The U.S. President, Once Again, Rejects Import Sanctions Against China

President Bush, on April 25, announced that he would not grant safeguard relief from imports of Chinese wire garment hangers requested by the US industry under Section 421 of the Trade Act of 1974.1 In doing so the President rejected a unanimous recommendation from the US International Trade Commission that duties be raised for a three-year period.2 This is the second time relief has been sought under Section 421, and the second time relief has been denied by the Bush Administration.3

 

Background

Section 201 of the Trade Act of 19744 provides for so-called "safeguard relief"-restrictions on fairly5 traded imports determined by the US International Trade Commission to have increased rapidly and thereby to have caused "serious injury" to domestic industry.    While the Commission determines the admissibility of restrictions and recommends the form they should take, it is the President who makes the final decision. In making his decision the President has wide, but not complete, discretion.6 A critical limitation on that discretion is that the relief must apply to all imports of the investigated product regardless of their country of origin, except those from certain non-WTO member Communist countries for which special procedures were established by Section 406 of the Trade Act of 1974.  Section 406 differs from Section 201 in that it allows petitioners seeking relief to show a lesser degree of harm to the domestic industry.

 

Section 406 ceased to apply to China when it became a member of the WTO in December 2001. This prospect worried many in the Administration and the Congress before China became a member.  They thought that the alternative safeguard remedy available under Section 201 was inadequate and inappropriate in the case of China. The higher standard for relief under Section 201 is based on the assumption that the investigated imports are fairly traded -- an assumption thought to be unjustified in the case of China, where the government maintained considerable control over the economy and the level of exports. Congress, therefore, insisted that if the US were to agree to China's accession to the WTO there must be special procedures for addressing import surges from China. China agreed to such provisions during its WTO accession negotiations with the US.

 

Consequently Section 421 was added to the Trade Act of 1974 in 2000 by the US-China Relations Act of 2000.7  Section 421 imposes the lower  injury standard and provides that restrictions only apply to imports from China, rather than globally as would be the case under Section 201. As under Section 201, the ultimate decision on remedy remains with the President in order that account may be taken of broader economic and policy concerns.

 

The International Trade Commission Determination

The Commission instituted the China hangers investigation on November 27, 2002, following receipt of a Section 421 petition filed by three domestic producers of steel wire garment hangers.

 

Pursuant to Section 421, the Commission must address three questions: Were imports of Chinese hangers increasing rapidly? Had  the domestic hanger industry  been "materially injured"? And, were the rapidly-increasing imports  a significant cause of the material injury? A unanimous Commission answered all three questions in the affirmative: 

 

Having done so, the Commission was required under Section 421(f) to propose to the President a remedy in the form of an import restriction that will remedy the market disruption. The Commission recommended that the President impose additional duties on Chinese hangers for a three-year period of 25% ad valorem in the first year, 20% ad valorem in the second year and 15% ad valorem in the final year.

 

Section 421 (g)(2)(D) requires that the Commission explain the short- and long-term effects both of  taking and of not taking its remedy recommendation. The Commission determined that the recommended relief would  restore the domestic sales and profitability of US hanger producers, and would have only minor adverse effects on domestic users (largely dry cleaners) and distributors of Chinese hangers. On the other hand, failure to grant the recommended relief would, in the Commission's view, result in ever-increasing imports of Chinese hangers, plant closures for the domestic hanger industry, increased worker layoffs and a negative impact on the local communities in which hanger production facilities are located.  Moreover, there would be negligible benefit to users of Chinese hangers.

 

 Presidential Determination

 

In striking contrast to the Commission's evaluation regarding the remedy, President Bush determined that the adverse impact on the US economy of imposing additional tariffs would exceed its benefits.

 

The President dismissed the possible benefits to the US industry of import relief as slim to none. He said that the domestic industry continued to account for 85% of the US market and therefore had the ability to adjust to import competition even without import relief.  On the other hand, the President stressed the harm import restrictions would have on distributors and users of Chinese hangers whom, he described as "small, family-owned cleaning businesses."

 

Rather than grant the relief recommended by the Commission, the President directed the Secretaries of Labor and Commerce to expedite consideration of any Trade Adjustment Assistance applications filed by the domestic hanger industry and workers -- a remedy with no direct impact on Chinese imports and considered of minimal value by the US industry.

 

Conclusion

 

Two views are possible of this decision. Each has supporters. It can be viewed as a routine case in which the President's evaluation of the data and arguments presented differed from that of the Commission, as happens with some regularity under the  similar provisions of Section 2018. Or it can be viewed as an overtly political decision by the President made under pressure from the Chinese government9 and a signal that this administration has no intention of ever granting relief under Section 421. If this latter view gains credence it likely will trigger a legislative response from those in the Congress who view Section 421 as a necessary tool to protect US industry from the consequences of China's increased access to the US market resulting from its WTO accession. If Section 421 is, as some have claimed, "a dead letter," there will be calls to replace it.