Katherine Tai Gets an Earful from Ways & Means on Mexico, De Minimis, GSP Renewal, Agriculture Deficits, and Generic Drug Imports.

U.S. Trade Representative Katherine Tai sat for a two hours-plus hearing with the House Ways & Means Committee on Tuesday to discuss trade matters and was met early on by some staunch criticism from Chairman Jason Smith (R-MO-8). He questioned Biden’s commitment to trade, centering much of his concern on the age-old issue of market access for American farmers.

America is increasingly a net importer of food. Some of it is due to skyrocketing demand for things like beef, some of it is because of the commercial decisions of private, global meat packers here, and some of it has to do with the dwindling number of farms.

Chairman Smith highlighted the country’s “staggering $21 billion ag trade deficit” and sailed into Tai and Biden for the lack of new trade deals. “USTR must be far more aggressive in protecting the interests of American farmers. Foreign tariffs are the most significant trade barriers our farmers face,” he said.

Tai disagreed about the failure to open new markets. “We have removed over a billion dollars in non-tariff barriers which operate like tariffs, and we have lowered tariffs on a dozen products with India, a significant market,” she said, naming farm goods that are not part of the big commodities markets like beef and soybeans. She mentioned apples, almonds, blueberries, and cranberries to name a few, with the latter two being decimated over the years in favor of Canada and Mexico. “That agreement with India helps to diversify opportunities for farmers,” she said.

Rep. Vern Buchanan (R-FL-16) invited her to meet with Florida tomato growers who have been feeling the brunt of Mexican imports beyond agreed upon limits. She agreed to the visit.

CPA’s CEO Michael Stumo wrote an op-ed on this issue in Jacksonville daily, the Journal Courier, on Dec. 27, 2023.

Our trade policies should be a tool that works together with other economic tools. Trade has not always worked this way. To respond to the changes in the world economy and in the world in general, we must question old assumptions and revisit norms. We must think creatively and strategically at the same time. In this new era, we must measure our progress in how we are delivering success to Americans throughout society, no matter where you live, or if you have a college degree.

– Katherine Tai, USTR, opening remarks to the House Ways & Means Committee, April 16, 2024

Buchanan told her that Florida has “lost half of our tomato and vegetable growing business” in 15 years.

Tai called the Florida farmer’s issue a “great example” of how trade agreements operate differently for different sectors of the economy.

“I know that the tomato growers in Florida are getting pinched in a way that others are not in the country because of the timing in the growing season,” she said. “I am listening to their concerns and am creating an advisory committee on this issue.”

Beyond farm-state members asking for market access, tackling Mexico’s ban on GMO corn, and Canada putting the squeeze on American dairy, a topic first raised by Rep. Claudia Tenney (R-NY-24) but no surprise to Tai (Canada beat the U.S. in a USMCA trade case last year), four other topics shared the spotlight.

General System of Preferences Renewal

The General System of Preferences, or GSP, is up for renewal. GSP is an old Cold War trade agreement that cut tariffs for developing countries and frontier markets. It languished in Congress for three years and now they want to reauthorize the trade preference agreement, which will give some 100 countries near duty-free access to the U.S. for certain products if it meets criteria on labor, the environment, and other things, like corruption and human rights. The GSP bill – written by free trader Rep. Adrian Smith (R-NE-3) of the Ways & Means trade subcommittee – is being marked up by the Committee this week. But it appears to have enough detractors on how to reform it that it may not pass any time soon.

Rep. Lloyd Doggett (D-TX-37) said renewing GSP cannot be about making sure the U.S. has more access to goods from poor countries.

“We must always be thinking about the impact of trade on our families and cannot leave trade solely to multinational corporations,” he said. “We just got the GSP bill yesterday…and the failure of that bill to include any environmental standard from these countries seems to me to be a real step backward to what we got in the USMCA. This lack of standards harms our competitiveness. We lead in producing clean steel and clean aluminum, but (without environmental protections) our workers are competing on an uneven playing field.”

There is a general agreement on House Ways & Means that GSP should be reauthorized. It is unclear if Smith’s bill is the way to get there.

“GSP is on everybody’s mind. We support updates to the program that address labor standards and environmental standards,” Tai said, listing the other items mentioned earlier.

The De Minimis Exemption

For those new to the subject, all goods entering the U.S. under $800 are waived in duty-free. For many products, this has turned China into the new Digital Shopping Mall of America.

Tai got an earful from Committee members about constituents losing out to the de minimis trade, whether it is e-bikes or IP theft of beauty products from China. Tai does not speak for or against legislation, but said, “I am encouraged that de minimis is coming up in this committee this week, and we will be watching the results very closely.”

Rep. David Kustoff (R-TN-8) won Best Presentation of the Day. He told Tai about a company in his district of Memphis called Ampro. They make hair care products. Their flagship product is being counterfeited by Chinese companies and sold worldwide. “The product package is the same, minus one letter. Shino ‘n Jam is the fake one. Shine ‘n Jam is the authentic one. The Chinese use the same logos, same packaging design,” he said. Standing behind him, a staff aid holds a poster board with the image of the product looking like the old childhood game of find seven different things.

“There are a lot of other tools that are geared towards helping smaller companies battle this,” Tai said. “The challenge is significant.”

Rep. Earl Blumenauer (D-OR-3), a stalwart on de minimis, worried that the de minimis bill being debated now is “surrendering to China and not strong enough.”

The de minimis bill the Committee will review this week is authored by Representative Greg Murphy (R-NC) and only nixes duty-free entry to goods subject to Section 301 tariffs. That means goods being invented, stolen, and sold on Amazon Marketplace, for example, after the 2018 tariffs were enacted would have no cover at all. And if the tariffs were lifted someday, the entire exercise would be useless.

“This de minimis bill also does nothing to stop fentanyl imports in the mail,” Blumenauer said, an issue raised by 25 different organizations, unions, and even domestic sneaker makers, New Balance.

Tai acknowledged the time and effort Bluemanauer has spent on this subject. Blumenauer is not seeking re-election and will be missed as a fighter in the de minimis arena next year.

“I do know that details really matter when devising trade solutions,” she said. “If you are going to solve this problem, you have to think through the dimensions of the policy that you put together, so you are not creating new problems as you attempt to solve old ones.”

“I hope we don’t settle on something that is cosmetic,” Blumenauer said. “We are all concerned about the influence China has, about its unfair advantages and the billions of uninspected packages that leak through the system and the threat it poses to domestic businesses. We can do better than to give China a pass on de minimis,” he said.

Generic Drugs, USTR Seeking Industry Advice

Rep. Brad Wenstrup (R-OH-2) was one of three committee members to bring up pharmaceutical imports and America’s dangerous dependence on foreign supplies of generic drugs.

“When I think about how my medication is reliant on our adversary, I have to wonder how we got here,” he said. “What can you suggest we do to help secure our supply chain in medications?”

Tai said trade has a role to play, but reshoring should be part of the solution.

Recently, the USTR put out a call for public participation across some economic sectors, calling for thoughts on how to create resilience in supply chains. One of the sectors USTR is interested in is in the medical supply chain.

“We want to hear from you to find out from those who are in that supply chain, who produces what, to see what drives their decisions around production, contracting for supply, or if they are trying to rebuild manufacturing here,” she said. “We want to know what are important incentives for them, and how can we prevent offshoring. I want the results of this exercise to be informative for the USTR, and for this committee as well.”

Wenstrup suggested a roundtable with industry players to sit down and talk to her about it. Tai said she would be “delighted” to do that with the Congressman.

Rep. Nicole Malliotakis (R-NY-11) was more specific, singling out our reliance on India and China for nearly all of our generic medications and almost exclusively for some.

“We want to onshore as much as we can using incentives to level the playing field,” she said. “And I know there are countries that can work with us, too.” Malliotakis is a sponsor of The PILLS Act, but did not mention it in the hearing.

“I endorse the onshoring and friendshoring combination,” Tai said.

Malliotakis told Tai to talk with the White House about generic drug shortages and advocate to “bring pharmaceutical manufacturing home, or at least not rely on China and India. Not hearing the president talk about this in a post-Covid world is incredible to me. It’s great that we are talking about it here, but we need to take action now.”

Mexico & Steel

Mexico was called out more than once for being a haven for Asian transshipments. Moreover, with the increased investment by Asian and European multinationals in Mexico to make large manufactured goods like cars, steel and solar panels, Mexico’s invitation to the world risks turning the UMSCA into a de facto free trade agreement with any multinational who wishes to set up shop there and sell here.

Rep. Mike Kelly (R-PA-16) said between 2017-2022 there has been a 73% increase in Mexico steel goods exported to the U.S. He focused on a specific type of product: grain oriented electrical steel, aka transformer steel used in electric power lines.

“We have one producer of grain oriented electrical steel in the U.S. so it all has to come from abroad and the concern is that while we know transshipment is going on…why do we continue to let it go on? We have the capability to make this here; why are we just turning a blind eye to Mexico and allowing them to flood this into the U.S.?.”

Click here to see Kelly and Tai discuss the rise of Mexico steel goods exports.

“We are on the same team in wanting to assure our steel makers can continue to survive and thrive in our economy. What can we do? Let me assure you, we have an extremely intensive and robust work stream on the issue of steel coming from Mexico,” she said. “There are also concerns about other countries using Mexico as a way to evade tariffs and water down Mexico’s own rights in its legitimate trade relationship with us.”

Rep. David Schweikert (R-AZ-1) also expressed concerns that Mexico’s surpassing China as leading source of imports could also be due to transshipments from China.

“Our companies are increasingly having problems with Mexico,” Tai said. “We are using the tools we have to address them and are monitoring them closely.”

Rep. Schweikert brought up something that rarely comes up in trade hearings: dollar valuation. He asked Tai if she ever thought the dollar was a trade headwind.

“For those of us who work on trade, we know how incredibly powerful currency is to trade flows; it is a very important player in trade dynamics,” she said.

With GSP up for discussion this week in the Ways & Means Committee, Democrats seem torn on free trade. GSP will essentially be a free trade deal for countries selling specific goods to the U.S. CPA is opposed to renewing GSP. CPA Trade Counsel Charles Benoit has written that “[i]f Congress is serious about strengthening supply chains with friendly developing nations, the better immediate policy is to eliminate de minimis and raise tariffs on China.”

Rep. Bill Pascrell (D-NJ-9) said “decades of free trade have hollowed out our communities and made America too reliant on bad actors that take advantage of our trade policies.”

In an apparent nod to some of the new legislation on China capital markets restrictions, Pascrell said, “We cannot allow our own economy to bankroll countries that wish to do us harm.”

Rep. Jimmy Panetta (D-CA-19) was less dour on free trade.

“No matter how worker-centric trade is, there is this perception that trade is toxic but we don’t want to be sitting on the sidelines just because of that perception,” he said. This is part of that argument on Capitol Hill that says the Chinese are engaging in “free trade” deals in the Asia Pacific (including Pacific Ocean coastal states in Latin America) so we have to counter them and do the same.

“We want to be part of the economic integration that is going on in the Asia Pacific. If we want to use trade to fulfill our goals, we need tariffs to be reduced and we need access to markets. We need to get into the game of trade deals.”

Tai countered: “There are things we agree on and things we don’t agree on. We are the biggest economy in the world, and we should not apologize because we want others to meet our labor and environmental standards to access our market. If we cannot do that, we shortchange our people.”