Late yesterday President Trump issued an Executive Order (EO) — titled “Restoring America’s Maritime Dominance” — intended to start the process of addressing structural vulnerabilities in the American maritime sector, in the light of challenges posed by China’s currently dominant position. As detailed below, in contrast to narrower port fee proposals made pursuant to Section 301 of the Trade Act of 1974, the EO introduces a whole-of-government approach: public-private industrial investment, potential tariffs, Harbor Maintenance Fee collection, workforce development, and coordination with partner countries around the world. Companies with an interest in how goods transit to and from American ports should take note of the Administration’s policy aims.
Interaction Between the EO and the Shipbuilding Section 301 Investigation
As described in this alert, following a Section 301 investigation into the acts, policies, and practices of the People’s Republic of China (“PRC”) targeting the maritime, logistics, and shipbuilding sectors, the Office of the U.S. Trade Representative (“USTR”) issued a report concluding, among other things, that China’s practices were unfair and burdened U.S. commerce.
In February, the USTR proposed various port/service fees as possible remedies for China’s practices, including:
- Service fees on international maritime transport by PRC vessel operators — up to $1M per vessel or $1K per ton of capacity, per U.S. port entrance, regardless of whether the vessel was PRC-built;
- Service fees on PRC-built vessels — up to $1.5M per vessel, or $500K–$1M per entrance based on how much of the operator’s fleet is PRC-built;
- Fees on operators with PRC-built vessel orders — $500K–$1M per entrance, or a flat $1M if over 25% of orders are with PRC shipyards.
As proposed, none of these measures adjusted for fleet size or geographic scope of operations.
USTR initiated a comment period and conducted hearings on the proposed measures on March 24 and 26. Comments from hearing witnesses expressed that the proposed penalties for owning Chinese-built ships were steep despite financially viable alternatives being limited. Alternative remedies were proposed, e.g., exempting American-owned vessels or assessing fees based on containers or tonnage.
Action by USTR under Section 301 is ultimately made “subject to the specific direction, if any, of the President,” and Section 5 of the EO contains instructions. From a process standpoint, “if” USTR determines to take any of the originally proposed actions, the EO requires USTR to collect additional information relevant to their administration and coordinate with the Attorney General and Secretary of Homeland Security to “enforce any restriction, fee, penalty, or duty imposed.”
From a substantive standpoint, the EO also requires USTR to “consider” taking steps “to propose” the following remedies:
- tariffs on ship-to-shore cranes manufactured, assembled, or made using components of PRC origin, or manufactured anywhere in the world by a company owned, controlled, or substantially influenced by a PRC national; and
- tariffs on other cargo handling equipment.
Insofar as the EO neither instructs USTR to discontinue nor adopt its original proposals, the new proposals are technically additive in nature. In practical terms, however, proposing additional measures suggests that the original proposals were not viewed as entirely well-suited. Already, during Tuesday’s testimony before the Senate Finance Committee, Ambassador Jamieson Greer indicated that not all of the originally proposed measures would be implemented and not all would be stacked. Together, these raise the potential that at least some of the original proposals will ultimately fall by the wayside.
Interestingly, the EO also carves out a role for America’s partner countries “with respect to their potential imposition of any actions taken” pursuant to Section 301, which may lead to a more coordinated approach.
Calls to Planning and to Action
Under the umbrella of creating a “Maritime Action Plan” (MAP), due in seven months, the EO otherwise directs various agency heads to evaluate or undertake a variety of initiatives to rebuild the domestic maritime industry and address China’s maritime dominance, including:
- Use of the Defense Production Act and private-public incentives, including creation of the Shipbuilding Financial Incentives Program;
- Application of fees, including Harbor Maintenance Fees, on any imports that first land in Canada and Mexico and cross using a land border, unless substantially transformed;
- Expanding the fleet of active U.S.-flag commercial vessels, and issue guidance regarding the disposition of a “robust inactive fleet”;
- Engagement with allies;
- Expanding workforce training;
- Efficiency studies;
- Development of an Arctic Waterway strategy; and
- Issuance of various reports and legislative proposals to support these efforts.
The MAP is the centerpiece of the EO. Once complete, it will identify options for investing in the “Maritime Industrial Base,” building upon the other reports described in the EO (e.g., recommendations to address maritime workforce challenges, improve procurement efficiency; incentivize foreign shipbuilders’ investment in U.S. capacity; and expand the fleet of active U.S.-flag and U.S.-manned commercial vessels). To financially support MAP-inspired programs, the EO requests a legislative proposal for a Maritime Security Trust Fund (MSTF). Relevant to the Administration’s other tariff- and fee-related policies, the EO specifically directs that the MSTF proposal “consider how new or existing tariff revenue, fines, fees, or tax revenue could further the goal of establishing a more reliable, dedicated funding source.”
Another key strategic element includes the identification of opportunities to create “Maritime Prosperity Zones,” modeled after the “Opportunity Zone” concept, an economic development tool encouraging investment in distressed areas of the United States. Similarly, Maritime Prosperity Zones would aim to incentivize investment in affected communities historically tied to the maritime industry.
The EO also characterizes the practice of making port in Canada or Mexico and sending cargo to the United States through land borders as “circumventing the Harbor Maintenance Fee” (HMF) and directs U.S. Customs and Border Protection (“CBP”) to take steps, including proposing legislation, to require foreign-origin cargo arriving by vessel to clear the CBP entry process at a U.S. port of entry and collect HMF and a 10% service fee on goods that enter North America by ship and cross a U.S. land border without substantial transformation between making port and arriving in the United States.
The EO otherwise encourages exploration of potential government stimulus programs to incentivize private-public partnerships, encourage private capital in shipbuilding, engage in workforce expansion and training, and sustain these programs with government-wide plans, efficiency operations, and potential congressional appropriations.
Although targeted at “America’s Maritime Dominance,” the EO also contemplates roles for partners abroad in the context of the MAP. These include coordinating HMF collection with other countries, encouraging U.S. investment by allied shipbuilders, and establishing scholarships for U.S. maritime experts to study abroad and allied maritime experts to teach in U.S. institutions. This suggests a view by the Administration that some coordination and cooperation with partner countries may accelerate the revitalization of American shipbuilding.
Conclusion
The EO outlines a broad array of initiatives with far-reaching implications for all stakeholders engaged in maritime trade. The EO presents both strategic opportunities and heightened compliance risks. Particularly once the MAP has been completed, companies should be prepared to navigate new regulatory frameworks, potential additional tariffs, and enhanced enforcement at U.S. ports.
To remain competitive — and compliant — in this evolving landscape, proactive trade compliance planning, rigorous origin tracking, and engagement with trade professionals is essential.
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Cassidy Levy Kent’s attorneys, compliance professionals, economists, and licensed customs brokers work with companies to navigate the constantly-evolving trade landscape, and develop effective solutions to a number of trade issues that make sense for their business. We expect further developments as the actions outlined in this EO begin to take shape and will continue to provide updates. Please contact us with any questions.