USTR Initiates Section 301 Investigation of China’s Practices Targeting the Maritime, Logistics and Shipbuilding Sector

At a Glance

• The U.S. Trade Representative has started a Section 301 investigation regarding China's practices in the maritime, logistics and shipbuilding sectors, following a petition by national labor unions.
• Allegations include unfair advantages for Chinese enterprises, intellectual property theft, and controlling shipping rates, which the petitioners claim negatively impact U.S. commerce.
• Possible remedies could involve imposing duties or import restrictions on Chinese goods, with a recommendation to establish a "U.S. Commercial Shipbuilding Revitalization Fund" funded by special port fees on Chinese-built vessels.

On April 17, 2024, the U.S. Trade Representative (USTR) initiated another Section 301 investigation involving China. This one concerns the acts, policies and practices of China targeting the maritime, logistics and shipbuilding sectors for dominance. USTR initiated the investigation following a petition filed by five national labor unions requesting that the USTR take action under Section 301 of the Trade Act of 1974 (Section 301). Note, this is the same U.S. law that former President Trump and his USTR used to impose additional duties in 2018 on a wide range of products from China. The following information is drawn from USTR’s initiation notice, which we expect will be published sometime next week in the Federal Register.

Allegations

The petitioners allege that China targets the maritime, logistics and shipbuilding sector for dominance and engages in a wide range of unreasonable or discriminatory acts, policies and practices that provide unfair advantages across maritime industries, such as shipbuilding, shipping and maritime equipment, including the following:

• Implementing industrial planning and policies that are designed to unfairly capture market share, distort global markets and benefit Chinese enterprises
• Directing mergers and anticompetitive activities
• Providing nonmarket advantages to Chinese firms to dominate key upstream inputs and technologies
• Providing advanced financing mechanisms advantaging Chinese industry
• Creating a Chinese network of upstream suppliers, foreign ports and terminals, shippers, and equipment and logistics software that allow advantageous use of information
• Tolerating intellectual property theft and industrial espionage
• Controlling shipping freight rates and capacity allocations

Effects on U.S. Commerce

According to the petitioners, these acts, policies and practices burden or restrict U.S. commerce in several ways:

• Dramatically increasing China’s shipbuilding excess capacity and global market share, contributing to declines in U.S. shipbuilding capacity, production and market share
• Artificially depressing prices, which makes it more difficult for U.S. companies to compete for sales
• Impeding U.S. investment, production and employment
• Reducing the number of U.S.-produced ships in the domestic and global merchant fleets
• Providing unfair advantages and preferences that burden or restrict trade in inputs, and burden or restrict trade opportunities for upstream inputs and downstream industries

The petitioners also assert that China threatens to undermine U.S. national and economic security.

Possible Remedies Under Section 301

Under the Section 301 statute, the USTR must make a determination as to whether the acts, policies or practices being investigated are unjustifiable and whether they burden or restrict U.S. commerce. If the USTR makes an affirmative determination, the USTR can recommend that the President take any or all of a wide range of actions, including: (1) suspending, withdrawing or preventing the application of trade agreement concessions with China; and/or (2) imposing duties or other import restrictions or fees on goods and/or services of China. 

The underlying Section 301 petition recommends the following:

• USTR impose a special port fee on every Chinese-built vessel that docks at a U.S. port.
• The fees collected should be directed toward establishing and funding a “U.S. Commercial Shipbuilding Revitalization Fund.”
• The petition also suggests fees could also be used to support several other existing U.S. government programs that support domestic shipbuilding.

Schedule

Under U.S. law, with certain exceptions, the USTR must make its determination within 18 months of initiation of the investigation, which in this case would be November 17, 2025.

An interagency committee headed by the USTR will be conducting the investigation and make recommendations to the USTR, subject to the direction of the President (the Section 301 Committee). The Section 301 Committee will hold a public hearing on this matter beginning at 10:00 a.m. ET on May 29, 2024. Parties wishing to testify at the hearing must submit summaries of testimony no later than May 22, 2024. The Section 301 Committee may allocate one or two days for the hearing, depending on the number of hearing requests.

USTR is also inviting written public comments, which are due by May 22, 2024. Following the hearing noted above, parties will be allowed to submit post-hearing rebuttal comments no later than seven days after the last day of the public hearing. USTR has set up a portal to allow parties to submit written comments, including comments that contain business confidential information.

Significance

Although the initiation of the petition can be seen as a political ploy in the middle of election season, if USTR were to impose a significant “special port fee” on every Chinese-built vessel that docks at a U.S. port, and assuming that those fees are passed on to importers, it could result in a significant increase in cost for importers. 

Please let us know whether you would be interested in submitting comments.