China Select Committee Chairman Introduces Legislation to Revoke China’s Permanent Normal Trade Relations

On November 14, 2024, the Chairman of the Select Committee on the Chinese Communist Party (“CCP”), John Moolenaar (R-MI), introduced H.R. 10127, the Restoring Trade Fairness Act (the “Legislation"), which would suspend US permanent normal trade relations (“PTNR”) with the People’s Republic of China (“PRC”), increase the rates of duty applicable to certain articles imported from the PRC, and establish several additional PRC-related actions. Senators Tom Cotton (R-AR), Marco Rubio (R-FL), and Josh Hawley (R-MO) introduced companion legislation, S. 5264, the Neither Permanent Nor Normal Trade Relations Act, on September 26.

As background, on May 24, 2000, the United States enacted legislation to grant PNTR status to China. This allowed US recognition of China’s accession to the World Trade Organization (“WTO”) and removed the annual vote on maintaining normal trade relations (i.e., Most-Favored Nation status) with China. China’s PNTR status allows for PRC-based goods to have duties at the rates set forth in column 1 of the US Harmonized Tariff Schedule (“HTS”) (i.e., the tariff rates applied to most countries other than U.S. Free-Trade Agreement partners).

In addition to the revocation of PNTR status, the Legislation would take several PRC-related actions if passed, including:

• Revising the HTS to include rates of duty applicable only to articles of the PRC by creating a third column in the HTS (“column 3”).
• The new column 3 rates would be calculated as follows:
• For ad valorum rates (i.e., rates that are a percentage of the price of the imported good), column 3 duties would revert to inflation adjusted column 2 rates, unless the column 2 rate is less than 35%, in which case the tariff would be set at 35%.
• For specific or compound rates (i.e., rates that are set for a particular measure of a good, e.g., weight), column 3 duties would revert to inflation adjusted column 2 rates, unless the column 2 rate has an effective ad valorum equivalent rate of less than 35%, in which case the rate would be a set rate equivalent to 35%. The U.S. International Trade Commission (“USITC”) would perform this analysis.
• For a specified subset of HTS subheadings outlined in Section 10 of the proposed legislation, the column 3 rates discussed above would be adjusted to rates or effective rates equal to 100%.

As referenced above, the Legislation also authorizes and directs the President to adjust specific and compound rates of duty for inflation based on the Consumer Price Index (CPI) annually. The first adjustment would be against the 1930 CPI, and, accordingly, would reflect a very large inflation adjustment.

• The phase-in of duty increases would follow the schedule below: 
  • 180 days after enactment, 10% of the total duty increase with respect to an article shall apply,
  • Two years after enactment, 25% of the total duty increase with respect to an article shall apply, 
  • Four years after enactment, 50% of the total duty increase with respect to an article shall apply, and
  • Five years after enactment, 100% of the total duty increase with respect to an article shall apply.

• Establish a Tariff-Rate Quota (“TRQ”) for imports for which China is the only source (as determined based on a review of official Commerce import statistics), with the in-quota volume equal to the amount by which domestic consumption exceeds domestic production. The TRQ would permit the specified quantity of the article to enter the United States at the lower column 1 duty rates. However, import volume that exceeds the quota amount (i.e., the difference between estimated US production and US consumption) would be subject to a higher duty rate of 100% ad valorem. The TRQ would remain in place for three years following the enactment of the Legislation, and in-quota imports would be subject to column 1 duty rates. For articles subject to the TRQ, the phase-in of the new column 3 duties would begin after the expiration of the three-year TRQ and on a schedule similar as above, as follows:
  • Three years after enactment, 10% of the total duty increase with respect to an article shall apply,
  • Five years after enactment, 25% of the total duty increase with respect to an article shall apply,
  • Six years after enactment, 50% of the total duty increase with respect to an article shall apply, and
  • Seven years after enactment, 100% of the total duty increase with respect to an article shall apply.
    
    
• Provide the President with broad authority to further increase duties above those outlined above and to impose additional quotas on imports from China.
• Require an appraisal of merchandise from China, which would require imports from China to be valued for purposes of assessing duty on the basis of “the United States value;” i.e., the US market price as audited and verified by Customs and Border Protection (“CBP”) and the USITC.
• Eliminate eligibility of imports from China from the de minimis exemption entirely. The de minimis exception currently provides admission of articles free of duty into the United States, if the aggregate fair retail value in the United States does not exceed $800. This is likely to have a significant impact on sales via e-commerce platforms that rely on direct shipments to US consumers from China.
• Establish a mechanism in the US Department of the Treasury through which tariff revenue is diverted to impacted industries through the establishment of a series of trust funds.
  • The trust funds are set to be available to certain sectors. For agriculture sectors, trust fund amounts can be transferred to the Commodity Credit Corporation (“CCC”) to provide additional payments to impacted farmers and ranchers. For other sectors, trust fund amounts shall be used for US purchases of products that would have been exported to China, if not for the retaliatory tariffs. US purchases would be initially limited to specified sectors of semiconductors, electrical and electronic equipment, mineral fuels and oils, aircraft and aircraft parts; and, if amounts remain in trust fund after payments to CCC and to the sectors noted above, the remaining funds would be provided to Commerce to purchase other products that would have been exported to China but for retaliation. Any funds remaining in the trust funds at the end of the fiscal year—after all payments and purchases have been made—are to be transferred to the Department of Defense for the purpose of purchasing munitions outlined in the Legislation.

The first adjustment of the duties outlined above would apply with respect to articles entered or withdrawn from warehouse for consumption on or after January 1, 2024. Accordingly, the Legislation also gives CBP authority to issue rules for the retroactive collection of said duties within 180 days following the enactment of the Legislation.

In all, the Legislation serves as a foundational document for negotiations among Congress and the Trump Administration that could result in revocation of China PNTR in 2025. Interested parties should continue to monitor the Legislation’s progress as it moves through Congress.