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Trade Secrets is from Washington today, where I’m filling in for Alan. As we head into next week, all ears are open to news of the task force set up by the US and EU to try to avert the massive green trade war they are heading towards. Mapped waters today looks at the reinvigorated Brexit debate and its implications for UK economic growth.
The road to resolving the discord over the Cut Inflation Act
To recap: the United States has passed its massive package of tax credits designed to boost domestic green energy industries, with a “made in America” flavor. Additional credits are given for electric vehicles made in the United States, and even more for cars that eliminate China and other “foreign entities of concern” from the supply chain.
But the law has come under attack, not only from the EU and other US trade allies, but also from some US companies.
The EU, for its part, has filed a series of complaints, not just against the electric vehicle tax credit, but credits related to renewable energy, sustainable aviation fuel, clean hydrogen and clean electricity. He accused the United States of discriminatory trade practices and feared that potential European investment could be lured to the United States by lucrative tax breaks and subsidies.
Elsewhere, lobbying is being done by US companies reluctant to untie their global supply chains.
What can be done? Changing the letter of the law is tricky. Resuming landmark, winning legislation that drew global kudos in Congress for amendments is not on the menu of options open to the Biden administration.
All eyes are now on the slightly less sexy implementation process led by the US Treasury and the Internal Revenue Service. The imagination of lawyers and trade lobbyists is racing to come up with creative reinterpretations and definitions of some of the key phrases and clauses in the legislation.
To take a somewhat amusing (but seriously mooted) example – the legislation grants credits for electric cars built using batteries with minerals mined from a country with which the United States has a “free- exchange”.
Well, some lawyers say the lack of capitals here means it might not mean a free trade agreement – that is, a partner country with which the United States has a government-approved trade agreement. Congress, but could indicate a looser affiliation. Say, maybe, the US “mini-deal” with Japan – could that be included? Or, more optimistically, perhaps it could refer to the twenty countries that are parties to the WTO Government Procurement Agreement (GPA)?
The GPA is essentially how non-US companies circumvent Washington’s rules on Buy American government procurement — the United States grants waivers to GPA members, so as not to violate international law. Other lawyers will tell you that when it comes to establishing who has a trade deal with the United States, it’s ridiculous to look at anything other than the United States tariff schedule, and then it becomes obvious.
Then there is the “final assembly” – you will find lobbyists and diplomats in Washington wondering which part of the assembly should really be made in the United States to allow an electric vehicle to qualify for a tax credit.
Another topic of debate in the Inflation Reduction Act is what constitutes a “foreign entity of concern.” This is defined in other US laws to mean China, Russia, North Korea and Russia. Notably, among automakers, Ford is publicly pushing for any US-owned subsidiary to be excluded with respect to the IRA provisions. Others want to precisely define how much control a “foreign entity of concern” may have over a US corporation.
In this regard, some automakers, including Ford, Stellantis and Volkswagen, are pushing for the creation of a “de minimis” threshold for the critical mineral content of car batteries. Rather than having “all” material from a concerning foreign entity disqualifying a car from full tax credits, they want a small amount of Chinese content still allowed. Volkswagen suggested setting it at 10%.
There are two slightly separate issues here; first. companies struggling to create the maximum flexibility possible for their supply chains and manufacturing operations. Second, governments allied with the United States are fighting to protect what they say are a level playing field for globally traded goods such as electric vehicles and clean energy technologies.
For automakers, a relaxation of the law or a change in timing could help them move closer to the US administration’s ultimate goal of decoupling its green technology supply chains from China.
But it’s hard to see, among all these options – and there are other issues under consultation – where a solution that would satisfy the EU’s central argument that the IRA will prefer US-made goods- United versus EU made ones could be found.
As Sam Fleming and Andy Bounds report, EU trade ministers have said they want concrete solutions by December 5, when the US and EU hold their next regular council session. trade and technology. The European Commission has hinted that it could take the issue to the WTO if talks between Brussels and Washington fail. As the bloc appeals to WTO rules and invokes the rules-based trading system, the United States is heading into a post-WTO world.
Alan Beattie writes a trade secrets column for FT.com every Thursday. Click here to read the latestand visit ft.com/trade-secrets to see all his previous columns and newsletters.
The debate over the future shape of Brexit surfaced last week, after British Prime Minister Rishi Sunak was forced to deny reports that Britain may be seeking a deeper Swiss-style deal with its European partners. .
But the reappearance of comments on UK trade deals has simply underscored that this story will continue. Business has urged ministers to boost trade with the EU and scrap legislation that could introduce more uncertainty at a time of soaring inflation. The Office for Budget Responsibility noted this month that “the latest evidence suggests that Brexit has had a significant negative impact on UK trade. . . and will result in a 15% lower UK trade intensity in the long term than if the UK had remained in the EU”.
As Martin Wolf writes in his column, there is no point in renewing membership. “Trying to alter the main features of the current unhappy relationship is pointless. But it cannot justify making things worse” (Georgina Quach).
Singapore is well placed to play both sides of the decoupling, writes Leo Lewis in his column. The city-state is at the forefront of changing investment patterns caused by US-China tensions.
The United States wants to thwart China in its goal to produce advanced semiconductors, taking the shorthand definition of process technology from 3 to 14 nanometers (nm). The distinctions may seem small, but the stakes are enormous. The scrap on the chips is an indicator of a larger geopolitical confrontation between an old and a new superpower, as explained in this in-depth article by Lex.
The potential unraveling of the old order in the global oil market will reach a watershed moment over the next week when Europe begins to block Russian maritime crude from the continent – one of the strongest responses yet. to the brutal invasion of Ukraine by Vladimir Putin. Derek Brower in New York and David Sheppard in London assess the politics of this plan in their deep dive.
The future is digital, and nowhere more so than in commerce, writes Rana Foroohar in her column. This is good news: it is crucial that ideas and data cross borders. But the danger for decision-makers is that information tends to be monopolized.
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