SUMMARY OF USTR PROPOSALS

The USTR notice does not set forth a single unified scheme of fees; rather, the notice includes several alternative fee structures, one or more of which may be implemented. The proposals are as follows:

• fees on Chinese operators – A fee on Chinese vessel operators at a rate of up to (a) US$1m; or (b) US$1,000 per net ton of the vessel’s capacity, in each case, assessed on the vessel’s entrance into a US port;
• fees on Chinese-built vessels and fleets – A fee on Chinese-built vessels at the following rates:
  • a fee of up to US$1.5m per Chinese-built vessel entering a US port;
  • a fee imposed on the vessel’s entry into a US port, determined based on the percentage of Chinese-built vessels in the relevant operator’s fleet, as follows: (i) up to US$1m per vessel for operators with 50% or more of their fleet comprised of Chinese-built vessels; (ii) up to US$750,000 per vessel for operators with more than 25% and less than 50% of their fleet comprised of Chinese-built vessels; and (iii) up to US$500,000 per vessel for operators with more than 0% and less than 25% of their fleet comprised of Chinese-built vessels; or
  • an “additional” fee of up to US$1m imposed on the vessel’s entry into a US port if the number of Chinese-built vessels in the operator’s fleet is 25% or more; and
• fees on orders from Chinese shipyards – An “additional” fee assessed based on the percentage of vessels ordered from Chinese shipyards, as follows:
  • a fee imposed on the vessel’s entry into a US port, determined based on the percentage of Chinese vessel orders (including vessels expected to be delivered by Chinese shipyards over the next 24 months) by the relevant operator, as follows: (i) up to US$1m for operators with 50% or more of their vessel orders in Chinese shipyards; (ii) up to US$750,000 for operators with more than 25% and less than 50% of their vessel orders in Chinese shipyards; and (iii) up to US$500,000 for operators with more than 0% and less than 25% of their vessel orders in Chinese shipyards; or
  • a fee of up to US$1m imposed on the vessel’s entry into a US port if the percentage of Chinese vessel orders (including vessels expected to be delivered by Chinese shipyards over the next 24 months) by the relevant operator is 25% or more.

The USTR proposals include the potential for a refund of the foregoing fees (computed annually) in an amount of up to US$1m per US-built vessel that the relevant operator trades to a US port.

The proposal also requires trading in certain US exports to be conducted using US-built vessels, US-flagged vessels and/or US operators, as follows:

• a certain percentage (computed annually) of certain US-origin goods must be exported using US built and flagged vessels, and US operators. This percentage increases over the next seven years, plateauing at 15% US-flagged vessels with US operators, of which 5% must be US-built; and
• certain US goods must be exported on US built and flagged vessels unless the relevant operator demonstrates that it will export at least 20% of US products (computed annually) on US built and flagged vessels.

PROCEDURAL BACKGROUND AND TIMELINE

The USTR proposals were made under the authority of Section 301 of the Trade Act of 1974, which is designed to address unfair foreign practices affecting US commerce. On March 12, 2024, five US labor unions filed a petition with the USTR requesting an investigation into the practices of China targeting the maritime, logistics, and shipbuilding sectors. The USTR issued its report on January 16, 2025, setting forth its view that China’s trade practice in the target sectors was unreasonable, and burdens or restricts US commerce.

It should be noted that the USTR report on China’s trade practices was prepared and issued under the administration of former President Biden, whereas the USTR proposals were issued under the administration of current President Trump. The seamless transition from the USTR report to the current proposal is indicative of the apparently bipartisan nature of the USTR actions.

The USTR has yet to propose regulations or administrative language which would, if enacted, implement the USTR proposals.  Rather, the proposals are written as a summary of potential actions that may or may not be implemented.

The USTR has invited interested parties to submit comments and testify as to the proposals. The deadline for submitting comments is March 24, 2025, which is the date of the proposed hearing.  Parties wishing to testify should submit their requests by March 10, 2025.

QUESTIONS AND UNCERTAINTIES

As described above, the USTR proposals have not been enacted and are not law. They may not be enacted at all, or may be enacted in dramatically different form. The USTR notice explicitly states that the proposals “may include one or more of the [listed] options,” further reinforcing the uncertainty regarding what regulations or other administrative action, if any, will be enacted.  Furthermore, there are no proposed regulations or administrative language to analyze, so the only guidance available is the description in the USTR notice.

Accordingly, the USTR proposals leave unanswered several important questions, including the following:

• what is defined as a “Chinese operator”? Is a non-Chinese subsidiary of a Chinese company a Chinese operator? What about a Chinese owner/lessor in a sale-and-leaseback financing where the charterer/lessee takes on all responsibility in relation to the operation of the vessel? What about a Chinese owner with non-Chinese commercial and technical managers? Or a non-Chinese owner with a Chinese manager? Can a Hong Kong-based company be treated as a “Chinese operator”?;
• do the percentages of Chinese-built vessels consider tonnage/size, or is every vessel counted equally? What counts as a “vessel” for this purpose?;
• in calculating the operator’s percentage of Chinese-built vessels, who is the “operator”? Are affiliated operators aggregated? What about joint ventures between existing operators?; and
• do the fees on Chinese-built vessels and orders from Chinese shipyards require that the relevant vessel trading to a US port be Chinese-built, or do the fees apply regardless of whether the vessel in question is Chinese-built? The language is somewhat unclear on this point.

CHARTERPARTY QUESTIONS

While the USTR proposals remain in proposed form, and may never be enacted and/or dramatically altered, owners and charterers should consider the effects of the USTR proposals on their charterparty agreements. The key question will be which party bears the cost of the additional fees: the owner or the charterer. Which party bears the cost will depend on the language of the charterparty agreement. Note that in most cases, the fees would be assessed based on a combination of the charterer’s actions (ordering a call at a US port) and the status of the owner and/or its affiliates (e.g., percentage of fleet that is Chinese-built).