Foreign Relations of the United States, 1951, National Security Affairs; Foreign Economic Policy, Volume I

International Trade Files, Lot 57 D 284, Box 161, “Escape Clause”

Report of the President to the Congress of the United States Pursuant to Section 6(b) of the Trade Agreements Extension Act of 1951

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Report on Trade Agreement Escape Clauses

Section 6 of the Trade Agreements Extension Act of 1951 provides as follows:

• “(a) No reduction in any rate of duty, or binding of any existing customs or excise treatment, or other concession hereafter proclaimed under section 350 of the Tariff Act of 1930, as amended, shall be permitted to continue in effect when the product on which the concession has been granted is, as a result, in whole or in part, of the duty or other customs treatment reflecting such concession, being imported into the United States in such increased quantities, either actual or relative, as to cause or threaten serious injury to the domestic industry producing like or directly competitive products.
• “(b) The President, as soon as practicable, shall take such action as may be necessary to bring trade agreements heretofore entered into under section 350 of the Tariff Act of 1930, as amended, into conformity with the policy established in subsection (a) of this section.
• “On or before January 10, 1952, and every six months thereafter, the President shall report to the Congress on the action taken by him under this subsection.”^*

The effect of this new provision of trade agreements legislation is a statutory requirement (1) that all future trade agreement concessions shall be subject to an escape clause conforming to the policy established in subsection (a) of section 6, and (2) that, as soon as practicable, the President shall take such action as may be necessary to bring existing trade agreements which do not contain such an escape clause into conformity with the policy of subsection (a) of section 6 and to report to the Congress periodically on the action taken in this respect.

A review of existing trade agreements in the light of the policy expressed in section 6(a) and its legislative history shows that all except six are in conformity with this policy. As is indicated more fully later in this report, one of these six agreements is in the process of being terminated and another is under renegotiation which is likely to include the addition of escape clause provisions. Subcommittees of the Trade Agreements Committee have been directed to recommend to that Committee at an early date proposals with regard to the remaining four of these agreements. Since this is the first report to the Congress under section 6(b), the enumeration of the steps taken pursuant thereto is preceded by an explanation of the development of the use of escape clauses and the extent to which they have been made applicable to an increasingly larger number of concessions.

Ever since the enactment of the Trade Agreements Act in 1934 it has been the policy of the President to direct the operation of the trade-agreements program in such a way as to avoid serious injury to domestic industries. The extent to which domestic industries are protected against serious injury, through procedures followed in preparing for the negotiation of trade agreements, safeguards written into the concessions granted on specific products, and avenues of escape after the agreements become effective, has been called to the attention of the Congress in connection with the periodic renewals of the trade-agreements authority. A detailed description of these procedures and safeguards is contained in the report of the Ways and Means Committee on the 1951 renewal (House Report No. 14, January 29, 1951, 82d Congress, 1st Session, p. 11 to 14). This report summarizes these procedures and safeguards as follows:

• “Measures to assure that no United States industry will suffer serious injury or threat of serious injury through a concession in a trade agreement are provided for: (1) in the procedures followed before a trade agreement is negotiated; (2) in the individual concessions themselves; and (3) in the general provisions of the agreement which apply after the agreement becomes effective.” (Ibid., p. 11.)

In the early trade agreements negotiated under the Trade Agreements Act separate provisions were included to safeguard against each of various specified contingencies which might arise after the agreement became effective. For example, many of the early agreements contained a provision under which individual tariff concessions could be modified or withdrawn on short notice if it should develop after the agreement entered into force that third countries were getting the major benefit of the concession and serious injury were being caused or threatened to the domestic industry by increased imports of the product concerned. Another safeguarding provision found in many early trade agreements permitted termination or modification of the agreement on short notice in the event of wide variations in exchange rates threatening serious injury to domestic industries.

Subsequently, broader safeguarding provisions were included in later agreements largely because of the impossibility of foreseeing, at the time of making an agreement, all the situations which might arise under the agreement to require safeguarding action. Hence, beginning with the trade agreement with Argentina (signed October 14, 1941),^† it has been the policy to rely upon provisions broad enough in scope to afford the basis for action in the event that situations should arise after the conclusion of the agreement of such a character as to threaten serious injury to domestic industries in either of the countries party to the agreement. Although all of these provide protection against serious injury to domestic producers, the exact text of the broad escape clauses included in them has varied somewhat.

In the trade agreements with Argentina (Article XII), Iceland (Article XII), Iran (Article IX), Peru (Article XI), and Uruguay (Article XII), which were concluded between 1941 and 1943, escape provisions, substantially similar to each other were inserted, which are broad enough in scope to afford the basis for prompt action in the event that circumstances should arise of such a kind as to threaten serious injury to domestic industries. Briefly described, the escape provisions in each of these agreements provide for consultation and discussion in the event of any situation arising which has the effect of prejudicing an industry or the commerce of one of the parties to the agreement; such consultation is to take place with a view to effecting a mutually satisfactory adjustment of the matter, but if no agreement can be reached, the contracting party desiring to take the action may do so by terminating the agreement in whole or in part on short notice.

In the light of the experience gained in the operation of the trade-agreements program there was developed what has become known as the “standard” escape clause. On February 25, 1947 the President issued Executive Order No. 9832 in which he directed that all trade-agreements entered into thereafter should include the standard escape clause. Later executive orders (No. 10004 of October 5, 1948 and No. 10082 of October 5, 1949) continued the President’s specific instruction regarding the standard escape clause with no substantial change. This clause provides in substance that trade agreement concessions may be suspended, withdrawn, or modified if it should be found after the agreement becomes effective that as a result in part of the concession a product is being imported in such increased quantities as to cause or threaten serious injury to the domestic industry producing like or directly competitive products. By virtue of section 6(a) of the 1951 Extension Act the presidential instruction set forth in these orders has become a statutory requirement to be followed in the negotiation of all new trade agreements.

The original negotiations leading to the multilateral trade agreement known as the General Agreement on Tariffs and Trade were completed at Geneva, Switzerland in October 1947 and, in compliance with Executive Order 9832, that Agreement contains the standard escape clause (Article XIX). The trade agreement with Paraguay (1946, Article XII) also contains the standard clause with only minor variations.^‡

The standard escape clause permits the modification or withdrawal of concessions under conditions which are stated in terms substantially equivalent to those used in section 6(a) of the 1951 Extension Act, which sets forth the policy of Congress that trade agreement concessions should not be continued in effect under specified conditions. The clause is also substantially equivalent to the relevant provisions of section 7 of that act prescribing the method for carrying out this policy, which is through the withdrawal or modification of concessions if the President determines such action is warranted after investigation and report to the President by the Tariff Commission. The earlier escape clauses in the trade agreements with Argentina, Iceland, Iran, Peru,^§ and Uruguay,^║ while not so specifically worded, are sufficiently broad in their language to permit such action to be taken by the United States. Consequently, these five trade agreements and those to which the standard escape clause is applicable are in conformity with the policy set forth in section 6(a).

The Executive has in recent years brought an ever-increasing proportion of trade agreement concessions, including those contained in earlier trade agreements, within the scope of the standard escape clause. This has been the case particularly since 1947, in connection with the multilateral negotiations with respect to the General Agreement. The original negotiations for this agreement at Geneva were carried on among twenty-three countries.^¶ Subsequently, as a result of negotiations completed at Annecy, France in October 1949 and at Torquay, England in April 1951, thirteen additional countries^** have acceded to that agreement.

In connection with the Geneva, Annecy and Torquay negotiations, it has been the consistent policy of the United States, in those cases where we had earlier bilateral trade agreements, to arrange with the countries concerned for the suspension or termination of existing bilateral agreements as these countries became contracting parties to the General Agreement. Hence, our earlier bilateral trade agreement obligations to countries becoming contracting parties to the General Agreement have been superseded by trade agreement obligations to them under the General Agreement which are subject to the standard escape clause. For example, our earlier bilateral trade agreements with such important trading countries as Canada (1938), the United Kingdom (1938), France (1936), Belgium (1935), and the Netherlands (1935) have all been superseded by the General Agreement. This has also been the case with our bilateral agreements with Brazil, Cuba, Finland, Haiti, Nicaragua, Peru, and Sweden.

As of January 1, 1952, the United States had trade agreement obligations with thirty-two^†† countries under the General Agreement. The tariff concessions of the United States to these thirty-two countries, included in its schedules to the General Agreement, which are subject to the standard escape clause in that agreement, include approximately 85 percent of the import trade of the United States.

The trade agreement with Switzerland, signed in 1986, did not originally contain the standard escape clause, but on October 13, 1950 it was agreed by the two countries that the standard escape clause should thereafter be applicable to the 1936 agreement.

In addition to the trade agreements already discussed which are in conformity with the policy of section 6(a), the United States was, at the time of the enactment of the 1951 Extension Act, a party to bilateral trade agreements with six other countries as follows: Ecuador, El Salvador, Guatemala, Honduras, Turkey and Venezuela.

Steps are now under way for the termination of the agreement with Turkey (signed in 1939) following the accession of that country to the General Agreement in October 1951.

In the case of the trade agreement with Venezuela, which was signed in November 1939, formal public notice of intention of this Government to negotiate with the Government of Venezuela to supplement and amend the agreement was given on August 29, 1951 (16 F.R. 8868). In these negotiations the United States will seek inclusion in that agreement of an escape clause provision in conformity with the policy set forth in section 6 (a) of the 1951 Extension Act.

The Interdepartmental Committee on Trade Agreements has set up subcommittees with instructions to formulate proposals with regard to the other four agreements—with Ecuador, El Salvador, Guatemala, and Honduras—in the light of the 1951 Extension Act and to report to it by March 1, 1952. The tariff concessions made by the United States in these four agreements are limited almost entirely to products such as bananas, coffee, and other tropical specialties which are non-competitive with domestic production.

Appendix

Escape Clause Provisions

i provisions in executive orders

Executive Order 9832, February 25, 1947:

• “1. There shall be included in every trade agreement hereafter entered into under the authority of said act of June 12, 1934, as amended, a clause providing in effect that if, as a result of unforeseen developments and of the concession granted by the United States on any article in the trade agreement, such article is being imported in such increased quantities and under such conditions as to cause, or threaten, serious injury to domestic producers of like or similar articles, the United States shall be free to withdraw the concession, in whole or in part, or to modify it, to the extent and for such time as may be necessary to prevent such injury.” (3 CFR, 1947 Supp., p. 127.)

Executive Order 10004, October 5, 1948:

• “10. There shall be applicable to each concession with respect to an article imported into the United States which is granted by the United States in any trade agreement hereafter entered into a clause providing in effect that if, as a result of unforeseen developments and of such concession, such article is being imported in such increased quantities and under such conditions as to cause or threaten serious injury to the domestic industry producing like or similar articles, the United States shall be free to withdraw the concession, in whole or in part, or to modify it, to the extent and for such time as may be necessary to prevent such injury.” (3 CFR, 1948 Supp., p. 231.)

Executive Order 10082, October 5, 1949:

• “10. There shall be applicable to each tariff concession granted, or other obligations incurred, by the United States in any trade agreement hereafter entered into a clause providing in effect that if, as a result of unforeseen developments and of such concession or other obligation, any article is being imported in such relatively increased quantities and under such conditions as to cause or threaten serious injury to the domestic industry producing like or directly competitive articles, the United States shall be free to withdraw or modify the concession, or suspend the other obligation, in whole or in part, to the extent and for such time as may be necessary to prevent such injury.” (3 CFR, 1949 Supp., p. 127.)

ii provisions in trade agreements

Trade Agreement with Argentina, October 14, 1941:

“Article XII

“1. If the Government of either country should consider that any circumstance, or any measure adopted by the other Government, even though it does not conflict with the terms of this Agreement, has the effect of nullifying or impairing any object of the Agreement or of prejudicing an industry or the commerce of that country, such other Government shall give sympathetic consideration to such representations or proposals as may be made with a view to effecting a mutually satisfactory adjustment of the matter. If no agreement is reached with respect to such representations or proposals, the Government making them shall be free to suspend or terminate this Agreement in whole or in part on thirty days’ written notice.” (56 Stat. (pt. 2) 1696, 1697.)

Trade Agreement with Uruguay, July 21, 1942:

“Article XII

“1. If the Government of either country should consider that any circumstance, or any measure adopted by the other Government, even though it does not conflict with the terms of this Agreement, has the effect of nullifying or impairing any object of the Agreement or of prejudicing an industry or the commerce of that country, such other Government shall give sympathetic consideration to such representations or proposals as may be made with a view to effecting a mutually satisfactory adjustment of the matter. If no agreement is reached with respect to such representations or proposals, the Government making them shall be free to suspend or terminate this Agreement in whole or in part on thirty days’ written notice.” (56 Stat. (pt. 2) 1635.)

Trade Agreement with Iran, April 8, 1943:

“Article IX

“1. If the Government of either country should consider that any circumstance, or any measure adopted by the other Government, even though it does not conflict with the terms of this Agreement, has the effect of nullifying or impairing any object of the Agreement or of prejudicing an industry or the commerce of that country, such other Government shall give sympathetic consideration to such written representations or proposals as may be made with a view to effecting a mutually satisfactory adjustment of the matter. If agreement is not reached with respect to the matter within thirty days after such representations or proposals are received, the Government which made them shall be free, within fifteen days after the expiration of the aforesaid period of thirty days, to terminate this Agreement in whole or in part on thirty days’ written notice.” (58 Stat. (pt. 2) 1327.)

Trade Agreement with Iceland, August 27, 1943:

“Article XII

“If the Government of either country should consider that any circumstance, or any measure adopted by the other Government, even though it does not conflict with the terms of this Agreement, has the effect of nullifying or impairing any object of the Agreement or of prejudicing an industry or the commerce of that country, such other Government shall give sympathetic consideration to such written representations or proposals as may be made with a view to effecting a mutually satisfactory adjustment of the matter. If agreement is not reached with respect to the matter within thirty days after such representations or proposals are received, the Government which made them shall be free, within fifteen days after the expiration of the aforesaid period of thirty days, to terminate this Agreement in whole or in part on thirty days’ written notice.” (57 Stat. (pt. 2) 1086.)

Trade Agreement with Paraguay, September 12, 1946:

“Article XII

“1. If, as a result of unforeseen developments and of the concession granted on any article enumerated and described in the Schedules annexed to this Agreement, such article is being imported in such increased quantities and under such conditions as to cause or threaten serious injury to domestic producers of like or similar articles, the Government of either country shall be free to withdraw the concession, in whole or in part, or to modify it to the extent and for such time as may be necessary to prevent such injury. Accordingly, if the President of the United States of America finds as a fact that imports of any article enumerated and described in Schedule II are entering the United States of America under the circumstances specified in the preceding sentence, he shall determine whether the withdrawal, in whole or in part, of the concession with regard to the article, or any modification of the concession, by the imposition of quantitative regulations or otherwise, is necessary to prevent such injury, and he shall, if he finds that the public interest will be served thereby, proclaim such finding and determination, and on and after the effective date specified in such proclamation, and so long as such proclamation remains in effect, imports of the article into the United States of America shall be subject to the customs treatment so determined to be necessary to prevent such injury. Similarly, if the Government of the Republic of Paraguay finds as a fact that any article enumerated and described in Schedule I is being imported into the Republic of Paraguay under the circumstances specified, it may, if it finds that the public interest will be served thereby, withdraw in whole or in part the concession with regard to the article, or modify the concession by the imposition of quantitative regulations or otherwise, to the extent and for such time as may be necessary to prevent such injury.

“2. Before the Government of either country shall withdraw or modify a concession pursuant to the provisions of paragraph 1 of this Article, it shall give notice in writing to the Government of the other country as far in advance as may be practicable and shall afford such other Government an opportunity to consult with it in respect of the proposed action; and if agreement with respect thereto is not reached the Government which proposes to take such action shall, nevertheless, be free to do so and the other Government shall be free within thirty days after such action is taken to terminate this Agreement in whole or in part on thirty days’ written notice.” (61 Stat. (pt. 3) 2700, 2701.)

General Agreement on Tariffs and Trade, October 30, 1947:

“Article XIX

“Emergency Action on Imports of Particular Products

“1. (a) 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 is being 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 or remedy such injury, to suspend the obligation in whole or in part or to withdraw or modify the concession.

“(b) If any product, which is the subject of a concession with respect to a preference, is being imported into the territory of a contracting party in the circumstances set forth in sub-paragraph (a) of this paragraph, so as to cause or threaten serious injury to domestic producers of like or directly competitive products in the territory of a contracting party which receives or received such preference, the importing contracting party shall be free, if that other contracting party so requests, to suspend the relevant obligation in whole or in part or to withdraw or modify the concession in respect of the product, to the extent and for such time as may be necessary to prevent or remedy such injury.

“2. Before any contracting party shall take action pursuant to the provisions of paragraph 1 of this Article, it shall give notice in writing to the Contracting Parties as far in advance as maybe practicable and shall afford the Contracting Parties and those contracting parties having a substantial interest as exporters of the product concerned an opportunity to consult with it in respect of the proposed action. When such notice is given in relation to a concession with respect to a preference, the notice shall name the contracting party which has requested the action. In critical circumstances, where delay would cause damage which it would be difficult to repair, action under paragraph 1 of this Article may be taken provisionally without prior consultation, on the condition that consultation shall be effected immediately after taking such action.

“3. (a) If agreement among the interested contracting parties with respect to the action is not reached, the contracting party which proposes to take or continue the action shall, nevertheless, be free to do so, and if such action is taken or continued, the affected contracting parties shall then be free, not later than ninety days after such action is taken, to suspend, upon the expiration of thirty days from the day on which written notice of such suspension is received by the Contracting Parties, the application to the trade of the contracting party taking such action, or, in the case envisaged in paragraph 1 (b) of this Article, to the trade of the contracting party requesting such action, of such substantially equivalent obligations or concessions under this Agreement the suspension of which the Contracting Parties do not disapprove.

“(b) Notwithstanding the provisions of sub-paragraph (a) of this paragraph, where action is taken under paragraph 2 of this Article without prior consultation and causes or threatens serious injury in the territory of a contracting party to the domestic producers of products affected by the action, that contracting party shall, where delay would cause damage difficult to repair, be free to suspend, upon the taking of the action and throughout the period of consultation, such obligations or concessions as may be necessary to prevent or remedy the injury.” (61 Stat. (pt. 5) A58 to A60.)

Agreement with Switzerland, October 13, 1950:

• “1. If, as a result of unforeseen developments and of the effect of the obligations incurred by the Government of the United States of America or of Switzerland under the Trade Agreement signed in Washington January 9, 1936, including tariff concessions, any product is being imported into the territory of either country in such relatively increased quantities and under such conditions as to cause or threaten serious injury to the domestic industry in that territory producing like or directly competitive products, the Government of the United States of America or of Switzerland shall be free, in respect of such product, and to the extent and for such time as may be necessary to prevent or remedy such injury, to suspend the obligation in whole or in part or to withdraw or modify the concession.
• “2. Before the Government of the United States or of Switzerland shall take action pursuant to the provisions of Paragraph one above, it shall give notice in writing to the other Government as far in advance as may be practicable and shall afford such other Government an opportunity to consult with it in respect of the proposed action and with respect to such compensatory modifications of the Trade Agreement as may be deemed appropriate, to the extent practicable maintaining the general level of reciprocal and mutually advantageous concessions in the Agreement. If agreement between the two Governments is not reached as a result of such consultation, the Government which proposes to take the action under Paragraph one shall, nevertheless, be free to do so and, if such action is taken, the other Government shall be free, not later than ninety days after the action has been taken and on thirty days’ written notice, to suspend the application to the trade of the Government taking action under Paragraph one of substantially equivalent obligations or concessions under said Trade Agreement. The Government taking action under Paragraph one shall then be free, within thirty days after such suspension takes effect, to terminate said Trade Agreement on thirty days’ written notice. In critical circumstances, where delay would cause damage which it would be difficult to repair, action under Paragraph one may be taken provisionally without prior consultation, under the condition that consultation shall be effected immediately after taking such action. Where an action taken without prior consultation causes or threatens to cause serious injury in the territory of the other Government to the domestic producers of products affected by the action, that Government shall, where delay would cause damage difficult to repair, be free to suspend, upon the taking of the action and throughout the period of consultation, such obligations or concessions as may be necessary to prevent or remedy the injury.” (16 F.R. 11945, 11946.)

1. The Report of the Senate Committee on Finance, which proposed section 6 in its present form, explained that “the principle of including an escape clause in existing agreements is not mandatory unless such action would be practicable” (Senate Report 299, April 27, 1951, 82d Congress, 1st Sess., p. 5). In opening the debate on this provision in the Senate, Senator George, Chairman of the Committee, stated that, “In general, this amendment is designed to allow the greatest possible freedom in the operation of existing and future trade agreements without resultant serious injury to domestic producers” (97 Cong. Record (May 21, 1951) 5620). He continued:

   • “Recognizing, however, the varying situations which exist in our trade relations with different countries at different times, the committee places no time limit upon the President, and makes the principle of including the escape clause in existing agreements mandatory only if such action would be practicable. This is to make sure that no important interest in this country will be jeopardized by action which might be unwise or precipitate under the circumstances.” (Ibid. 5620, 5621). [Footnote in the source text.]

2. The texts of this and later escape clause provisions discussed are reproduced as an appendix to this report. [Footnote in the source text.]
3. A comparable escape clause was also in the trade agreement with Mexico (1942, Article XI), which is no longer in force. [Footnote in the source text.]
4. This agreement has been terminated as a result of the accession of Peru to the General Agreement on Tariffs and Trade in October 1951. [Footnote in the source text.]
5. Uruguay has undertaken negotiations for accession to the General Agreement, but has not yet acceeded. Steps have been initiated for the termination of this bilateral agreement if Uruguay becomes a contracting party to the General Agreement. [Footnote in the source text.]
6. Australia, Belgium, Brazil, Burma, Canada, Ceylon, Chile, China, Cuba, Czechoslovakia, France, India, Lebanon, Luxembourg, Netherlands, New Zealand, Norway, Pakistan, Southern Rhodesia, Syria, Union of South Africa, United Kingdom, and United States. [Footnote in the source text.]
7. Austria, Denmark, Dominican Republic, Finland, Federal Republic of Germany, Greece, Haiti, Italy, Liberia, Nicaragua, Peru, Sweden, and Turkey. [Footnote in the source text.]
8. Australia, Austria, Belgium, Brazil, Burma, Canada, Ceylon, Chile, Cuba, Denmark, Dominican Republic, Finland, France, Federal Republic of Germany, Greece, Haiti, India, Indonesia, Italy, Liberia, Luxembourg, Netherlands, New Zealand, Nicaragua, Norway, Pakistan, Peru, Southern Rhodesia, Sweden, Turkey, Union of South Africa, and United Kingdom. [Footnote in the source text.]