Katherine Tai Cautiously Tackles Senators Looking For Tariff Exclusions

By Kenneth Rapoza, CPA Industry Analyst

Following her Senate hearing, future USTR Katherine Tai responds to written questions. Here’s how she handled questions on the Section 301 China tariffs, solar and Biden’s Made in America Executive Order. 

Fresh off her hearing with the Senate Finance Committee, Biden’s pick for USTR, Katherine Tai, has now responded to written questions from Senators. In reading them, Tai appears to be fending off Senators who want more tariff exclusions.

She was very careful not to swerve away from the Biden administration’s lane on everything from Section 301 tariffs on China to addressing World Trade Organization rules that prohibit our Buy American laws from giving preference in government purchases to domestic companies. But on exempting some China imports from the 301 trade war tariffs, she appeared set in her thinking.

At least three Senators advocated for extending exemptions from the Section 301 tariffs.  A number of exclusions to those tariffs expire soon, including on personal protective equipment, and are now facing tariffs of up to 25 percent.

The USTR under Robert Lighthizer conducted an investigation against unfair trade practices in China under Section 301 of the Trade Act of 1974, and found that China engages in unfair trade acts policies and practices related to intellectual property, innovation and technology transfer.  That is what led to tariffs on nearly half of Chinese imports.

Ben Crapo (R-ID) advocated for extending exclusions on those tariffs, and opening the door to more imports of Chinese made PPE, among other things.

Tai did not promise to ease the tariffs through the exclusion process. “To address those findings, the United States imposed tariffs on products from China.  If confirmed, I will work with Congress to ensure that those tariffs are appropriately responsive to China’s practices; account for their impact on US businesses, workers and consumers; and support the US response to the COVID-19 pandemic.”

On those tariff exclusions in particular, this was her most forceful response and one that leads us to believe exclusions could expire. But the government exclusion process will still proceed on a case by case basis.

Chuck Grassley (R-IA) seemed to confuse Section 301 China tariffs with separate section 201 safeguard tariffs imposed on solar module and solar cell imports. The 201 safeguard tariffs were imposed on all imports due to a surge in solar cell and module imports from the world which threatened the existence of the US solar industry.  In his written questions to Tai, Grassley said, “I understand the rationale for China Section 301 tariffs, (but) some of those tariffs are hurting US renewable energy producers and job creation, and impeding the introduction of clean energy technologies in the United States. I believe we should be prepared to grant tariff exclusions where appropriate.”

Tai responded that she would “work with Congress to ensure that those tariffs are appropriately responsive to China’s practices and consider the impact on US businesses, workers and consumers.”

Senators also highlighted, in writing, the name of companies that were having trouble, or laying people off, because they were not granted exclusions while similar companies in the same industry were. Tai said she would work out those discrepancies and – as she said in her hearing – make them more transparent.

Senator Richard Burr (R-NC) also tried getting tariffs removed. He was particularly keen on getting relief for the North Carolina solar importers.

“North Carolina has seen significant growth in the solar industry, with billions of dollars invested in the state.  However, because of the Section 201 tariffs on imported solar panels and cells, tens of thousands of workers have been laid off or not hired, and investment has been lost,” he said.

In October, Trump signed a Presidential Proclamation to close a loophole allowing two-sided solar panels to avoid the 201 safeguard tariffs.

Burr asked her to “commit to rescinding this Presidential Proclamation.”

After reiterating why those tariffs were in place and when they are set to expire (February 2022), she told Burr that she would “examine the safeguard action” in light of Biden’s goals to use more alternative sources of energy. And that her examination of these actions by the previous government would also take into account “the security of our renewable energy supply chain, and the impact on US businesses and jobs.”

Solar panels made by Chinese companies account for roughly 80% of all solar panel shipments to the US.

On Buy America Rules

Tai was also asked numerous times about Biden’s Executive Order on Buy America rules. These rules are for government procurement, but as they exist today exempt numerous countries and basically allow for most European Union members of the World Trade Organization to bid for these contracts. US firms can also be rejected under existing legislation for “unreasonable price” discrepancies.

Senator Sherrod Brown (D-OH) asked her if in her capacity as USTR if she will “work to eliminate barriers” to “apply robust Buy America requirements.”

She said Biden’s EO on Made in America “is intended to ensure that when the federal government spends taxpayer dollars it is on goods made by American workers and with American-made components. President Biden has committed to make Buy American requirements real and close loopholes that allow companies to offshore production and jobs while still qualifying for domestic preferences.”

One of those loopholes is the WTO Government Procurement Agreement (GPA), of which the US is party to. It limits the United States’ ability to apply robust Buy America requirements to government procurement because all of GPA countries are treated the same as USA made.

Some have proposed suspending US obligations under the GPA on a temporary, emergency basis to shore up critical domestic supply chains and spur economic recovery in the wake of the pandemic.

Tai said that the Biden administration wants to “maximize the use of goods made in the United States for federal procurement” and other financial assistance…consistent with applicable law.  The problem there is that applicable law, as it now exists, is only marginally Buy American.

Under Biden’s EO, parts made from steel or iron have to be 95% sourced domestically, up from 50%. Other products went from 50% to 55% for both supplies and construction materials. Final prices are also allowed to be higher than prices of foreign made goods.

Senator John Cornyn (R-TX) asked her if we should renegotiate our GPA commitments in order to ensure that we can achieve Biden’s “Buy America” objectives?

“(We) should examine procurements made under our trade agreement obligations to ensure that they serve the interests of the United States, its businesses and workers,” she said. “If confirmed, I commit to undertake this review” of GPA commitments.