Witness: $1 Million Port Fee Could Cost Almost $1,400 Per Container

World Shipping Council CEO Joe Kramek said that his trade group doesn't take a position on whether Chinese practices to support its commercial shipbuilding industry are actionable under Section 301, but it "strongly opposes" the petitioners' proposal that a $1 million fee be levied on Chinese-built ships docking in U.S. ports.

The Office of the U.S. Trade Representative initiated the investigation last month (see 2404170029) after a petition from four unions.

Kramek, who testified May 29 at a hearing held by the interagency Section 301 investigating committee, said the fee would average almost $350 per 40-foot container; according to the Shanghai Containerized Freight Index, a 40-foot container costs an average of $5,562 to the East Coast and $4,393 to the West Coast.

Moreover, if the ship made four port calls on its route, it would add up to nearly $1,400, he said -- which would raise the cost of imported items.

Technically, the petition didn't say a ship would owe $1 million, it referred to a hypothetical $1 million fee for a 20,000 twenty-foot equivalent units cargo ship. It said the port fee should be higher on larger and heavier ships, should be higher for newer ships, and the fee should increase at regular intervals to convince China to discontinue its interventions (see 2404250043).

Kramek said a $1 million fee could cause a number of disruptions -- carriers could shift business to ports in Canada and Mexico; carriers that own more Chinese vessels could withdraw from the U.S. market, reducing competition and therefore raising freight rates.

Kramek argued that it also wouldn't raise enough revenue to shore up the moribund domestic commercial shipbuilding industry. He said most container vessels that call on U.S. ports are not Chinese-built, and that carriers would shift their Korean and Japanese carriers to U.S. routes and their Chinese ships to other routes, to avoid the port fees. That wouldn't reduce the demand for Chinese-built vessels, Kramek predicted, because buying decisions would still be based on costs.

Kramek said this port fee wouldn't change Chinese practices, and he argued it's not even designed to. The Section 301 process "should not be used as a backdoor method to raise money for specific industries," he said.

He argued that "the proposed fee would likely bite many U.S. agricultural exporters particularly hard," because their oceangoing commodities are low-margin, and higher shipping costs would cut into their competitiveness.

The government panel asked Kramek what proportion of his members' purchases are Chinese ships. He did not directly reply, but said they purchase ships based on how suited they are for the needed purpose, quality and price.

Ontario Marine Council Chair Steve Salmons also argued against the fee, saying that some Chinese-built ships serve the Canadian and U.S. ports in the Great Lakes, carrying agricultural products, steel, iron and fuel. He said levying fees would undermine the shipping routes of the Great Lakes, be counter to free trade principles and binational cooperation in the Great Lakes, and could shift products from ships to trains or trucks, both of which are more carbon-intensive modes of shipping.

Salmons said he hopes that, if the USTR decides action should be taken, it takes comments from port operators, including in Canada.

The port fee solution was taken from an effort to counter trade distorting subsidies in shipbuilding undertaken at the Organization for Economic Cooperation and Development (OECD) (see 2404250043).

Witness Peter Young, deputy head of the trade section of the Delegation of the European Union to the United States, said there was no blanket fee proposed by the EU based on the OECD process. Instead, it suggested a complaints-based system, with case-by-case analysis. And, he noted, it was never levied, because it was conditional on the OECD shipbuilding agreement entering into force.

The EU, Japan, Korea, Norway and the U.S. agreed to curtail subsidies, but the U.S. never ratified the deal, because it would have required the U.S. to end its duty on repairs of U.S.-flag vessels in foreign shipyards, and because the other countries potentially could have challenged the Jones Act, which doesn't allow foreign-built ships to carry cargo between U.S. ports.

Young told U.S. officials that the EU has longstanding concerns about the Jones Act, and said that law means the domestic shipbuilding industry "is already very highly protected."

He said he recognizes the investigation is in its early stages, and that the government has not decided if remedies are warranted, but that he had to address the port fee proposal, since it was put forward in the petition. He added that it's highly important that this "investigation does not lead to any discriminatory or unintended negative economic effects on close trading partners of the United States, such as the EU."

He noted that liquefied natural gas exports to the EU -- which have been critical for EU countries ending imports of natural gas from Russia -- could be made more expensive if the port fee is levied. He noted that European shipping lines have 34% of the U.S. market, and that a lot of the trade is done with Chinese-built vessels.

However, he noted that the petition proposes international negotiations to address government support programs in major shipbuilding countries in capitalist countries, and coordinating "measures to address China's unfair practices." He said the EU is open to such discussions, and believes the OECD Shipbuilding Committee is a good place for them.

Chinese trade groups also testified, and government officials tried to press them on the allegations in the petition, asking some if they agreed that China requires that Chinese-built vessels be used for state-owned enterprises' exports, and asked if there are subsidies to Chinese shipbuilding through financial routes, or through the supply of below-market steel plate. They either denied the allegations or did not directly answer the questions.

Sen. Tammy Baldwin, D-Wis., testified in front of the panel via video link-up, arguing that because Chinese steel is 50% cheaper, and because of other financial supports, China is able to sell container ships 60% cheaper than those made in South Korea or Japan. With the decline of the shipbuilding sector -- she noted that only one ship meant to serve Great Lakes ports has been built since 1983 -- there has been knowledge lost, not just jobs, she said.

International Association of Machinists General Vice President of the Eastern Territory Dave Sullivan, worked at Maine's Bath Ironworks, a shipyard that repairs submarines and other military vessels, and said he's seen the damage to the defense industrial base that resulted from China's shipbuilding rise. "The situation is dire and without action it is not expected to improve," he said.

AFL-CIO's Riley Ohlson, who works in trade and manufacturing policy, said the rapid growth of cargo ships since 2000 should have been a prime opportunity for U.S. shipbuilders, but they were thwarted by China's cheating.

Government officials asked several witnesses if the domestic shipbuilding industry began its decline in the '80s, before China jumped into the market.

Alliance for American Manufacturing President Scott Paul called that argument "spurious," but then said it's true that there was some decline at U.S. shipyards because of competition with South Korea, Japan and European companies, and because of the removal of a taxpayer subsidy program in the early '80s.

The Wilson Center think tank's Jeffrey Kucik, who noted he was expressing his own views, not the center's, said that "America is desperately lacking shipbuilding capacity," and that there's a national security angle to that weakness, because 90% of military equipment travels by ship, and the U.S. relies on foreign companies to ship it.

But, he said, "the reality of the current market is that the U.S. cannot entirely reshore production in these critical areas -- at least not at a scale to balance China’s overcapacity." He said instead of trying to use subsidies to revive shipbuilding, it would be best to target subsidies to ships that can run on green ammonia or other alternative energy sources, because the U.S. could establish a competitive edge in that sector eventually. He also recommended an AUKUS-style arrangement with Japan and South Korea to lock in a partnership with countries that still have cargo shipbuilding capacity.