USTR investigation into Chinese maritime practices: Potential impact on shipbuilding

On Thursday, 16 January 2025, the USTR released its findings, and despite representations made by a number of U.S. and foreign groups, concluded that China's practices in these sectors are unreasonable and impose burdens or restrictions on U.S. commerce, and are thus "actionable" under Section 301 of the U.S. Trade Act of 1974.  The determination is accompanied by a report, which is available here.   A decision on what action to take as a result of the finding has been deferred for now, but proposals have included the possibility of tariffs or port fees on Chinese-built vessels.

Legal Ramifications

We will have to wait for the incoming Trump administration to see what steps may be taken as a result of the USTR finding, but in submissions to the USTR a number of proposals were made as to what remedies might be imposed.  As already mentioned, it has been suggested that tariffs or port fees might be imposed on Chinese-built vessels calling at U.S. ports, with fees potentially up to US$1 million for a 20,000 TEU ship docked at U.S. ports having been suggested.  The USTR has not yet provided specifics on how such fees or tariffs would be structured.

As was submitted to the USTR, imposing such fees would likely mean that U.S. consumers would end up paying more for goods, potentially increasing inflation, so it remains to be seen whether such steps would in fact be taken, but those involved in the Chinese shipbuilding industry, whether as sellers or buyers, will no doubt be watching closely.

The imposition of tariffs or port fees on Chinese-built vessels may make the trading of certain vessels less financially viable, and may cause buyers to look for grounds to terminate or renegotiate contracts.  Whether that will be possible for those shipbuilding contracts governed by English law will depend on the specific terms of the relevant shipbuilding contract, but potential issues for consideration might include:

1. Would such tariffs or port fees count as sanctions under the relevant shipbuilding contract? Sanctions clauses have become commonplace in shipbuilding contracts and some define sanctions widely, such that levies imposed against the entire Chinese shipbuilding sector may be captured.  If so, would that give a buyer the ability to terminate?
2. Are certain buyers likely to give shipyards less leeway in matters of delay in delivery and technical issues, insisting on strict compliance with the terms of shipbuilding contracts so as to justify re-negotiation and/or termination?
3. Whether, if the vessel is being built for trading specifically to the U.S., it could be said that the imposition of tariffs or port fees would amount to a force majeure event or frustration of the contract?  That seems unlikely, but as always, much will depend on the specific terms of the contract.

Watch This Space

What will ultimately be decided will be closely watched by all of those involved in the Chinese shipbuilding industry, particularly those involved in the construction of vessels that are intended to trade to the U.S.  If you have any questions about the potential ramifications under English law, then please do let our team know.