing enough to stimulate their economies nor
quotas nor QRs. In terms of textiles, the ATC provided a
removing barriers directly under their control to reduce
ten-year “integration process,” terminating all QRs by the
imbalances in their economic ties with the United States. In
end of 2004.
this view, using QRs and other policy tools gives the United
States leverage to force these countries to change their
While QRs are, as a rule, prohibited, there are exceptions to
distortive economic policies, which will ultimately lead to
this prohibition and rules on their administration. For
“freer” and “fairer” trade.
instance, if and when in place, QRs are to be administered
in a non-discriminatory manner, and the distribution of
“Going forward, President Trump wil continue to rebalance
trade still allowed is to be as close as possible to what trade
America’s relationship with its trading partners, aggressively
would have been in their absence. In addition, the rules for
enforce our trade laws, and take prompt action in response
import-licensing procedures are to be neutral in application
to unfair trade practices by other nations.”
and administered in a fair and equitable manner.
The President’s 2020 Trade Policy Agenda
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, including 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
U.S. trade negotiations remains to be seen. Some Members
Many economists question the ability of the state, rather
of Congress may welcome the Trump Administration’s
than market forces, to provide the most efficient allocation
attempts to prod additional U.S. trading partners into
of scarce resources, even when attempting to respond to
negotiating or accepting QRs. Others, however, may see it
trade-distorting measures by trading partners. They warn
as an undesirable shift in U.S. trade policy. While increased
that while QRs and similarly trade-distorting policies could
government intervention on trade flows may not provide
raise production in some sectors (e.g., steel), they may
long-term net gains to the U.S. economy—as most
decrease it in others (e.g., autos), leading to net economic
economists contend, some Members may view the nature of
losses. In addition, they point to lessons from the limited
U.S. trade concerns with some partners as so unique that
experience that the United States had managing trade
managed trade outcomes, particularly through the use of
relations with Japan in the 1980s. Auto VERs, for example,
QRs, can be justified in the short-term to level the playing
curtailed imports of Japanese cars, but they also may have
field. However, U.S. trading partners may see U.S. actions
helped push car prices upward, which ultimately benefitted
as “beggar-they-neighbor” policies that seek to enhance
the Japanese auto industry. Also, the major U.S. automakers
U.S. economic interests over those of other trading partners.
still faced strong Japanese competition, since Japanese
In addition, other countries may seek to adopt managed
manufacturers moved some of their production to the
trade policies of their own, increasing protectionism that
United States. Policymakers typically weigh the unintended
could undermine U.S. and global economic growth and the
effects against the main objective of controlling trade flows.
rules-based global trading system.
The WTO and QRs
Andres B. Schwarzenberg, Analyst in International Trade
While World Trade Organization (WTO) agreements do not
explicitly include specific references to managed trade, they
and Finance
include language that limits the ability of members to
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Managed Trade and Quantitative Restrictions: Issues for Congress

IF11035


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