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United States: Any Port in a Storm: USTR to Investigate Chinese Shipbuilding Subsidies

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On April 22, 2024, the United States Trade Representative (USTR) announced its initiation of a Section 301 investigation into China’s acts, policies and practices in the maritime, logistics, and shipbuilding sectors.

The investigation is in response to a petition filed in March by five US labor unions alleging that China engages in unreasonable or discriminatory practices that provide unfair advantages in the maritime industries. The petition cited specific conduct alleged to target the maritime, logistics, and shipbuilding sector, including “by directing mergers between favored state-owned companies, disapproving alliances by foreign competitors, denying berthing rights to foreign-owned ships, controlling freight rates and capacity allocations, supporting the development of key upstream maritime technologies, and tolerating intellectual property theft.” These measures are said to burden US commerce by increasing China’s excess shipbuilding capacity and market share, artificially depressing prices, impeding US investment and production, reducing the numbers of US-produced crafts in merchant fleets, and providing unfair advantages to Chinese manufacturers and suppliers that restrict trade opportunities.

USTR determined it possesses authority to pursue an investigation under the provision of Section 301 concerning “export targeting”. Export targeting refers to a government scheme consisting of a combination of coordinated actions that have the effect of assisting the enterprise, industry, or group to become more competitive in the export of a class or kind of merchandise. Additionally, USTR invoked its authority to investigate restrictions to US commerce that include the provision of subsidies for the construction of vessels used in the commercial transportation by water of goods between foreign countries and the United States.

Under the Trade Act of 1974, USTR has broad authority to craft appropriate remedies where it makes an affirmative determination that act, policy, or practice is unreasonable, pursuant to a Section 301 investigation. Indeed, the invocation of Section 301 in 2017 and 2018 resulted in widespread duties on Chinese goods, which remain in effect today. In this action, the petitioners have requested five specific remedies:

  1. The imposition of a port fee on Chinese-built vessels;
  2. The distribution of the proceeds from the port fee to a newly-established US Commercial Shipbuilding Revitalization Fund to support investments in US shipbuilding capacity, supply chains, and workforce;
  3. Actions to increase demand for US-built vessels;
  4. Address China’s drive to dominate port and logistics infrastructure platforms and equipment; and
  5. Conduct negotiations with other shipbuilding countries to address concerns about and coordinate measures to address China’s practices.

The announcement invites public comments, via USTR’s online portal, on China’s practices in the maritime, logistics, and shipbuilding sectors. Additionally the USTR will hold a public hearing on May 29, 2024.

Even before the formal announcement of the investigation, the Chinese government firmly denied the allegations, calling the inquiry a “mistake on top of a mistake” and accusing the US itself of furnishing discriminatory subsidiaries to prop up its maritime industries. The investigation also comes close on the heels of President Biden’s call to increase tariffs on Chinese steel and aluminum imports, where the Chinese government subsidies to its domestic producers is also claimed to come at the expense of American industrial producers.

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Christine Streatfeild is a Partner in the Washington DC Office and on the Steering Committee for the North America Trade Secrets Practice. She focuses on trade remedies and unfair competition cases, including forced labor investigations, antidumping and countervailing duty cases, safeguard measures, duties imposed for national security purposes (Section 232 duties), and Section 337 intellectual property and trade secrets disputes. She appears before the US International Trade Commission (ITC), US Department of Commerce (DOC), and in state and federal courts. Prior to joining Baker McKenzie, Christine served as the acting deputy director of the Generalized System of Preferences (GSP) and in the Environment and Natural Resources division of the Office of the United States Trade Representative. She has also served as an adjunct professor at the Krieger School, Johns Hopkins University, where she taught Global Trade, Policy and Competition. She is also on the 2021 USMCA Dispute Settlement Panels Roster (on behalf of the United States), a position she has held since 2019 (under the NAFTA). Christine focuses her practice on matters related to trade regulatory and intellectual property matters, including economic injury and damages, import duty compliance, and unfair competition allegations.

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Arnoud Willems is a partner in the International Commercial & Trade Practice Group in the Brussels office. He joined Baker McKenzie in 2022. He has an extensive network, built over 25 years as a trusted advisor of entrepreneurs, executives, and diplomats. Arnoud has a deep understanding of how trade rules shape global flows of capital, investment, goods, technology, and services.

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Pablo M. Bentes is a partner in Baker McKenzie Geneva, where he heads the global WTO disputes practice of the Firm. Pablo focuses on representing WTO Members before the WTO Dispute Settlement Body and assists private clients and trade associations on how to leverage WTO disciplines to resolve trade disputes. Pablo is one of very few practitioners in the world to have successfully represented WTO Members in all stages in WTO dispute settlement proceedings, serving as lead counsel in oral pleadings before WTO panels and the Appellate Body.

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Dr. Bregt Natens is a counsel in the IC&T Practice Group in the Brussels office. He joined Baker McKenzie in 2022. Bregt advises clients on European Union and international trade law and regulations, with a focus on trade remedies, customs rules, market access, and regulatory barriers. Bregt has significant experience representing clients in litigation before the EU courts and the WTO, and before EU and EU Member State authorities in the context of trade remedies and customs matters.

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