Trade Cases

Bill Would Close "Back Door" into Free Trade Agreements

Written by Tim Triplett

China should no longer get a “free ride” and be able to “back door” imports via the current language in free trade agreements the U.S. has with other countries, said a trio of senators last week in a letter to U.S. Trade Representative Katherine Tai. The Market Economy Sourcing Act, sponsored by Sens. Bob Casey (Pa.), Sherrod Brown (Ohio) and Elizabeth Warren (Mass.), is designed to prevent products, such as steel, from nonmarket economies from being imported as parts of larger components.

globe arrowThe measure is aimed primarily at China, which has a reputation for dumping and other unfair trade practices. “We must ensure our trade policies do not further entrench our supply chains with those of the Chinese Communist Party (CCP) and other non-market economies,” the letter stated.

As currently structured, U.S. trade agreements could allow as much as half the content of FTA goods to come from outside the FTA region – in the form of parts that are components of a larger piece of heavy machinery, for example. To address these challenges, the U.S. must incorporate supplemental rules of origin to establish limits on FTA content that can originate in non-market economies, said the senators.

Under the proposal, during the first five-year period following entry into force of a free trade agreement, no more than 20% of the “remainder” of content in qualifying goods may originate from non-market economies, and no more than 10% thereafter. That is, 80% of the “remainder” (the allowable content from non-FTA party countries) must come from market economies. After five years, 90% of the remainder content in qualifying goods must come from market economies.

The USTR has documented the numerous instances of unfair trade U.S. firms face with respect to the CCP, as well as human rights abuses, repressive labor regimes and lax environmental standards. “We must ensure our trade rules do not provide countries that engage in these activities a back door into our market, as the current trade rules allow. It is counter to our national and global economic interests to allow countries that flout market principles to free-ride on trade agreements or to benefit from U.S. procurement dollars,” said the sponsors of the bill. “We believe USTR, on its own authority, can take action which will address the fundamental issue of the CCP free-riding on trade agreements and preference programs.”

The American Iron and Steel Institute supports the effort to reduce the amount of steel from unfair traders in non-market economies such as China and Vietnam that finds its way into the U.S. by being rolled up into other goods that are part of FTAs. “Chinese steel should not be getting the benefits of other free trade agreements,” said AISI President Kevin Dempsey in remarks to Steel Market Update.

He noted that the “melted and poured” requirements in the USMCA pact were designed to prevent such an influx of steel from outside North America. “Enhancing disciplines against nonmarket behavior in steel and other industries and incentivizing the use of lower emitting products like steel produced in the U.S. are two priorities for the Biden administration and should be key components of any trade negotiation,” he added. “I would note there can be nonmarket-type behavior in many steel markets around the world. It’s not just about China and Vietnam.”

By Tim Triplett,

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