Section 301 Review Will Finish This Fall; USTR Says Initial Steel Agreement Will Cover Only Scope 1

The Biden administration will complete its review of the Section 301 tariffs "this fall," U.S. Trade Representative Katherine Tai wrote to senators, and while she did not commit to any course of action, she wrote: "As part of the 4-Year Review of the Section 301 tariffs, USTR is reviewing the effectiveness of the tariffs in achieving the objectives of the investigation, as well as the effect of the tariffs on consumers, workers, and the U.S. economy at large. As part of this review, we are considering the existing tariffs structure and how to make the tariffs more strategic in light of impacts on sectors of the U.S. economy as well [as] the goal of increasing domestic manufacturing."

Tai was responding to senators' written questions following a Senate Finance Committee hearing in March; the answers were released by the committee July 19.

Committee Chairman Ron Wyden, D-Ore., and two other Democrats asked about reopening an exclusion process, or how to make a future exclusion process better. Six Republicans on the committee either asked about improving the exclusion process or questioned the utility of the tariff action.

Sen. John Barrasso, R-Wyo., wrote, "I have long been skeptical of the effectiveness of the Section 301 tariffs on over $300 billion in Chinese goods. American families and businesses are all struggling with inflation and the high cost of goods and services. While I understand the need to crack down on unfair Chinese trade practices, I believe these tariffs are simply making a bad situation worse for all Americans. I don’t see where these tariffs have significantly altered Chinese behavior. When will USTR’s statutory review of the Section 301 tariffs be complete?" He also asked why there hasn't been an exclusion process again. Tai did not respond directly to that question, saying "USTR continues to consider" whether there will be an additional exclusion process.

To those who asked how it could be improved if it does return, she wrote: "We received a number of comments from the public on ways a future exclusion could be altered to be more effective."

Tai did not provide the same boilerplate answer on the 301 review each time she was asked; another time, she elaborated: "USTR also sought views on the impact of the actions on U.S. workers, U.S. small businesses, U.S. manufacturing, critical supply chains, U.S. technological leadership, and possible tariff inversions."

Several Republicans, including Sen. John Cornyn, R-Texas, used findings from the International Trade Commission to argue the tariffs are burdensome to importing businesses and consumers. "Specifically, the International Trade Commission estimated that prices increased by about 1 percent for each 1 percent increase in the tariffs under sections 232 and 301," he wrote.

Tai responded that importers pay more, but it's unknown whether they passed along those costs to consumers. "The price increases that the report attributes to the tariff actions tend to be relatively small on average," she wrote. "The report found certain benefits of the tariff actions, including outcomes consistent with the objectives of the investigations."

She noted that products taxed under Section 301 are imported in lower volumes from China now, and that semiconductor imports from China fell more than 70%. She said the ITC found Section 301 tariffs increased U.S. production of furniture and kitchen cabinets "by as much as 7.5 percent." Cabinets and wooden bedroom furniture from China are also subject to antidumping and countervailing duties, with the average trade remedies approximately 25% on cabinets and more than 200% on wooden furniture.

Sen. Marsha Blackburn, R-Tenn., the only senator who brought up the Section 301 tariffs during the hearing (see 2303230030), asked Tai about refunds paid by importers who later received exclusions, noting the last time the Biden administration renewed exclusions, it limited retroactivity to Oct. 12, 2021, although the tariffs were reimposed Jan. 2, 2021.

Tai did not directly respond on how retroactivity would be handled but said that if there were to be an exclusion, they would take into account findings in the review on the effect on consumers and U.S. industries when designing the process.

Blackburn also asked: "Does Customs and Border Protection have the administrative authority to suspend liquidations and provide full retroactively for 301 tariffs?"

Tai said Blackburn would need to ask CBP and DOJ. "The question is subject to litigation regarding the Section 301 tariffs," she wrote.

Senators' written questions ranged widely, with questions on export access for agricultural products from their states, about steel and aluminum negotiations with the EU, on USMCA irritants, on critical minerals agreements, on the Central America Free Trade Agreement, on AD/CVD reform legislation, and about the administration's disinterest in tariff-liberalizing negotiations.

Blackburn asked: "Can you provide a timeline on when USTR plans to implement the USMCA Dispute Settlement Panel's unanimous decision on Automotive" rules of origin/regional value content calculations?"

The U.S. lost its case at the panel, where it argued that the auto rules of origin should not allow roll-up when calculating the total value of North American content in a vehicle (see 2301110058 and 2305020054).

Tai responded: "We are actively engaging with Mexico and Canada regarding the Panel's decision in the USMCA Autos ROOs dispute. Among other issues, we are discussing ways to gain insight into the impact that implementation of the Panel's decision would have on investment and jobs in North America. Our discussions with Mexico and Canada on these issues will progress."

Cornyn told Tai he's concerned a shortage of grain-oriented electrical steel to make distribution transformers is a result of tariffs and quotas on the product. He asked: "Why have imports of GOES from our allies, particularly South Korea and Japan, fallen so precipitously in recent years?"

Tai responded, "USTR is aware of the concerns you note regarding the availability of grain-oriented electrical steel for distribution transformers and will continue to work with the U.S. Department of Energy, the U.S. Department of Commerce and other U.S. government agencies, as appropriate, to ensure that U.S. stakeholders’ views on this important issue are taken into consideration." She said DOE may raise efficiency standards for transformers, implying fewer would be needed in that case.

Ranking member Sen. Mike Crapo, R-Idaho, complained that Congress has not been given details on USTR's "paradigm-shifting" Global Arrangement on Sustainable Steel and Aluminum. "What methodology does the Administration propose to determine the carbon intensity of a particular steel or aluminum product? Please include any information regarding any aspect of the methodology that may consider upstream or downstream impacts. What legal authority does the Administration intend to rely on to enact the Global Arrangement? If the Administration plans to ask Congress for authority, when will Congress receive the Administration’s legislative proposal?"

Tai responded, "The Global Arrangement would eventually cover all direct (scope 1) and certain indirect (scope 2 and scope 3) emissions. Due to current data availability limitations across economies, the initial types of emissions considered for assessing the emissions intensity of the imports may be limited to direct emissions for steel and direct and certain indirect (scope 2) emissions for aluminum. As data improves over time, this would expand to include more complete emissions data, including additional data on indirect emissions (scope 2 and 3). As negotiations are ongoing, we are still considering the authority(ies) that may be necessary to conclude and implement the Global Arrangement -- this will depend on the structure and content of the instrument we announce with the EU." She promised to continue to consult with Congress as negotiations advance.

Sen. Bob Casey, D-Pa., a defender of domestic steel producers, asked Tai how the agreement will ensure participants cannot overproduce steel and aluminum, or finish steel and aluminum that was overproduced, which depresses global steel prices. " How will you ensure there is not a back door into this agreement by creating strong rules of origin?"

Tai said participants will have to restrict steel and aluminum made with nonmarket access capacity from their markets, and that if state-owned or state-controlled enterprises operate in their countries, that will be taken into account.

Sen. Todd Young, R-Ind., asked about legislation he co-sponsored to make AD/CVD better for domestic interests. He wrote: "Do you agree that our current AD-CVD process has limits? What tools would enable agencies to better assist with exposing and limiting circumvention?"

Tai said circumvention and duty evasion are challenging to address but did not speak to the administration's view of the bill. She said USTR works to enhance duty evasion cooperation with other countries, such as Canada and Mexico, and is working on other partnerships like those.

Sen. James Lankford, R-Okla., asked what mistakes did the U.S. make "that have inhibited CAFTA from having a bigger impact on the prosperity and stability of the Northern Triangle?" He also asked if the administration supports Nicaragua's Dominican Republic-Central America Free Trade Agreement (CAFTA-DR) participation, given that nation's human rights violations.

"While trade has increased under the CAFTA-DR, global economic downturns -- most recently from the pandemic -- frequent natural disasters, and security issues such as narcotrafficking and gang violence have had severe negative impacts on the economies and development of partners in the region. Several CAFTA-DR countries, particularly in northern Central America, suffer from protracted social crises, extreme violence, and inadequate investment in education and infrastructure," she wrote. "Trade policy alone cannot deliver sustainable economic development, poverty alleviation, and social stability, but the CAFTA-DR is an integral part of the Administration’s efforts to address the root causes of migration."

While some apparel importers, analysts and policymakers have said CAFTA-DR's apparel rules are inhibiting its usefulness (see 2104140047 and 2305010068), USTR has been emphatic that they will remain (see 2303300043).

Tai noted that CAFTA-DR's existence is critical to the well-being of Central Americans, but said: "With respect to Nicaragua, we share concerns about the crisis of democracy under the Ortega regime and have taken a number of actions, including withholding support for Nicaragua’s participation in trade capacity building and technical assistance initiatives, and will continue to exclude Nicaragua from these benefits of CAFTA-DR and other initiatives."

Lankford asked why the U.K. isn't a natural fit for a tariff-liberalizing trade agreement that could help U.S. agriculture exports, given that the U.K. has more-stringent climate rules than the U.S. and has high labor standards.

"Under the U.S.-UK Trade Dialogues we have been discussing a range of issues, including labor, as well as the environment, trade facilitation, supply chains, and addressing China’s non-market policies and practices and economic coercion. I remain open to the best mechanism to formalize this bilateral trade engagement between the United States and the UK, whether through a trade agreement or other tools," she replied.

Barrasso complained, "The President’s 2023 Trade Agenda is full of dialogues, frameworks and lofty aspirational goals. But there’s no mention of seeking new free trade agreements (FTAs) with our allies despite their clear benefits to U.S. farmers, ranchers, manufacturers and consumers. Instead of exporting American beef, energy, agriculture products or technology. ... Members on both sides of the aisle have raised concerns about market access reform, but those concerns have been routinely ignored.

"Why does the Administration refuse to seek market access reform? And are members of Congress wrong in calling on the President to do so?"

Tai said USTR has secured market access with beef tariff rate quota revisions in Japan, TRQs in the EU for rice, wheat, corn and shellfish, and negotiated an end to food safety restrictions in India for American pork and pecans. She noted that retaliatory tariffs on U.S. products in the EU ended with a settlement to the civil aviation dispute, and in a response to questions from Sen. Maria Cantwell, D-Wash., about India, she noted the end of retaliatory tariffs on several ag exports. India raised tariffs in response to Section 232 tariffs on its steel.

Tai said, "USTR has launched the Indo-Pacific Economic Framework, the U.S.-Taiwan Initiative on 21st Century Trade, and the U.S.-Kenya Strategic Trade and Investment Partnership, among other initiatives. Tariff liberalization is not currently being considered as part of these initiatives but these new engagements present opportunities to enhance trade and investment. In addition, USTR is negotiating to include provisions in these agreements to combat non-tariff and regulatory barriers that limit access to markets."