Key Public Policy Developments Around the World
On March 28, 2023, the United States and Japan entered into a bilateral agreement, titled the Agreement Between the Government of the United States of America and the Government of Japan on Strengthening Critical Minerals Supply Chains (“U.S.-Japan Critical Minerals Agreement” or “Agreement”).
Context and Significance of the U.S.-Japan Critical Minerals Agreement
Prompting this…
On March 21, 2023, the Department of Commerce (“Commerce”) published a Notice of Proposed Rulemaking (the “Commerce Proposed Rule”) to implement certain provisions of the CHIPS and Science Act of 2022 (“CHIPS Act”) that place restrictions on certain activities of businesses receiving federal funding pursuant to the CHIPS Act (“Commerce Guardrails”). On the same day…
Funding incentives under the U.S. Inflation Reduction Act of 2022 (IRA) to transition to a clean energy economy are unleashing opportunities for key U.S. allies and partners around the world. In particular, tax credits exceeding 10% of the price of average electric vehicle (EV) sold in the United States are leading to new investments in Mexico and Canada, and have triggered high-level political negotiations from U.S. partners such as the European Union and Japan.
IRA Tax Credits for EV Critical Minerals and Battery Components
Under the IRA, EVs and batteries produced in North America (including Mexico and Canada) may qualify for significant tax breaks. Partial tax breaks are also available for EVs with batteries utilizing critical minerals extracted or processed in countries with which the U.S. has a free trade agreement (FTA).
As we previously discussed in greater technical detail, the IRA amended the Clean Vehicle Credit under section 30D of the U.S. tax code to provide a $7,500 consumer tax credit for the purchase of a qualified vehicle such as an EV. This consists of $3,750 for vehicles meeting the “critical minerals” requirements and $3,750 for those meeting the “battery components” requirements.
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Continue Reading Global Spotlight: the IRA’s Implications for Key U.S. Allies
On November 1, 2022, the Office of the U.S. Trade Representative (“USTR”) published a questionnaire for interested parties to use in commenting on the effects of the tariffs imposed on Chinese imports under Section 301 of the Trade Act of 1974 (“Section 301 Tariffs”). USTR issued the questionnaire pursuant to its October 17, 2022 notice initiating the second phase of its statutory four-year review of the Section 301 Tariffs. Questionnaire responses may address the tariffs’ impact on the whole economy, specific sectors and industries, or individual tariff headings. Responses may be submitted between November 15, 2022, and January 17, 2023. This process offers a new opportunity for companies to make a record with the Biden Administration regarding the future of the Section 301 actions, including as to specific product categories that should not be subject to duties if the tariffs remain in force.
The United States imposed the Section 301 Tariffs after determining in March 2018 that China’s technology transfer and intellectual property policies and practices harmed U.S. companies. Between July 2018 and September 2019, the United States applied four tranches of tariffs on over $360 billion in Chinese imports.
The administration is defending the List 3 and List 4A tariffs against legal challenges pending before the U.S. Court of International Trade. On April 1, 2022, the court remanded those lists to USTR for further explanation or reconsideration, and USTR filed its remand determination responding to significant comments on the List 3 and List 4A tariffs on August 1, 2022. The court is now evaluating the sufficiency of that remand determination.
Under the statute, Section 301 Tariffs expire after four years unless a representative of a domestic industry that benefited from the tariffs submits a written request for continuation.[1] Accordingly, on May 3, 2022, USTR initiated its statutory four-year review of the Section 301 Tariffs in advance of their expiration beginning on July 6, 2022. (See our prior alert.) Prior to launching the statutorily mandated review, the Biden Administration’s principal action with respect to the Section 301 Tariffs was to reinstate a limited set of previously expired product exclusions. Those 352 reinstated exclusions are now set to expire on December 31, 2022.…
In recent weeks, the U.S. Department of the Treasury has further expanded the scope of sanctions targeting Russia in response to its ongoing invasion of Ukraine and its purported annexation of the Kherson, Zaporizhzhya, Donetsk, and Luhansk regions of Ukraine. The U.S. Department of Commerce also has expanded export controls against Russia and Belarus. These measures are in addition to the new EU and UK sanctions and export controls announced last week and covered in our October 10 client alert.
On September 30, the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) issued guidance that the United States is prepared to more aggressively use its existing authorities to impose sanctions against persons who provide material support to or for sanctioned persons or sanctionable activity, with a particular emphasis on entities and individuals in jurisdictions outside of Russia that provide political or economic support for Russia’s purported annexation of Ukrainian territory. This guidance was accompanied by a series of new designations to OFAC’s List of Specially Designated Nationals and Blocked Persons (“SDN List”), including a Chinese firm and an Armenian firm that were designated for having provided material support to a Russian firm that specializes in procuring foreign items for Russia’s defense industry.
On September 15, OFAC issued two new determinations: a determination pursuant to Executive Order (“E.O.”) 14024 and a determination pursuant to E.O. 14071. The first authorizes the imposition of property-blocking sanctions against persons determined to operate in, or to have operated in, the quantum computing sector of the Russian economy. The second prohibits U.S. persons, with limited exceptions, from providing quantum computing services to any person located in Russia.
On September 9, OFAC issued preliminary guidance concerning a ban on a broad range of services related to the maritime transportation of Russian-origin crude oil and petroleum products (collectively “seaborne Russian oil”). The ban will take effect on December 5, 2022 with respect to maritime transportation of Russian crude oil and on February 5, 2023 with respect to maritime transportation of Russian petroleum products. The ban will include an exception for the receipt of services by jurisdictions or actors that purchase seaborne Russian oil at or below a price cap to be established by a coalition of countries including members of the G7, the EU, and the United States.
Additionally, the Commerce Department’s Bureau of Industry and Security (“BIS”) amended the Export Administration Regulations (“EAR”) on September 15 to (i) expand the scope of the Russian industry sector export restrictions to cover additional items, including quantum computing and advanced manufacturing-related hardware, software, and technology, and to apply the industry sector export restrictions to Belarus; (ii) add dollar value exclusion thresholds to some earlier restrictions on luxury goods exports to Russia; and (iii) expand the scope of the military end-user and military-intelligence end-user rules to reach entities in third countries, with a particular focus on entities that support military or military-intelligence end users or end uses in Russia or Belarus. On September 30, following Russia’s announcement that it would annex the Donetsk, Luhansk, Kherson, and Zaporizhzhya regions of Ukraine, BIS added dozens of entities to its Entity List, which imposes BIS licensing requirements for the export, reexport, or transfer (in-country) to such entities of any goods, technology, and software that are subject to the EAR.…
On September 8 and 9, top trade officials of the United States and the other Indo-Pacific Economic Framework (“IPEF” or “Framework”) partner countries—Australia, Brunei Darussalam, Fiji, India, Indonesia, Japan, Republic of Korea, Malaysia, New Zealand, Philippines, Singapore, Thailand and Vietnam—launched formal negotiations in Los Angeles.
This marked the first in-person ministerial-level meeting since the IPEF launched on May 23, 2022 and follows three informal meetings since May 2022, the latest event being the virtual ministerial on July 26-27, discussed in detail in our previous post.
The Los Angeles ministerial involved intensive discussions on what to include in the scope of the Framework. Ultimately, the IPEF partners reached consensus on ministerial statements for each of the four IPEF framework pillars: Trade, Supply Chain, Clean Economy, and Fair Economy. All 14 IPEF partners have joined three of the pillars, and 13 joined the fourth—with just India opting out of the Trade pillar. While this near unanimous support for the four pillars is certainly a positive sign, the real work begins now.
This blog post summarizes how the ministerial statements characterize the four pillars and outlines next steps for the Framework and key remaining questions.
Takeaways from the Ministerial Statements
The ministerial statements confirmed the four pillars of negotiation and provided added clarity on the scope and content of each pillar. While the statements add little to the substance, they indicate a political commitment among the partners to the Framework.…
Continue Reading IPEF Partners Adopt Ministerial Statement and Negotiation Objectives
There have been several recent developments in international efforts to combat trade in goods made with forced labor, with important implications for responsible sourcing and global trade compliance programs.
On September 14, 2022, the European Commission (“Commission”) published a proposal to ban products made with forced labor from the EU market. The proposal notably goes beyond banning the importation of such products and would also create a ban on the export of products produced with forced labor and require their withdrawal from the EU market.
Meanwhile, enforcement by U.S. Customs and Border Protection (“CBP”) of the U.S. forced labor import prohibition has continued to intensify, including under the Uyghur Forced Labor Prevention Act (“UFLPA”). In early August 2022, CBP clarified the process for updating the UFLPA Entity List. In addition, CBP recently announced that it intends to integrate forced labor compliance requirements into the Customs Trade Partnership Against Terrorism (“CTPAT”) “trusted trader” program.
We discuss these developments and their implications below.
The European Commission has proposed a Regulation prohibiting products made with forced labor from being imported to, exported from, or sold in the EU, following an announcement by Commission President Ursula von der Leyen during her State of the Union address in September 2021.
The Commission’s proposal is the first step in the EU’s formal legislative process. The Regulation will now have to be agreed by the European Parliament and Council to become law, following which there will be an agreed delay—the Commission has proposed two years—before it applies in EU Member States. As it usually takes at least 12 months, and often closer to 18 months, for the European Parliament and Council to agree on a legislative text after a proposal by the Commission is published, it is unlikely that the Regulation will be adopted before the end of 2023, and it is therefore unlikely to become applicable earlier than late 2025.…
The Department of Enterprise Trade and Employment has published a draft new law to protect Irish critical technology and infrastructure from potentially harmful non-European foreign investment. The Screening of Third Country Transactions Bill 2022 legislatesto curb so-called “third country” (meaning non-European Union/non-European Economic Area countries) hostile actors using ownership of, or influence over businesses and assets in the Irish state to harm Ireland’s security or public order.
First time to screen
It will be the first time Ireland has screened investment from a non-European country with a view to halting that investment if it poses such a threat. The draft new law responds to the EU Investment Screening Regulation (EU) 2019/452 (“Regulation” – see more in Covington blogs here and here) which allows – but does not oblige – European Union Member States to screen foreign investment for risks to their security or public order.
EU fears
The Regulation reflected a growing concern within Europe about the purchase of strategic European companies by foreign-owned firms, those concerns now heightened as a result of Covid and, more recently, by the war in Ukraine.
The European Commission (“EC”) guided on June 22 2021, that “(s)uch transactions may put European collective security or public order at risk, especially when foreign investors are state owned or controlled, including through financing or other means of direction…while remaining open to investment, the EU is equipped to protect its essential interests.” …
Continue Reading Ireland to screen non-European foreign investments
On July 26-27, 2022, the Biden Administration hosted a two-day virtual meeting with top trade officials from the 13 other partners of the Indo-Pacific Economic Framework for Prosperity (“IPEF” or “Framework”)—Australia, Brunei Darussalam, Fiji, India, Indonesia, Japan, the Republic of Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, and Vietnam. This was the first ministerial meeting since the 13 initial participants[1] agreed on May 23, 2022 to launch “collective discussions towards future negotiations” on the Framework. The IPEF currently focuses on four “pillars”: (1) Trade; (2) Supply Chains; (3) Clean Energy, Decarbonization, and Infrastructure; and (4) Tax and Anti-Corruption. Touted as a “21st century economic arrangement designed to tackle 21st century economic challenges,” the IPEF is said to offer what Commerce Secretary Gina Raimondo calls a “innovative and flexible approach,” and is “internationally designed not to be a ‘same old, same old’ traditional free trade agreement.”
The Framework’s novel approach, however, has raised a flurry of unanswered questions. Key U.S. stakeholders, for instance, have questioned the Biden Administration’s decision not to discuss tariff reductions or market access as part of the IPEF negotiations. Concerns have been raised about the enforceability of any agreements concluded among Framework partners. Potential agreements within each pillar remain largely unknown or undisclosed, even though the Framework partners have spent months engaged in a “scoping exercise” to define the components of each pillar.
This latest ministerial meeting added little clarity. No joint statement was released at the end of the meeting, suggesting that more remains to be done before formal, text-based negotiations begin. But as negotiators approach the one-year anniversary of President Biden’s announcement of the initiative at the October 2021 East Asia Summit meeting, there is growing expectation of more concrete outcomes. The dates for the next ministerial meeting have not been formally announced, though informal reports speculate that the Framework partners may hold the next meeting in September 2022, possibly as the first in-person ministerial.
This alert outlines the scope and objectives of the IPEF’s four pillars, the progress to date and next steps, key remaining questions, and stakeholder reactions thus far.…
Background
As we previously reported, President Biden and Congress took steps in March 2022 to revoke Russia’s most-favored-nation (or “MFN”) trade status, known as Permanent Normal Trade Relations (“PNTR”) status under U.S. law. As a result of these actions, the Suspending Normal Trade Relations with Russia and Belarus Act (“Suspending NTR Act”) entered into force on April 8, 2022, formally revoking PNTR status for Russia and Belarus. Under the terms of the Act, imports into the United States of products from Russia and Belarus became subject to tariff rates set out in column 2 of the U.S. tariff schedule, rather than the column 1 rates that had previously applied. Column 2 tariff rates are often higher—sometimes much higher—than MFN tariff rates in column 1, and as a result of this change, tariffs on U.S. imports from Russia increased from an average of approximately three percent to 32 percent. In addition to implementing this immediate change in applicable tariff rates, the Suspending NTR Act also temporarily authorized the President, through the end of 2023, to increase even further tariffs applicable to imports from Russia and Belarus.
On June 27, pursuant to the authority granted under the Suspending NTR Act, President Biden issued Presidential Proclamation 10420, announcing that the United States would further increase tariffs applicable to certain categories of imports from Russia, worth approximately $2.3 billion annually. U.S. Customs and Border Protection (“CBP”) recently issued guidance on these tariff increases, which will apply effective July 27, 2022. This alert provides additional information on the forthcoming tariff increases, and discusses potential implications for importers of Russian goods.
Overview of July 27 Tariff Rate Increase on Certain U.S. Imports from Russia
Since revocation of PNTR status in April, products imported into the United States from Russia and Belarus have been subject to tariff rates set forth in column 2 of the U.S. tariff schedule. Under the terms of Presidential Proclamation 10420, however, duty rates of 35 percent ad valorem will apply to 570 categories of Russian products in lieu of column 2 rates, beginning July 27, 2022. These product categories have an estimated value of approximately $2.3 billion annually. The Proclamation does not impact imports from Belarus, which will remain subject to column 2 tariff rates.…
