Section 421 measures

Section 421 of the Trade Act of 1974, as amended, is an adaptation of a pre-existing trade remedy focused on imports from 'communist countries', found under Section 406 of the same statutory title. It was enacted as part of implementing legislation in the United States related to China's accession to WTO. As part of the accession, China agreed to allow the United States to apply Section 421 to it for a period of 12 years, beginning in 2002.

In broadest terms, Section 421 provides a trade remedy framework similar to that provided under Section 201, though focused only on imports from China. Investigations are conducted by the Commission, and any recommended remedy must be approved by the President. Investigations may be initiated in response to a petition by the domestic industry, by request of the President, or by resolution of the House Ways and Means or Senate Finance Committees. The focus of an investigation is the domestic industry producing the 'like or directly competitive' product, with the definition of 'like or directly competitive' products borrowed directly from the Section 201 statute. Finally, there are also two distinct phases in the investigation, involving injury and remedy.

Beyond these similarities, however, the differences between Section 201 and Section 421 are quite pronounced. The most significant of these differences involve the distinct 'market disruption' standard found under Section 421, the compressed deadlines, the requirement that the President consult with China to seek a bilateral resolution in the event of an affirmative finding by the Commission before any measure may be imposed, and special trade diversion provisions.

Market disruption

In a Section 421 investigation, the Commission is directed to determine whether imports from China 'are being imported into the United States in such increased quantities or under such conditions as to cause or threaten to cause market disruption to the domestic producers of like or directly competitive products'. At first glance, the language appears virtually identical to the standard provided under Section 201, but it is actually very different. First, unlike Section 201, there is no requirement to establish 'unforeseen developments'. Second, the injury standard is one of 'market disruption', rather than 'serious injury', whether in a present injury or threat of injury context.

To establish market disruption, the Commission must make three distinct findings:

- Imports of the subject product from China are increasing rapidly, either absolutely or relatively;

- The domestic industry is materially injured, or threatened with material injury; and

- Such rapidly increased imports are a significant cause of the material injury or the threat of material injury.

In essence, the Section 421 injury standard merges and modifies elements of Section 201 and United States anti-dumping law. First, imports must be increasing like Section 201, though unlike Section 201, there is an explicit requirement that the rate of increase must be 'rapid'. Second, injury need only be 'material', like United States anti-dumping law, though the role played by Chinese imports in causing that material injury must be 'significant', which moves it closer to the 'substantial cause' standard of Section 201. In applying these terms and concepts, the Commission has tended to rely on the legislative history and past practice of Section 406, upon which this particular remedy is so closely modelled.

Rapid increase of imports

There are two elements to the 'rapid increase' requirement of Section 421. The first concerns the temporal relationship between the increased imports and injury; the second involves a quantitative and qualitative examination of what constitutes a 'rapid' increase.

With respect to the temporal relationship between increased imports and injury, the Commission looks to 'recent or continuing' trends, as opposed to 'the distant past'. No bright line test has emerged. Regarding the rapidity of the increase, the Commission has looked to the legislative history of Section 406 to identify three scenarios in which 'rapid' may be defined: (1) through a relatively sharp increase when the increase is concentrated in one year; (2) through a steady, less dramatic increase over a longer period of two to three years; or (3) as a result of a rapid upswing after imports have fluctuated up and down.

Material injury and threat of material injury

Section 421 nor its legislative history defines 'material injury' or 'threat' of material injury. Here again, the Commission has resorted to the legislative history of Section 406 as well as relevant analogues under other statutes, including United States anti-dumping law and Section 201. With respect to 'material injury', the Commission has found the term to mean 'a lesser degree of injury than "serious injury" under Section 201. Though the Commission has also cited the material injury standard under United States anti-dumping law, it tends to rely on this alternative formulation. On the issue of 'threat', the Commission has turned to Section 201 for guidance, finding threat of material injury under Section 421 to mean 'serious injury that is clearly imminent'.

Significant cause

Although silent in other areas, Section 421 does define 'significant cause'. Under the statute, 'significant cause' means 'a cause which contributed significantly to the material injury of the domestic industry, but need not be equal to or greater than any other cause'. This puts the causation standard under Section 421 somewhere between the anti-dumping standard and the more hierarchical 'substantial cause' standard under Section 201. The factors the Commission is to consider in rendering a causation finding parallel those under the anti-dumping law. Specifically, it is to consider the volume, price effects and impact of Chinese imports on the domestic industry. Indeed, in its determinations, the Commission's analysis looks identical to its determinations under the anti-dumping law. First it addresses the 'conditions of competition' inherent in the industry, then turns to the three other factors mentioned above.

Section 421 timeline

Section 421 investigations proceed on an accelerated basis compared to their Section 201 counterparts. As a general matter, from petition to possible import restraints takes just 150 days. First, within 60 days after receipt of a petition (or request or motion), the Commission must issue a determination on market disruption. Within 20 days after that determination, the Commission must issue a report to the President setting forth its reasons for the determination and recommendations on any actions to prevent or remedy market disruption. Within 20 days after release of the Commission's report, the United States Trade Representative must publish a notice of proposed action in the Federal Register, along with an opportunity for interested parties to provide comments or request a hearing on the appropriateness of any proposed action. This comment and hearing period may last up to 55 days after release of the report, at which time USTR must issue its own recommendations to the President concerning the action, if any, that should be taken to prevent or remedy market disruption.

At the same time that USTR presides over its comment and hearing period, it is also required to engage in consultations with the Chinese, which must commence no later than five days after USTR receives an affirmative market disruption determination from the Commission. Under a separate bilateral agreement with China, and pursuant to Section 421, such consultations shall last 60 days, during which time USTR is authorized to enter into agreements with China to take such action as necessary to prevent or remedy market disruption.

In the event USTR is unable to conclude an acceptable agreement with China, or the President determines that any secured agreement will not remedy or prevent market disruption, the President within 15 days after receipt of the recommendation from USTR shall provide import relief unless he determines that such relief either is not in the national interest or would cause serious harm to the national security of the United States.

Critical circumstances

Like Section 201, Section 421 allows for provisional relief. A petition may allege critical circumstances, which forces the Commission to render a determination within 45 days of the petition containing such claim on whether delay in taking action on trade relief would cause damage to the domestic industry that would be difficult to repair. If the Commission determines that damage would be difficult to repair, it must also issue a preliminary determination on whether imports have caused or threatened to cause market disruption.

On the same date the Commission renders its determinations on critical circumstances, it must report those determinations to USTR. If the determinations are affirmative, the Commission shall also report to USTR its recommendations on proposed provisional measures. USTR then has 10 days to make its own determination on the amount of provisional relief necessary to prevent or remedy market disruption and report to the President on what, if any, measures should be taken. The President, in turn, shall proclaim provisional relief, if any, within 10 days of receiving USTR's recommendations. Such provisional relief shall remain in place no longer than 200 days.

Source: Business Guide to Trade Remedies in the United States: Anti-dumping, countervailing and safeguards legislation practices and procedures