Most Comments Oppose Section 301 Port Fees; Unions Testify in Favor at Public Hearing

Several quoted a consultancy that projected that more than 80% of container ships that call at U.S. ports would be subject to the fees, either because the companies are Chinese, the ships were built there, or the carrier ordered Chinese ships.

Many also argued that the fees punish past action, and therefore don't incentivize new business for Japanese and South Korean builders, or for U.S. builders -- and that the fees can't resuscitate an uncompetitive domestic shipbuilding industry. Several also said they felt the aims of the investigation were more like a trade remedy than a way to convince China to change course, which was not the intent of Congress when it wrote Section 301.

"Generating demand for domestic products and raising government revenue -- whether to support a domestic industry or for other purposes -- are not permissible bases for actions under section 301," World Shipping Council President Joe Kramek testified.

There are importers speaking both days of the public hearing, port testimony is concentrated on the second day, and most exporters will speak on March 26.

On the first of two days of public hearings on the proposed remedies, the interagency panel also heard from a number of unions who filed the petition that led to this report and steelmakers who could benefit if the domestic shipbuilding industry expands.

For instance, the United Steelworkers' testimony explained that the union's members make maritime paint, cabling, vessel engines and steel for the ships.

"The USTR’s proposed relief measures provide a strong base upon which to rebuild our shipbuilding capacity, protect our logistics interests and restore maritime power," the group said it would testify, though it also asked Congress to invest in shipbuilding capacity and workforce.

Nearly 375 companies, trade groups, unions and individuals submitted comments on the fees before the March 24 deadline.

Although the Coalition for a Prosperous America was not among the 60 interest groups testifying in person, it submitted a wholehearted endorsement of the fees and tariffs on Chinese cargo handling equipment.

"By also applying fees on vessels in fleets that include PRC-built ships, the United States can mitigate China's overwhelming cost advantages that harm U.S. shipbuilders and port equipment manufacturers," CPA wrote. It countered other commenters, saying the service fees are "a strategic and proportionate response to China’s unfair practices."

It said the proposal is innovative and will restore "a sustainable domestic shipbuilding base."

It also countered other commenters, who said there would be incentives to call in Mexico or Canada and transport goods overland. It endorsed a proposed fee on overland shipments that does not appear in the Section 301 remedies in USTR's report.

"The proposed 10% service fee on shipments entering the U.S. via Canadian or Mexican land borders ensures fair cost distribution while deterring tax-avoidance strategies," CPA wrote.

World Shipping Council President Joe Kramek testified that the group wants a vibrant shipbuilding and maritime sector, but "strongly opposes" USTR's proposals of fees and requirements to use U.S.-flagged or U.S.-built ships. (The WSC represents foreign shippers and two-thirds of U.S.-built liners).

The WSC noted that there are 30 U.S.-built container ships in service, all for Jones Act domestic routes, and most are reaching the end of their lifespans. "Vessels built in the United States in the near future are thus unlikely even to expand the pool available for international routes. Moreover, physical capacity constraints, order backlogs -- especially from the military -- and labor shortages constrain the ability of U.S. shipyards to take on additional orders."

The group said an average-sized ship loaded with 6,600 twenty-foot-equivalent containers could incur almost $6,350 in fees per 40-foot container, which is about double the combined inbound and outbound spot rate for the New York to Rotterdam route.

It also said it would expect corporate structures to be altered to avoid fees.

The American Association of Exporters and Importers argued that no fees or restrictions should start for 10 years, after subsidies to grow a domestic commercial fleet have started to work. It said USTR should work with Congress to provide grants and tax incentives.

The National Retail Federation and the Retail Industry Leaders Association submitted a joint comment saying they strongly oppose the proposal, and also suggested grants and tax incentives would be more effective.

They said they've read estimates that Chinese-built vessels are 32% of all container ships, and all major carriers have some Chinese vessels. (The proposal reserves the highest fees for Chinese companies and Chinese-built ships, but any carrier that owns Chinese ships would face some fees.)

The groups also argued that the fees would harm regional U.S. ports such as Oakland, Norfolk and Charleston.

They said the USTR needs to tell the trade more.

• How would USTR determine the percentage of Chinese ships in a fleet and monitor changes?
• How would vessel-sharing agreements and alliances be assessed?
• Who would collect the fees, and how?
• Are these proposed actions proportional to the alleged harm caused by China’s practices and policies?
• Has USTR considered the risk of mass shortages in the United States for a wide array of essential products resulting from the likely supply chain issues that would arise from the proposed actions, including fees?

The American Apparel and Footwear Association cited a study that projected imports would fall 5% under these remedies.

U.S.-flagged ships cost about four times more to sail, and U.S.-built ships cost five times more to build, AAFA said.

Nearly 200 trade groups, including the National Customs Brokers & Forwarders Association of America and the National Foreign Trade Council, signed a letter to the U.S. trade representative asking the administration not to put its proposals into place.

"USTR’s proposed actions will not deter China’s broader maritime ambitions and will instead directly hurt American businesses and consumers," they wrote, estimating at least $600 in added costs per container.

Similarly, the American Logistics Association argued that while increasing U.S.-flagged ships is essential to providing supplies to military personnel overseas during crises, "We advocate for providing incentives to utilize U.S.-flagged ships based on their actual existence and capacity, not on aspirational projections."

The government of the U.S. Virgin Islands, where 95% of goods are imported, said that because the smaller vessels that bring U.S. goods from Florida to their islands hold fewer containers, each one would owe $1,875 under the highest fee. If there was a fee at both ends, when the goods arrive in the Virgin Islands and when the vessel returns empty to Florida, it would increase the cost of all shipments by 250%, as the current base cost is $2,500 per container. "All these fees will be passed on to the ultimate consumer, inflicting massive inflation and economic hardship upon a jurisdiction already high in poverty," the government said.

It asked for an exemption that covers vessels up to 1,100 TEU, or to exempt Caribbean voyages. "At the very least, there should be a sliding scale that applies the fee proportionally."

The Global Shippers Association pointed out that importers of break-bulk cargo might be the only importer on a ship and would have to pay the full fee. "Such a dramatic increase in cost would have a direct impact on American manufacturers."

The American Association of Port Authorities, which represents 80 ports, asked USTR to narrow the scope of fees or reverse course "until a more comprehensive strategy can be developed."

It said the incentives to visit fewer ports per sailing "would cause significant congestion at large ports and the collapse of business lines at small and medium-sized ports."

The association said it does support a production tax credit for domestic manufacturing of heavy-lift port equipment.

Morton Salt said that East Coast cities and counties import road salt, and that it supplies domestically mined salt via Great Lakes shipping routes. "It is already difficult to procure the vessel capacity needed to move bulk salt to U.S. ports," the company said. For the East Coast, it predicted shipments would be curtailed. "The Proposed Action treats a 20,000-unit container ship delivering $1 billion worth of goods to a U.S. port the same as a 25,000-ton vessel delivering $250,000 worth of rock salt," driving some suppliers out of the East Coast market.