A Method for Analyzing the Effect of Competition on Restricting Imports

Northwestern Journal of International Law & Business, Dec 1983

The President is authorized, pursuant to Section 203 of the Trade Act of 1974, to restrict imports of a commodity when these imports are the principle cause of injury to United States firms producing the same article. In such an "escape clause

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A Method for Analyzing the Effect of Competition on Restricting Imports

RestrictingImports A Method for Analyzing the Effect of Competition on Restricting Imports Benjamin I. Cohen 0 0 This Article is brought to you for free and open access by Northwestern University School of Law Scholarly Commons. It has been accepted for inclusion in Northwestern Journal of International Law & Business by an authorized administrator of Northwestern University School of Law Scholarly Commons Follow this and additional works at: http://scholarlycommons.law.northwestern.edu/njilb Part of the International Law Commons, and the International Trade Commons Recommended Citation - A Method for Analyzing the Effect on Competition of Restricting Imports Benjamin L Cohen* I. INTRODUCTION The President is authorized, pursuant to Section 203 of the Trade Act of 1974, to restrict imports of a commodity when these imports are the principal cause of injury to United States firms producing the same article.' In such an "escape clause" proceeding, the President is to take into account, inter alia, "the effect of import relief on consumers... and on competition in the domestic markets for such articles." 2 The International Trade Commission (ITC) makes an initial determination on whether the industry is being injured by imports.3 In making its injury determination, the ITC shall consider all "relevant" economic factors concerning the United States industry, including idle productive facilities, profits, employment, sales, inventories and production.4 If the ITC finds injury, it recommends relief to the President which may take the form of import quotas. 5 While the President considers the effect of relief on competition,6 the ITC may have made, at best, a perfunctory analysis of the effect on competition of restricting imports. For example, the ITC in its 1979 * Ph.D., Harvard; J.D., Yale. The author is an attorney in the Division of International Antitrust, Bureau of Competition, Federal Trade Commission. This Perspective reflects his personal views only and does not represent the position of any government agency. 1 19 U.S.C. § 2253 (1976). 2 19 U.S.C. § 2252(c)(4) (1976). 3 "IT]he Commission shall ... determine 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 producing an article like or directly competitive with the imported article." 19 U.S.C. § 2551(b)(1) (1976). 4 19 U.S.C. § 2251(b)(2) (1976). 5 19 U.S.C. § 2251(d)(1)(A) (1976). 6 19 U.S.C. § 2252(c) (1976). report on whether to continue import quotas on specialty steel simply referred to a staff report which discussed the effect on consumers, and yet ignored the effect on competition.7 This lacuna in the ITC's report makes it difficult for the President, who must act within sixty days of receiving the ITC's report,' to adhere to the statutory requirement to consider the proposed reliefs effect on competition. The ITC's failure to assess the effect on competition may be due, in part, to the lack of a simple method for making such an assessment. Simplicity is important because of the limited time-six monthswithin which the ITC must complete its investigation.9 With this in mind, I propose a two-step procedure to be used in making injury determinations. For the first step, I propose a simple analytical method for making an initial assessment of the effect on competition of restricting imports: the use of the Hirschman-Herfindahl Index (HHI). The simplicity of this tool would ensure its use in each determination, thus satisfying the statutory mandate that attention be paid in such determinations to the impact on competition. Further, if the finding is within the safe range of the HHI, such a finding would be dispositive of the issue. If, on the other hand, the finding is not within the safe range, the ITC would be alerted at an early stage in the proceedings that further attention will be required. The second step, a more detailed analysis of the effect on competition, would be mandated only when a potentially serious problem becomes apparent through the application of the HHI. In this brief Perspective, I will explain why the HHI would be an appropriate tool for the first step of the determination and illustrate its application by using public data about various types of specialty steel.1 II. CALCULATING THE EFFECT ON COMPETITION Restricting imports has an adverse effect on consumers, at least in the short run, because it leads to a price increase in the domestic good that competes with the import. 1 The price increase resulting from a 7 StainlessSteel andAiloy Tool Steel, No. TA-203-5, USITC Publication 968, Apr. 1979, at A-65-66. The law does not specifically require the ITC to consider the effect on competition when it considers whether to recommend the initiation of import restrictions, but the ITC shall consider all relevant economic factors. 19 U.S.C. § 2551(b)(2) (1976). 8 19 U.S.C. § 2252(b) (1 (...truncated)


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Benjamin I. Cohen. A Method for Analyzing the Effect of Competition on Restricting Imports, Northwestern Journal of International Law & Business, 1983, Volume 5, Issue 3,