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Washington, D.C. – This week, U.S. Senators Bob Casey (D-PA), Sherrod Brown (D-OH) and Elizabeth Warren (D-MA) are introducing legislation to reduce the United States’ dependency on foreign supply chains and non-market economies. The Senators are introducing the Market Economy Sourcing Act, which would limit non-market economies (NME) from free-riding on future United States trade agreements. This legislation would establish a supplemental rule of origin—used to determine if products are eligible for duty-free or reduced duties under free trade agreement rules—to limit the content from non-market economies that can be included in FTA qualifying goods. The Senators also sent a letter to U.S. Trade Representative (USTR) Katherine Tai, urging her to take action under her own authority to curb this issue and to highlight the need to address content from non-market economies in our critical U.S. supply chains, and procurement.

“It is vital to U.S. trade interests that we engage with economies that play fair and respect market principles. For too long, China and other non-market economies have been able to free-ride on our trade agreements, hurting working Americans and our supply chain security,” said Senator Casey. “I believe USTR Tai can take this type of action on her own authority. I hope Ambassador Tai will consider incorporating both strong rules of origin and supplemental rules of origin related to content from non-market economies in any future trade agreement, as well as a full review of existing rules of origin, across the board. By limiting the ability of non-market economies to free ride on trade agreements and procurement agreements, this measure will help ensure we are promoting trade and supply chains from like-minded democracies and allies and that our trade laws support market principles and fair competition in the global economy.”

“For too long, we’ve allowed corporations to write the rules of the road for free trade agreements, which currently allow half of all content to come from non-market economies. In other words, companies could get cheap materials from China and still get the final product into the U.S. duty-free, harming manufacturing plants across our state, putting Ohioans out of work, and hurting local economies,” said Senator Brown. “This legislation is a big step in the right direction, making clear the U.S. will help keep Ohio workers on the job by addressing these harmful practices head on.”

The Market Economy Sourcing Act would establish a limit on the amount of content that can come from non-market economies, shifting dependence away from NMEs, like China. On average, half of content under existing rules of origin can come from countries outside of those participating in a trade agreement. This means a significant share of content for goods receiving preferential market access under a trade agreement can come from communist countries, like China. The Market Economy Sourcing Act proposes a phase-out period to reduce these countries’ involvement. During the first five-year period following entry into force of a free trade agreement, no more than 20% of the “remainder” of content, that is, content not covered by the rule of origin, in qualifying goods may originate from non-market economies, and no more than 10% thereafter. After 5 years, 90% of the remainder content in qualifying goods, or 95% of total content, on average, must come from market economies. With respect to critical supply chains and capacities, no content from non-market economies and foreign adversaries should be allowed following this phase-out period.

Senator Casey’s Previous Actions on Supply Chains

Senator Casey has called for strengthening Buy America procurement requirements and establishing supplemental rules of origin for non-market economies.To address extraterritorial censorship by China, Senator Casey held a hearing on censorship as a nontariff barrier to trade last year. At Senator Casey’s request, the International Trade Commission is undertaking a study on extraterritorial censorship.

Senator Casey proposed comprehensive supply chain review for critical capacities in the America LEADS ACT, last year’s Democratic proposal on competitiveness. The Senate subsequently undertook a bipartisan effort across several committees of jurisdiction – including the Foreign Relations, Commerce and Finance Committees – to tackle the competitiveness challenge head on.

Read the Market Economy Sourcing Act here.

Read the letter to USTR Tai here.