Senators Focus on Mexico More Than China When Questioning USTR

Almost five years after the first round of 25% tariffs were put on Chinese imports, it was trade irritants with Mexico and India, as well as concerns about tariff preference programs and the lack of a market-opening strategy, that senators dwelled on during the U.S. Trade Representative's appearance in front of the Finance Committee.

China was mentioned a few times -- Sen. Michael Bennet, D-Colo., focused on the continued supply chain nodes in Xinjiang, and Sen. Marsha Blackburn, R-Tenn., asked about Section 301 tariffs -- but it seemed the tariffs on most Chinese imports have lost their political salience.

Bennet asked Tai what she would say to businesses about Uyghur forced labor.

"For a long time, we did not pay attention to where our supply chains went," she replied, but that has to end if we want to build "a world economy that is not premised on the exploitation of our fellow human beings." She added: "I appreciate they often do not know how far their supply chains go. But the issue is: they have the responsibility to know."

On the Section 301 review, Tai said it is a "very responsible, deliberative approach," evaluating thousands of responses submitted to the office, and that will be unfolding for months to come. She said one of the questions they are seeking to answer is how effective the tariffs were in changing China's behavior in respecting American firms' intellectual property.

There were numerous complaints about a lack of an offensive strategy. Both Sen. John Thune, R-S.D., and Sen. Mark Warner, D-Va., argued that the U.S. should negotiate a comprehensive free trade deal with the U.K.

Tai said that while there are no "tariff liberalization negotiations" with any country at the moment, she is open-minded about traditional FTAs. She said when such an endeavor fits with the time and the partner, "we are happy to do the right thing by the U.S. economy."

She also heard complaints from both sides of the aisle during the March 23 hearing that Congress has not been kept in the loop on negotiations for the Indo Pacific Economic Framework or for potential critical minerals deals that would allow minerals processed in Japan and the European Union to qualify toward content requirements needed to get a $7,500 tax credit to buy an electric vehicle.

Both the chairman and the ranking member of the committee also complained that these agreements, even though they will not change tariffs, need a vote in Congress.

"We are following the precedent of established USTR practice in terms of the types of agreements that come to Congress," Tai replied. "I do hear the concerns of this committee and I’m committed to working with you."

In a hallway interview after the hearing, Tai said that negotiations with Japan on critical minerals are ahead of those with the EU.

Several senators complained about Mexican discriminatory treatment against foreign companies in the energy sector, with Chairman Ron Wyden, D-Ore, saying that eight months have passed as U.S. officials have talked about how they feel Mexico is violating USMCA with these actions.

"It’s long past time to say: 'Enough,' and make this a real dispute settlement case," he said.

Sen. Chuck Grassley, R-Iowa, told Tai she should start a formal dispute with Mexico over its restrictions on genetically modified corn on April 7, the first day the U.S. could say that technical consultations on phytosanitary measures were not getting results. When she declined to commit to that, he said: "You’re going to continue these conversations for the two years that have already gone on and they’re never going to end!"

Tai replied, "I assure you, it’s not my intention to let this go on indefinitely."

In a hallway interview after the hearing, she said "depending on the tone and tenor, the progress we're making," the administration will decide if it's time to call for a panel.

Sen. Sherrod Brown, D-Ohio, told Tai that the letter he led about surges of exports of steel conduit from Mexico (see 2302160001) didn't tell the full story -- he said there have also been surges of exports of steel wire and steel wire rod, and all these surges are counter to the agreement that the U.S. made with Mexico when it decided to drop 25% tariffs on Mexican steel.

Tai said she read the letter "with a very, very deep concern," and promised she would raise the issue with the Mexican government.

Brown asked her to advocate for a return of 25% tariffs on Mexican steel if the government is not cooperative.

She did not comment on that request. She also did not endorse his new bill increasing penalties for antidumping circumvention (see 2303160067), though she said it is important to understand where leakage happens, and where whack-a-mole efforts in antidumping are most common. She said the administration generally thinks there needs to be new trade tools to deal with an unlevel playing field.

Several senators complained about high tariffs on U.S. agricultural exports to India, and Sen. Bill Cassidy, R-La., asked Tai to impose higher tariffs on Indian shrimp exports, which he said are dumped on the U.S. market.

Both the Generalized System of Preferences and the African Growth and Opportunity Act came up in the hearing -- Sen. Bob Menendez, D-N.J., argued that the expiration of GSP has reduced incentives for companies to diversify out of China, and he said, "I hope immediate and retroactive relief can be a priority of the committee."

Warner asked Tai about when Ethiopia might return to AGOA, and said that kicking it out of the program opened the door for China to make inroads in Ethiopia.

Tai said there have been important developments in Ethiopia, and that the administration has "been working with the Ethiopian government with a list of benchmarks that we will be looking at very closely in terms of tracking progress." She did not make any estimate of how long it could take for Ethiopia to return.

Sen. Todd Young, R-Ind., argued that South Africa should be kicked out of AGOA because of its refusal to condemn the invasion of Ukraine. Tai said she had constructive talks with her South African counterpart, and Young responded, "Look, there have to be consequences for not being a good friend and partner, and South Africans have not been. Something has to give."

While Tai did not signal support for that view, she did agree with Menendez that it's a problem that Nicaragua can continue to benefit from the Central American Free Trade Agreement (CAFTA), given that the country has slid into dictatorship.

"I think you are absolutely right, when regimes turn, that we have to reconsider how we treat them across the board, and it has been a question for us as well, how to respond accordingly."

Menedez said he would work with the administration "to suspend Nicaragua’s market access under CAFTA. It’s just absolutely outrageous."

Sen. Sheldon Whitehouse, D-R.I., the lead advocate for a domestic carbon tax, told Tai he vehemently opposes allowing U.S. steel exports to the EU to evade that region's coming carbon border adjustment mechanism, or CBAM.

Tai and her EU counterpart are negotiating a "global arrangement on steel and aluminum" which aims to remove tariff rate quotas on European metals if the two sides can agree on how to confront global overcapacity and can agree on preferencing clean steel and aluminum.

Whitehouse argued that not only would such a deal erode momentum in Congress to establish a U.S. carbon border tax, but it also would not reduce emissions nearly as much as a broader effort to measure the carbon intensity of industrial production.

"We are not working at cross purposes," Tai said.

In response to a question from International Trade Today after the hearing, Tai confirmed reports that the discussions have linked the global arrangement on steel and Europe's CBAM.

"The global arrangement is trying to solve for two challenges in the steel trade. One is with respect to carbon intensity, and the other one is that overcapacity," she said. "CBAM, given how advanced it is in the European Union, is a relevant part of the conversation and looking at our two systems and how they might work together."