Chapter 8
Commercial Policy: History and Practice
This chapter is devoted to a discussion of the history of U.S. commercial policy and current U.S. practices
in this area. Along the way, U.S. policies are compared with foreign. In addition to these issues, the
chapter provides a discussion of the operation of the WTO. It also presents specific case studies of some
recent U.S. trade cases.
This chapter and the next, which discusses regional trade agreements, are perhaps the most topical of all
that are to be found in the first half of the text. It is hoped that the discussions of U.S. trade provisions
will provide the student with a firm grounding in the trade policy process. To that end, this material is
◼ Chapter Outline
Introduction
History of U.S. Commercial Policy
Global Insights 8.1: The GATT Agreement
The Uruguay Round and the Creation of the WTO
Trade Policy Case Study 1: U.S. Tuna Quotas to Save Dolphins
The DOHA Round
The Conduct of U.S. Commercial Policy
Dumping
Chapter 8 Commercial Policy: History and Practice 37
◼ Suggested Answers for the End-of-Chapter Exercises
1. Examine Figure 8.1 carefully. In what periods were U.S. tariffs high? When were they low? How do
you explain these patterns?
High Levels
During the War of 1812, tariffs were raised to generate revenue for the war.
Around 1830 (Tariff of Abominations), manufacturers sought to regain protection enjoyed during the
War of 1812.
2. What is the WTO? What services does it perform? Explain carefully.
The World Trade Organization (WTO) is an international institution created by the Uruguay Round
3. What is dumping? What are the welfare costs of dumping? Why would firms ever dump? Explain
carefully.
Dumping occurs when a product is sold in a foreign market at a price that is either lower than in the
home producer’s country or below fair market value. The welfare costs of dumping are borne by the
competitive domestic producers—they produce and sell fewer goods at a lower price than they would
4. Compare and contrast how the U.S. government handles antidumping and countervailing duty cases.
Antidumping cases begin with a complaint filed simultaneously with the Department of Commerce
and the International Trade Commission, which includes evidence that dumping may be occurring
and illustrating injury or threat of injury. While the ITC investigates injury, the DOC investigates
whether dumping has actually occurred. They make a preliminary assessment of the size of the
5. What is Section 301 of U.S. trade law? Describe how it works. Do you think it is likely to be very
effective? Comment.
Section 301 of U.S. trade law (Unfair Foreign Practices) allows the President to limit imports of
goods from countries that discriminate against U.S. firms in their own markets.
6. In 1988, Senator Ernest Hollings of South Carolina was quoted as saying that “going the 201 route
is for suckers.” By this, he appeared to mean that American firms seeking protection from foreign
competition would do better by using other trade remedies. Given your knowledge of how
Section 201 and alternate forms of U.S. trade laws are administered, do you agree with the senator’s
statement? Why or why not?
Given recent experience with U.S. policy, this statement is certainly correct. Section 201 provides
7. A former ITC commissioner, Alfred Eckes, has written “in battling dumping, trade administrators not
only help sustain political support for an open global trading system, but they also bring benefits to
consumers as well as producers. I remember well how imposition of U.S. antidumping duties against
Korean television makers prompted them to lower high home market prices in order to avoid the
payment of U.S. dumping duties.” Comment on Mr. Eckes’s statement. Do you agree or disagree
with its general thrust? Support your answer with examples from how U.S. policy is applied and
recent world experience with such policies.
8. The late Milton Friedman often wrote that instead of imposing countervailing duties on subsidized
foreign goods, the United States should write a note of thanks to foreign tax payers. Do you agree?
Why or why not? Illustrate with a simple diagram.
9. What are the benefits and costs of U.S. antidumping laws?
Opponents of antidumping laws argue that these laws are not in the national interest but rather serve
the special interests of import-competing producers. By overstating costs (such as the 8% markup
10. How likely is dumping to be predatory? Discuss.
Predatory dumping is pricing at below cost with the intention of first driving competitors out of
business and then using newly acquired monopoly power to raise prices. There is probably a greater