Why Section 338 Does Not Work in a GATT/WTO World: Lessons from Trade Law History
On July 21, 2026, President Trump exercised his authority under Section 338 of the Tariff Act of 1930 (hereinafter Section 338) to impose the maximum amount of additional tariffs (fifty per cent) on Canadian cars, alcohol, and dairy, owing to his determination of Canada’s discriminatory treatment of US exports. The fact sheet confirms that if a 30-day clock runs out, the United States will impose a broader penalty on even more products, even mentioning Canadian hockey sticks (perhaps not realising how much this will anger Washington Capitals fans). Others, including myself, have already mused that the tariff threat is part of leverage in US-Canadian trade talks.
Section 338 provides executive tariff powers to enforce a policy of equal treatment for the commerce of the United States in foreign markets. The President is authorised to employ duties when he or she determines, as a matter of fact, that another country has discriminated against the United States’ commerce compared with the commerce of any other country. The law empowers the President to reset unequal competitive conditions. What constitutes an unreasonable limitation, or has the effect of discrimination, is left largely to the President.
Building on Simon’s last post, I want to explain how the design of the President’s discretionary power within this law marked a critical turn in U.S. trade policy – a turn towards unconditional MFN, underscoring reciprocity after the First World War. However, the rationale for and demand for a law like Section 338, which was formulated before a multilateral trading system was in place, does not fit comfortably in a world of multilateral MFN governed by the GATT/WTO. In the oddest turn of events, the United States is using Section 338 to demand unconditional MFN from the world while simultaneously urging WTO Members to reform the WTO to allow for selective discrimination or conditional MFN.
Section 338: Presidential Powers and Determinations of Discrimination
Section 338 is quite lengthy, but the relevant part concerning additional duties is the following text at paragraph (a):
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—
(1) Imposes, directly or indirectly, upon the disposition in or transportation in transit through or reexportation from such country of any article wholly or in part the growth or product of the United States any unreasonable charge, exaction, regulation, or limitation which is not equally enforced upon the like articles of every foreign country; or
(2) Discriminates in fact against the commerce of the United States, directly or indirectly, by law or administrative regulation or practice, by or in respect to any customs, tonnage, or port duty, fee, charge, exaction, classification, regulation, condition, restriction, or prohibition, in such manner as to place the commerce of the United States at a disadvantage compared with the commerce of any foreign country.
The President must use section 338 power clearly and precisely; at a minimum, this should require clarity in the object of, and scrutiny for, comparison. The President must make a fact-based determination that there have been unreasonable limitations or discriminations placed upon US commerce that disadvantage it as compared to the commerce of another country. The language of section 338 specifically directs the President to make a determination; it is when ‘he shall find as a fact’ that a trading partner imposes ‘any unreasonable charge, exaction, regulation, or limitation which is not equally enforced upon the like articles of every foreign country’ or ‘discriminates in fact against the commerce of the United States’ such that US commerce is placed ‘at a disadvantage compared with the commerce of any foreign country.’ As such, it is wholly insufficient for the President to bypass this fact-based inquiry and simply call out ‘other countries’ without engaging with fact-finding.
At the same time, the law does not impose evidentiary standards upon the President. Instead, the Tariff Commission, a technical, bipartisan, expert group (established in 1916), would supply Congress and the President with investigations and reports concerning trade relations. Sections 332 to 338 lay out this process concerning today’s International Trade Commission (since 1975).
It’s worth a separate post to consider whether the Trump administration can cite specific cases of discrimination in three sectors and then impose more sweeping duties to pressure Canadian concessions. As I will explain below, Section 338 was seen as an MFN power intended to equalise conditions. If so, there remains a broader, more complex question about whether the duties, per subparagraph (d) of Section 338, should be limited to strictly ‘offset commercial disadvantages’ based on evidence of discrimination. A brief analogy here might be the GATT nullification or impairment language.
The 1922 Precursor to the 1930 Section 338 Powers
Section 338 has its origins in Section 317 of the Tariff Act of 1922.[1] The powers granted in Section 338, as initially conceived, were subject to fiery Congressional debates. I have been working on a book project that includes an examination of the United States’ position on MFN in 1922, as the switch to unconditional MFN occurred in tandem with these discretionary Presidential powers.
From 1921 to 1922, Congress spent months discussing the constitutionality, scope, and execution of a new tariff bill. In drafting the tariff law, the Senate and House debated various aspects including: delegating legislative power to the executive branch, how the President would make determinations, what constituted discrimination, what constituted a foreign country, the scope of defensive powers, and how it conflicted with reciprocal treaties.
In one discussion on possible guardrails to untethered power, the following quote from a senator encapsulates the tension:
If the time has arrived when we cannot trust the President of the United States to use his very best judgment in a matter of such extreme importance [as tariff rate setting] to the happiness and contentment of every class of citizens of the country, then God help the future of the Republic.[2]
Congress attempted to impose some limits to the President’s powers, as intense criticisms mounted. One senator cautioned that the 1922 bill would establish a power capable of abuse, one which the framers of the Republic intended to deny.[3] In the Baltimore Sun, an editorial dismissed the ‘indefinite propositions’ that would allow presidential power ‘capable of making or breaking particular industries.’[4] And that the bill would set up ‘a political machine under which no business affected, directly or indirectly, by tariff rates will fare to be out of the favor of the administration.’[5] The Baltimore Sun editorial made clear the proposal was ‘capable of grave abuse’ and was ‘bureaucacy run mad.’[6] Perhaps one of the most damning responses from a senator was the following:
You are putting in the hands of one man the greatest power for political corruption and political advantage that has ever been conferred since the beginning of the Government.[7]
How would the President be a fact finder?
In 1922, senators believed that the President’s powers acknowledged ‘proper restrictions’ and discussed a ‘rule laid down which will stand the test of the courts to change the rates within reasonable limitations so that they may be adjusted to changed conditions.’[8] That said, one senator explained that the President should only exercise such power based on investigation and recommendations from an ‘expert authority.’[9] This meant that Congress should do more than debate an intention to seek agency support, but set a legal requirement to do so. Even when Senator Smoot (of the subsequent Smoot-Hawley tariff) debated the role of the Tariff Commission as part of the President’s powers in 1922, he confirmed, ‘the President of course would go immediately to the Tariff Commission,’ as well as other relevant departments. To which his fellow senator replied, ‘Then there ought not to be any objection to providing that there should be this investigation by this body of experts and a public report.’[10]
Having enumerated the powers of the Tariff Commission (as it was at the time) in the law, and recognising the vital resource for investigations into disadvantages in competition, President Harding signed an Executive Order on October 7, 1922 (#3746) which confirmed:
It is ordered, that all requests, applications, or petitions for action or relief under the provisions of Section 315, 316, and 317 of Title III of the Tariff Act approved September 21 1922 [the predecessor to the Tariff Act of 1930], shall be filed with or referred to the United States Tariff Commission for consideration and for such investigation as shall be in accordance with law and the public interest, under rules and regulations to be prescribed by such Commission.’
The takeaway is that while the President retained flexibility, there was a plan for support from the Tariff Commission. Though the original intention was to take the politics out of tariffs in exceptional circumstances, the Commission would be at least some part of the picture. The Sixth Annual Report of the Tariff Commission further set out the rules of procedure for the Commission regarding section 317 of the 1922 Tariff Act, concerning protection of foreign trade against discrimination. The Commission reiterated the organising principle of equality of treatment, and confirmed that Congress had rejected a concessional method of tariff bargaining. Instead, section 317 afforded flexibility to the President to combat discrimination based on findings of fact as to effects upon U.S. commerce.
What was the relationship between Section 317 and the MFN clause?
In 1922, when Congress debated the scope of Section 317, senators debated the intersection of reciprocity treaties with MFN clauses and the new executive powers. Two issues to flag. First, if other countries entered into preferential arrangements, could the President find this to be discriminatory against U.S. commerce, even if the United States had its own preferential arrangements? Second, if the United States had signed MFN-based treaties, then what was the reason for the additional powers to target discrimination? Inevitably, both issues were blurred in debates, raising intense questions about the appropriate U.S. commercial policy in the postwar world. One senator quipped, ‘I had supposed, Mr President, that after the horrible war through which we have passed we were going to try to cultivate amicable relations with our neighbors and friends and not go around carrying a chip on our shoulders constantly.’[11]
That these issues were identified and yet appear unresolved in debates suggests some short-sightedness on the behalf of the architects. Even those senators largely in support of tariff law reform took issue with the potential of imposing penalty duties on other countries for entering into reciprocal arrangements that expanded trade as between themselves. There was extensive debate that while such conditioned reciprocal preferences may fall outside MFN clauses, they may still be subject to offset duties under section 317.[12] Put another way, while preferences may not constitute discrimination in law, it might, under section 317, constitute discrimination in fact.[13] Wallace McClure's assessment was that the insertion of the words 'in fact' in the law may 'have been intended to deprive the word "discriminates" of any legal connotation that might cling to it' (84). Moreover, the term ‘foreign country’ included ‘any empire, country, dominion, colony, or protectorate.’ In 1922, the Commission took note that the ‘colonies of the different powers, both as export markets, and as sources of raw materials’ had grown in importance to the United States, and that many discriminatory export duties were ‘found almost exclusively in colonies’ (6).
Some senators highlighted the double standards, considering the United States had its own preferences, such as with Cuba.[14] The lead architects of the law attempted to assure the critics that if there was no discrimination, it would not fall under the rule.[15] Yet, for those keen to maintain sweeping powers, the scope of the term ‘discrimination’ did not seem to cause worry. For them, the provision sent a ‘notice to the world that America intends to be treated equally with all other countries.’[16] The term ‘discrimination’ as constituting a disadvantage to U.S. commerce remained sweeping.
Unilateral, unconditional MFN against Multilateral MFN
Whether in 1922 or 1930, Congress enacted the executive tariff powers before the development of the multilateral trading system. As such, in a world without a multilateralising MFN, the United States sought to enforce the principle of equality of treatment as between its commerce and that of all other countries. The only way to do so was to acknowledge some outer limits, concerning potential exclusive privileges and preferential arrangements, such as the case of Cuba. The choice to press for breadth of scope over precision reflected the postwar uncertainty and inevitable protectionist interests of Congress at the time. If there were hypocrisies and potential issues in the law, this seemed a small price to pay. It did not seem to matter if the discrimination was justifiable or not, what mattered was the effects – and here flexible powers were entrusted with the President. ‘Taking the tariffs out of politics,’ it was believed, would contribute to the United States preserving its negotiated agreements.[17] If this sounds familiar, it is because this remains the great value of MFN at the WTO.
Moving forward in time, the relationship between MFN and reciprocity altered with the completion of the GATT. Indeed, the Trump administration’s use of Section 338 appears to stand in contravention of Article XXIV of GATT 1994, and all Members’ commitments to negotiating free-trade areas. Canada may therefore negotiate closer trade relations with the United States and the European Union separately while committing to the conditions maintained by Article XXIV. Yet, under section 338, the United States has asserted that the President possesses a power that pierces through the Canada-European agreement in an effort to equalise conditions on cheeses. In a way, the United States’ use of section 338 mirrors foreign investors’ efforts to use MFN clauses to import greater substantive protections from one investment treaty to another. The United States appears to be using its domestic law to reset preferences to its advantage.
Yet one of the most striking parts of the 1920s congressional debate was that the architects seemed to reject the possibility that the section 317 powers (the section 338 equivalent) would conflict with the MFN clauses in reciprocal treaties. Using section 338 now would. While the United States has already questioned the utility of unconditional MFN for the, at least immediate, future, it likewise exposes itself to another challenge – policing a world of preferences. But partners should beware that, if left unchallenged, the use of section 338 could require all governments to continuously pay for reciprocity. Another immediate consequence would be that all non-US agreements, whether formal or not, could become evidence of discrimination. The most ironic end to this story is that if the United States wants equal advantages, then the solution would be more MFN, not less.
[1] The sections are similar. One important modification is that section 338 applies to articles imported in vessels of foreign countries as discrimination against the commerce of the US. See Tariff Commission Annual Report no. 14 (1930), p. 2.
[2] August 10, 1922, C.R. 62-11-11186.
[3] August 11, 1922, C.R. 62-11-11223.
[4] C.R. 62-11-11197. Citing the Baltimore Sun of July 9 1922, Taxation by Executive Fiat.
[5] C.R. 62-11-11197. Citing the Baltimore Sun of July 9 1922, Taxation by Executive Fiat.
[6] C.R. 62-11-11207.
[7] C.R. 62-11-11207.
[8] C.R. 62-11-11193.
[9] C.R. 62-11-11193.
[10] C.R. 62-11-11193.
[11]C.R. 62-11- 11244.
[12] C.R. 62-11-11246.
[13] C.R. 62-11-11246.
[14] C.R. 62-11-11245.
[15] C.R. 62-11-11245.
[16] C.R. 62-11-11246.
[17] C.R. 62-11-11251.