USTR Supports AD/CVD Rewrite, Dismisses Removing Tariffs to Ease Inflation

Tai said that trade remedy laws mostly date back to the 1970s and 1980s. "The nature of that competition has changed and evolved. We urgently need to take on this task of updating our tool box, expanding it and making it more effective."

This is not the first time Tai has said the administration supports the bill. She also said that at a steel company event last November (see 2111020043), but at that time, neither chamber had passed the bill.

House co-sponsor Rep. Terri Sewell, D-Ala., as she explained why the AD/CVD laws need to be revised, told Tai that dumping "devastated the steel industry in my and other districts."

In Tai's opening statement, she said discussions with China about how it is following through on its phase one agreement were "unduly difficult," and in her prepared remarks, she said it became clear that China is only going to "comply with those trade obligations that fit its own interests. This is a familiar pattern with the PRC -- from their actions at the [World Trade Organization (WTO)] and in various bilateral high-level dialogues. The United States has repeatedly sought and obtained commitments from China, only to find that follow-through or real change remains elusive."

The prepared remarks also said that "while we continue to keep the door open to conversations with China, including on its Phase One commitments, we also need to acknowledge the Agreement’s limitations, and turn the page on the old playbook with China, which focused on changing its behavior. Instead, our strategy must expand beyond only pressing China for change and include vigorously defending our values and economic interests from the negative impacts of the PRC’s unfair economic policies and practices.

"We have seen what happened in the steel and solar industries when existing mechanisms were too slow or ill-suited to effectively address the distortions wrought by China’s targeting of those sectors. In the meantime, we know that the PRC is targeting critical industrial and high-tech sectors, like electric vehicles, batteries, semiconductors and others.

"To ensure that our industries remain competitive, we must develop new domestic tools targeted at defending our economic interests, and make strategic investments in our economy."

When Rep. Ron Kind, D-Wis., a pro-free-trade advocate asked her about overuse of the Section 232 tool, and his efforts to reign in executive discretion for "national security" tariffs, Tai instead argued that steel and aluminum overcapacity does imperil America's national security.

"A lot of people feel well, those are industries of the past," she said, referring to steel and aluminum production, and say, "Let those go," she said. "The fact of the matter is, I think that our chase for efficiency over the past several decades has really compromised our security, and our sense of security."

The largest tariff action in the U.S., the Section 301 tariffs on more than $350 billion worth of Chinese imports, was the subject of questions from both Democrats and Republicans. Rep. Adrian Smith, R-Neb., the top Republican on the Trade Subcommittee, said in his opening statement that "if the goal is not to hurt American companies while holding China accountable, why has the Administration only offered a very narrow exclusion process from Section 301 tariffs, with minimal retroactivity?"

Exclusion refunds are available back to Oct. 12, 2021, leaving about 10 months' worth of tariffs intact for importers whose exclusions expired at the end of 2020.

Smith said that all Republicans on the committee, and he believes many Democrats, as well, want all businesses that import goods subject to Section 301 tariffs to be able to apply for exclusions.

Rep. Jackie Walorski, R-Ind., asked Tai if there would be a broader exclusion process offered. Tai said in October, when she talked about trade and China, she announced "that we are considering and will continue to consider additional processes as they are warranted, and that continues to be true today."

Rep. Judy Chu, D-Calif., told Tai that her constituents were disappointed that retroactivity for renewed exclusions only goes back to Oct. 12, 2021, and that she heard from CBP that they would be able to handle retroactivity that goes back further.

Tai, when asked repeatedly why Oct. 12 was the limit, did not respond directly but said she would follow up. In a background call last year, a senior USTR official told International Trade Today that date was picked because allowing refunds back to the time of expiration would require some refunds post-liquidation, and she said that was an administrative challenge (see 2110120055). By setting the October date, all companies would get the same treatment.

Chu said companies that received exclusions again told her they are concerned about whether they will have to pay the tariffs next year.

"I’m very sympathetic about how difficult it is to plan these days in the American economy," Tai replied. "I can’t prejudge what will happen, the decisions we will make."

A number of members questioned how the USTR can convince other countries to grant better market access to agricultural exports that currently face either tariff or non-tariff barriers if the U.S. is not offering any better market access itself. The Indo-Pacific Economic Framework, the administration has said, will be a binding agreement that will cover some elements traditionally covered by trade agreements, such as science-based agricultural regulations, but will not lower American tariffs.

Rep. Suzan DelBene, D-Wash., a free-trade advocate, said that the IPEF could open markets in Asia for Washington state exporters. "That said, we need to make sure we’re putting enough on the table to accomplish these goals," she said, and asked why the U.S. ruled out offering market access incentives during negotiations.

Smith, too, asked if the administration could promote deep economic engagement with countries without lowering tariffs or creating preferential rules of origin for their exports.

Tai said it's true tariff reductions are not on the table, but she said the U.S. will be offering "economically significant outcomes" to the negotiating partners. To Smith, she argued that getting retaliatory tariffs dropped in Europe, that lowered tariffs on $7 billion worth of agricultural exports, "is quite a bit of market access right there for you."

To DelBene, she alluded to the political problems the Trans-Pacific Partnership faced. The TPP was a traditional free trade agreement with the same countries the IPEF is targeting, and President Donald Trump exited the TPP immediately after taking office. The other countries, led by Japan, brought the agreement into force. She said critics of globalization have argued it's leading to "offshoring and the erosion of our jobs and our industries."

Still, Tai was not as negative about free trade agreements as she had sounded the week before, when she dismissed them as a 20th-century tool. Even after she said there are ways to secure market access without comprehensive trade agreements, and pointed to agricultural access agreements secured with India, Vietnam and the Philippines through dialogues, she added: "That's not to say those types of exercises don’t have their place," referring to FTAs.

Several members from both parties pointed to tariffs as contributors to inflation that is hurting consumers who are paying more for necessities, such as housing, food and consumer goods that are necessities.

Rep. Stephanie Murphy, D-Fla., pointed to a study that said removing Section 301 tariffs could reduce inflation by 1.3 percentage points. A Democrat and a Republican both argued that softwood lumber antidumping and countervailing duties on Canadian exports are driving up the cost of new houses and apartments. And several Republicans said they're concerned that trade remedies on imported fertilizer could drive global food insecurity or domestic food inflation.

The Office of the U.S. Trade Representative cannot undo Commerce-imposed AD/CVD on fertilizer, but it did negotiate an agreement in the past on softwood lumber that allowed for higher import quotas when lumber prices reached certain levels.

Tai dismissed bringing back that kind of flexible tariff-rate-quota deal. She said, "Our trade remedy laws are working as they should." She added that while she is open to negotiating a softwood lumber settlement, it could only happen if Canada comes to the table "with the willingness to address the underlying issues."

And on Section 301 tariffs, she said, she "would be very, very concerned about taking steps to be reactive to today's challenges … that would undermine our longer- term strategic approaches" to preserve America's competitiveness. However, Tai acknowledged during the hearing that the tariffs were not serving as leverage to get China to change its market-distorting interventions.

Rep. Don Beyer, D-Va., said his constituents are upset that about 100,000 people in Ethiopia have lost their jobs because that country was removed from the African Growth and Opportunity Act benefits program because of violence in Tigray, and those workers had nothing to do with the conflict. He noted that there is now a ceasefire, and asked if the administration had considered initiating a review to return Ethiopia to AGOA.

Tai said Ethiopia is clear on the benchmarks that would warrant return, and the administration has not yet seriously considered revisiting the decision.