Solter, Myron

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Maryland Journal of International LawVolume 3 | Issue 1 Article 15Legal Resolution of Export Trade Disputes Withthe RocMyron SolterFollow this and additional works at: http://digitalcommons.law.umaryland.edu/mjilPart of the International Law Commons, and the International Trade CommonsThis Conference is brought to you for free and open access by DigitalCommons@UM Carey Law. It has been accepted for inclusion in MarylandJournal of International Law by an authorized administrator of DigitalCommons@UM Carey Law. For more information, please contactsmccarty@law.umaryland.edu.Recommended CitationMyron Solter, Legal Resolution of Export Trade Disputes With the Roc, 3 Md. J. Int'l L. 106 (1977).Available at: http://digitalcommons.law.umaryland.edu/mjil/vol3/iss1/15THE INTERNATIONAL TRADE LAW JOURNALLEGAL RESOLUTION OF EXPORT TRADEDISPUTES WITH THE REPUBLICOF CHINAMYRON SOLTER*I. INTRODUCTIONWhen an underdeveloped country blessed with an intelligentand energetic population and favored with a skillful and dedicatedgovernment adopts a course of economic development, its exportgrowth inevitably collides with the business and labor groupsproducing competing products in the receiving countries.For the Republic of China, the initial collisions betweenexports from Taiwan and domestic industry began about fifteenyears ago, with plywood and mushrooms, and have intensifiedsince. Presently under attack in the United States are suchimportant products as footwear, TV receivers, textiles, solid-statewatches, and a number of lesser articles. With continuedexpansion of exports to the United States from the Republic ofChina, future collisions may be expected, both as renewals ofattacks against present export products, and as new products aredeveloped and become significant factors in the United Statesmarket.The scope of this paper is therefore directed to the legalmechanisms in the United States by which these economicconflicts are resolved.II. SOURCES OF APPLICABLE LAWA. International Sources1. US-ROC Treaty of Friendship, Commerce & Navigation(FCN)It is this bilateral treaty which serves as the framework forU.S. trade relations with the ROC. It provides, inter alia, for most-favored-nation treatment in matters affecting imports.2. General Agreement on Tariffs and TradeThe Republic of China is not a member of the GeneralAgreement on Tariffs and Trade (GATT) and therefore does notbenefit directly from the rights and privileges enjoyed by GATTsignatories.*Partner, Bregman, Abell, Solter & Kay, Washington, D. C.CONFERENCE PROCEEDINGSHowever, to the extent that the United States must resolve itstrade conflicts with GATT members within the framework of thatbody, in multination trade disputes involving both the Republic ofChina and one or more GATT members, the Republic of Chinareceives indirectly the benefit of United States-GATT resolutionsby virtue of most-favored-nation treatment under the FCN treaty.Not all GATT benefits pass to the Republic of China in this way;e.g., it is doubtful whether, after restriction of its exports to theUnited States, the Republic of China would be entitled tocompensation or retaliation vis-A-vis the United States under theGATT rules. Similarly, in a trade dispute involving the UnitedStates and the Republic of China alone, the United States is notobliged to apply the GATT rules, but only the less comprehensivearticles of the FCN treaty.3. Special International AgreementsSpecial international agreements, either bilateral or multilat-eral, are a not infrequent device for resolving trade disputes. Themost significant such agreement presently in force is theMultifiber Textile Trade Agreement, under which the UnitedStates has concluded a number of bilateral agreements withexporting countries, including the Republic of China, limiting thequantity of textiles which may be exported to the United States.4. Voluntary Restraint AssurancesA useful device sometimes used to resolve trade disputes on aninformal basis is the giving of "assurances" by the government ofan exporting country to the United States, usually in the form of amemorandum of understanding, that it will restrain its exports fora period of time to a stipulated level. While it is doubtful that suchassurances constitute law in the sense of treaties or executiveagreements, the device can enable more flexible solutions thancan be achieved under the formal legal means. An example of itsuse with the ROC was to restrain the level of canned mushroomexports to the United States in 1968 and again in 1976.B. Domestic Sources1. LegislationWith Congress reposes the principal constitutional authorityto regulate foreign trade. Congress can, and from time to timedoes, pass legislation increasing import duties in response toTHE INTERNATIONAL TRADE LAW JOURNALdomestic industry pleas. One example of a significant such billcurrently under consideration, which would adversely affectexports from Taiwan to the United States, is H. R. 14600 (94thCongress) to impose very large duty increases on solid statewatches and parts thereof.2. AntidumpingThe Antidumping Act of 1921, and the regulations issuedthereunder, require that when it is determined that imports havebeen sold at "less than fair value," and that the articles thusimported have caused injury to the domestic industry, anadditional duty equal to the dumping margin will be assessed.Procedurally, the Treasury Department conducts an investigationduring six months from the date of its Antidumping ProceedingNotice, which initiates the matter, to determine the existence ofsales at less than fair value. If Treasury finds the existence ofsuch sales, it forwards the matter to the International TradeCommission (ITC), which conducts a three month investigation todetermine whether the dumped imports have caused injury to thedomestic industry. If the ITC so finds, it returns the matter to theSecretary of the Treasury, who thereupon issues a dumping order.The existence of an antidumping order can seriously inhibitthe growth of exports. For example, an order applying to clearsheet glass from Taiwan issued in 1971. Despite the best efforts ofthe manufacturer to remove all possibility of dumping margins,by revising its home market and export pricing, uncertaintiesconcerning United States Customs administration under the orderhave discouraged would be importers, and exports of clear sheetglass from Taiwan have been seriously impaired.An antidumping proceeding notice against PVC sheet andfilm from Taiwan was issued on April 1, 1977. The AntidumpingAct thus remains a serious threat to export expansion from theRepublic of China.3. Countervailing DutySection 303 of the Tariff Act of 1930 provides that when thegovernment of an exporting country bestows a "grant or bounty"upon exports to the United States, an additional duty equal to theamount of the subsidy will be imposed.The Republic of China, similarly to many other developingcountries, offers a number of governmental incentives to encour-age new investment in productive enterprises. If such encourage-CONFERENCE PROCEEDINGSment measures are to be deemed to constitute subsidization ofexports to the United States, the resulting countervailing dutyburden could become a major barrier to the Republic of China'sexport growth.Presently or recently before the Treasury Department, whichadministers the countervailing duty statute, are three cases onarticles from Taiwan: non-rubber footwear, bicycles, and hand-bags. All are based on claims by the domestic petitioners that theRepublic of China's investment encouragement measures consti-tute countervailable export subsidization. While final determina-tion has not been issued as yet in bicycles and handbags, itappears from tentative determinations in these cases thatTreasury will probably finally determine the following incentivesnot to constitute countervailable grants or bounties:(a) Reduction in foreign exchange commissions charged bybanks in converting currency.(b) Reduction in import license fees charged by banks for theobtaining of an import license.(c) Exemption from the business tax.(a gross receipts tax) onexport sales.(d) Reduction in the stamp tax on export documents.(e) Suspension of interest charged by banks on bills ofexchange and letters of credit.(f) Resumption of duty remissions on imported raw mate-rials and component parts which reflects internationallyaccepted principles of "drawback" on such items.(g) Suspension of harbor dues on exported items.(h) Suspension of airport safety dues.(i) Increase in processing loss ratios for purposes of dutydrawback.Treasury will probably find that the following incentives doconstitute grants or bounties:(a) Loans at preferential rates of interest for the purchase ofequipment by manufacturers and short-term exportfinancing.THE INTERNATIONAL TRADE LAw JOURNAL(b) Exemption from income taxes, deed taxes and customsduties on imported capital items for firms located inExport Processing Zones.(c) Income tax holidays for newly established firms grantedunder the Statute for Encouragement of Investment.However, it appears likely that as applied to exports of bicyclesand handbags, the impact of these measures on stimulatingexports to the United States has been de minimis, and thatcountervailing duties will therefore not be assessed.4. Escape ClauseThe most significant legal mechanism by which domesticindustries can seek protection from import competition is the"4escape clause" found in sections 201-203 of the Trade Act of1974. Under this authority, upon petition by an interested group, arequest by the President, or upon its own motion, the ITCconducts a six month investigation to determine with respect tothe imported article whether:(a) Imports are increasing;(b) The domestic industry producing like or directly competi-tive articles is being seriously injured, or is threatenedwith serious injury; and(c) The increased imports are a substantial cause of theserious injury.If the ITC so finds, it reports its findings to the President togetherwith its recommendation of the quantum of import restrictionnecessary to remedy the injury, and its opinion on whetheradjustment assistance would provide a remedy.Within 60 days after receipt of the ITC's report andrecommendations, the President must determine whether and towhat extent he will grant import relief and/or adjustmentassistance. The President is not bound to follow the recommenda-tion of the ITC, but, being guided by the total interest, mayprovide (1) a duty increase, (2) a tariff rate quota, (3) an absolutequota, (4) negotiate orderly marketing agreements, (5) take anycombination of these actions, or (6) take no restrictive action. Ifhis action differs from the ITC's recommendation, the CongressCONFERENCE PROCEEDINGSmay within 90 days override the President's determination by aconcurrent resolution of both houses.Since first implemented in domestic law as section 7 of theTrade Agreements Extension Act of 1951, the escape clause hasbeen the device most used by domestic industries to attack importcompetition. It is more flexible than the other statutory remedies,since. the President may tailor the final result to policy andinternational considerations with which the more narrow determi-nations of the ITC are not concerned.Plywood and canned mushrooms were the first Republic ofChina products to be attacked via the escape clause in the-early1960s. Since then the escape clause investigations have beendirected to canned asparagus, sheet glass, footwear (twice), TVreceivers (twice), canned mushrooms (twice), marble products,sugar, and presently cast iron cookware and stoves, all of whichare important elements in the Republic of China's exports to theUnited States.5. Unfair Trade Practices in International TradeUnder section 337 of the Tariff Act of 1930, upon petition, theITC conducts an adjudicatory proceeding to determine whetherthere exists in connection with the importation of an article"unfair methods of competition and unfair acts . . . the effect ortendency of which is to destroy or substantially injure anindustry, efficiently and economically operated, in the UnitedStates or to prevent the establishment of such an industry, or torestrain or monopolize trade and commerce in the United States."If the ITC finds a violation, it may bar the offending article fromentry or may issue cease and desist orders. The President canrevoke the ITC's orders for public policy reasons.When this statute was first enacted in 1922, it was hailed asthe foreign trade counterpart of the Federal Trade CommissionAct. However, in the past, this mechanism has been appliedvirtually exclusively to articles claimed to infringe the UnitedStates letters patent.An example of its application to Republic of China exportswas the recent exclusion of reclosable plastic bags for patentinfringement. It does not represent a serious threat to the Republicof China's export expansion as long as it is applied only to casesof patent infringement. However, there is now pending before theITC a section 337 case against TV receivers imported from Japan,which is based solely on allegations of unfair practices. If the ITCTHE INTERNATIONAL TRADE LAW JOURNALshould find affirmatively for the petitioners in this case, it wouldrepresent a very considerable extension of the jurisdiction of theUnited States antitrust laws beyond the scope hitherto allowedthem.III. WHAT DOES THE FUTURE HOLD?The hypothesis stated at the outset of this paper makes ithighly probable that trade disputes between export industries inthe Republic of China and the competing industries in the UnitedStates will expand as the Republic of China's exports grow. Thereis no doubt that increasingly recourse will be had by domesticinterests to the protective mechanisms outlined above. However,the aggregate outcome of these disputes, in addition to the case-to-case merits, will be determined very substantially by two extra-legal factors: United States foreign trade policy and the Republicof China governmental policy toward such disputes.A. United States Foreign Trade PolicyAs of this time, only one major trade case has been decided bythe Carter Administration, but its implications give a fairappreciation of the policy direction in which the Carter Adminis-tration may move. This is the non-rubber footwear escape clausecase. Involving some $2 billion in trade annually, it is economi-cally important. Due to the geographic dispersal of footwearfactories in the United States and the long protection-seekingeffort of the industry, it is politically important. The ITC hadrecommended a tariff-rate quota which would have had a verydepressing effect on footwear imports. President Carter chose,however, to take the least restrictive action, that of announcingthat he would seek orderly marketing agreements with theRepublic of China, which by the way is the largest importsupplier, and Korea. The policy thus indicated is one of reluctanceto impose unilateral trade restraints, and to seek instead solutionsbased on negotiation.B. Policy of the Government of theRepublic of ChinaSome industries in Taiwan such as the mushroom packers,have through long experience become knowledgeable and capablein coping with trade disputes. Other industries, either small, orfacing such problems for the first time, are not sophisticated inCONFERENCE PROCEEDINGSthis sense and have not always taken timely and vigorousdefensive steps. However, the Board of Foreign Trade, which is anagency of the Ministry of Economic Affairs, under the guidance ofDirector Y. T. Wong and Deputy Director H. K. Shao, has longbeen sensitive to the need for the affected industries actively todefend these actions in the United States at the administrativelevel, rather than relying solely on government-to-governmentefforts. The BOFT is actively encouraging and guiding Taiwan'sexport industries. The continuation of this policy will undoubtedlyfavorably affect the future.Professor Oldman thanked Mr. Solter for his presentation andthen invited the discussants to contribute their comments. Thefirst discussant was Edward Laing, Associate Professor ofInternational Law and International Transactions at the Univer-sity of Maryland School of Law.[The following is the summary of Professor Laing's state-ment.]COMMENTSEDWARD LAINGTaiwan is doing some very interesting things with otherdeveloping countries. Taiwan has offered technical assistance andhas had exchanges and visits with other developing countries.These kinds of contacts with the rest of the developing world, whohave seats in the UN, may help Taiwan in the future.My reading and discussions with Dr. Li lead me to concludethat a lot of the success of Taiwan has to do with a very stableand interesting legal order. One thing that interests me is thatTaiwan seems to steer a middle course between the over-technicalization of the legal practice of the U.S. and a somewhatoversimplified legal practice of the PRC. The legal regime in theROC has contributed rather significantly to the ROC success.

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