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On the Hill: How the China Trade Bill Would Alter the Playing Field

Bipartisan legislation that stands to measurably impact the future of U.S.-China trade relations appears headed for a vote in the senate early next week.

In the lead up to the Memorial Day holiday weekend, the Senate voted by an overwhelming 91-4 margin to include an amendment, dubbed the Trade Act of 2021, within the U.S. Innovation and Competition Act, a bill that focuses largely on enhancing American competitiveness in the arena of critical technologies like semiconductors. While lawmakers across the board showed strong support for the 800-plus page inclusion, its last-minute addition hampered the legislative body’s ability to bring the full bill to a vote before the week-long recess. The bill is slated to go to a vote on Tuesday.

The robust Trade Act, introduced by Senator Mike Crapo (R-Idaho) with support from Senate Majority Leader Chuck Schumer (D-New York) and Senate Finance Committee Chairman Ron Wyden (D-Oregon), aims to tackle China’s outsized influence on manufacturing and free and fair trade. It also seeks to address China’s rampant bad acts, like intellectual property theft and human rights abuses, that have exacerbated already strained relations in recent months.

“This is not just an amendment on one topic, this is an entire title,” Sen. Crapo remarked on Thursday. “This strong trade package will help stand up our efforts in pushing back against China in one of the most critical arenas that we face—trade, our economy, and working against the very nefarious activities that China is engaged in to try to undercut us economically, and to undercut our American companies in our trade relationship.”

This week, a senior Republican aide in the House of Representatives told Sourcing Journal that members were pleasantly surprised by breadth of the Trade Act of 2021 amendment’s support from members of both parties—a circumstance that would appear to bode well for the package’s passage.

One aspect of the multifaceted amendment that stands to directly impact the fashion and retail industries is the proposed restart—and reform—of the Section 301 tariff product exclusion process. The product exclusions enacted since the trade war’s start in 2018 expired during the waning days of the Trump administration and were not renewed, leaving American brands importing certain goods from China on the hook for punitive duties.

House members on both sides have faced increased pressures from constituents whose businesses have been impacted by the taxes on China-made goods over the course of recent months. There is a strong bipartisan view that reforming the process for granting exclusions is imperative, particularly to help small entities, the aide said.

As a result, the amendment stipulates that the USTR will be tasked with establishing a particular exclusion policy for products made in China. These exclusions, which will be based on factors like economic harm to requesters—brands and retailers—or shoppers, will be put in place for a period of 18 months.

In late April, a collective of more than 100 House members led by Rep. Darin LaHood (R-Illinois) wrote to recently appointed USTR Katherine Tai urging the creation of a new exclusion process to remove the burden of duties from U.S. brands struggling to get back on their feet post-pandemic. While the agency recently extended exclusions for Covid-related products like PPE, the legislators called the move “insufficient” in providing badly-needed relief for businesses and workers. Tai indicated in a recent hearing that the request is still under review.

The slow movement on the matter may have underscored an addition to the amendment requiring that an inspector general be appointed to the USTR. Within 120 days of the bill’s passage, the individual must be sworn in by President Biden to ensure that the application of tariffs related to China are “calibrated to provide the necessary leverage to support American competition while ensuring U.S. competitiveness in manufacturing.” Such action has been floated as an option numerous times in recent years as a means of ensuring clarity and transparency in the way that punitive tariffs are implemented, and ensuring that they don’t cause undue harm to American businesses while attempting to penalize China.

While the U.S. has leveraged Section 301 to advance its trade interests in the past, the use of punitive tariffs as a long-term policy against a single country is unusual and without recent precedent, the aide said. The breadth, duration and significance of the application of tariffs is a key driver behind legislative interest in placing an inspector general at the USTR and creating a dedicated exclusion process—measures that have not been seen as needed in the past.

The amendment also seemingly aims to provide immediate relief to American businesses burdened by the expiration of tariff exclusions in January, as it includes a wide range of proposed extended duty suspensions and reductions to go into effect with the bill’s passage. Included on the list are a variety of men’s, women’s and children’s leather shoes, sport footwear, boots, golf and cycling shoes, hats, and a handful other apparel items and accessories. While the former process for applying for exclusions has lapsed, the aide said that the large proposed list of excluded products represents a re-creation of the exclusions that expired in December.

A notable addition to the legislation is the reform and reinstatement of the Generalized System of Preferences (GSP), which eliminates duties on goods from 119 of the world’s poorest countries to bolster trade and foster economic growth within those territories—and pull sourcing away from China.

The revamped GSP would include a more stringent exclusion process predicated on environmental and social responsibility, the amendment read. Participating countries must adopt and maintain measures dictated by common environmental agreements, and must be found to be working toward economic policies to reduce poverty, increase the availability of health care and provide educational opportunities. These actions stand to benefit underserved women and children in embattled nations.

Republican House members overwhelmingly support the renewal of the GSP, the aide said, and as dictated by the amendment, the new version would last six years—twice as long as previous periods of renewal. The enhanced duration will help incentivize developing nations to comply with the GSP’s standards, knowing that their compliance efforts would earn them preferred trade status for a significant stretch of time.

What’s more, the appetite to bolster competitiveness among U.S. allies while fostering social compliance has gained focus as China’s human rights abuses become more glaring. The GSP program can be leveraged to raise standards elsewhere, while chipping away at China’s dominance from a sourcing perspective.

Currently, GSP-eligible products from developing countries include a number of raw materials like cotton, as well as luggage and travel items, which were added to the list in 2015. While the product list is continually under review, legislators have also been mindful of undermining existing trade agreements in Central and South America as well as countries in West Africa, which have become meaningful footwear and textile trading partners, the aide explained.

Amid the talks involved in the movement of the U.S. Innovation and Competition Act, lawmakers are also keeping a keen eye on trade negotiations abroad. On Wednesday, the U.K. took preliminary steps in joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)—the successor to the Trans-Pacific Partnership (TPP) agreement, which the U.S. ultimately backed away from in 2018. The U.K. will join 11 nations including Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam if approved, likely over the course of the next year.

While President Biden has indicated in the past that he would not be opposed to exploring the possibility of joining the CPTPP, the U.S. has not been a part of the agreement’s negotiations since the Trump administration withdrew support for the measure—a factor that could hamper support from Republicans, the aide opined. While the ability to modernize and expand relationships with CPTPP members remains an attractive prospect to both sides of the aisle, there is also bipartisan concern about its terms, he said. What’s more, the U.S. already enjoys free trade agreements with about half of CPTPP’s members.

USTR Tai was pushed about the prospect of the U.S. returning to the negotiating table at a hearing before the Senate Finance Committee in mid-May, and while she expressed support for continued engagement within the region, she did not indicate that any forward movement in joining the agreement was imminent.

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