Section 201
Section 201 of the Trade Act of 1974 (Section 201 or 201) authorizes the US International Trade Commission (ITC), an independent, nonpartisan, quasi-judicial federal agency, to investigate whether increased imports seriously injure, or threaten to injure, US industries and recommend to the President relief that would prevent or remedy the injury and facilitate industry adjustment to import competition. This action, called a temporary safeguard, has been employed sparingly in the last 25 years. Before being put into use by the Trump Administration, the last Section 201 action was in 2002, when then-President Bush imposed tariffs of up to 30 percent on imports of most steel products from most countries.
Process
Any interested person representing the US industry, including firms, unions, trade associations or groups of workers may file a petition. Investigations may also be self-initiated by the ITC or based on a request from the US Trade Representative, the House of Representatives Ways and Means Committee or the Senate Finance Committee. The ITC must initiate promptly and complete its initial investigation into whether an article is being imported into the United States in such increased quantities as to be a substantial cause of serious injury, or the threat thereof, to the domestic industry. The ITC must make its determination within 120 and 210 days, depending on whether certain “critical circumstances” exists and whether an investigation is extraordinarily complicated. The ITC must provide public notice, seek comment, hold public hearings and publish its findings.
If the ITC finds injury as a result of this investigation, it proceeds to the remedy phase, in which it makes recommendations for actions to address the injury, or threat thereof, and be effective in making a positive adjustment to import competition. The ITC must, in this phase as well, provide public notice, seek comment, hold public hearings and publish its findings.
Remedy
Available remedies include an increase in, or the imposition of, any duty; a tariff-rate quota; a modification or imposition of any quantitative restriction; other more appropriate adjustment measures, including the provision of trade adjustment assistance; or any combination of the actions above. The ITC may also recommend that the President undertake international negotiations to address the underlying cause of the increase in imports of the article or otherwise to alleviate the injury or threat; or implement any other action authorized under law that is likely to facilitate positive adjustment to import competition. The ITC must specify the type, amount and duration of the action it is recommending and submit its report to the President within 180 to 270 days after the petition is filed, depending on whether the petitioner alleges critical circumstances.
The President generally has 60 days to take action on the ITC’s report, which could include accepting, modifying or rejecting the ITC’s recommendation.
World Trade Organization Rules on Safeguards
The WTO Agreement on Safeguards sets out the basic rules relating to safeguards, including criteria for determining serious injury, notice and evidentiary requirements, which Section 201 closely follows. In addition, the Agreement on Safeguards sets time limitations for trade protection and adjustment, as well as rules for the circumstances under which countries subject to safeguards measures can seek compensation from the administering country in the form of reciprocal trade measures. Specifically, “The agreement envisages consultations on compensation for safeguard measures. Where consultations are not successful, the affected members may withdraw equivalent concessions or other obligations under GATT 1994. However, such action is not allowed for the first three years of the safeguard measure if it conforms to the provisions of the agreement, and is taken as a result of an absolute increase in imports.”
Example
Imports of solar cells and modules into the United States have been an issue for decades. The US Trade Representative found that China used state incentives, subsidies and tariffs to grow its market share from 7 percent in 2005 to 60 percent of the world’s solar cells and 70 percent of the world’s solar modules in 2017. Between 2012 and 2016 , import volumes grew 500 percent and prices fell by 60 percent. By the next year, only one US producer of both solar cells and modules and eight US producers of modules using imported cells remained.
In 2017, the ITC conducted a section 201 investigation into imports of solar cells and modules. The ITC found that these products were being imported into the United States in such increased quantities as to be a substantial cause of serious injury, or threat of serious injury, to the US domestic industry. The ITC did not agree unanimously on a remedy. USTR led an additional comment and public hearing process and ultimately recommended a course of action to the President.
In 2018, President Trump accepted USTR’s recommendation and imposed a tariff-rate quota on imports of certain solar cells, with 30 percent tariffs on all other solar modules and products and imports exceeding the quota (i.e., a tariff-rate quota). The tariff level was set to 25 percent, decreasing by 5 percent for each of the three subsequent years.
In 2021, the ITC found that the safeguard action continued to be necessary to prevent or remedy the serious injury to the domestic industry, and that there was evidence that the domestic industry was making a positive adjustment to import competition.
What You Need To Know
Tariffs Are Paid by Importers and Consumers, Not Foreign Producers. Importers of record, which can be a subsidiary of a foreign company, a US retailer or an independent entity, pay the duties owed to the US Government from Section 201 tariffs, as well as those imposed under Section 232, Section 301 and US antidumping and countervailing duty laws . The cost of these duties is often passed on to the ultimate consumer of the product, which in many cases is a US manufacturer, so the price impact is not generally borne by the foreign producer
The ITC Is an Independent Agency. As noted above, the ITC is an independent, nonpartisan, quasi-judicial federal agency. While the six commissioners who decide ITC cases are appointed by the President with the approval of the US Senate, they are not a part of a presidential administration and may not be fired by the president except for cause.
Injury Standards in Section 201 Investigations Differ from Those in Title VII Cases. The process in Section 201 cases differs from antidumping and countervailing duty cases in a number of ways, including with respect to what constitutes injury to a domestic industry. In a Section 201 case the ITC investigates whether an article is being imported into the United States in such increased quantities as to be a substantial cause of serious injury, or the threat thereof, to the domestic industry. The term "substantial cause" means a cause which is important and not less than any other cause.” In a dumping or countervailing duty case, the standard at the ITC is whether dumped or subsidized imports have materially injured a US industry or threatened that industry with material injury, a standard that is considered less stringent than “serious injury.” One potential reason for the distinction is that imports in a Section 201 case do not need to be considered unfairly traded for a remedy to be imposed, while in antidumping and countervailing duty cases they do. In addition, the final decision in a Section 201 case is made by the President, who has broad flexibility in determining remedy once an affirmative injury decision has been reached. In contrast, the level of duty protection in an antidumping or countervailing duty is determined by a complex formula involving very specific analyses of the importer’s costs and prices in the US market and its home market, the rules of which are set by statute and regulations.
The Public Has Input into the Section 201 Process at the ITC. Interested parties and consumers are given numerous opportunities to take part in a Section 201 investigation in both the injury and remedy stages of the proceedings and should strongly consider doing so. Input comes through answering questionnaires from the Commission and testifying at public hearings. Once the ITC initiates an investigation into whether imports of a product are a substantial cause of serious injury, the statute requires it to hold a public hearing to afford interested parties and consumers an opportunity to be heard. Other opportunities to testify or submit evidence include hearings to decide what remedy should be recommended to the President in the case of an affirmative injury finding; whether import relief should be extended beyond three years; whether import relief continues to be necessary to prevent or remedy serious injury and whether there is evidence that the industry is making a positive adjustment to import competition. In addition, in cases of an affirmative finding of injury, any firm in the domestic industry, union, relevant trade association, group of workers or state or local community may submit to the ITC a description of the actions they intend to take to facilitate adjustment to import competition.
The Public Has Input into the Section 201 Process at USTR. Once the ITC makes an affirmative finding of serious injury, USTR heads an interagency body that recommends what action the President should take. In the solar cells and modules Section 201 proceeding, the interagency Trade Policy Staff Committee issued a Federal Register notice seeking comments on whether a trade remedy in the case was appropriate, what that remedy should be, and the potential impact of such remedy on domestic industries and downstream consumers.