Treating the symptoms (1): US efforts to limit expansion of foreign exports into the US market

In the face of major bilateral trade imbalances with Japan beginning in the 1970s and with the PRC beginning in the 1990s, the US implemented policies intended to slow export expansion of these countries into the US market. In this section, we compare US attempts to slow imports from Japan and from the PRC, examining in turn voluntary export restraints, antidumping (AD), countervailing duties, safeguards, and formation of preferential trading arrangements with other sources of US imports.

3.1 Voluntary Export Restraints (VERs)

3.1.1 Japan: VER Proliferation across Industries, 1960s–1990s

Japan was admitted to the GATT in 1955 with strong support from the US. Fourteen other GATT contracting parties, fearing import competition based on low Japanese wages, initially limited their liberalization commitments by invoking Article XXXV. However, problems soon arose in the US-Japan relationship over Japanese textile exports. By 1957, the first orderly marketing agreements between the US and Japan had been signed.¹³ These agreements represented a US decision to forego GATT-sanctioned remedies in favor of a non-MFN, bilateral approach to handling trade frictions and set a pattern replicated for additional products and importing and exporting countries in subsequent decades in the form of negotiated “voluntary” export restraints. The market incentives created by the initial discriminatory form of protection eventually produced the worldwide Multi-Fiber Arrangement (MFA) in 1974. The MFA placed bilateral quantitative limits on textile and apparel trade between most pairs of importing and exporting countries until it was phased out as part of the package negotiated in the Uruguay Round of GATT negotiations concluded in 1994.

In part due to the “success” of agreements on textiles (which promoted growth of exports from other, not yet restricted, countries in Asia and elsewhere) and as Japan made a full recovery from the effects of World War II, Japan's exports and US-Japan trade frictions shifted toward a succession of more sophisticated products. For many products, rapid export growth resulted first in a US safeguard (Section 201) petition requesting relief from surging imports for an injured domestic industry and then a negotiated VER. Table 2 [ PDF 11.1KB | 1 page ] gives examples of US safeguard investigations resulting in such orderly marketing agreements during the 1970s and 1980s in Japanese export products such as footwear, steel, television receivers, and even autos.

As Table 2 indicates, the safeguard law was not the only import-restricting policy that allowed US industries to seek new trade barriers and that ultimately resulted in bilaterally negotiated VERs limiting Japanese exports to the US.¹⁴ US AD policy, which we discuss in more detail in Section 3.2, also resulted in a number of Japanese VERs. The most important of these was the semiconductor VER, negotiated after a pair of AD petitions filed in 1985. A 1993 petition under the US AD law also resulted in a VER over photo paper between the US firm Kodak and the Japanese firm Fuji. This dispute was a precursor to a high-profile WTO dispute between Kodak and Fuji. A 1996 AD petition over sodium azide resulted in a negotiated VER with three Japanese chemical-producing firms.

3.1.2 The PRC: VERs in Textiles and Apparel, 2005–2008

The terms of the PRC's 2001 accession to the WTO in 2001 granted WTO members a number of the PRC-specific transitional safeguard mechanisms designed to cope with an anticipated increase in exports from the PRC, and especially textile and apparel exports following the scheduled end of the MFA. For the 2001–2008 period, a US safeguard program covering only US imports of textile and apparel products from the PRC was administered by the Office of Textiles and Apparel (OTEXA) in the US Department of Commerce.

Facing a surge in imports of textile and apparel products from the PRC following the expiration of the MFA at the end of 2004, the US negotiated a voluntary export restraint with the PRC for the 2005–2008 period (on the economic effects of the end of the MFA, see Brambilla, Khandelwal, and Schott forthcoming; Barrows and Harrigan 2009). Although the rules of the WTO preclude the use of VERs, as we describe in more detail below, this policy tool nonetheless returned in the context of one major player seeking to slow the export expansion of another major trading partner.¹⁵

3.2 US AD against Japan and the PRC

AD is a second policy tool the US has used to slow the expansion of Japanese and PRC exports into the US market. Japan and the PRC together faced a major share of all US AD activity over the 1979–2008 period; 25% of all US AD investigations targeted either Japanese or PRC producers, and 33% of all imposed US AD measures targeted either Japanese or PRC exports.¹⁶

However, as Figure 2 [ PDF 12.2KB | 1 page ] indicates, US use of AD over 1979–2008 is actually made up of two distinct episodes: the rise (1979–1988) and fall (1989–2008) of AD use to manage the growth of Japan's exports to the US, and increased use of AD (since 1989) to manage the growth of the PRC's exports to the US. In Figure 2, the bars indicate the number of US AD measures imposed during various sub-periods between 1979 and 2008. The lines indicate the respective shares of Japan and the PRC in total US AD measures imposed in each of the sub-periods. US targeting of Japan with AD reached its peak in the 1984–1988 period, when the US imposed more than 20 new import restrictions on Japanese exporting firms; measures restricting imports from Japan alone accounted for more than 20% of all new AD measures the US imposed during that period.

After 1988, US use of AD against Japan slowly declined, whether measured by the number of new measures imposed on Japanese exporters or by Japan's share in total US use of AD. At the same time, US use of AD shifted dramatically toward imposition of new import restrictions against the PRC. During the second half of the period (1999–2008), the US imposed more than 50 new AD import restrictions on PRC exporters, and these restrictions were roughly a third of all AD measures the US imposed during this period.

Figure 3 [ PDF 13.6KB | 1 page ] illustrates the time pattern of US AD investigations and measures imposed against Japan (Panel A, 1979–2000) and against the PRC (Panel A, 1989–2007) as compared with the growth of the US bilateral trade deficit (normalized as a share of the total value of bilateral trade) with each country. The data show a strong positive correlation over time between the size of the bilateral trade deficit and the frequency with which the partner has become a target of US AD to limit the trading partner's export expansion into the US market. However, while US AD activity against Japan began to decline as the yen rose in value relative to the US dollar in 1985, AD activity against the PRC continued unabated even after the yuan began to appreciate relative to the dollar in 2005.

3.3 Countervailing Duties and Country-Specific Safeguards

In the context of the differential response in US treatment of Japan and the PRC, two additional policies of contingent protection are countervailing duties and country-specific safeguards.

First, under the US countervailing duty or “anti-subsidy” law, officials can target imports believed to have been unfairly subsidized by foreign governments; such imports are then subject to an import tax equal in size to the foreign subsidy. Interestingly, the US never used its countervailing duty law to address imports from Japan over the entire 1979–2008 period.

From 1979 until 2006, the US also never used its countervailing duty law to impose new import restrictions on the PRC. A 1984 policy decision of the US Department of Commerce explicitly exempted the PRC cases from consideration under the countervailing duty statute. However, in November 2006, US producers of coated free sheet paper included the PRC in a petition they were filing against Indonesia and Korea over alleged subsidies. In March 2007, the Commerce Department opened the door for the US to begin imposing countervailing duties on imports from the PRC by reversing its earlier policy (Government of the US, Department of Commerce 2007). In December 2007, the US International Trade Commission (USITC) made a negative injury determination in the coated free sheet paper case, and no duties were imposed. However, the Commerce Department's 2007 policy reversal allowed other US industries to request import protection against the PRC under the countervailing duty law. As Table 3 [ PDF 11.1KB | 1 page ] indicates, thirteen additional investigations against the PRC had been initiated as of April 2009, and all cases that had reached the stage of a final decision resulted in the imposition of new countervailing duties, one as high as 226%.

Second, upon the PRC's accession to the WTO in 2001, the US implemented two separate the PRC safeguards in domestic legislation. The first safeguard, as discussed above, was limited to the 2001–2008 period, covered US textiles and apparel imports only, and was administered by the Office of Textiles and Apparel in the US Department of Commerce. Separately, under Section 421 of the US trade law, the US has access to a broader PRCspecific safeguard through 2014, one that is administered in much the same way as the US global safeguards (Section 201) law, with injury investigations taking place at the USITC and the US President ultimately granted the discretionary authority to determine any policy response to the investigation.

Table 4 [ PDF 10.5KB | 1 page ] lists a number of the PRC-specific safeguard investigations initiated under the Section 421 law between 2002 and 2009. As of April 2009, none had yet resulted in the imposition of new import restrictions under the law, despite a number of USITC affirmative injury votes and recommendations to the President that new import restrictions be imposed. But the table also indicates that three of the six products investigated but denied import protection under the PRC safeguard did gain import protection under the US AD law within five years after the failed PRC-safeguard investigation.

3.4 Improving the Relative Terms of Access to the US Market for other Exporters

US imposition of restrictions on imports from Japan and the PRC sometimes benefits producers in other (unrestricted) exporting nations in addition to, or rather than, competing US producers. This has been especially true for PRC textiles and apparel, where other developing countries share the PRC's comparative advantage relative to the US. In such cases, restrictions on Japan and the PRC have improved the relative terms of US import market access available to other exporters. However, in many cases, the US has created a similar relative advantage for other exporters through a variety of preferential (discriminatory) trade arrangements. Most of these arrangements are permitted under GATT/WTO rules.

Trading partners that competed with Japan in the US market and benefited from formal preferential trade agreements with the US during this period include Israel (1985) and Canada (1987). With the growth of US imports from the PRC, the US entered into preferential deals with Mexico (North American Free Trade Agreement [NAFTA] in 1994), Central American countries and the Dominican Republic (Central American Free Trade Agreement-Dominican Republic [CAFTA-DR] in 2004), Bahrain (2006), and Morocco (2006). The US also offered various groups of developing countries further extensions of major preferential programs. These included the Generalized System of Preferences; for Caribbean nations, the Caribbean Basin Initiative (1983, substantially expanded in 2000 through the US-Caribbean Basin Trade Partnership Act); for Andean countries, the Andean Trade Preference Act (1992, expanded as the Andean Trade Promotion and Drug Eradication Act under the Trade Act of 2002); and for countries in sub-Saharan Africa, the African Growth and Opportunity Act (2000, revised in 2002, 2004, and 2006). While such special preferential arrangements may have been motivated primarily by US foreign-policy considerations rather than as a means to restore the market position of established suppliers to the US market, their result nonetheless is to improve the market access of firms in other countries relative to their rivals in the PRC (for a detailed description of US trade preferences for various groups of developing countries, see http://www.ustr.gov/trade-topics/tradedevelopment/ preference-programs).

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