What Is Section 201 of the Trade Act?

Section 201 of the Trade Act of 1974 is a trade remedy tool, often referred to as a “safeguard” provision or an “escape clause,” because it allows the U.S. to temporarily depart from its international trade obligations for a specific product. The primary purpose of this law is to offer a domestic industry a temporary period of relief from a surge in imports, giving the affected industry time to adjust and become more competitive against foreign products.

An aspect of Section 201 is that it addresses imports that are traded fairly. This distinguishes it from other trade remedies that target unfair trade practices, such as dumping or foreign government subsidies. The focus of a safeguard action is solely on whether an increase in the quantity of imported goods is causing significant harm to the U.S. industry, regardless of the reason for the increase.

Initiating an Investigation

An investigation under Section 201 begins with the filing of a petition with the U.S. International Trade Commission (ITC), an independent federal agency. A petition can be submitted by various parties representing a domestic industry, including a firm, a trade association, or a union. Additionally, an investigation can be initiated at the request of the President, the U.S. Trade Representative (USTR), or by a resolution from the House Committee on Ways and Means or the Senate Committee on Finance. The ITC can also launch an investigation on its own initiative.

The petition must define the “domestic industry” by identifying the U.S. producers who manufacture a product that is “like or directly competitive with” the imported article in question. The petitioners must demonstrate that they are representative of this specific domestic industry.

The petition must also include a plan detailing how the industry will make a “positive adjustment” to import competition during the period of relief. This plan outlines the steps the industry will take to improve its competitiveness, such as modernizing equipment, retraining workers, or shifting to other productive pursuits.

The ITC Determination Process

Once a petition is accepted, the U.S. International Trade Commission (ITC) begins a two-phase investigation. The process, from petition filing to submitting a report to the President, is completed within 180 days, unless the case is deemed extraordinarily complicated. Throughout the investigation, the ITC gathers information through questionnaires sent to domestic producers, importers, and purchasers, and holds public hearings where interested parties can present evidence and testimony.

The first phase is the injury investigation, where the ITC must make three findings. First, it must confirm that the product is being imported into the U.S. in increased quantities, either in absolute terms or relative to domestic production. Second, the ITC must determine that the domestic industry is suffering “serious injury” or is threatened with it. “Serious injury” is defined as a significant overall impairment in the position of a domestic industry, and the ITC considers factors like the idling of production facilities, the inability of firms to operate at a reasonable profit, and significant unemployment.

The third finding is causation. The ITC must establish that the increased imports are a “substantial cause” of the serious injury or threat thereof. The term “substantial cause” means a cause that is important and not less than any other single cause. This requires the ITC to weigh the impact of imports against other potential factors that could be harming the industry, such as a decline in overall consumer demand, shifts in technology, or poor business decisions.

If the ITC makes an affirmative determination on all three points, the investigation moves to the remedy phase. In this second stage, the Commission considers what actions would be most effective in addressing the injury and helping the industry adjust to import competition. After another round of hearings, the ITC recommends specific remedies to the President.

Presidential Action and Remedies

Following the U.S. International Trade Commission’s (ITC) submission of its report, the final decision-making authority rests with the President. The President is not legally bound by the ITC’s findings or its recommended remedies. This discretionary power allows the executive branch to consider broader economic and foreign policy implications, including the potential impact on consumers, downstream industries that use the imported product, and relationships with trading partners. The U.S. Trade Representative (USTR) conducts an independent review to advise the President on these matters.

The President has a range of remedies to choose from if action is deemed necessary. These include:

• Imposing a tariff or increasing an existing one
• Establishing a tariff-rate quota (TRQ), which applies a higher tariff rate after a certain quantity of imports is reached
• Setting a quantitative restriction (quota) that limits the absolute volume of imports allowed
• Opting for trade adjustment assistance, which provides federal support to workers and firms impacted by the imports
• Negotiating agreements with exporting countries to manage the volume of trade

The initial period of relief can be for up to four years and can be extended to a maximum of eight years. If the relief period exceeds three years, the ITC is required to conduct a mid-term review to assess the industry’s adjustment efforts and the continued effectiveness of the measures. The President can then modify, reduce, or terminate the action based on these findings.