Experts Awaiting Ways and Means Chairman Choice, USTR Actions on Section 301 Exclusions

Rep. Jason Smith, R-Mo., tends to be "in line with Trump populism and America First," said Arnold & Porter managing director David Skillman. Skillman handled Trade Subcommittee Chairman Earl Blumenauer's trade portfolio as his deputy chief of staff before joining Arnold & Porter.

Rep. Adrian Smith, R-Neb., "is more of a traditional free-trade thinker," he said, and he has "lots of expertise."

Rep. Vern Buchanan, R-Fla., straddles the two poles, Skillman believes. So he said the choice for chairman will illuminate which direction the Republicans want to go on trade policy.

Skillman was one of a number of Arnold & Porter staffers speaking on a Nov. 16 webinar about the policy implications of the midterm elections.

Brian Bombassaro, a senior associate at the firm and former International Trade Counsel for the Senate Finance Committee, said the death of Rep. Jackie Walorski, R-Ind., and the retirements of Reps. Ron Kind, D-Wis., Stephanie Murphy, D-Fla, and Brady, R-Texas, in the House, along with the exits of Sens. Ben Sasse, R-Neb., Pat Toomey, R-Pa., and Rob Portman, R-Ohio, leave a giant void.

"Those seven members of Congress were often those who were advancing the conversation [on trade], putting pressure on the administration in one direction or another," he said, and asking the tough questions of agencies necessary for oversight.

He said he'll be waiting to see "who, if anyone, will stand up" to advance the trade conversation.

He also noted that the pandemic-related Section 301 exclusions are set to expire in two weeks, and there are about 350 other products granted extended exclusions that are scheduled to expire at the end of the year. What the Office of the U.S. Trade Representative does about those exclusions may offer clues to whether the office decides to grant further exclusions in the new year.

The webinar's moderator asked the panel if they expected a new chance to request exclusions for the tariffs on Chinese imports, and Arnold & Porter Partner Lynn Fischer Fox, a former Commerce Department deputy assistant secretary, said she was not sure what to expect.

Skillman noted that some of the most vocal members calling for an exclusion process are leaving (that would be Toomey). "To really force the administration to come up with a more workable plan, I think you need stronger criticism to come from the Hill," he said.

"There is continued dissatisfaction with the 301s we have seen imposed across the economy," he said, and said "many, many American businesses are hindered by these tariffs." But he said the political dynamic that led to the tariffs four years ago continues, and he expects that with such a difficult U.S.-China relationship, the tariffs will largely stay as they are.

Fischer Fox agreed that it's unlikely there would be "significant changes " to the punitive tariffs, but said she does think there could be "some tweaks" that result from the USTR review of the action.

The China 301 is not the only 301 action that could impose pain for importers -- there are suspended 301 investigations over digital services taxes that were proposed around the world, Bombassaro reminded the audience. The investigations were suspended because there appeared to be an international agreement on corporate taxation that convinced countries not to impose DSTs. But Bombassaro said those suspensions end in December 2023. "While we still have 13 months to go, we have a ticking time bomb, in the back of my mind."

While European DSTs frustrated U.S. policymakers, Congress's decision to tie electric vehicle tax credits to North American auto manufacturing and battery supply chains angered the EU (and Japan and South Korea).

In response to a question from International Trade Today on how far the Treasury Department can go in softening those requirements, Skillman said, "Treasury has substantial leeway in defining the terms under which the tax credit is administered," because some of the terms in the law "are pretty clear and some are quite vague."

But, he said, Treasury cannot contradict or limit "the clear import of the words in the statute," so, he said, "Treasury has some latitude but probably not enough to change these provisions wholesale."