U.S. Trade Representative Katherine Tai testified today at a Senate hearing on "Funding Priorities of the Office of the U.S. Trade Representative." In this context, she answered some substantive trade policy questions. Here are a few of her responses:
China Phase One Enforcement
Senator Moran:
Ambassador, I don't know of any scorecard that's out there in regard to China's compliance with Phase One. How would you rate or great the Phase One agreement compliance, what has happened and what hasn't happened?
Katherine Tai:
Well, that's a very important question and one that I know there's a lot of interest up here in the Senate, in the House, and the hill in general, with stakeholders and our entire economy, and certainly one of the questions that is at the forefront of my mind coming in as US Trade Representative.
I would like to just take a step back and look at the contours of this US China trade and economic agreement. It has a number of parts. There's a lot of focus on the purchase commitments that China made as part of this agreement. There are also a set of rules related to intellectual property, financial services, services access, biotech approvals that China also committed to, and we are drilling down at USTR using the usual discipline that we have to look at the overall compliance picture and to examine China's performance under this agreement in all of its component parts. What I would share with you right now Senator Moran, because we're still in the middle of this review, is that the picture is more nuanced than you might think by just looking at the trade data. And so I look forward to coming back to you with a better picture, and with a more clear sense for where we need to drive harder with our Chinese counterparts.
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Senator Shaheen:
I want to follow up with Senator Moran's question about the Phase One trade deal with China, because I understand that the deal included the creation of bilateral evaluation and dispute resolution office. Is that office up and running, and can you describe to us how you expect that to work?
Tai:
Well, thank you for the question Senator Shaheen, the I think the office is not in its, it's an, I think it stands for
Shaheen:
a process?
Tai:
a process. Thank you, looking for that word. And so, we have had continued contact at the designated officials level to continue to push and examine the performance of this agreement.
Right now we are looking at the agreement holistically, through the lens of an overall China strategy and so what I would say to you right now is we're looking at the tools that we have across the board, in particular in this agreement, it is a tool that looks a little bit different from our other agreements or traditional agreements, but we're interested, as I will always say, open minded and interested in out of the box and new tools. So, I feel like the bottom line here, we are very focused on this agreement, which is the agreement that we have, and testing its utility and maximizing our use of the tools that are included in this agreement.
Shaheen:
So once that process is up and running, do we expect companies and individuals to be able to actually make use of that process when they have a concern or a dispute that they want to get negotiated?
Tai:
So I would say that one of USTR's functions is to be open to, and we traditionally have been very open to, the engagement with the public, with our stakeholders. Increasingly we are trying to expand out the circle of stakeholders who are used to interacting with USTR. So absolutely, our stakeholders are part of that process.
She later got specific questions on China living up to its Phase One purchase commitments on seafood and lobster.
On Phase One enforcement in general, as I wrote about here, I think the answer is that the agreement doesn't have an effective enforcement mechanism. There's a consultations mechanism; and if the U.S. thinks China is in violation, then the U.S. can impose tariffs, but of course as the Trump administration demonstrated, the U.S. could do that anyway, so I'm not sure what the Phase One deal adds here.
In my view, if you want trade agreements to be enforceable, you really need a mechanism that provides for neutral adjudication of the issues, and the Phase One deal doesn't have that. Going forward, the best strategy for USTR to salvage the substantive parts of the deal might be to work with the Europeans and others to bring over those substantive parts into a broader plurilateral deal that has a neutral adjudication mechanism.
Section 301
Shaheen:
I want to go back to the 301 tariffs on imported goods because, as I said, that has been a real concern that I've heard from New Hampshire businesses. So can you give us any sense of how the administration is going to approach the existing section in the near term, and what your view is about how to use that authority?
Tai:
Senator Shaheen, I know very directly, and I know this is a strong fact that the tariffs and the exclusion process really do touch a very wide swath of our economy, our businesses both large and small. So this is very much on my mind. At my confirmation hearing, Senator Portman asked me for a commitment which I was very ready to make, to undertake a top to bottom review on China at USTR, in particular. And he recommended it as something that he had done in his time as US Trade Representative, so the tariffs, this agreement, this process will be very critical parts of this top to bottom review, and I am looking forward to kicking it off, and being able to come back to you with a thoughtful and strategic recommendation, in terms of how we will proceed from there.
I feel like the question was broad enough that Senator Shaheen was hoping for a general conversation about the use of Section 301, but Tai didn't seem to want to go in that direction, at least for the moment. It may be that she never explicitly rejects the use of Section 301, because why give up that leverage, but hopefully we see its use quietly diminish over the next couple years.
Lumber and Steel Tariffs:
Senator Moran:
Steel and lumber prices. They're at record highs. The Biden administration is proposing infrastructure investments, I assume that will increase the demand for those items. I'm thinking about the absence of softwood lumber agreement with Canada and the associated tariffs, as well as the Section 232 tariffs on steel and aluminum. Where do negotiations stand with Canada on softwood lumber? And what's the administration further considering to do to increase the affordability of two very important components to infrastructure and housing?
Tai:
Well, on softwood lumber, let me say this, I think that it will always be a component of the conversation between the US Trade Representative and her or his Canadian counterpart. In my initial conversation with my Canadian counterpart, Minister Ng of Canada, we did raise our bilateral issues the long standing ones especially. They are ones that require maintenance and care and attention. So what I would say to Senator Moran, is softwood lumber will always be in my sights in the conversation with Canada. We have a lot of tools, we have traditionally used them robustly. I intend to continue to do so, and to continue to raise the concerns that we have and try to engage our Canadian counterparts in some out of the box thinking on this issue and others in terms of how we manage long standing differences that we have that really make an economic impact for our stakeholders and our economy.
The other question that you've asked is on the steel tariffs in particular. What I would say here is that we continue to have a global overcapacity problem that is distorting the international market. But what we have right now in the Biden administration is a team of people who are intent on looking for solutions that come through cooperation with our close partners and allies. So, on that, what I'd like to convey to you is, I and others in the administration, including Secretary Raimando at Commerce, are working hard on conversations with the Europeans in particular, to examine how we address the problems that the 232 tariffs have raised, in particular in our relationships, while keeping our eye on the overall steel and aluminum market problems that we really need others help to address.
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Senator Braun:
Indiana's a top steel producing state in the US. As a result of repeated surges in steel imports, the Trump administration implemented Section 232 tariffs, which helped kind of stabilize the domestic steel industry, allowed steel makers to invest billions of dollars in new facilities and upgrades to existing mills. I think, nearly half of the world's excess steel capacity is housed within China. These efforts saved 1000s of jobs. As you know, the tariffs are designed to protect against that global overcapacity, and you've got some anti market policies that go along with the glut. So it really creates a condition to where you can get predatory actions that don't play by the rules, necessarily. I know that a number of foreign governments are pressing to have the tariffs lifted. But I remain concerned because I don't know that any of the underlying practices are going to change, and I think certainly that capacity is going to be there, very tempting to try to use it. What assurances can you provide that the Biden administration will preserve the steel tariffs program to prevent a new surge of imports, and to use it as a tool, until you see real change happening, you know, within the way the Chinese handle this excess capacity?
Tai:
That is a really critical question, because the 232 tariffs are very much on everyone's minds, because of the tariffs themselves, and also because of retaliatory actions that our trading partners have taken, including on Tennessee whiskey, as we just heard from Senator Haggerty. I want to assure you that I understand, see, and fully accept that there is a global overcapacity problem with the steel market, and that the tools that have been used, the 232 tariffs, have had an impact on steel production here in the United States, a positive one. But they have also carried with them costs. And so, for the Biden administration, as the US Trade Representative, my focus is to figure out how we improve, and the effectiveness of, the tools that we use in support of American steelmaking, but to try to address some of the unintended consequences, I think, in terms of the frictions that this has generated with our trading partners. and so solutions that we come to with our trading partners, I believe in my core, really have to address the larger issue around the overcapacity market.
You can read different things into Tai's comments here. What I hope is happening is that the Biden administration is talking to the Europeans and others about how to work together on China issues, and to remove the Section 232 tariffs and the retaliatory tariffs.
Solar Panel Tariffs:
Senator Van Hollen:
I have some questions on the solar panel tariffs that were imposed by the Trump administration. Back in 2018, they imposed the tariff rates on the import of solar cells and modules under Section 201. That was in addition to the pre existing duties that apply to these products. The tariff was set at over 30% and then declined by 5% over the years. In 2020, so just last year, the Trump administration moved to increase the 2021 tariff from 15%, which had come down, to 18 percent, that's what it is today. These tariffs have hit workers in Maryland hard, especially in the clean energy industry, costing us many jobs, people laid off because solar panel installers were no longer able to do it at a competitive price, and nationally, according to the Solar Energy Industries Association, these Trump tariffs have cost 62,000 American job opportunities. The Biden administration, as I understand, you've said is going to be reviewing these tariffs. This one is scheduled to expire in February of next year, and I listened carefully to the President's statement about jobs and clean energy jobs here in the United States. Have you heard and looked at the reports of how those solar panel tariffs have hurt jobs here in the United States?
Tai:
Thank you Senator Van Hollen. The issue of the solar tariffs are very much on my mind, both in terms of the impacts, and the dilemmas that they present to our economy right now, and the different stakeholders in our economy, specific to the solar tariffs, the role that solar panels play in a future where we are running cleaner energy. But also for me, the story of the solar panel industry in the United States really gets at a fundamental issue that we need to confront in our competition with China.
First thing that I'd like to say is Section 201, this particular Section 201 set of tariffs, were sought by an industry here in the United States, so that there are producers who petition for relief from the United States government. And today, we have a sole producer left in the United States for solar panels, when 10-12 years ago, we had quite a few in this burgeoning industry. Given the role that we think these types of products are going to play, this is is actually a very sad story that we are in right now where we are struggling with the application of these tariffs that are meant to save, maybe the last producer that we have here in the United States.
And so, stepping aside a little bit, what I would say is that I recognize the nuance and the complexity that is presented by the solar tariffs question in particular. I do want to raise the profile of the overall bigger picture so that we don't lose it, which is, if we don't keep our eye on the ball, we will continue to experience these types of fights over the last scraps of an industry that we have lost to a competitor, and in particular to the Chinese. It is a pattern that we see over and over again. I will say that, steel, and aluminum are a leading contender here, solar, and we can see where this pattern will play out again and again, if we are not ready to anticipate the loss of industries to anti competitive practices and massive subsidies that are coming from our biggest competitor ...
I took this answer as offering strong support for traditional trade remedy laws, which was not very surprising. These laws have seen a continued ratcheting up for decades now, and it's not clear to me how to push back on this. (If anyone has ideas, please let me know!) Maybe if China and other countries keep emulating the trade remedy innovations of others, that will change people's perspective? I'm not hopeful though. (If it were up to me, we would focus more on litigation under the WTO and other trade agreements to address the Chinese practices.)
