The Battle of the Shipyards: USTR Proposals Would Require U.S.-Flagged and U.S.-Built Vessels, Impose Fees on Operators of Chinese Vessels

USTR promulgated these proposals in connection with its investigation under Section 301 of the Trade Act of 1974 into China’s targeting for dominance of the maritime, logistics, and shipbuilding sectors, and opened a period for public comment (90 Fed. Reg. 10843). USTR originally initiated its investigation on April 17, 2024, in response to a petition filed by five participating labor unions alleging that China’s efforts to dominate these sectors harmed U.S. commerce by stifling the development of U.S. shipbuilding. On January 16, USTR issued a report finding that as a result of Chinese industrial policy and non-market policies and practices, China has undercut competition and dramatically increased market share in the maritime and shipbuilding industries. For example, the report described increases in “China’s shipbuilding market share from less than 5 percent of global tonnage in 1999, to over 50 percent in 2023, increasing China’s ownership of the commercial world fleet to over 19 percent as of January 2024.” The report concluded that “for nearly three decades, China has targeted the maritime, logistics, and shipbuilding sectors for dominance and has employed increasingly aggressive and specific targets in pursuing dominance” in an unreasonable manner and burdened U.S. commerce.

USTR’s Proposed Actions
The proposed measures generally seek to promote U.S. shipbuilding while discouraging the use of Chinese-built vessels and Chinese operators at U.S. ports.

1. Requirement for U.S.-Flagged and U.S.-Built Vessels
   Potentially the most significant of USTR’s proposals is the requirement for U.S. exporters to use U.S.-flagged and eventually U.S.-built vessels to export certain percentages of U.S. goods, which are defined as including “capital goods, consumer goods, agricultural products, and chemical, petroleum, or gas products.” This proposal would start by immediately requiring one percent of U.S. products to be exported on U.S.-flagged, U.S.-operated vessels by U.S. operators, increased to 3% two years later, 5% the following year (of which 3% would also be U.S.-built), up to 15% by 2032 (of which 5% would be U.S.-built).

   As part of the comment process, industry should strongly consider commenting and providing recommendations regarding the feasibility of implementing and meeting these requirements. Relevant considerations include, for example:

• the lengthy and potentially challenging process for reflagging a foreign vessel to a U.S.-flagged vessel that requires the approval of the Maritime Administration of the U.S. Department of Transportation;
• how exporters would be chosen to use U.S.-flagged, operated and built vessels. Such vessels can be significantly more expensive to charter than foreign flag vessels, which could disadvantage an exporter who sought compliance with the mandate by switching to a U.S.-flagged, operated and/or built vessel; and
• practical hurdles given the significant limitations on the number of U.S.-flagged and U.S.-built vessels capable of transporting certain commodities. For instance, there are no U.S.-flagged and built liquified natural gas tankers, and it will be years before sufficient vessels could be constructed to meet USTR’s proposed requirements. There are also a limited number of U.S.-flagged and built tankers capable of carrying crude oil, refined products and renewable fuels—all of which the U.S. produces and exports in significant quantities. Indeed, due to Jones Act requirements, most such U.S. vessels are already fully committed to servicing domestic energy shipments between U.S. ports.

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2. Fees Related to Chinese Vessel Operators and Chinese-Built Vessels
   USTR’s proposed actions also include a series of fees on Chinese vessel operators and the use of Chinese-built vessels:

• A service fee on Chinese maritime transport operators. Vessels operated by Chinese companies would be charged a fee (a) at a rate of up to $1,000,000 per entrance of any vessel of that operator to a U.S. port; or (b) per entrance of any vessel of that operator to a U.S. port, at a rate of up to $1,000 per net ton of the vessel’s capacity. The intended effect would confer an advantage on non-Chinese lines and reduce the market share of Chinese operators in U.S. commerce.
• A service fee on maritime transport operators (regardless of nationality) with fleets comprising Chinese-built vessels. A fee of up to $1,500,000 would be charged upon entrance of a Chinese-built vessel, or fees at various levels will be charged per vessel entrance based on the percentage of Chinese-built vessels in an operator’s fleet.
• A service fee on maritime transport operators with prospective orders for Chinese vessels. A maritime operator could be subject to an additional fee of up to $1 million based on the percentage of vessels the company has ordered from Chinese shipyards. To prevent operators that rely on significant Chinese shipbuilding from avoiding penalties by strategically rearranging their shipping lanes, this fee would apply to the freight operator regardless of whether the ships the operator docks in U.S. ports are Chinese-built.
• A service fee remission for maritime transport via U.S.-built vessels. Operators subject to the fees above could obtain a rebate/return of fees paid, up to $1 million per docking at a U.S. port, for the use of U.S.-built ships, creating an incentive for shipping companies to contract for U.S.-built ships and support U.S. manufacturing to offset fees they might have to pay for Chinese vessels or future orders.
• National Transportation and Logistics Public Information Platform (LOGINK) or similar platforms. Recommendations for relevant U.S. agencies to investigate alleged practices from Chinese shipping companies, restricting LOGINK access to U.S. shipping data, or banning or continuing to ban terminals at U.S. ports and U.S. ports from using LOGINK software. Relevant agencies with existing authorities would include the Department of Justice and the Department of Commerce.

Affected U.S. Industry and Maritime Operators May Comment on Degree and Structure of Fees and Restrictions
USTR has scheduled a public hearing for March 24, 2025, with the deadline to submit requests to appear set for March 10, 2025. The date for submitting written comments is March 24, 2025, and the date for submitting post-hearing rebuttal comments will be seven calendar days after the last day of the public hearing. By statute, the USTR is required to finalize its actions on or before April 17, 2025.

Specifically, USTR invites comments regarding the following considerations related to the proposed actions laid out above:

• The level of the burden or restriction on U.S. commerce arising from China’s targeting of the maritime, logistics, and shipbuilding sectors for dominance.
• The appropriate trade to be covered by responsive actions, including the type and level.
• Whether the proposed fees or restrictions on services are appropriate, including the type of services to be subject to fees or restrictions, the level of fees or restrictions, and the structure of any fees, restrictions, or reimbursement of fees on services.

USTR therefore seems eager to engage with industry on the “appropriate” level and type of action, including the “structure of any … restrictions” on services. This could include, for example, the issues discussed above in relation to the requirement for U.S.-flagged and U.S.-built vessels, alternatives or exceptions to requiring the use of U.S.-flagged and built vessels for certain industries or the extension of planned timelines to account for the need to grow the U.S. fleet accordingly. More time may be required for certain industries and commodities to grow the capacity of the U.S. fleet.[1] These issues appear ripe for comment on the appropriate level and structure for the proposed restrictions on maritime services.

Notably, USTR’s actions form part of a broader policy priority across multiple administrations to reinvigorate America’s moribund shipbuilding industry as part of a resilient industrial base. This includes a bipartisan push in Congress through proposed legislation to incentivize shipyard development including the Shipyard Act, the Ships for America Act, and the Energizing American Shipbuilding Act. The Trump Administration has also repeatedly broadcast the critical importance of promoting U.S. shipbuilding capacity. In his address to the joint session of Congress, President Trump announced the formation of a shipbuilding office within the White House and said that the Administration would be providing tax incentives to support the sector.

Pillsbury continues to monitor developments in USTR’s Section 301 investigation and stands prepared to advise on the comment process and upcoming March 24 hearing.

^{[1]   As noted in the labor union’s Section 301 petition, proposed legislation has contemplated over several decades that vessels built in the U.S. would transport a certain percentage of exports of energy products, such as LNG and crude oil.  Notably, USTR’s proposed relief would accelerate the demand for U.S.-flagged and U.S.-built vessels, potentially well before the U.S. shipbuilding industry has the capacity to produce the ships necessary to transport U.S. exports.}