. National Lawmaking

Powers & the Regulation of

U.S. Trade

1. The power to regulate commerce and trade with foreign nations resides in the Congress of the U.S., not with the President, and especially not with the states. Article I, Section 8, Clause 3.2. It has long been recognized that the President is better situated to handle the day-to-day conduct of trade relations.3. Distinguish between negotiation of treaties and trade agreements.

1. They may be bilateral (2 nations) or multilateral (between more).2. A treaty is public (not private) international law (between nations) negotiated in the U.S. by the President with the advice and consent of the Senate, which requires a 2/3rds vote in the Senate.3. Article II, Sec. 2: He shall have power, by and with the advice and consent of the Senate, to make treaties, provided two thirds of the Senators present concur; and he shall nominate, and by and with the advice and consent of the Senate, shall appoint ambassadors, other public ministers and consuls, judges of the Supreme Court, and all other officers of the United States, whose appointments are not herein otherwise provided for, and which shall be established by law: but the Congress may by law vest the appointment of such inferior officers, as they think proper, in the President alone, in the courts of law, or in the heads of departments.

Self-Executing vs. Non-Self-Executing Treaties

1. If the treaty requires Senate action it is non- self-executing (i.e. joining the U.N. or League of Nations).

2. A self-executing treaty, once ratified, needs no further legislative action.

3. How do we know which type it is? Ask the courts.

These are binding and have the force of law without going through the treaty process

There are 2 types:◦ Sole executive agreements – based on the President’s

inherent authority.◦ Congressional executive agreements – based on

authority granted to the President by Congress

None of this is mentioned in the Constitution.

We’ve had them since the beginning. Modern era starts with the Smoot-Hawley Tariff

Act of 1930, which raised tariffs to the highest levels ever. Signed by President Hoover. Conventional wisdom is that it worsened and exported the Depression.

The Reciprocal Trade Agreements Act of 1934 lowered tariffs. Signed by President Roosevelt. The President could work with other nations to lower tariffs in exchange for their doing the same, that is, if they reciprocally made tariff concessions.

An Alternative Point of ViewThe Isolationist Myth (December 3rd, 1994)

By Patrick J. Buchananhttp://buchanan.org/blog/the-isolationist-myth-165

“But didn’t Smoot-Hawley cause the Depression? Again, myth. The 1929 collapse on Wall Street triggered the Great Depression. The failure of thousands of banks, wiping out a third of America’s savings, caused the Depression to last until WWII, long after the Smoot-Hawley tariffs had been rolled back. . . .All four presidents on Mt. Rushmore were protectionists. . . . No nation has ever risen to pre-eminence through free trade. . . . Now, the indices of national decline are all around us: endless huge trade deficits, falling wages, urban and social decay. But that decline will not be reversed until Americans cease to think of themselves as global citizens, with global duties, and start thinking again of their own country. Smoot and Hawley aren’t responsible for America’s decline. Rather, it is those who make constant sport of them, and who need to be driven from power, if America is to reclaim the lost dream. “

The Reciprocal Trade Agreements Act brought about the most favored nation (MFN) concept.

All MFNs (BFFs?) got to benefit from any trade reductions granted to other MFNs.

This accelerated the tariff reduction process. The MFN concept was carried over in the

General Agreement on Tariffs and Trade (GATT), which now calls it “normal trade relations” (NTR).

The Trade Expansion Act of 1962– created the Office of the U.S. Trade Representative

The Trade Reform Act of 1974 The Trade Agreements Act of 1979 The Trade Tariff Act of 1984 The Omnibus Trade and Competitiveness

Act of 1988, which authorized the President to negotiate the North American Free Trade Agreement (NAFTA)

- - - See page 274.

The General Agreement on Tariffs and Trade (GATT) of 1947

GATT of 1994 – The Uruguay Round – sets up the WTO structure

NAFTA of 1989 proposed by President G.H.W. Bush, pushed through by President Clinton

Central American Free Trade Agreement (CAFTA) 2006.

CAFTA Signatory Honduras Falls Victim to a CoupRecently ousted Honduran President Manuel Zelaya was in Washington, DC earlier this month and met with Secretary of State Hillary Clinton. Zelaya was roused from bed at gunpoint by the Honduran military, forced on a plane, and flown to Costa Rica in June. Since then, the de facto government has violated civil liberties left and right. . . .The situation in Honduras has a number of important implications: Fair traders have long argued that NAFTA-style deals promote instability and now Honduras, a signatory to CAFTA, has suffered Central America’s first coup since the Cold War. CAFTA was approved in Honduras by local elites, the same interests who are threatened by Zelaya’s progressive policies. The instability in Honduras is an illustration of how NAFTA-style trade agreements can undermine democratic governance in member nations. http://citizen.typepad.com/eyesontrade/cafta/index.html

The most important current international trade agreement.

Over 150 signatory nations. It is now part of the WTO or World Trade

Organization (which has an effective dispute resolution mechanism that GATT lacked).

The original agreement was without Congressional sanction, but 1994 round had it.

Covers tariffs and non-tariff barriers.

Allows the Executive branch to negotiate trade agreements and then Congress can only vote yes or no on it, without changes. This prevents endless renegotiations.

Came from the Trade Reform Act of 1974. This authority expired in 2007 and has not been re-

authorized by Congress. From Public Citizen: “In recent years, the United States

Trade Representative (USTR) has used Fast Track to push dozens of controversial pacts through Congress including: the Central America Free Trade Agreement (CAFTA), and dozens of trade agreements with countries such as Chile, Singapore, Morocco, Australia, Bahrain and Oman. Trade negotiations have been accelerated to an alarming speed, denying legislators and the public the appropriate time to consider the serious ramifications of these agreements.”

“Ironically, it was Bush's use of Fast Track's full powers that destroyed what was left of congressional support for the extraordinary procedure. The Bush administration dispensed with many of the traditional, albeit not required, executive-legislative coordination practices. Instead of negotiating with the trade gatekeeper committees on a bipartisan basis, the Bush administration even ignored a unanimously supported Finance Committee amendment . . .”

1. Reduce tariffs and non-tariff barriers 2. Promote worker rights (protect child

labor) 3. Protect the environment 4. Promote small business trade access 5. Promote foreign direct investment 6. Protect intellectual property rights 7. Promote a bribe-free environment 8. Promote electronic commerce

The Supremacy Clause - Article VI, Clause 2 “This Constitution, and the Laws of the United

States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.”

This authorizes federal preemption, when Congress wants control over an area, such as foreign trade (see Mass. & Burma p. 277).

(2) No State shall, without the Consent of the Congress, lay any Imposts or Duties on Imports or Exports, except what may be absolutely necessary for executing it's inspection Laws: and the net Produce of all Duties and Imposts, laid by any State on Imports or Exports, shall be for the Use of the Treasury of the United States; and all such Laws shall be subject to the Revision and Controul of the Congress.

The federal government does not like it when the states tax companies engaged in foreign commerce when it results in multiple taxation that tends to discourage trade.

CASE: Japan Line V. County of Los Angeles (p. 278): ISSUE: Can California impose the same ad valorem tax on Japanese containers that it imposes on domestic ones?

HELD: No, because 1) Japan doesn’t do it to U.S. containers, 2) it could result in the same property being fully taxed more than once, 3) it invites retaliation, not just against California company containers, but against American containers in general, 4) this tax is unconstitutional under the interstate commerce clause to the Constitution.

Can states constitutionally tax the income of foreign corporations with subsidiaries in their states on more than just the income earned in that state?

In the Barclay’s Bank case (see p. 279) California used a formula based on payroll, inventory, and sales attributable to the state and applied the resulting percentage to the company’s worldwide income.

This is legal and several states do it, but California backed off and offers the option of a “water’s edge” taxation election.

The U.S. Department of Commerce – see The Web-Wise Lawyer--Free (and Not So Free) Trade: A Look Inside The Department Of Commerce, The Practical Lawyer, Aug. 2009.

The Department of Homeland Security’s Border and Transportation Security Directorate that includes U.S. Customs and Border Protection, Immigration and Customs Enforcement, the Transportation Security Administration, the Coast Guard, and more.

See, “Fact Sheet: U.S. Border Security and WMD” from The Center for Arms Control and Non-Proliferation*:

In late August ABC news successfully shipped a 15 pound cylinder of depleted uranium from Jakarta, Indonesia to the United States through the Port of Los Angeles. The shipment has raised serious questions about the ability of customs officials to secure U.S. borders against weapons of mass destruction.

How many containers enter the United States each year? A: In 2002, more than 7 million ocean cargo containers

arrived in U.S. seaports. * http://www.armscontrolcenter.org/policy/nuclearterrorism/articles/border_security_and_wmd/

The U.S. Trade RepresentativeThis is a cabinet-level post.Function: engage in trade negotiations, advise the President on trade issues, attends WTO meetings, and the like.

The International Trade Commission – Independent and bipartisan, largely an economist-laden study center. Also investigates unfair trade practice cases.

Consists of 9 judges who hear trade related cases.

Appeals from its decisions go to the Court of Appeals for the Federal Circuit.

It has exclusive jurisdiction over civil cases against the U.S. based on matters including tariffs, embargoes, and enforcement of customs laws.

It is based in New York City.