Safeguarding the Agreement on China and the WTO

January 7, 2000 |

As the debate heats up on China's membership in the World Trade Organization, it is already clear that proponents will make much of the safeguard provision, which allows the United States to limit imports of Chinese products that are disrupting the U.S. market.

On paper, this safeguard provision seems quite significant. Unfortunately, if experience is any guide, it is likely to mean far less than claimed unless Congress acts to make the safeguard truly meaningful.

In the modern era, virtually all trade agreements, including the WTO, include safeguard provisions. In addition to the one available against imports from all countries under the WTO, the agreement to make China a WTO member includes a special safeguard, which would be effective from the date that China joins the WTO and run for 12 years.

Special safeguard provisions like this were seen as necessary because China has been so successful in exporting many products to the United States -- more than $70 billion worth in 1998 -- and because WTO membership lifts most remaining U.S. trade barriers to Chinese products.

The provision can be employed to impose limits on imports from China that injure U.S. industries. Proponents of China's WTO membership doubtlessly will cite it to address the concerns of industries that face increasing competition from China.

The recent record of other safeguard programs in the United States, however, provides plenty of reason to be skeptical of this claim.

In the United States, the broad safeguard allowed under the WTO is implemented through a trade law known as Section 201. From the mid-1970s to the mid-1980s, Section 201 was frequently used by U.S. industries facing import competition.

Section 201 aimed to provide temporary relief from imports while the industries adapted to become more competitive. The statute helped petitioners, such as Harley Davidson Co., return to competitive health.

Given its good record of success and its consistency with the WTO, Section 201 might be expected to be among the options still considered by U.S. industries faced with serious import competition. Unfortunately, such is not the case.

Section 201 has fallen into disuse in the United States because of weaknesses in the law and the unwillingness of U.S. policy-makers to treat it as a serious part of American trade policy. Section 201 has not been used to provide relief for a major manufacturing industry in more than a decade and a half.

The ongoing experience of the steel wire rod industry illustrates the problem.

Suffering from the impact of the steel import crisis, steel wire rod producers petitioned for relief under Section 201. Under the law, President Clinton -- the president is the final authority in Section 201 cases -- was due to make his decision at the end of September. Three months later, that decision still has not been announced.

Predictably, steel wire rod producers and workers are outraged. Some have already described the decision to proceed under Section 201 at the urging of some in the Clinton administration as a mistake.

If the producers and workers had the choice to make over again, they would likely throw their energy into supporting the steel quotas considered by Congress or re-work their case to fit under the terms of a U.S. trade law targeted at unfair foreign practices.

Given their experience, other industries in the future are likely to reach a similar conclusion. This is truly unfortunate. So-called protectionists and free traders alike should agree that Section 201 should remain a viable option, both to protect the integrity of the WTO and to maintain a strong U.S. trade policy.

The safeguard provisions in the China WTO agreement are even more questionable. Since the safeguard exists only in an agreement and not in U.S. law, the president has absolute discretion to use or ignore it. Given that several U.S. presidents may have a hand in implementing these provisions, it is impossible to predict whether or not it will be used.

Fortunately, Congress has the opportunity to improve the situation.

In light of the steel wire rod experience, a compelling case can be made to limit presidential discretion on all safeguard actions. In the case of the China-specific safeguard, the Congress can write legislation to establish a process for requesting relief and forcing presidential action on requests.

With such legislation backing it up, the China safeguard would become a real argument in favor of China's WTO admission. Without it, the safeguard is merely an empty debating point.

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