of each investigation, the ITC is required to consult with and seek advice and information from the Department of Health and Human Services, the Department of Justice, the Federal Trade Commission, and other appropriate departments and agencies.

If a violation of section 337 is found, the ITC must direct that the foreign articles be excluded from entry into the United States, unless it determines that such articles should not be excluded in consideration of the effect of exclusion on:

(a) the public health and welfare;

(b) competitive conditions in the U.S. economy;

(c) the production of like or directly competitive articles in the United States; and

(d) U.S. consumers.

In appropriate circumstances, the ITC may issue temporary exclusion orders during the course of an investigation if it determines that there is reason to believe that there is a violation of section 337. In the event of a temporary exclusion order, entry is to be permitted only under bond. If petitioned by a complainant for issuance of a temporary exclusion order, the ITC must determine whether or not to issue such an order within 90 days after initiation of an investigation, with a possible extension of 60 days in more complicated cases.

In addition to or in lieu of issuing an exclusion order, the ITC may issue an appropriate cease and desist order to be served on the violating party or parties, unless it finds that such order should not be issued in consideration of the effect of such order on the same public interest factors listed above.

The ITC may at any time, upon such notice and in such manner as it deems proper, modify or revoke any cease and desist order, and issue an exclusion order in its place.

Any person who violates a cease and desist order issued under this section shall be subject to a civil penalty of up to the greater of $100,000 per day or twice the domestic value of the articles entered or sold on such day in violation of the order.

In the event that a person has been served with notice of proceedings and fails to appear to answer the complaint in cases where the complainant seeks relief limited solely to that person, the ITC must presume the facts alleged by the complainant to be true. If requested by the complainant, the ITC must issue an exclusion order and/or a cease and desist order against the person in default, unless it finds that such order should not be issued for the same public interest reasons listed above. Similarly, if no person appears to contest the investigation and violation is established, the ITC may issue a general exclusion order.

The ITC may order seizure and forfeiture of goods subject to an exclusion order if an attempt has been made to import the goods and the owner or importer has been notified that a further attempt to import the goods would lead to seizure and forfeiture.

Presidential and judicial review

Following an ITC determination of a violation of section 337, the President may, within 60 days after receiving notification, disapprove the ITC determination for "policy reasons." The statute does not specify what types of policy reasons may provide the basis for

disapproval. Upon Presidential disapproval, actions taken by the ITC cease to have effect. If the President does not disapprove the ITC determination, or if he approves it, then the ITC determination becomes final. Any person adversely affected by a final ITC determination under section 337 may appeal the determination to the U.S. Court of Appeals for the Federal Circuit.

Case under the General Agreement on Tariffs and Trade (GATT)

In response to a complaint by the European Economic Community about the application of section 337, the GATT Council agreed on October 7, 1987 to establish a panel to review the U.S. law. On November 23, 1988, the panel found that section 337 is inconsistent with Article III:4 of the GATT, because it treats imported articles that violate U.S. patents less favorably than products of U.S. origin. The panel recommended that the GATT Contracting Parties request the United States to bring its procedures for patent infringement cases involving imports into conformity with the GATT. The panel report was adopted at a GATT Council meeting on November 9, 1989. However, the President and U.S. trade officials indicated at that time that GATT adoption of the panel report would not result in a change in current practice with respect to Presidential review of ITC recommendations for relief under section 337 or for disapproving such recommendations. They noted that legislative changes to bring section 337 into compliance with U.S. GATT obligations would be sought only as part of a comprehensive agreement on improved intellectual property protection in the Uruguay Round of multilateral trade negotiations taking place under GATT auspices.

Positive Adjustment by Industries Injured by Imports

SECTIONS 201-204 OF THE TRADE ACT of 1974, as AMENDED

Chapter 1 of title II (sections 201-203) of the Trade Act of 1974,25 as amended by section 1401 of the Omnibus Trade and Competitiveness Act of 1988,26 sets forth the authority and procedures for the President to take action, including import relief, to facilitate efforts by a domestic industry which has been seriously injured by imports to make a positive adjustment to import competition.

From the outset of the trade agreements program in 1934, U.S. policy of seeking liberalization of trade barriers has been accompanied by recognition that difficult economic adjustment problems could result for particular sectors of the economy and that the possibility of serious injury to domestic industries by increased import competition should be minimized. Beginning with bilateral trade agreements in the early 1940's, U.S. trade agreements, and eventually U.S. domestic law, have provided for a so-called "escape clause" mechanism for import relief. This mechanism, while amended over the years, has basically provided authority for the President to withdraw or modify concessions and impose duties or

25 19 U.S.C. 2251-2253.

26 Public Law 100-418, approved August 23, 1988. Amendments to section 201-203 were also made by sections 248 and 249 of the Trade and Tariff Act of 1984, Public Law 98-573, approved October 1984.

other restrictions on imports of any article which causes or threatens serious injury to the domestic industry producing a like or directly competitive article, following an investigation and determination by the U.S. International Trade Commission (ITC) (formerly the U.S. Tariff Commission).

Under his basic trade agreements authority in section 350 of the Tariff Act of 1930 the President issued three Executive orders setting forth procedures and criteria for escape-clause relief which governed from 1947 to 1951. Section 7 of the Trade Agreement Extension Act of 1951 contained the first statutory procedure and criteria for escape-clause action, which governed from 1951 until replaced by sections 301, 351 and 352 of the Trade Expansion Act of 1962. The 1962 provisions, which also introduced the concept of trade adjustment assistance (see separate section), were repealed and replaced by section 201-203 of the Trade Act of 1974. In 1988, the 1974 provisions were rewritten to place a greater emphasis on positive adjustment.

Primarily at U.S. insistence, an escape clause provision modeled after language in the 1947 Executive Order was included in the General Agreement on Tariffs and Trade (GATT) as Article XIX.27 In order to restore and maintain the mutual balance of previously agreed GATT trade agreement obligations, countries adversely affected by the import relief actions may make offsetting withdrawals or modifications of concessions, or the country taking the import relief action may seek agreement on new concessions as compensation (see chapter 6 on trade agreement authorities for description of U.S. law).

Petitions and investigations

An entity representative of an industry (including a trade association, firm, union or group of workers) may file a petition under section 202 of the Trade Act of 1974 with the ITC. The petition must include a statement describing the specific purposes for which action is being sought, which may include facilitating the orderly transfer of resources to more productive pursuits, enhancing competitiveness, or other means of adjustment to new conditions of competition. Alternatively, the President, U.S. Trade Representative, or the House Committee on Ways and Means or Senate Committee on Finance may request an investigation.

Upon petition, request, or on its own motion, the ITC conducts an investigation "to 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." Substantial cause is defined as "a cause which is important and not less than any other cause."

27 The language of GATT Article XIX is as follows: "If, as a result of unforeseen developments and of the effect of the obligations incurred by a contracting party under this agreement, including tariff concessions, any product imported into the territory of that contracting party in such increased quantities and under such conditions as to cause or threaten serious injury to domestic producers in that territory of like or directly competitive products, the contracting party shall be free, in respect of such product and to the extent and for such time as may be necessary to prevent such injury, to suspend the obligation in whole or in part or to withdraw or modify the concession."

In making its determination the Commission must take into account all relevant economic factors, including certain factors specified in the statute, 28 and must consider the condition of the domestic industry over the course of the relevant business cycle. The Commission may determine to treat as the domestic industry: (1) only the portion or subdivision producing the like or directly competitive article of a producer of more than one article; and (2) only production concentrated in a major geographic area under certain circumstances. The Commission is required, to the extent information is available, in the case of a domestic producer which also imports, to treat as part of the domestic industry only the domestic production of such producer.

A public hearing is required during the course of the investigation. Whenever during the investigation the Commission has reason to believe increased imports are attributable in part to unfair trade practices, then it must promptly notify the agency administering the appropriate remedial law.

The ITC must make its injury determination within 120 days of the petition, unless it determines the case is extraordinarily complicated, in which case there may be an extension of 30 days. If the ITC makes an affirmative injury finding, then it must recommend the action that would address the injury and be the most effective in facilitating efforts by the domestic industry to make a positive adjustment; such recommended action must be either a tariff, tariff-rate quota, quantitative restriction, adjustment measures, or a combination thereof.

The ITC's remedy recommendation and report must be submitted to the President within 180 days of the petition. The report must also be made available to the public, and a summary of the report must be published in the Federal Register.

Adjustment plans and commitments

Under title II, as amended, petitioners are encouraged to submit, at any time prior to the ITC injury determination, a plan to promote positive adjustment to import competition. The law provides that a positive adjustment occurs when (1) the domestic industry is able to compete successfully with imports after actions taken under section 204 terminate, or the domestic industry experiences an orderly transfer of resources to other productive pursuits; and (2) dislocated workers in the industry experience an orderly transition to productive pursuits.

28 These factors include: with respect to serious injury, the significant idling of productive facilities in the industry, the inability of a significant number of firms to operate at a reasonable level of profit, and significant unemployment or underemployment within the industry; with respect to threat of serious injury, a decline in sales or market share, a higher and growing inventory (whether maintained by domestic producers, importers, wholesalers, or retailers), and a downward trend in production, profits, wages, or employment (or increasing underemployment) in the domestic industry concerned; the extent to which firms in the domestic industry are unable to generate adequate capital to finance the modernization of their domestic plants and equipment, or are unable to maintain existing levels of expenditures for research and development, the extent to which the United States market is the focal point for the diversion of exports of the article concerned by reason of restraints on exports of such article to, or on imports of such article into, third country markets; and with respect to substantial cause, an increase in imports (either actual or relative to domestic production) and a decline in the proportion of the domestic producers. The presence or absence of any factor is not necessarily dispositive.

The domestic industry may be considered to have made a positive adjustment to import competition even though the industry is not of the same size and composition as the industry at the time the investigation was initiated.

Before submitting an adjustment plan, the petitioner and other members of the domestic industry that wish to participate may consult with the U.S. Trade Representative and other Federal Government officials for purposes of evaluating the adequacy of the proposals being considered for inclusion in the plan.

In addition, during the ITC investigation, the ITC is required to seek information (on a confidential basis to the extent appropriate) on actions being taken, or planned to be taken, or both, by firms and workers in the industry to make a positive adjustment to import competition. Any party may individually submit to the ITC commitments regarding actions such party intends to take to facilitate positive adjustment to import competition.

Provisional relief

The amendments made by the 1988 Act authorize the President to provide emergency import relief for perishable agricultural products within 28 days after filing a petition if the ITC has monitored imports for at least 90 days and the ITC makes an affirmative preliminary injury determination. With respect to products other than perishable agricultural products, the President may provide provisional import relief within 127 days after a petition is filed if the ITC makes an affirmative injury determination and also determines that critical circumstances exist.

Presidential action

Within 60 days of receiving an affirmative ITC determination and report, the President shall take all appropriate and feasible action within his power which he determines will facilitate efforts by the domestic industry to make a positive adjustment and will provide greater economic and social benefits than costs. Any import relief provided may not exceed the amount necessary to prevent or remedy the serious injury.

In determining what action is appropriate, the President is required to consider a number of factors, including the adjustment plan (if any), individual commitments, probable effectiveness of action to promote positive adjustment, other factors related to the national economic interest, and the national security interest.

The actions authorized to be taken by the President include import relief, adjustment measures, auctioned quotas, orderly marketing agreements, international negotiations, legislative proposals, and any other action within his power.

Action under this title may be taken for up to 8 years. If the action taken is for less than 8 years, then one extension for such time as will result in a total period of not more than 8 years may be provided. As provided in section 302(a) of the United StatesCanada Free-Trade Agreement Implementation Act of 1988, the President exempts Canada from import relief measures if he determines that imports from Canada of the article are not substantial (normally 5 to 10 percent or less of total imports) and are not contributing importantly to the injury or threat thereof.