The President's Authority to Adjust Sugar Quotas

The President’s Authority to Adjust Sugar Quotas

The President, pursuant to an executive agreement codified in the Tariff Schedules o f the United States, Schedule 1, Part 10, Subpart A, Headnote 2, may reduce Nicaragua’s share o f the annual quota o f imported sugar o n the basis of foreign policy concerns, if he finds that it is in the best interests o f the United States and he gives “due consideration,” as denned by law, to N icaragua’s interests in the U nited States sugar market.

April 25, 1983

M em orandum O p in io n for the C o u n c il t o t h e P r e s id e n t

Recent events in Nicaragua have led the President to consider reducing the amount o f sugar which may be imported into the United States from that nation. This memorandum addresses whether the President has the legal au­ thority to reduce Nicaragua’s present share of the United States sugar quota using the authority of a specific provision o f an Executive Agreement.1 Our review o f this Executive Agreement in the context o f prior practice under it, the case law construing it, and the history o f Presidential activity related to the imposition o f export controls similar to the pending proposal, persuades us that the President has the requisite legal authority. We should note that this memo­ randum does not address questions that have been raised about the validity of the proposed action under various international agreements to which the United States and Nicaragua are parties.2 We understand that the Office of the Legal Adviser at the Department o f State will be giving you its views directly on these issues, and we anticipate reviewing its analysis in the near future in connection with our customary review of a proposed proclamation.

1 W e have also exam ined several other sources o f authority for the contem plated action- § 232 o f the Trade E xpansion A c t o f 1962, 19 U.S.C. § 1862; § 22 o f the A gricultural A djustm ent Act, 7 U.S C. § 624; and the Intern atio n al E m ergency Economic P o w ers A ct (IEEPA ), 50 U S.C. §§ 1701 el seq. O f these, we have rejected the first tw o as being inappropriate bases for the proposed action and have concluded that only IE EPA w ould be a clear source of au th o rity . W e understand that there are policy reasons which argue persuasively against use o f IEEPA. The o n ly other p otential source o f authority o f which we are aware is the E xecutive A greem ent. 2 A rticle X V I o f the T reaty of Friendship, C om m erce and N avigation between the United States and the R epublic o f N icaragua, 9 U.S.T. 450, T .I.A .S . 4024 (1956), forbids either party to im pose discrim inatory im port restrictio n s. A rticle XIII of the G eneral A greem ent on Tariffs and Trade, discussed below, obliges c ontracting parties to apply quotas in a non-discrim inatory fashion. A rticle 58 o f the International Sugar A greem ent, T.I.A .S. 9644, obligates ev ery im porting m em ber to guarantee “access” to its markets for ex p o rtin g m em bers.

I. History of Presidential Authority In 1962, Congress authorized the President to negotiate trade agreements with foreign countries for the reduction or modification of existing duties or import restrictions. Trade Expansion Act of 1962 (Act), § 201 (codified at 19 U.S.C. § 1821).3 These agreements were to help promote the Act’s listed purposes.4 During rounds of talks involving the General Agreement on Tariffs and Trade (GATT),5 the President, using the authority of the Act, negotiated an Executive Agreement permitting him to set and adjust quotas for sugar im­ ported into the United States.6 Executive agreements have the force of law unless overridden by Congress. The opening paragraph of the Agreement was originally negotiated as part of the 1949 round of GATT negotiations held in Annecy, France. 64 Stat. B139, B145. In 1951, during the round held in Torquay, England, the United States 3 The statute provides in pertinent part: (a) W henever the President determ ines that any existing duties or other import restrictions of any foreign country or the U nited States are unduly burdening and restricting the foreign trade o f the U nited States and that any o f the purposes stated in section 1801 o f this title will be promoted thereby, the President may — (1) after June 30, 1962, and before July 1, 1967, enter into trade agreem ents w ith foreign countries o r instrum entalities thereof; and (2) proclaim such m odification or continuance o f any existing duty or other im port restric­ tion, such continuance o f existing duty free or excise treatm ent, or such additional import restrictions, as he determ ines to be required or appropriate to carry out any such trade agreem ent. 4 These purposes are listed in 19 U.S.C. § 1801: The purposes o f this chapter are, through trade agreem ents affording mutual trade benefits — (1) to stim ulate the econom ic growth o f the U nited States and m aintain and enlarge foreign m arkets for the products o f U nited States agriculture, industry, mining, and com m erce; (2) to strengthen econom ic relations w ith foreign countries through the developm ent of open and nondiscrim inatory trading in the free w orld; and (3) to prevent Com m unist econom ic penetration. * 5 The G A TT is a m ultilateral trade agreem ent encom passing m ost o f the m ajor trading countries A lthough G A TT’s G eneral A rticles, which set out the basic trade policy com m itm ents o f the contracting parties, were negotiated in the late nineteen-forties, seven other rounds o f negotiations have led to m any further agree­ ments and revisions, all o f w hich are subsum ed within references to “the G A TT." 6 The full text o f the agreem ent provides: The rates in the tariff schedule shall be effective only during such tim e as title II o f the Sugar Act o f 1948 o r substantially equivalent legislation is in effect in the U nited States, w hether o r not the quotas, o r any o f them, authorized by such legislation, are being applied or are suspended: Provided, (i) That, i f the President fin d s that a p articular rate not low er than such January 1,1968, rate, lim ited by a particular quota, m ay be established fo r any articles provided for in item 1SS.20 o r 155.30, which will give due consideration to the interests in the U nited States su g a r m arket o f dom estic producers and m aterially affected contracting parties to the G eneral Agreem ent on Tariffs and Trade, he shall proclaim such particular rate and such quota lim itation, to be effective not later than the 90th day follow ing the term ination o f the effectiveness of such legislation; (ii) That any rate and quota lim itation so established shall be m odified i f the President fin d s a n d proclaim s that such m odification is required o r appropriate to give effect to the above considerations; and (iii) That the January 1, 1968, rates shall resum e full effectiveness, subject to the provisions o f this headnote, if legislation substantially equivalent to title II o f the Sugar A ct of 1948 should subsequently becom e effective (Em phasis added.)

negotiated subparagraphs (i)-(iii), see 3 U.S.T. 586, 615, 1171 (1951), which were proclaimed as part of domestic law twice, first in 1951, see Proclamation 2929, 3 C.F.R. 111 (1949-1953 Comp.), and again in 1967 after they had been the subject of further negotiations in the Kennedy Round. Proclamation 3822, 3 C.F.R. 167, 175 (1966-1970 Comp.). This latter Proclamation added the agreement to the Tariff Schedules of the United States (TSUS) as a headnote to the schedules on sugar. TSUS, Schedule 1, Part 10, Subpart A, Headnote 2. The codification of the Agreement as a headnote to the sugar tariff has led to its being referred to as the Headnote authority, and it will be referred to as such during the rest of this memorandum. The Headnote authority was negotiated pursuant to § 201 of the Trade Expansion Act of 1962 which, of course, specifically provided for the negotia­ tion of trade agreements providing for the establishment of import quotas and, more pertinent here, for the “modification” of such quotas “as [the President] determines to be . . . appropriate to carry out any such trade agreement.” See supra note 3. One of the principle purposes of the Act was “to prevent Communist economic penetration.” 19 U.S.C. § 1801(3).7 Subparagraphs (i)-(iii) of the Headnote were negotiated as contingent au­ thority for the President for the time when the Sugar Act of 1948, 7 U.S.C. §§ 1100-1123 (1970 & Supp. I 1971), which had been given several exten­ sions, would expire.8 Therefore, when the Sugar Act expired in 1974, the President was able to use his authority under the Headnote to proclaim a duty and quota on imported sugar. Both the duty and the quota have been exten­ sively modified in subsequent Proclamations.9 The most recent modification occurred last spring, when the President reduced the annual global sugar quota from 6,900,000 short tons to approximately 2,800,000, allocating the quota on a country- by-country basis that reflected each country’s average percentage of imports over a period of years.10 Proclamation 4941,47 Fed. Reg. 19961, 19962 (1982)."

7 The statutory basis fo r the Headnote w as recently confirm ed in U nited States Cane Sugar R efiners' A ss 'n v. Block, 683 F.2d 399, 4 0 2 -0 3 (C C.P A. 1982). 8 At the tim e the H eadnote was negotiated, and until the Sugar Act expired in 1974, the President had explicit authority under the S ugar Act to a d ju st quotas on im ported sugar “ w henever and to the extent that the President finds that the establishm ent or continuation o f a qu o ta or any part thereof for any foreign country w ould be contrary to the national interest o f the United S tates.” Pub. L. N o 89-331, 79 Stat. 1271, 1273 (1965) (co d ified at 7 U .S.C . § 1 1 12(d)(1)(B) (Supp. II 1965-66)). See a lso 7 U.S.C. § 1112(d)(1)(B) (Supp. IV 1974). In n egotiating an Executive A greem ent designed to replace the Sugar Act when it expired, the President evidenced no desire to deny h im se lf this authority to take foreign policy concerns into account w hen adjusting sugar quotas, an authority th at the courts had confirm ed as belonging to the President under the S ugar Act even before C ongress made it explicit. See South Puerto R ico Sugar Co. Trading Corp. v. U nited States, 334 F.2d 622 (C t. Cl. 1964), cert, denied. 379 U .S 964 (1965). 9 See Proclam ation 4888, 3 C.F.R. 77 (1 982); Proclam ation 4770, 3 C.F.R . 81 (1981); Proclam ation 4720, 3 C .F.R . 14 (1981); Proclam ation 4663,3 C .F .R . 40 (1980); Proclam ation 4610, 3 C.F.R. 67 (1978); Proclam a­ tion 4539, 31C .F .R . 62 (1978); Proclam ation 4463, 3 C.F.R . 56 (1976); Proclam ation 4334, 3 C.F.R 420 (197 1 -1 9 7 5 C om p.). 10 T his reduction w as substantial because the 6,900,000 short-ton quota had been purposefully set so high that it w as never reached. T hus, the United States had effectively had no quota on sugar prior to this action. 11 The P resident took this action after C ongress had intervened in the sugar market by enacting Pub. L. No. 9 7 -9 8 , 95 Stat. 1213, 1257 (1981), which raised support p n c e s for dom estic sugar producers The President Continued

Domestic importers challenged the quota established in 1982 by Proclama­ tion 4941 as being beyond the President’s authority, but the Court of Interna­ tional Trade found that the imposition of quotas was legal because the Headnote, on which the action was based, was a valid exercise of the authority granted to the President under § 201 and the President had taken the procedural steps required by the Headnote. United States Cane Sugar Refiners’ A s s ’n v. Block (Sugar Cane I), 544 F. Supp. 883 (Ct. Int’l Trade), a ff d, United States Cane Sugar R efiners’ A ss ’n v. Block (Sugar Cane II), 683 F.2d 399 (C.C.P.A. 1982).12

II. Analysis

The President would now like to reduce the 2.1% share of the annual quota allocated last spring to Nicaragua because he believes that Nicaragua is using the hard currency derived from sugar sales to buy arms for anti-government guerrillas in El Salvador. The President would like to revise Proclamation 4941 to reduce Nicaragua’s percentage from 2.1% of the annual quota — now about 2,800,000 tons — to .21%, resulting in the importation from Nicaragua of about 6000 tons rather than almost 60,000. The legal issue is whether the Headnote permits the President to reduce Nicaragua’s percentage of the quota to this level. Because the President, in making this adjustment, would not be lowering the overall import quota or otherwise affecting domestic producers of sugar, and because the action would presumptively have a negative effect on Nicaragua, which is the only affected GATT member, the proposed action would appear not to be authorized by the Headnote’s language unless the Headnote can be read to permit this action on the basis of the President’s foreign policy concerns after giving the interests of Nicaragua the “due consid­ eration” required by the Headnote. The Headnote authorizes the President to modify sugar quotas — such as the one established for Nicaragua last spring — whenever he finds: that such modification is required or appropriate to give effect to the [interests in the United States sugar market of domestic producers and materially affected contracting parties to the GATT], Headnote, subparagraph (ii). As noted above, Presidents have been modifying sugar quotas since 1974. They have couched their findings in the language of subparagraph (i) of the Headnote under which the original quota was estab­ lished — i.e., they have made a finding that the quota will give “due consider­ 11 (. . . continued) thereafter exercised his authority under § 22 o f the A gricultural A djustm ent Act, 7 U .S.C . § 624, to im pose fees on im ported sugar in D ecem ber 1981, and, on M ay S, 1982, used the H eadnote to adjust the quota on im ported sugar by issuing Proclam ation 4941, supra. 12 The C ourt o f International Trade, 28 U .S.C. § 251(a) (Supp. V 1981), is an A rticle III court with exclusive jurisd ictio n over certain trade m atters. Id. § 1581. Its decisions are review ed by the C ourt of Custom s and Patent A ppeals. Id. § 1541(a).

ation” to these interests. Id. S ee supra note 9.13 Because Presidents since 1974 have read the standard under subparagraph (ii) to be identical to that imposed originally by subparagraph (i), we believe that the appropriate question is what “due consideration” means. As summarized in the Headnote’s legislative history, a quota could be proclaimed under subparagraph (i) “provided that the President, after giving due consideration to the interests of both domestic producers and materially affected contracting parties in the United States sugar market, should find that such rate and duty should be established.” A nalysis o f Torquay Protocol o f A ccession, Schedules, and R elated Documents 317, 347 (1951) (emphasis added). This provision appears to establish a standard that is essentially proce­ dural, rather than substantive, requiring merely that the President consider, before acting, the effect the new quota will have on these two interests rather than setting a standard under which the President can only act if the new quota would arguably protect or advance the interests of domestic producers or of affected GATT members in the United States sugar market.¹⁴ In short, “due consideration” means “fitting or appropriate” consideration,¹⁵ — a finding that is committed to the President’s discretion.¹⁶ As a legal matter, we believe that the President’s determination that this proposed action would be in our national interest after his consideration of its potential, and presumptively negative, impact on Nicaragua, would be fully authorized by the Headnote and would specifically advance one of the original purposes of the Trade Expansion Act of 1962, “to prevent Communist economic penetration.” 19 U.S.C. § 1801(3).¹⁷ Indeed, a contrary conclusion would require us to take the position that Con­ gress and the President, in the series of legislative and executive actions discussed in note 8, supra, intended to strip the Executive of his acknowledged power to adjust sugar quotas and duties on the basis of our national interest. We therefore believe that the Headnote authorizes modification of sugar quotas and

that the President may modify Proclamation 4941 to reduce Nicaragua’s per­ centage of our sugar quota if he makes the required findings.

Conclusion

The Headnote authorizes the President to adjust sugar quotas. Sugar Cane I and Sugar Cane II hold that he may modify the quotas on a country-by-country basis. If the President finds that reducing Nicaragua’s percentage of our annual quota is in this Nation’s best interest and if he finds that the quota will give “appropriate” consideration to Nicaragua’s interests in our sugar market, we believe that his action in reducing the quota will be authorized by the Headnote.

T h eo d o r e B. O lso n A ssistant Attorney General Office o f Legal Counsel

Footnotes

[13] Subparagraph (i) by its term s only authorized action d uring the 90 days after the Sugar Act o f 1948 expired. S ee su p ra note 6. Thereafter, m odifications o f the q u o ta established under subparagraph (i) were done u n d er the authority o f subparagraph (ii).

[14] The Proclam ations issued under the H eadnote since 1974 do not resolve the issue, because the quotas put in place w ere so high that the issue o f w hether a particular q u o ta failed to give “due consideration'’ to a G A TT m em b er’s interests has apparently never a risen . See supra note 10.

[15] The A m erica n H eritage Dictionary o f th e English Language 403 (1976). See also W ebster’s New In tern a tio n a l D ictionary (2nd ed.) 796.

[16] In ex ercisin g that discretion, the President may consider foreign policy concerns. C ongress is generally presum ed to be aw are that foreign policy c o n cern s influence Presidential decisionm aking w hen it grants the kind o f broad pow er found in § 201 of the T rad e Expansion A ct o f 1962. See Farr M an Sc Co. v. U nited States, 544 F. Supp. 908, 910 (C t. Int’l Trade 1982); South P uerto Rico S ugar Co. Trading Corp. v. U nited States, 334 F.2d 622 (Ct. Cl. 1964), cert, denied, 379 U.S. 964 (1965). See also United States v. Yoshida I n t’l Inc., 526 F.2d 560 (C .C .P.A . 1975); supra n o te 8.

[17] W e note that the reduction in Nicaragua’s quota, some 54,000 short tons, is scheduled to be redistributed to H onduras, El S alv ad o r and C osta Rica, th re e countries that m ay be threatened by actions taken by the g overn m en t o f N icaragua. T h u s, in cutting N ic arag u a 's quota, th e President w ill both dim inish N icaragua’s a bility to penetrate the m arket fo r sugar in th e U nited States and presum ably dim inish N icaragua’s ability to interfere in the e conom ies o f those three countries. Both o f these effects w ould appear to advance the purpose o f the T rade E xpansion A ct o f 1962 as declared in 19 U.S.C. § 1801(3).