Trump’s Retro China Trade Tool Has One Huge Advantage Over WTO

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President Donald Trump.

Photographer: Shawn Thew/Bloomberg

President Donald Trump’s revival of a 1970s-era trade law has many lawyers scratching their heads. The strategy is widely viewed as riskier and less effective than turning to the World Trade Organization. But the move has one big advantage that probably appeals to a president who has complained about the slow pace of governing: it delivers fast results.

The administration employed the law, Section 301 of the 1974 Trade Act, last month to start probing allegations that China’s intellectual-property policies discriminate against American companies. That may be just the beginning of Section 301’s renewal. The president’s nominee to run the Commerce Department's International Trade Administration, Gilbert Kaplan, has suggested it could be used to combat other unfair trade practices, such as overcapacity in the global steel market.

Section 301 gives the president power to investigate the cause of trade imbalances and impose tariffs without seeking congressional approval. It fell out of favor in the late 1990s after the creation of the WTO, where the U.S. has won most its complaints.

See why the WTO may be more effective than using Section 301.

The government took an average of 15 months to conclude Section 301 cases during the law’s heyday, according to Bloomberg calculations of probes conducted from 1975 to 1997, either by negotiating deals with partners, imposing punitive trade measures or ending investigations. While some cases dragged on for years, especially in the 1970s when the law was first implemented, many took mere months, with the threat of retaliation convincing trade partners to open markets.

Bloomberg calculations based on USTR data

Disputes at the WTO take much longer. More recent cases have been lasting on average almost 34 months from the start of the procedure until a binding ruling is obtained, according to Arie Reich, a law professor at Israel's Bar Ilan University. That's up from about 23 months at the organization’s beginnings in 1995.

Section 301’s speed is undoubtedly attractive to the Trump administration, according to Matthew Gold, a law professor at Fordham University in New York and a former official at the U.S. Trade Representative’s office.

“Proving China’s trade violations before the WTO would take in the area of two or three years, after which China will have a chance to come into compliance,” he said. “If it then comes only partly into compliance, we could spend two, three more years proving that before we could seek authorization for retaliatory tariffs.” 

The administration doesn’t rule out eventually opening a case at the Geneva-based organization, though it appears matters covered in the probe may not be amenable to WTO dispute resolution, according to a USTR official who declined to be identified. 

The bottom line is: while a 301 action may save the U.S. time, circumventing the WTO could go against its global trade commitments and expose the country to retaliation.

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