The past two years, importers and exporters have become increasingly familiar with Section 301 of the Trade Act of 1974: the Trump administration has used it extensively to impose tariffs on approximately $370 billion in Chinese-origin goods. But you may be less familiar with how this versatile statute was used over the past 45 years to eliminate trade barriers with other countries and open markets to U.S. exports.
This article looks at how the use of Section 301 has evolved since its inception and examines one of the more significant earlier investigations under the law. Look for future articles about how the law is being used in regards to China and on strategies companies should be using to monitor its use.
The reach of Section 301—called Relief from Unfair Trade Practices when it passed Congress—is broad and subjective: It allows the United States to impose trade remedies on foreign countries that violate trade agreements or engage in acts that are “unjustifiable” or “unreasonable” and burden the commerce of the U.S. In contrast, other trade remedy laws—such as anti-dumping and countervailing duty laws—have specific and complex tests that must be passed before tariffs can be imposed.
In the case of Section 301, the Office of the United States Trade Representative (USTR), the government agency responsible for recommending trade policy to the president, determines on its own what is “unjustifiable” or “unreasonable.”
Unilateral Action Versus the WTO
Section 301 gives a president broad powers to impose tariffs and resolve trade disputes. It was used most often before the World Trade Organization (WTO) was established in 1995, creating an internationally-agreed system to resolve disputes and an alternative to unilateral action. However, the United States has the discretion to determine when a matter involves WTO agreements.
Since 1974, there have been approximately 130 investigations under the law. Many occurred in the 1980s under the Reagan administration, who found it to be a useful and flexible tool in the trade enforcement arsenal. Only about 35 investigations have taken place since the establishment of the WTO.
The Japanese Semiconductor Investigation
A noteworthy example of the effective use of Section 301 under the Reagan administration is the case filed by the Semiconductor Industry Association in June 1985. It alleged that Japan violated international agreements by protecting its home market by constructing barriers to the sale of foreign semiconductors. The complaint alleged that Japan favored large, domestic Japanese semiconductor companies by: giving them subsidies and research aid, imposing import and foreign investment restrictions, and pressuring consumers to “buy Japanese.” The complaint alleged these actions violated—among other things—the General Agreement on Tariffs and Trade (GATT), which predated the WTO.
The USTR initiated an investigation and entered into consultations with Japan. Shortly thereafter, several cases were filed under the antidumping laws against Japanese semiconductor businesses. In September 1986, the U.S. and Japan reached an agreement: the Japanese government agreed to facilitate increased market access for foreign semiconductor firms and to prevent dumping of Japanese semiconductors in the U.S. and third-country markets. As a result, the USTR suspended the Section 301 investigation.
After the WTO
Though the USTR still issued some investigations through Section 301 after the formation of the WTO, they were typically then brought to the WTO for dispute resolution. After 2010, all trade disputes involving WTO members were adjudicated by the WTO, until recently. The Trump administration has broken from past U.S. practices and used Section 301 to reshape the trade relationship between the U.S. and China.
Keep Reading the Trade Act of 1974 Series
- Part 2: Special 301 addresses trade barriers due to ineffective protection of intellectual property rights.
- Part 3: Many companies weren't familiar with Section 301 until the Trump administration used it to impose tariffs on China beginning in 2018. A look at how companies were affected and the outlook under a new administration.
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