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  • Writer's pictureStephen Fodor

USTR should fully document tariff procedures, China raises steel tariffs, U.S. tariffs "Effective"

Monday Morning Wake Up Call

August 2, 2021

U.S.-China Trade: USTR Should Fully Document Internal Procedures for Making Tariff Exclusion and Extension Decisions

(GAO) In response to unfair trade practices, the U.S. imposed tariffs of up to 25% on imports from China. From July 2018-Dec. 2020 these imports amounted to $460 billion. U.S. firms affected by the tariffs could ask to be excluded from them. The Office of the U.S. Trade Representative received requests for over 53,000 exclusions.

USTR reviewed exclusion requests on a case-by-case basis—denying most because firms didn't show severe economic harm or demonstrate that a product in their supply chain was only available from China. USTR didn't fully document its procedures, which we recommended doing to ensure it reviews any future requests consistently.

What GAO Found

The Office of the U.S. Trade Representative (USTR) developed a process in July 2018 to review tariff exclusion requests for some imported products from China and later developed a process to extend these exclusions. From 2018 to 2020, U.S. stakeholders submitted about 53,000 exclusion requests to USTR for specific products covered by the tariffs. USTR's process consisted of a public comment period to submit requests, an internal review, an interagency assessment, and the decision publication. USTR documented some procedures for reviewing exclusion requests. However, it did not fully document all of its internal procedures, including roles and responsibilities for each step in its review process. GAO reviewed selected exclusion case files and found inconsistencies in the agency's reviews. For example, USTR did not document how reviewers should consider multiple requests from the same company, and GAO's case file review found USTR performed these steps inconsistently. Another case file lacked documentation to explain USTR's final decision because the agency's procedures did not specify whether such documentation was required. Federal internal control standards state that agencies should document their procedures to ensure they conduct them consistently and effectively, and to retain knowledge. Without fully documented internal procedures, USTR lacks reasonable assurance it conducted its reviews consistently. Moreover, documenting them will help USTR to administer any future exclusions and extensions.

USTR evaluated each exclusion request on a case-by-case basis using several factors, including product availability outside of China and the potential economic harm of the tariffs. According to USTR officials, no one factor was essential to grant or deny a request. For example, USTR might grant a request that demonstrated the tariffs would cause severe economic harm even when the requested product was available outside of China. USTR denied about 46,000 requests (87 percent), primarily for the failure to show that the tariffs would cause severe economic harm to the requesters or other U.S. interests (see figure). Further, USTR did not extend 75 percent of the tariff exclusions it had granted.

Why GAO Did This Study

In July 2018, USTR placed tariffs on certain products from China in response to an investigation that found certain trade acts, policies, and practices of China were unreasonable or discriminatory, and burden or restrict U.S. commerce. As of December 2020, the U.S. imposed tariffs on roughly $460 billion worth of Chinese imports under Section 301 of the Trade Act of 1974, as amended. Because these tariffs could harm U.S. workers and manufacturers that rely on these imports, USTR developed a process to exclude some products from these additional tariffs. U.S. businesses and members of Congress have raised questions about the transparency and fairness of USTR's administration of this process.

GAO was asked to review USTR's tariff exclusion program. This report (1) examines the processes USTR used to review Section 301 tariff exclusion requests and extensions and (2) describes how USTR evaluated those tariff exclusion requests and extensions, and the outcomes of its decisions.

GAO analyzed USTR's public and internal documents relating to the exclusion and extension processes, including 16 randomly selected nongeneralizable case files, and data from USTR and the U.S. Census Bureau. GAO also interviewed agency officials.

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China raises export tariffs for some steel products again in green push

(Reuters) China will raise export tariffs for pig iron and ferrochrome, and remove export tax rebates for 23 steel products from Aug. 1, the second adjustment in three months as it seeks to ensure domestic supply while controlling output to curb emissions.

Export tariffs for high-purity pig iron will be lifted to 20% from 15%, and for ferrochrome will be increased to 40% from 20%, the Ministry of Finance said in a statement on Thursday.

The country will also cancel export tax rebates for 23 steel products, including some cold-rolled coils and silicon steel which have higher added-value compared with carbon steel.

“(The changes) aim to promote upgrade and high-quality development of the steel industry,” said the finance ministry.

China, the world’s top steel producer had already adjusted its tariffs on May 1, when it removed export tax rebates for 146 steel products, hiked pig iron and ferroalloys export tariffs and exempt some temporary import tariffs.

The adjustments came as the country wants to ensure domestic supplies when curtailing production for fewer carbon emissions.

However, as steel demand and prices are still well supported by the global economic recovery, the country’s steel products exports picked up 23% in June after a 34% drop in May.

Meanwhile, steel output in the first half also jumped 11.8% in China, making it harder to keep to the promise of no rise in annual crude steel production in 2021.

“The efforts to control exports are for more production curbs,” said Tang Chuanlin, analyst with CITIC Securities.

Tang also noted that the steel supply crunch will remain in the second half of the year.

“Even though considering the backflow of exported products, the industry is still facing more than 5% shortages,” he added.

Futures prices for the most-traded steel rebar and hot rolled coils on the Shanghai Futures Exchange had jumped 32% and 37%, respectively, so far this year.

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U.S. Commerce Chief Sees Some Tariffs as ‘Very Effective’

U.S. Commerce Secretary Gina Raimondo said some tariffs on imported goods can be effective, citing the steel levies enacted by the Trump administration as helping to counter an oversupply of the product from China.

“If China is not going to play by the rules, then there’s a place for tariffs, and they have been effective if you just look at how steel production has increased” in the U.S. since the taxes were put in place, Raimondo said Wednesday in an interview with Bloomberg News editors and reporters in Washington.

Raimondo said she didn’t necessarily disagree on policy with Treasury Secretary Janet Yellen, who said recently that some tariffs on Chinese goods have hurt U.S. consumers.

To get a level playing field, “we sometimes have to use tariffs,” Raimondo said. “Sometimes tariffs can be very effective.”

The Trump administration’s 2018 tariffs on aluminum and steel, which it justified on national-security grounds, remain in place. Raimondo has previously defended them, but some American manufacturers have said they’ve hurt their business. The European Union is working toward having the U.S. lift the metal import tariffs by the end of the year, EU Ambassador to Washington Stavros Lambrinidis said last month.

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