January 28, 2022

House Democratic Leadership Unveils Its China-Focused Legislative Package, Setting Up Potential Clash on Capitol Hill over Trade Policy

On January 25, 2022, Democratic leadership of the U.S. House of Representatives unveiled long-awaited legislation, the America Creating Opportunities for Manufacturing, Pre-Eminence in Technology, and Economic Strength (COMPETES) Act of 2022, a nearly 3,000-page bill that will serve as the competing version of the United States Innovation and Competition Act of 2021 (USICA) (formerly the Endless Frontier Act) that passed the U.S. Senate in May. 

Both the House and Senate bills are intended to increase the United States’ competitive advantage in the world — particularly vis-à-vis China — through major investments in research and technology while also addressing numerous trade policies that will have a significant impact on U.S. importers and exporters. 

While the competing trade provisions are similar in some respects — both bills, for example, provide a multi-year renewal of the Generalized System of Preferences Program (GSP) and authorize a new Miscellaneous Tariff Bill (MTB) — there are also multiple (and, indeed, substantial) differences to be ironed out, both in terms of the details of the programs’ renewal and the substantive areas covered under the competing bills. 

Our team breaks down four of the key trade issues that Congress must reconcile before a bill reaches the President’s desk.

1. Section 301 Duties 

As described in our previous client alert, the Senate bill would reinstate all Section 301 exclusions previously granted and published by the United States Trade Representative (USTR), covering products across Lists 1, 2, 3 and 4A. Reinstatement would apply from the date of the enactment of the bill and extend all previously granted Section 301 exclusions through December 31, 2022. Moreover, for those Section 301 exclusions that expired on December 31, 2020, the Senate bill allows importers to recover all Section 301 duties paid on entries made after December 31, 2020 — regardless of the liquidation status of the underlying entry — through the date of enactment. 

However, absent from the House bill is any reference to the reinstatement of the previously granted Section 301 exclusions or the Section 301 exclusion process in general. The omission is notable in light of a recent bipartisan letter — signed by nearly one-third of all House members — asking USTR Katherine Tai to expand USTR’s new exclusion process, as announced on October 4, 2022, because it only covers “1 percent of the original exclusion applications for reconsideration.”    

Aside from this notable omission, the House bill also includes a modified version of the Import Security and Fairness Act, legislation recently introduced by Chairman of the House Ways and Means Subcommittee on Trade Earl Blumenauer (D-OR), that would eliminate the de minimis duty exemption for U.S. imports that originate from a “non-market economy” — thus subjecting a larger number of Chinese-origin goods to tariffs, including tariffs imposed under Section 301. The Senate bill, by contrast, does not address the de minimis duty exemption.  

Given the broad economic impact of the existing Section 301 duties on Chinese-origin goods — and their resulting political impact in congressional districts all over the country — we anticipate that the Section 301 tariffs will be one of dominant trade issues on the table as Congress attempts to reconcile the House and Senate bills. 

2. GSP/MTB

The House bill extends GSP through December 31, 2024, and includes a retroactivity provision allowing importers to obtain duty refunds on GSP-eligible products that were deposited after the program’s expiration on December 31, 2020. The bill also makes several changes to GSP eligibility criteria, including the addition of new country eligibility criteria (e.g., mandatory criteria related to human rights and environmental protections; and discretionary criteria, which the president must take into consideration when designating beneficiary developing countries (BDC)).  

As to the MTB, the House bill authorizes MTB duty relief through December 31, 2023, retroactive four months before enactment. Specifically, the bill provides duty relief, regardless of the liquidation status of the underlying entry, on manufacturing inputs and other imports that were accepted for tariff reduction or suspension by the U.S. International Trade Commission (USITC) in the most recent MTB round and will be implemented within Chapter 99 of the Harmonized Tariff Schedule of the United States (HTSUS). The duty reductions and suspensions are available to all importers who import the identified products and will remain in place until December 31, 2023, followed by a new MTB process. Relatedly, the bill extends the USITC’s authority to continue to conduct and oversee the MTB petition and recommendation.

The distinctions between the GSP/MTB provisions in the House and Senate bills are mostly technical, with the key exceptions being (1) the length of the GSP extension (the Senate bill extends GSP through January 1, 2027) and GSP country eligibility requirements; and (2) the number of products subject to MTB duty relief, as the House bill, for example, excludes “finished goods” from future MTBs.  

3. Review of Outbound Investment

A controversial addition to the House bill is the National Critical Capabilities Defense Act, a companion to Senate legislation of the same name introduced last year by Senate Finance Committee members Bob Casey (D-PA) and John Cornyn (R-TX). The bill, which has received significant pushback from the U.S. business sector, would create a “National Critical Capabilities Committee” tasked with reviewing and potentially blocking certain outbound investments — defined, in part, as any transaction by a U.S. business that “shifts or relocates to a country of concern, or transfers to an entity of concern, the design, development, production, manufacture, fabrication, supply, servicing, testing, management, operation, investment, ownership, or any other essential elements involving one or more national critical capabilities[,]” as identified under the legislation. Notably, the bill specifies that a “country of concern” includes, in part, “nonmarket” economies — thus opening the door to the review (and potential blockage) of a broad range of transactions involving U.S. entities and China. 

Although the proposal was not included in the Senate-passed USICA, it appears to have picked up steam, in part, from the 2021 Annual Report issued by the independent U.S.-China Economic and Security Review Commission, which recommended the passage of legislation to “screen offshoring of critical supply chains and production capabilities” to China to “protect U.S. national and economic security interests.” Senators Casey and Cornyn have since argued that this recommendation “closely aligns” with the National Critical Capabilities Defense Act.  

4. Antidumping/Countervailing Duty (AD/CVD) Reform

Another major distinction presented by the House bill is its inclusion of the Eliminating Global Market Distortions to Protect American Jobs Act of 2021, a companion to legislation of the same name introduced in 2021 by Senators Sherrod Brown (D-OH) and Rob Portman (R-OH) that would make significant changes to the administration of U.S. AD/CVD laws. 

A central component of the bill is the creation of a “successive” or “concurrent” AD/CVD investigation — a concept that would expedite AD/CVD investigations when the ITC has already made an affirmative determination(s) in similar cases in the past two years or is investigating similar cases simultaneously. This is a direct response to complaints from U.S. companies — particularly those in the steel and mattress industries — that have received a favorable AD/CVD order, only to see competitors that are subject to the AD/CVD order shift their operations to another country, thus evading the AD/CVD order and requiring the victim company to petition for a new (and often lengthy) investigation.

The bill also seeks to prevent countries from circumventing CVD orders (through the subsidization of companies located outside of that country) by authorizing the U.S. Department of Commerce to consider and address subsidies offered to producers in the country under investigation by a government located elsewhere. Under current law, in a CVD proceeding, Commerce may only investigate and countervail subsidies being offered in the country under investigation by the government of that same country.

It’s worth noting that this proposal was introduced by Senators Brown and Portman less than two months prior to Senate-passage of the USICA — thus leaving an open question as to its support in the Senate, which has now been afforded additional time to review and analyze the proposal.

Looking Ahead

According to recent reporting, House Republicans are expected to be unified in opposition to the House bill, which they argue was drafted without sufficient committee engagement and bipartisan input. It is expected at this time, however, that House Democratic leadership will bring the bill directly to the House floor in the coming weeks to vote on proposed amendments and final passage. Assuming the bill, as drafted, passes the House, it will then move to conference committee, where appointed conference committee members from both chambers will attempt to reconcile their competing versions — a task made difficult, in part, by the sharp distinctions in trade policy.  

For More Information

Although the trade provisions described above represent a relatively small portion of the America COMPETES Act of 2022, their potential impact on U.S. importers and exporters is substantial and will be the subject of significant debate on Capitol Hill in the days ahead.

Faegre Drinker is closely monitoring these legislative developments. If you are interested in determining how you are impacted by this proposed legislation or how to contact your Congress member in support of this legislation or with suggested changes to the amendment, please contact any member of the Faegre Drinker Customs and International Trade Team.  

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