By Charles Benoit, CPA Trade Counsel
Senior Senate Republicans continue to sell out GOP voters and the American people who overwhelmingly want tariffs on China.
But if Republican-led efforts to gut tariffs on China weren’t bad enough, it appears that Republican leaders in the Senate, including Mitch McConnell, Mike Crapo, Pat Toomey and others, are seeking to subjugate the Office of the President under the heel of foreign judges in Geneva.
And they’re doing it specifically to protect Made-in-China producers.
Section 73001 of USICA, part of the “Trade Act of 2021” authored by Crapo and blessed by McConnell, has now passed the Senate and is currently being conferenced with the House’s America COMPETES Act.
If it becomes law, Sec. 73001 will force the Treasury to send tens of billions of dollars in tariff refund checks to Made-in-China producers within 90 days of passage.
But this article is about something far worse, and lasting, than a one-time stimulus to Chinese producers.
It’s about how Senator Crapo structured Sec. 73001 to rob the President of decades-old powers to fight unfair trade practices under Section 301 of the Trade Act of 1974. If this becomes law, the President will need to get approval from WTO judges before undertaking a new action like our current 301 tariffs on China.
The President’s Section 301 Powers
The way Section 301 has worked for decades is that the President can use tariffs to defend against unfair trade practices, following an investigation by the Office of the U.S. Trade Representative.
That was all well and good until President Trump decided to actually use that power in our national interest, as opposed to a multinational’s play thing.
To that end, Trump used Section 301 in 2017 to initiate an investigation into China’s brazen, state-sponsored IP theft from American businesses.
(Important note for our Sec. 73001 story further down: commercial IP theft, while clearly an unfair trade practice, isn’t one of those things WTO rules were designed to interface with. WTO rules are tailored to sovereign, public laws and regulations, not covert economic warfare.)
In 2018, after USTR’s detailed, year-long investigation, Section 301 tariffs were imposed by Trump against China. At their height, the tariffs covered almost half of China’s exports here.
Extending an olive branch to the importers from China, the Trump Administration also – entirely on their own discretion – decided to offer importers the ability to get temporary tariff exclusions if circumstances warranted.
The idea was to give importers time to adjust and shift their sourcing out of China. These exclusions carried on throughout 2019 and into 2020 as well.
But no good deed goes unpunished. A furious import lobby hurled accusations of corruption as to how the exclusions were administered, and began drowning the Administration in litigation with thousands of lawsuits. Thankfully, these thousands of Chinese producers lost their Section 301 lawsuit.
But the Made-in-China lobby did succeed in making enough noise to convince McConnell and Crapo that the President should never have had that power in the first place. USICA’s Sec. 73001 is the result.
Sec. 73001 is marketed as being about exclusions, but that’s a misdirection.
If the Made-in-China lobby really just wanted an exclusion process, they could have modeled 73001 after existing tariff exclusion processes that have been around for decades (that also keep control State-side).
They could have emulated the Miscellaneous Tariff Bill process, for example. This is where the USITC overseas a transparent and robust petitioning system before presenting a final package of tariff exclusions for final vote by Congress. Which, as Senator Crapo likes to point out, is where the constitution commits tariff policy.
But an exclusion process isn’t really what they wanted. Instead, they wanted to ensure no President could ever again do what Trump did. So they wrote Sec. 73001 to impose incredible burdens on USTR.
Under the Sec. 73001 process, for the current China 301 tariffs, all a Chinese producer has to do is claim – no evidence required on their part – that their U.S. importing entity is “unprofitable” thanks to the tariff (never mind shifting around profits and losses across transnational enterprises). This is in Sec. 73001’s definition of “Severe Economic Harm”.
Then, an insurmountable burden shifts to USTR. 73001 spells out six different criteria USTR “shall consider”, including whether any private contracts would be jeopardized. In Crapo’s eyes, importers’ contracts with Chinese producers trumps U.S. law and domestic producers.
Other criteria include an antitrust analysis on every single product in every exclusion request. Failure to adjudicate the criteria within 90 days gives the requestor an automatic win. And yet USTR’s denials have to be written out and include “a reasoned determination” for the denial “supported by substantial evidence from the administrative record”.
Undoubtedly, this is a setup. Even if USTR added a battalion of trade attorneys to try to take this on, it wouldn’t work. The Justice Department would need a new wing too for the automatic lawsuits that would follow each and every denial USTR attempted.
How Crapo’s Sec. 73001 Transfers Presidential Power to Geneva
Now, this is where the transfer of power to Geneva comes in. Under Sec. 73001, none of the above applies if a panel of foreign judges in Geneva approves the tariff action first.
They couldn’t make Section 301 entirely unworkable because it also happens to be the statutory mechanism the President uses to impose tariffs when we’ve won a WTO dispute, and the other nation is recalcitrant. When that happens, the WTO authorizes retaliatory tariffs, and the President uses Section 301 as the domestic legal mechanism.
So, to preserve this use of Section 301, 73001 exempts the impossible burdens it creates if the tariffs are imposed following “a dispute resolution process under the World Trade Organization”. I.e., if the WTO green lights the tariff action ahead of time, then the President can use Section 301 the same as before.
Subsection (d) is 73001’s carve-out for WTO judges. You see “subject so subsection (d)” throughout 73001. President knee-capped, WTO strengthened.
This is a tell. If the exclusion process has merit, shouldn’t it apply just as much with WTO approval?
Think about it. Defenders of exclusions, like Secretary Yellen right now, always like to waive their hands, and say that there are probably some (unnamed) tariffs that should be excluded. Well, okay, so if you stand behind the exclusion process, why not extend it to retaliatory tariffs USTR imposes following a WTO dispute? The products that get tariffed following WTO disputes never have anything to do with the underlying dispute. We tariff French wine and cheese when we win disputes with Europe on unrelated products and they don’t comply. So why did you exempt WTO-authorized actions from exclusion-rounds?
The only logical takeaway is that Senator Crapo’s drafters of Sec. 73001 knew the exclusion process they wrote would thwart any future President from using Section 301 in our national interest like President Trump did. But they wanted to ensure that future Presidents could still use Section 301 for the likes of Boeing when that company feels discomfort abroad, so they exempted that.
The result is clear: power and discretion long enjoyed by the President is collared, and the leash is handed to foreign judges in Geneva.
And again, if Senator Crapo and his allies really just wanted an exclusion process, they could have modeled Sec. 73001 after the Miscellaneous Tariff Bill process, and kept final tariff authority in Congress rather than sending it to Geneva.
Broader Damaging Implications
Finally, remember earlier how we noted that our current China 301 tariffs were in response to China’s state-supported IP theft, and how that wasn’t the type of unfair trade practice the WTO was designed to remedy? Well, if Sec. 73001 becomes law, future Presidents will no longer have Section 301 as a viable option to defend domestic industry, unless the unfair trade was a specific type the WTO was designed to dissuade. This is significant. After all, what, precisely, would have been a better way to respond to China’s state-sponsored comprehensive IP theft? Multinationals’ trade associations don’t have an answer, they just stammer at Presidents to magically figure it out only without inconveniencing their imports.
73001’s writers appear to have contemplated this point. So for other 301 actions that don’t neatly fit into the WTO framework, 73001 gives USTR a chance at avoiding the impossible exclusion criteria only if they make ongoing certifications to Congress that maintaining each tariff is necessary to “remove unreasonable or discriminatory practices”. It may sound fair, but this is another way of ensuring defending American businesses from economic warfare is no longer viable with Section 301. We know this because the antagonists to our China tariffs love to make the weird argument that China has failed to reform, so we may as well give up the tariffs. Importers will always say the tariffs aren’t working, and throw endless resources to ‘prove’ it. And in an incredible betrayal, 73001’s writers ensured that even this certification process would be unavailable on the current China tariffs (!!!). It’s a guaranteed Made-in-China payout.
The truth is this language reaffirms their view that Section 301 is only about helping multinationals be more comfortable in foreign lands. Are you a domestic producer that doesn’t do business in China? “Shut up, we’re not interested in your view!” – Senior Senate GOP leaders, probably.