The limits of economic power: Section 301 and the World Trade Organization Dispute Settlement System.

• Author: Taylor, Cherie O'Neal

TABLE OF CONTENTS

1. INTRODUCTION II. SECTION 301 AND ITS LIMITS

   1. Section 301 Deconstructed

   2. The United States and the Lure of Unilateralism

   3. A Taxonomy of Section 301 Cases (1985-1996)

      1. Ensuring Compliance with

      International Trade Law:

      Section 301/International

      Violation Cases

      2. Section 301/Unreasonable Cases

      3. Section 301 and the Japan Problem III. THE WTO DISPUTE SETTLEMENT SYSTEM: ITS PROMISES AND ITS LIMITS

   1. Completion of the Uruguay Round:

      Establishment of the WTO and the Adoption

      of the Dispute Settlement Understanding (DSU) 242

   2. How the DSU Addresses and Fails

      to Address Section 301 Concerns

      1. The Dispute Settlement System of the WTO

      2. The United States as a Plaintiff in the

      WTO: Pursuing Its Section 301

      Concerns

      a. Section 301/International Violations

      and Cases and the WTO Dispute

      Settlement System

      b. Section 301 /Unreasonable Cases

      and the GATT Non-Violation Theory.

      3. United States as a Defending Country in

      a DSU Proceeding

   3. International Organizations and Dispute

      Settlement

      1. The Creation of an Adjudicative

      Dispute Settlement System

      2. The Consequences of a More

      Adjudicative Dispute Settlement System

      a. Jurisdiction.

      b. Development of GATT Law:

      The Creation of Precedent

      Enforcement/Compliance

      3. Consequences of the Adjudicative

      System for the United States IV. CONCLUSION

1. INTRODUCTION

   Since the end of World War II, the United States has sought trade liberalization by alternatively pursuing multilateralism and unilateralism. When following the multilateral path, the United States used its economic power to help create a body of law governing international trade and an organization to oversee that law, the General Agreement on Tariffs and Trade (GATT).(1) While leading the multilateral system, the United States worked on expanding and clarifying international trade rules and ensuring compliance by GATT countries with those rules. The United States worked toward expanding the law by serving as the driving force behind a series of rounds of GATT negotiations aimed at significantly lowering worldwide tariffs and dismantling some of the non-tariff barriers to trade.(2) At the same time, the United States sought to ensure compliance with international trade law by actively using the GATT dispute settlement system.(3)

   The U.S. turn towards unilateralism began when the country experienced a slippage in its position as the dominant economic power. During this period, the United States came to believe that not all of its trading partners were as committed to multilateral trade liberalization as it was. The legislative tool developed for self-help was Section 301 of the Trade Act of 1974, a statute designed to force open other country's markets. The leverage for opening these markets was the threat of depriving trading partners access to the U.S. market.(4) Aggressive unilateralism under Section 301 forced open some markets and pushed the world trading system into the most recent set of multilateral negotiations, the Uruguay Round. By the end of the Uruguay Round, the United States managed to obtain its major goals of increasing market access through the expansion of GATT law and establishing a more adjudicative dispute settlement system governed by the World Trade Organization Dispute Settlement Understanding (DSU).(5)

   The Uruguay Round and its results appear to mark the convergence of the U.S. multilateral and unilateral paths to trade liberalization. However, it is an uneasy convergence. The U.S. turn to unilateralism had its costs. Many countries embraced multilateralism, as exemplified by the World Trade Organization (WTO) largely to constrain and discipline the United States.(6) Meanwhile, the United States must reconcile its desire to continue leading the multilateral system with its attempt to retain maximum unilateral power. Having obtained its major trade goals in the Uruguay Round, the United States is now faced with operating within a new international trading regime. This Article attempts to address and answer two questions: (1) Are there limits (and if so, what kind of limits) to economic power when exercised as unilateral sanctions?; and (2) Is the new multilateral dispute settlement system under the WTO's dispute settlement understanding a complete and effective alternative to U.S. unilateral activity?(7)

2. SECTION 301 AND ITS LIMITS

   1. Section 301 Deconstructed

      Before attempting to analyze Section 301, it is important to examine the history and purpose of the statute. "Section 301takes its name from the section number of the original legislation, Section 301 of the Trade Act of 1974.(8) The original Section 301 gave the President broad authority to take retaliatory actions against "unjustifiable" as well as "unreasonable" import restrictions by other countries.(9) Neither term was defined in the statute itself. The legislative history of Section 301, however, indicates that Congress considered "unjustifiable" acts to be those that were illegal under international law or inconsistent with international obligations.(10) "Unreasonable" acts were considered to encompass import restrictions by countries that were not necessarily illegal, but which nullified or impaired benefits under international agreement or otherwise discriminated against or burdened U.S. commerce.(11) The remainder of the legislative history of the Trade Act of 1974 contained descriptions of the actions Congress described as unreasonable.(12)

      Section 301 was designed to allow the President to take retaliatory action against countries which did not agree to end such unjustifiable or unreasonable practice. Congress contemplated the possibility that some retaliatory actions would not be consistent with U.S. obligations under GATT.(13) Congress, however, also stated that GATT obligations were being "observed more often in the breach"(14) than in reality and that the decision-making process of GATT frustrated the ability of the United States to protect its rights and benefits under GATT.(15) The entire legislative history of Section 301 is replete with Congressional expressions of dissatisfaction with GATT and GATT system. In its final comment on retaliation under the statute, the Committee report states:

      The Committee is not urging that the United States undertake wanton or

      reckless retaliatory action under Section 301 In total disdain of applicable

      international agreements. However, the Committee felt it was necessary to

      make it clear that the President could act to protect U.S. economic

      interests whether or not such action was consistent with the articles of

      an outmoded international agreement initiated by the Executive 25 years ago

      and never approved by the Congress.(16)

      Section 301 was amended in 1979, 1984, 1988,(17) and most recently in 1994 in the Uruguay Round implementing legislation.(18) The early legislative revisions focused on the time limits for Section 301 cases and procedures for initiation of such cases (through private industry petition or self-initiation by the Administration).(19) The major 1988 revisions in the Omnibus Trade and Competitiveness Act did not alter the scope of Section 301, but did create two new forms of Section 301 cases--Special 301, which required the United States Trade Representative (USTR) to identify and initiate investigations of countries that failed to offer adequate protection for intellectual property rights,(20) and Super 301, which required USTR to identify and pursue the countries with the most significant trade barriers.(21)

      The 1988 revision of Section 301 was also significant because it broke Section 301 cases into two categories: (1) those in which it was mandatory for the United States to take action against a target country which violated the terms of the statute; and (2) those in which retaliation was discretionary. Mandatory action was to be taken, unless a settlement was reached or the GATT dispute settlement system ruled against the United States, in all cases where the foreign act, policy, or practices violated an international agreement.(22) If the foreign act, policy, or practice unreasonably burdened or restricted U.S. Commerce, USTR was not required to act by engaging in trade sanctions. Instead it was to take "all appropriate and feasible action" to obtain elimination of the act.(23) The 1994 revision to Section 301 retained this 1988 redesign of the statute.

      Each of the Congressional revisions of Section 301 has confronted the issue of clarifying the meanings of "unjustifiable" and "unreasonable" means.(24) Unjustifiable acts are now considered to be those that violate international trade agreements or otherwise nullify or impair U.S. benefits under international agreements.(25) "Unreasonable" has been defined as covering practices that are "not necessarily in violation of or inconsistent with U.S. legal rights," but which are "deemed to be unfair and inequitable."(26) Neither the Executive nor Congress has ever proposed a formal definition for "unreasonable" or suggested a standard against which such a determination could be made. This failure to give absolute meaning to the term means that USTR's characterization of foreign government actions cannot always be predicted. The absence of predictability, however, leaves USTR with the maximum amount of flexibility when it investigates and determines whether there is a basis for U.S. action under Section 301.

      In the various revisions of the statute, Congress has provided some guidance to USTR by offering a non-exhaustive list of illustrative practices.(27) This illustrative list of "unreasonable" acts or practices has grown with each revision of the statute, going from the denial of intellectual property rights and opportunities for the establishment of an enterprise (1984 Act) to government toleration of systematic anti-competitive activities by private firms, export targeting, and the denial of labor rights (1988 ACt).(28) In the 1994 revisions to Section 301 following the Uruguay...