A Centennial History of the United States International Trade

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A Centennial History of the United States International Trade

Transcript Of A Centennial History of the United States International Trade

Chapter 4 The Substantive and Institutional Evolution of the U.S. Tariff Commission/U.S. International Trade Commission (1917–2016)

Photo: A spiral staircase, one of the finest architectural features of the former USITC building.

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Chapter 4: Substantive and Institutional Evolution
Will E. Leonard and F. David Foster279
The U.S. Tariff Commission was established in 1916 and became operational in early 1917. It was created to be an independent, impartial, and nonpartisan provider of facts and information to Congress and the President with respect to setting and administering U.S. customs tariffs. It was also to conduct investigations and provide other information and advice to Congress and to the President on U.S. international trade matters. For much of the first 50 years after its establishment, the focus of the Commission’s work was primarily such activities. However, since then the Commission (renamed the U.S. International Trade Commission by the Trade Act of 1974)280 has devoted increasing time and resources to the administration of U.S. trade remedy laws addressing both fair and unfair international trade, while continuing to perform its original mission. This evolution has occurred in phases including the formative early years, the World War II and immediate post-war years, and the “modern era,” demarked by the passage of the Trade Act of 1974.
The law establishing the Commission also mandated certain institutional characteristics aimed at maintaining its independent, impartial, and nonpartisan posture. As described below, these institutional features have also evolved over the decades to a point where the Commission is believed by many to be a unique government agency in terms of its independence and nonpartisanship, as befits an organization that has been a consistent and important part of the development and implementation of the international tariff and trade policy of the United States for the last century.
279 Former Commission Chairman Leonard is a partner at Adduci, Mastriani & Schaumberg LLP. Mr. Foster is a partner at Foster, Murphy, Altman & Nickel, PC, and worked previously in the Commission’s Office of the General Counsel and the Chairman’s Office. 280 “Commission” will be used in this chapter to cover both the U.S. Tariff Commission and the U.S. International Trade Commission, or either of them, as the context of its use indicates.
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Evolution of the Commission’s Work
The Early Years (1916–39)
Consistent with its mission, the Commission spent much of the five years from inception until the passage of the Tariff Act of 1922 (1922 Tariff Act) building a repository of data, information, and expertise on the U.S. customs tariff and its administration to be made available to Congress and the President. This included developing so-called Summaries of Tariff Information as well as statistics on U.S. imports and duties, informational series which continue in one form or another even today. This resource was first significantly resorted to by Congress in its considerations leading to enactment of the 1922 Tariff Act.
While the Commission’s provision of this information did not “take the tariff out of politics” as some posited it might (the Republican majority established an average duty on dutiable imports of 38.5 percent in the Fordney-McCumber 1922 Tariff Act compared to the 27 percent rate set by the Democratic majority in the Underwood-Simmons 1913 Tariff Act),281 it plainly put at the disposal of Congress and the President more accurate and robust data than ever before with respect to individual articles within the tariff.
The Commission also devoted considerable time leading up to consideration of the 1922 Tariff Act to “technical” aspects of the tariff, including the arrangement of the various schedules within the tariff, improving on the classification of articles, and the relationship between duties on raw materials, semi-finished goods, and finished goods. It also undertook a detailed, comprehensive study of and prepared a report for Congress on the customs administrative laws (at the time, knowledgeable persons considered those laws to be hopelessly confused). The work of the Commission in these areas was adopted without significant change in the 1922 Tariff Act.
The Commission’s earliest work on U.S. international trade policy is also reflected in the inquiries conducted and reports prepared at the request of Congress in a number of areas. Some of the major inquiries and reports included the use of foreign trade zones; reciprocity in commercial treaties; international tariff relations and commercial treaties; and dumping and unfair competition. The dumping and unfair competition inquiry resulted in a 1919 report282 which reflected the influence the Commission possessed in the development of trade policy.
281 See Edward S. Kaplan, “The Fordney-McCumber Tariff of 1922,” found at http://www.washingtontradereports.com/analysis/chapter 2.pdf. 282 “Dumping and Other Unfair Competition in the United States and Canada’s Anti-Dumping Law,” transmitted to the House Ways and Means Committee and Senate Finance Committee on October 4, 1919. USTC, Annual Report for 1919, at 10–12.
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The 1919 report recommended to Congress that an administrative provision be enacted to address dumping (generally, the sale of imported merchandise to the United States for less than its foreign market value or cost of production). This recommendation contributed to the enactment of the Antidumping Act of 1921. The Commission also recommended that “some official body moving along lines sanctioned by Congress in the Federal Trade Commission act” be authorized to deal with unfair acts and unfair methods of competition in the import trade, including dumping, under a broad law to protect U.S. industries and international commerce, and in part to prevent the undercutting of the protection to U.S. industries achieved by the tariffs established under the 1922 Tariff Act. Congress addressed this recommendation in section 316 of the 1922 Tariff Act, providing that the Tariff Commission itself should conduct investigations of such unfair acts and practices and report the facts and law to the President with recommended actions for the President. This was the beginning of the Commission’s activities in enforcing U.S. trade remedy laws, and the specific genesis of the Commission’s important authority under section 337 of the Tariff Act of 1930, as amended, to directly address unfair practices in the U.S. import trade.
The provisions of the 1922 Tariff Act had the effect of determining the main activities of the Commission for the next several decades. The major provision of this act was section 315, the “flexible” or “scientific” tariff provision. Seeking to further the efforts to remove tariffs as a perennial political issue, it provided that future changes to enacted tariff rates could be made by the President based on equalizing the cost of production (COP) of an article in the United States with the COP of “like or similar” articles “in the principal market or markets in the principal competing country or countries.” Upon application from a private entity, at the request of the President, or pursuant to a Congressional resolution, the Commission was to conduct an investigation to assist the President by determining the COP differential rate and reporting it to the President. The President, conditioned upon the receipt of that report, would then be able to change the rate up or down based upon the President’s determination of the COP differential.
These section 315 COP investigations (later conducted under section 336 of the Tariff Act of 1930, which essentially re-enacted section 315) became the principal work of the Commission for the next 20 years. The investigations were extremely complex and difficult, with particular problems associated with determining what were “like or similar” articles, what was the “principal competing country,” and what were the “principal markets” to examine. This was further complicated by various factors such as exchange rates and transportation costs issues, particularly as the world slid into the worldwide depression of the late 1920s and the 1930s.
The result was a very significant expenditure of Commission time on such cases, but with relatively few determinations resulting. For example, from 1922 through 1929, the Commission received 603 applications under section 315 covering 375 separate commodities, with
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increased duties sought for 200 commodities; lower duties sought for 125 commodities; and the remaining applications seeking some combination of higher and lower duties for different articles within a commodity classification or some other adjustment of duties. During this same period, the Commission issued 48 COP reports covering 56 commodities based upon 110 of the applications. These reports resulted in the President increasing duties on 33 commodities, decreasing duties on 5 commodities, and making no change with respect to the remaining 18 commodities.283
The Commission’s work under sections 315/336 was sharply reduced beginning in the early 1930s. The Smoot-Hawley Tariff Act of 1930 (1930 Tariff Act) significantly raised tariff rates, obviating many COP issues. Further, beginning with the Reciprocal Trade Agreements Act of 1934, the determination of tariff rates shifted from a model of Congressional enactment of flexible tariffs to a model based on reciprocal reduction in tariffs based upon trade agreements. This new approach was adopted to try to counter both competitive tariff increases in which countries had engaged since the 1922 Tariff Act and competitive currency devaluations, which activities accelerated during the worldwide depression and caused great economic harm. For example, from 1929 to 1933, U.S. domestic production declined by 45 percent and U.S. exports declined by more than 65 percent.284 The reduction in section 315/336 investigations was hastened by the disturbed and rapidly changing economic conditions of the early 1930s, which made calculation of COP even more difficult.
This shift in the Commission’s work had noticeably begun by 1933/34: only 12 section 336 investigations were completed in 1934. By the end of the decade, work relating to the reciprocal trade agreements program had become the greater part of the Commission’s work, although the Commission undertook one section 336 investigation as late as 1961. The early reciprocal trade agreements program was administered by the Secretary of State and characterized by bilateral negotiations, resulting in 22 bilateral agreements by 1940. Among the activities undertaken by the Commission during the 1933–40 period to support this program were analyses of and reports on imports and exports of thousands of individual commodities; consideration of tariff bargaining under most-favored-nation treatment; U.S. trade with 39 important foreign countries, and the trade of those countries with the rest of the world; the principal trade restrictions imposed by foreign countries; and the trend of imports in relation to U.S. production and height of duties, among many others. Further to support the trade agreements program, the Commission also did an extensive update of the Summaries of Tariff Information which, as noted below, it had previously prepared to assist Congress in its consideration of the 1930 Tariff Act.
283 USTC, Thirteenth Annual Report of the USTC, 1929 (Washington, DC: GPO, December 2, 1929), at 10. 284 USTC, Eighteenth Annual Report of the USTC, 1934 (Washington, DC: GPO, January 2, 1935), at 10.
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Through the early period the Commission continued its activities related to assisting Congress and the President with respect to trade and tariff legislation and providing data and expert advice as called upon. The Commission prepared hundreds of reports under its general authority under the 1922 Tariff Act and under section 332 of the 1930 Tariff Act. For example, in preparation for consideration of the 1930 Tariff Act, the Commission updated and expanded its Summaries of Tariff Information (a series published beginning in 1919), providing approximately 2,750 pages relating to specific commodities. Each of these summaries covered topics such as domestic production, prices, cost of production, and competitive conditions (e.g., changes in style, process, new commercial conditions, etc.) for the covered commodity. The Commission continued this work after the 1930 Tariff Act, and by 1939 had prepared over 1,700 summaries relating to specific commodities.
Among the many other studies prepared under Section 332 and prior similar authority were reports on such varied matters as crude petroleum and liquid refined products; depreciated exchange; unemployment; a dictionary of tariff information; regulation of tariffs in foreign countries by administrative action; bases of value for assessment of ad valorem duties (duties as a percentage of a good’s value) in foreign countries; and the relationship of duties to the value of imports. It prepared over 2,000 reports for all parts of the U.S. government. The Commission also began during this period a practice of issuing a printed list entitled “Changes in Import Duties Since the Passage of the Tariff Act of 1930,” kept current with supplements, setting forth all changes made to the 1930 Tariff Act duty rates by section 336 adjustments or as a result of concessions under the trade agreements program, foreshadowing its work from 1965 onward relating to the U.S. tariff schedules.
In addition to work such as the above, the Commission staff was heavily and directly engaged with Congress, assisting committee staff and members, attending and providing support at hearings, and digesting testimony and other materials. For example, during the consideration of the tariff by Congress in 1929 and 1930, virtually all the commodity experts at the Commission regularly provided assistance to the House Ways and Means and Senate Finance Committees. Further, at the specific request of the minority of Senate Finance Committee, the Commission even provided four economists to assist its members during their considerations leading to the 1930 Tariff Act.285
Beyond the section 315 investigations and its general support work, the Commission engaged in activities relating to its early involvement in trade remedies. Work under section 316 of the 1922 Tariff Act (which, as noted above, declared unlawful unfair acts and unfair methods of competition in the import trade) began and continued under its counterpart in the 1930 Tariff Act, section 337. From 1922 to 1929, the Commission received 31 applications under section
285 USTC, Annual Report for 1929, at 12–16.
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316 and instituted 6 investigations (the other applications were dismissed or referred to other government entities). The investigations resulted in orders from the President prohibiting imports of such articles as revolvers, Bakelite products, Manila rope, and laminated paper products. In the 1930s, the Commission received a similar volume of applications under section 337.
The Commission also prepared 18 reports under section 317 of the 1922 Tariff Act, which required the Commission to investigate discriminatory actions and regulations maintained by foreign countries affecting U.S. trade and provided the President with authority to retaliate against such actions or regulations. The products involved in these investigations included automobiles, hardwood flooring, and refined oil and gasoline, among others. Activity in this area continued by the Commission under section 338 of the 1930 Tariff Act (which continued the substance of section 317), but it never constituted a major focus of the Commission during its early years or thereafter. By 1974 Commission activity in this area ended with the enactment of Section 301 of the Trade Act of 1974.
Since its inception, the Commission’s mission has included cooperating with other U.S. governmental agencies as appropriate to provide data, information, expertise, and advice, which it routinely did in these first decades. An example of this in the 1930s was the Commission’s efforts under Section 3(e) of the National Industrial Recovery Act (NIRA). Under Section 3(e), the Commission reported on the effects of imports on the codes of fair practice set under the NIRA; for several years this was a major area of activity for the Commission. Further, beginning in 1934, a Commissioner chaired the Presidentially-created interagency Committee for Reciprocity Information related to the trade agreements program, which was largely staffed by the Commission. Its function was to receive oral and written data and views from the public interested in trade agreement matters. By 1940 it had received and analyzed over 4,500 statements and 1,200 appearances at hearings. From 1935 to 1941, numerous Commission staff worked with the Works Progress Administration on the assembly of statistics; the projects included producing a complete revised classification of imports,286 among others.
The Middle Years (1940–1974)
As World War II consumed much of the time and energy of the world from 1939 to 1945, so it did with the Commission, with normal work put aside. The Commission provided data and support to the War Production Board and, in particular, to the Bureau of Stockpiling and Transportation, including most notably domestic production information. It also provided costof-production information on numerous products to the Office of Price Administration. For the War Food Administration it provided cost studies for Lend-Lease and military purchases and for
286 USTC, Twentieth Annual Report of the USTC, 1936 (Washington, DC: GPO, December 1, 1936), at 52.
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products subject to subsidy payments. The Commission’s specific expertise in trade also was called upon by the Foreign Economic Administration. The Commission prepared numerous reports on commodities of strategic importance. It prepared detailed assessments of the economy and trade of Japan, as well as information for the Inter-American Defense Board.
During 1944 and 1945, the Commission began to turn its attention to postwar foreign trade. It prepared detailed reports for Congress and the President on the effects of wartime economic changes on the general foreign trade position of the United States. It examined and reported on individual U.S. industries affected by the war, and the effect on their competitive position vis-àvis competing foreign industries. It also reported on the industrial and trade polices of individual foreign countries.
From the end of World War II through the 1950s, the Commission’s work focused on supporting Congress and the President, particularly with respect to the resumption of the trade agreements program begun in 1934 that had been interrupted by the war. In 1946, responding to Congressional committees and members concerning changes in industries brought about by the war and the international trade policies of foreign countries, and reporting on tariff and trade bills (a function of the Commission since its inception), accounted for about one-fourth of the Commission’s work. This included preparing an updated compendium of changes to U.S. duties as a result of agreements reached pursuant to the Trade Agreement Act of 1934, section 336 of the 1930 Tariff Act, and various other Congressional acts, necessitating updates on some 1,300 commodities that had experienced changes.
But most of the work of the Commission in 1946—and, indeed, most of its work for the next decade or more—involved specific support for the program of reciprocal trade negotiations. For example, in 1946, the Commission prepared digests containing pertinent technical and statistical trade information on each of the 1,300 commodities for which the President indicated that concessions would be considered during the 1947 program of trade negotiations. This information, combined with the Summaries of Commodity Information series that the Commission maintained, provided critical support to the negotiations.
By 1947, negotiations were well underway on the General Agreement on Tariffs and Trade (GATT), resulting in eventual adoption of the GATT in 1949 by the mechanism of the Protocol of Provisional Application (the United States was an early signer in 1947). After that, negotiations under the reciprocal trade agreements program of the United States would occur under GATT auspices, and shifted from bilateral to multilateral negotiations. As preparations began for the first GATT round in Annecy, France, the Commission’s principal supporting effort for the program took statutory form.
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The Trade Agreements Extension Act of 1948 (TAEA), extended in the 1951 and 1958 TAEAs, provided for the Commission to conduct “peril point” investigations (modified somewhat by section 221 of the Trade Expansion Act of 1962 into “probable economic effects” investigations). The act required that the Commission determine for each article listed by the President for consideration for inclusion in a proposed trade agreement the maximum concession that could be made without causing or threatening serious injury for U.S. producers of like or similar articles. This effort was undertaken for the Annecy negotiations, and continued for five subsequent rounds, over more than two decades, and required determinations on some 2,400 statistical classifications. Combined with the previously referenced series called Summaries of Tariff Information (covering 2,500 products and for each providing the tariff history, statistics on U.S. production analyses of imports and exports, and conditions of competition), the support provided to U.S. negotiators was unrivaled in other countries.
In 1949, the Commission also began work in an area that was to be a major consumer of Commission resources for three decades. Initially by executive order (and later by the provisions of § 7 of the Trade Agreements Extension Act of 1951, § 301(b) of the Trade Expansion Act of 1962, and § 201 of the Trade Act of 1974), the Commission was to investigate whether, as a result of tariff concessions under the trade agreements program, increased imports were the cause of serious injury or threat thereof to U.S. industries producing like or directly competitive products.
The facts developed and the determination made by the Commission were to be provided to the President for possible action (e.g., quotas or increased duties for limited periods). These investigations, and the actions taken pursuant to them, were intended to build support for the trade agreements program by providing a temporary safety valve if fairly traded, increased imports resulting from duty concessions seriously harmed U.S. industries. By 1952, the Commission’s work on these “escape clause” (“escape” from U.S. trade obligations) or “safeguard” investigations—and periodic reviews of the relief provided—was its most important trade agreement activity. In that year, for example, the Commission received 23 applications for such investigations and completed 11 investigations, on such products as garlic, blue-mold cheese, watches, motorcycles, and tuna. From 1949 to 1964, the Commission instituted 127 investigations. The largest number of investigations completed or dismissed— 18—occurred in 1961.
The Trade Expansion Act of 1962 added an important new responsibility for the Commission: adjustment assistance for U.S. workers and firms adversely affected by import competition. This program was intended to serve as an alternative to safeguard relief. In investigations initiated upon petitions from workers or firms, when the Commission found that the major cause of unemployment or serious injury to such workers or firms was increased imports attributable in major part to trade agreement concessions, then the workers and firms would
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be eligible for assistance (retraining, loans, etc.) to adjust to the import competition if authorized to apply for it by the President. While experiencing a slow start (26 petitions were received in the first seven years of the program, but no relief was provided), by the early 1970s there was considerable activity before the Commission, which by then had received dozens of firm petitions and well over 200 workers’ petitions.
With respect to the Commission’s work involving unfair trade, an important new authority was provided to the Commission by the Customs Simplification Act of 1954. Pursuant to this law, under the Antidumping Act of 1921, the Commission was to determine, once the Secretary of the Treasury determined there to be sales at less-than-fair-value, whether a U.S. industry making the articles in question was being or was likely to be injured, or was prevented from being established. If the Commission made an affirmative finding, then duties could be imposed to offset the dumping. The number of injury investigations carried out by the Commission under this authority was, however, rather limited until passage of the 1974 Trade Act.
In addition to its Antidumping Act investigations, the Commission continued its work under section 337 of the Tariff Act of 1930, although at a reduced level compared to the early period. From 1936 to 1968, the Commission received only 36 complaints under section 337 and recommended relief in only 3; in all 3 cases, relief was rejected by the President. There were a number of years in which there were no investigations conducted. As will be seen below, this changed dramatically following 1974.
Finally, in considering the evolution of the Commission’s work during these “middle years,” it should be remembered that the Commission’s mission continued from its earliest years to assist Congress and the President with respect to the tariff and to develop and maintain data and expertise in trade-related matters. Most notable, perhaps, was the work the Commission performed related to the enactment of the Tariff Schedules of the United States in 1963. The Commission staff had devoted years to a careful, detailed consideration of the U.S. tariff schedules and the classifications therein, with the 1963 enactment representing the most thorough revision since the 1922 Tariff Act. Much as in 1922, the revisions proposed by the Commission were enacted with few changes. With the fading of the flexible tariff concept from the 1920s and the 1930s, most of the duties actually enacted were based on concessions negotiated in various reciprocal trade agreements.
The Commission also continued to devote considerable effort to its reporting on trade matters. Beginning in 1949, it issued annual reports on the operation of the trade agreements program. It continued to maintain and update its publication on U.S. import duties, tracing in detail the genesis of current import duties through various actions, enactments, and agreements, beginning in 1965 its publication of the Tariff Schedules of the United States Annotated. It continued its annual reports on synthetic organic chemicals, which it began in embryonic form
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CommissionPresidentCongressDutiesTrade Agreements Program