A Brief Section 338 Reaction
Yesterday's announcement of Section 338 tariffs to be imposed on Canada was a bit of a surprise, although no tariff announcement can be too much of a shock these days. I don't have any deep thoughts on the issue, but here are a few not so deep ones. (Keep in mind that nothing I say here is said with a great deal of certainty!)
First, the White House tells us that "[t]he tariffs will take effect 30 days after signing" the proclamations, but I'm skeptical that will actually happen. My best guess is that the administration is using them more as negotiating leverage in the talks underway right now as part of the 6-year review of the USMCA. In my view, what we may see is a series of 30-day (or so) extensions that keep the Section 338 tariffs hanging over the U.S.-Canada trade relationship for a while. (Will that approach have an impact on Canadian negotiators? I have doubts, but nonetheless it seems consistent with how the Trump administration approaches trade negotiations.)
Second, if the tariffs were to be imposed, I think it would be difficult to bring a successful challenge in U.S. court. As trade lawyers John Veroneau and Catherine Gibson explained a while back:
Section 338 permits the president to impose “new or additional duties” on countries that have discriminated against commerce of the United States. Section 338 authority is triggered when the president finds that a foreign country has either (1) imposed an “unreasonable charge, exaction, regulation, or limitation” on U.S. products which is “not equally enforced upon the like articles of every foreign country”; or (2) “[d]iscriminate[d] in fact” against U.S. commerce “in respect to customs, tonnage, or port duty, fee, charge, exaction, classification, regulation, condition, restriction or prohibition” so as to “disadvantage” U.S. commerce as compared to the commerce of any foreign country.
The three Presidential tariff proclamations (motor vehicles, alcoholic beverages, dairy) lay out the case for how exactly Canada has been engaging in "discrimination or an unreasonable and unequal imposition" on U.S. commerce, and the Trump administration is right: Canada has been doing so. Of course, Canada has defenses to this discrimination. For motor vehicles and alcoholic beverages, the defense is that it is retaliating against U.S. tariffs; and on dairy, the defense is that the discrimination in favor of EU producers, which have better terms under CETA than U.S. producers have under the USMCA, is allowed under GATT Article XXIV. But looking at the Section 338 statute, I don't see that a justification for discrimination is permitted. If discrimination exists, the President can impose tariffs under Section 338. (Section 338 is part of the Tariff Act of 1930, and I suppose it's possible there may be some drafting history out there on what exactly people had in mind by "discrimination." I'll leave that for the legal historians to illuminate.)
One other aspect of a possible lawsuit that people may point to is the requirement of an ITC investigation. On this issue, a CRS report notes that:
... Section 338 charges the ITC with “ascertain[ing]” and informing the President of relevant instances of discrimination:
"It shall be the duty of the [ITC] to ascertain and at all times to be informed whether any of the discriminations against the commerce of the United States enumerated in . . . this section are practiced by any country; and if and when such discriminatory acts are disclosed, it shall be the duty of the commission to bring the matter to the attention of the President, together with recommendations.271"
This provision, together with Section 338’s placement in Part II of the Tariff Act of 1930 (concerning the ITC), may raise a question as to whether the ITC must find that discrimination has occurred before the President may impose tariffs.272 By authorizing the President to impose tariffs “whenever he shall find as a fact” that discrimination has occurred,273 however, Section 388 [sic] does not appear to condition the President’s authority on such a finding by the ITC.
I agree with what CRS seems to have in mind: The opening language of the statute ("The President when he finds that the public interest will be served shall by proclamation specify and declare new or additional duties as hereinafter provided upon articles wholly or in part the growth or product of, or imported in a vessel of, any foreign country whenever he shall find as a fact that such country ... ") arguably makes Presidential fact-finding sufficient here.
As a final point, Veroneau and Gibson state: "We cannot explain why Section 338 disappeared from public view after 1949 even though it has remained in the statute books." One answer may be that, practically speaking, Section 338 was superseded by the inclusion of the non-discrimination principle in trade agreements, starting with the GATT in 1948. While there may have been gaps in trade agreement coverage for other issues, non-discrimination was well covered, so there was no need to use Section 338 for this. And then when people had concerns about the effectiveness of the GATT, they came up with Section 301 of the Trade Act of 1974 to deal with these issues. So, maybe there were just better known options, and people focused on what they knew.