Image by Jonathan Drake | Reuters
As the Common law section at the University of Ottawa announces the creation of a TradeLab in partnership with Queen’s University, the Hyman Soloway Chair in Business and Trade Law as well as The World Trade Institute hosted a distinguished panel to discuss the implications of the Trump administration’s trade policy.
As a highlight, Professor Jennifer Hillman of Georgetown University Law Center, a former Chair of the WTO Appellate Body, shared what many believe to be the current president’s attempt to protect the American economy from trade and the dire effects of globalization.
Many trade experts believe that the U.S. president will rely on a single provision of Section 232 of the Trade Expansion Act of 1962 (TEA) to support his protectionist position and to continue his agenda against trade. Section 232 is a relic law passed during the Cold War, which was enacted to ensure that the U.S. never became dependent on imports from unfriendly nations. Since then, it has been referenced twenty-six times, with actions taken under the law only six times. The majority of these actions were against oil and crude embargoes.
How does it work?
Under Section 232 of the TEA 1962, the Commerce Department conducts an investigation to determine the effects of imports on U.S. “national security.” The term “national security” is not defined; however, in the past, Commerce has indicated that Section 232 investigations inspect threats to U.S. national security arising either by (i) “fostering U.S. dependence on unreliable or unsafe imports”, or (ii) “by fundamentally threatening the ability of U.S. domestic industries to satisfy national security needs.”
The last time a Section 232 investigation took place was in 2001 under the Bush administration. At the time, the issue at hand was of Iron Ore and Semi-Finished Steel. In Professor Hillman’s opinion, “not much came from it” and the imports did not result in weakened national security. On April 27, 2017 this seemingly forgotten law was revived when Mr. Trump ordered a review of “steel” and “aluminum” imports as threats to national security under Section 232.
Why might the Trump administration rely on the “forgotten” section 232?
Professor Hillman believes that there are three major reasons for the Trump administration’s use of Section 232. First, its use gives incredibly broad discretion to the President to shape and influence US trade policy. Second, the investigative processes and results will only be heard by the Senate, which currently enjoys a Republican majority. By avoiding the House of Representatives, Trump’s decisions will avoid major political debate and pass through the administrative process with fewer obstacles. Third, actions taken under Section 232 are very difficult, perhaps even impossible, to challenge in the judicial system, which speaks to the broad and unchallenged authority of this administration.
How does the Trump approach differ from past investigations under section 232?
The Trump administration, known for its broad and deliberately vague statements, has defined the scope and terms of the investigation for national security with one word: “steel.”
Essentially, the administration has opened up a broad and vague investigation into steel imports, taking no reasonable steps to bring order to the investigation by narrowing the scope. The uses of steel in the U.S. economy are wide-ranging, and access to all variations of the resources impacts diverse markets and industries, from agriculture to car manufacturing. The non-specific investigation into “steel” can potentially have both planned and unplanned effects on the U.S. economy.
The parameters of past investigations were clearly defined by providing definitions of the particular variations of a resource, a stark contrast to the Trump administration’s use of “steel”. Past review sessions lasted as long as nine hours and for at least three days. This process included industry questionnaires drafted to collect feedback and clarify import fears and speculation. The Trump hearing was scheduled to last three hours. The administration has not drafted any questionnaires to collect data regarding import levels or volumes of manufactured steel, of any capacity.
To change trade policy that advances the anti-import rhetoric that pillared much of his campaign for presidency, Trump’s administration must reasonably address two questions. First, is there a reliance on imports of steel from an unreliable or unfriendly source? The answer is no, since the majority of all steel in-production within the U.S. is made in the U.S., or imported from countries like Canada and Japan. Second, are the current import levels of steel damaging to the U.S. economy and/or national security? Again, the answer is no. As a major global producer, the current level of steel production within the US is not at its peak post-WWII, but is still very strong. The US produces enough steel to ensure that imports are relatively low, in comparison to the amount that is available to industry. The notion that the national security of the US is threatened despite import and export figures that prove otherwise, exemplifies Trump’s commitment to a disillusioned rhetoric of American job loss caused by trade. This rhetoric also fuels the unnecessary fear that the US is under attack from foreign economies. In reality, the loss of industries and jobs that has affected millions of American is the result of a weaker competitive edge in the US labour force, where skilled operations require higher education and less people.
So, why would Trump rely on Section 232 if the investigation is bound to fail?
Within the statute there is a singular provision (s. 3d) which directs the President to take into consideration the relationship between the “economic welfare of the Nation” and the impact of “foreign competition” to domestic industries and national security. Under this vague wording, the President can effectively consider all foreign competition, relying on rates of unemployment as evidence of the loss of skills, investment, and economic growth as examples of threats.
Given the nature of Section 232 investigations, the President’s ability to address these threats is limitless. Reportedly, during the signing of the executive order that initiated the investigation, he asked: “how does 25 sound?” If by 25 he was referring to a 25% tariff on steel imports, then he might be taken aback when calls for relief begin to flood his office. In 2001, President Bush was forced to grant hundreds of exclusions under Section 201 of the TEA when his own attempt to tax a handful of steel products backfired. The action trigged immediate and adverse reaction from US trading partners who filed complaints with the WTO and forced former President Bush to retreat from his embargoes, but some believe that this is exactly the hope of President Trump.
The current U.S. obligation of tariff levels at the WTO is 0%. Any attempt to raise tariffs higher would be challenged by the international organization on behalf of its member-states.
To respond to the WTO action, Trump will call on a defense under Article 21 of the General Agreement on Tariffs and Trade (GATT), also known as The National Security Exception. This conveniently ties into the “national security” scope of Section 232 of the TEA. Under Article 21 of the GATT, each nation may determine its own “essential security interests” by virtue of the subjectivity accorded by the phrase “any action it considers necessary.”
The use of Article 21 has been relatively sparse, and generally the reliance on the national security exception has been questionable in many instances. The unilateral use of Article 21 throughout the history of the GATT has been the subject of widespread criticism. As observed by Richard Whitt:
When invoking Article XXI, nations have referred to direct security measures, potential dangers, indirect threats, and domestic economic security. These justifications illustrate the loose and subjective nature of the national security exception. Since no political body or nation is authorized to question the rationale behind the words of Article XXI, the exception has degenerated into a catch-all screen to disguise the otherwise questionable political and economic skirmishes between fellow GATT members.
Given all that we know about the Trump administration, it is likely that an appearance before the WTO for an attempt to disrupt the international agreement will be tense. The defense of Article 21 prioritizes a country’s national security; and to question the security priorities of any WTO member is not the mandate of the WTO, nor does the WTO’s authority support it. Essentially, the WTO would want to avoid questioning and criticizing the national security interests of a member state. Ultimately, any resistance by the international body could fuel a U.S. attempt to leave the WTO and further solidifying the Trump administrations anti-trade rhetoric. Such a departure, even if merely suggested, would have unknown effects on the mechanisms of international trade and the power of international organizations.
Most importantly, any attempt to step away from trade and the globalized process would be a monumental win for Trump’s base supporters. Many of these supporters quote his trade policies and promises to “bring back jobs” as the source of their support. But in a time where technology, automation, and a changing job market continue to undermine the demand for workers, an attack on trade imports of steel or on international organizations will not solve the root cause of dissatisfaction among the US middle class. In fact, it might just make things worse.