clearly that human skills and ingenuity manage very quickly to produce whatever is needed in wartime.

The national security argument is also weakened by the diminished. likelihood of a large-scale conventional war of long duration. A major nuclear war would be brief and horrible and its outcome would not be affected by the size of particular domestic industries such as oil or steel. Non-nuclear wars restricted to particular regions are unlikely to leave the U.S. cut off from all foreign sources of supply.

Protection for national security purposes is also counterproductive politically and diplomatically. Further action to limit steel imports, for example, would strengthen the divisive forces affecting our relations with friendly countries.

The national interests of the U.S. lie in the direction of freer trade. The arguments for a contrary policy, it has been shown, are based on incorrect assessments of the facts, draw unwarranted conclusions from true statements of fact, or stress benefits that may be real and important but are either incapable of achievement or can be attained only at large economic and political cost.

The costs include the reduction to the stimulus to innovation, less consumer choice, higher prices, lower exports owing to higher costs and to the exclusion of the U.S. from the growing volume of intra-industry trade, and the deterioration of our relations with friendly countries.

Import limitations involve the use of government power to promote special interests at the general expense.

INJURY AND MARKET DISRUPTION FROM IMPORTS

By Stanley D. Metzger

II. APPLICA

III. MARKET DIS

I. ORIGINS AND MEANING OF MARKET DISRUPTION.
TION OF MARKET DISRUPTION IN THE 1960s.
RUPTION IN THE FUTURE.

IV. SUMMARY.

I. ORIGINS AND MEANINGS OF MARKET DISRUPTION

Origins of Voluntary Agreements

The use of the unilateral quantitative restriction on imports by an importing country to "protect" a domestic industry from foreign competition has an ancient lineage. In the modern era, to say nothing of earlier ages, it made its appearance at least as far back as 1463, when the British Parliament enacted a statute prohibiting imports-imposed a "zero" quota-of many manufactured articles because craftsmen could not, the Parliament believed, "live by their skill because of foreign competition."1

The other side of the same coin, the "voluntary" restraint over exports from the supplying country induced by the country of destination, is of much more recent vintage. It may be said to have begun significantly, in terms of its trade impact, in the 1930s. At least that decade witnessed the beginnings of such "agreements" negotiated by, or under the auspices of, governments. Agreements among major producers in different countries, commonly called "cartels," of course were an old story, coming to us from the guilds of the Middle Ages, the Hanseatic League, and similar instrumentalities for "regulating" trade which had become quite ubiquitous by the close of the seventeenth century.

Until the 1930's, American trade policy had utilized high tariffs almost exclusively to "protect" domestic industry from import competition. The 1930's marked the beginnings of quota and related devices for agricultural commodities and certain other raw materials, and for some industrial products as well. Section 22 of the Agricultural Adjustment Act (AAA) authorized quotas and import fees to restrict the quantities of imports of agricultural commodities, and the National Recovery

1

Stanley D. Metzger is Professor of Law at the Georgetown University Law School.

Clapham, A Concise Economic History of Britain-From the Earliest Times to 1750, (1963), p. 178.

Act's (NRA) codes for petroleum, lumber and timber, and alcoholic beverages, while of relatively short duration (from 1933 to 1935), imposed quotas on those products. Moreover, Section 3(e) of the National Industrial Recovery Act (NIRA) authorized the President, after investigation by the Tariff Commission, to impose fees or quotas on other imports, when necessary to prevent them from rendering the codes. "ineffective." Of 14 cases referred to the Commission for formal investigation, seven were completed during the life of the Act, of which four resulted in recommendations for restrictive action (quotas and/or import fees). In three-red cedar shingles, lead pencils, and cotton rugs -Canada and Japan, the principal suppliers to the U.S. market, agreed to restrict imports to specified quantities (a foreshadowing of the "voluntary" control over exports of the latter part of that decade as well as of the 1950's and 1960's).

These moves, sharply in the direction of protectionism, were soon succeeded by the outgoing liberal trade attitude bespoken by the Trade Agreements Act of 1934 and the 29 bilateral agreements negotiated thereunder until the General Agreement on Tariffs and Trade of 1947, and thereafter by the GATT principles. Under that policy, industrial products were generally subjected to lowered import duties and not subject to quantitative restraints. GATT displayed great tolerance for quantitative restraints on agricultural products, however, reflecting the policies, for the United States, of the Jones-Costigan Act of 1934 (sugar), the 1935 Philippine Cordage Act, and Section 22 of the AAA, originally enacted in 1935, which mandated import restrictions on argicultural products whose production or marketing was being restricted in the United States in the interests of lower production and higher prices.

This practical exception of agricultural commodities from the liberal trading system established by the leading trading nations of the world has meant that there has been organized tolerance for unilateral restraints on agricultural trade, and hence, with a few aberrational exceptions (such as the Potato Agreement of 1948 between the U.S. and Canada), no need to utilize the indirect "voluntary agreement" technique. This tolerance was never extended in principle to industrial products, however; thus it is primarily with respect to industrial products that we find applications of the "voluntary agreement" technique today.

The "voluntary" restraint upon exports is in reality a misnomer— it is an action of restraint by an exporting country taken because of its concern that unilateral quotas would otherwise be imposed against it by an importing country, which might well produce more adverse trade effects than those "voluntarily" agreed to by the exporting country through the more flexible medium of negotiations. For once unilateral quotas are imposed, they bear within themselves the seeds of their own continuity-the same domestic industry groups which were strong enough to secure quotas initially will likely retain sufficient political power to assure their continuation into a relatively long future. In this

connection, it is noteworthy that the unilateral American oil import restrictions of 1957 and 1959 have continued to be imposed without interruption down to the present time without apparent signs of early termination, despite costs of the American people estimated at more than $4 billion annually. Cotton and wheat quotas initiated under Section 22 of the AAA have had an even longer life, going back well over 20 years.

On the other hand, exporting countries maintain more control over "voluntary" restraints, whose duration and severity are subject to periodic review through the negotiations process. Thus "voluntary" restraints are considered to be the lesser evil by an exporting country.

The U.S.-Canada Potato Agreement of 1948 exemplifies how a "voluntary" restraint originates. When the U.S. Department of Agriculture considered the institution of a Section 22 action in 1948 concerning potatoes, Canada indicated that it was prepared to control exportation in order to avoid the Section 22 quota (Canada was well aware of the longevity of Section 22 quotas once they had been introduced, having been a large wheat exporter antedating the Section 22 wheat quotas). The Department of Agriculture, for its part, was prepared to see the Canadian export control limited to a single crop year because the potato control could be implemented immediately rather than in the four months' time it would then have taken for the institution of Section 22 quotas and because the Canadian government had indicated to the State Department that adverse political repercussions could be expected to attend U.S. application of unilateral quota controls. The Potato Agreement was the result.2

The considerations motivating the "voluntary" control over exports which have been negotiated since World War II were foreshadowed by those which underlay the Potato Agreement of 1948. On the U.S. side, strong domestic interests desired to protect themselves against competitive imports. They either believed that they could not qualify for escape clause relief (i.e., Cotton Textiles, Man-made Textile Fibers, Shoes), or, if they might qualify for National Security Amendment relief (i.e., Steel), they were aware of the foreign relations problems involved in imposing unilateral quotas, which are often considered to be "unfriendly" acts by America's trading partners. Cognizant Congressional Committees, made aware of these problems by their own

* Subsequently, in litigation concerning the Agreement (U.S. v. Guy W. Capps, 348 U.S. 296 (1955)), affirming on different grounds 204 F. (2d) 655 (4th Cir., 1952), this bypassing of Section 22 procedures was held by the 4th Circuit to render void the Agreement. The Supreme Court, at the urging of the Government in a suit involving the Canadian control, specifically disavowed that reason for denying relief to the Government. During the 1952-1954 period, however, the State Department avoided making “agreements" in areas covered by domestic remedial legislation because of the 4th Circuit's opinion in Capps, and even thereafter preferred to see the results of government-to-government negotiations, not undertaken pursuant to congressional authorization, reflected in "unilateral" voluntary controls notified to the United States, but not specifically "agreed to" by it.