Also: US Court of International Trade (CIT) rules against tariffs on downstream steel and aluminum products, a rare court win against the Trump administration’s Section 232 tariffs
The April 5-11, 2021 roundup of major trade developments, with L.C.
The Biden administration has launched an effort to get the international tax talks hosted by the OECD to conclude this year, aiming to conclude by summer — though that’s a very short time frame. There were two developments this week: first, the Biden administration expressed support for setting a global minimum corporate income tax and proposed 21% as the rate; second, it made a new offer on guidelines for taxing giant corporations in the countries where they do business if they are headquartered elsewhere. This concession would overthrow the previous international tax norm of territoriality — that taxes are levied by the country where a company’s headquarters are located.
The global minimum tax talks are known as “Pillar 2” of the OECD talks; the talks on where corporate income is taxed, including digital services taxes (DSTs), are proceeding under “Pillar 1.”
Outside the Biden administration, concern is growing that the US will be shafted by both pillars. (These developments will be discussed by Founders Broadsheet in greater detail later this week, in the context of the entire Biden administration tax program, domestic and international.)
Important last-minute battery settlement
In a relief for US trade and green-energy policy and a boost for President Biden’s plans to keep manufacturing in the US, LG Energy Solution (LG Chem Ltd) reached a last-minute settlement with SK Innovation Ltd (SKI). The settlement allows SKI to move forward with two Georgia battery plants and assures a consistent battery supply chain for US electric vehicle makers, Ford and Volkswagen in particular. LG Chem and SKI thanked the US and Korean governments for help in forging the settlement.
The two South Korean companies fought in the US for the past two years over LG Energy’s charges that SKI stole highly valuable trade secrets pertaining to electric vehicle batteries. The US International Trade Commission, which handles intellectual property disputes, had sided with LG. Had the ITC’s decision been allowed to stand – without an agreement and without a presidential reversal – SKI’s batteries would have been banned for 10 years, disrupting access of US automakers to batteries needed for electric vehicles.
The ITC’s decisions in Section 337 (intellectual property infringement) cases can be overturned by the president. It was a difficult decision for the administration because it pitted one Biden administration priority – enforcing intellectual property rights, especially for high-tech products – against another – fostering the use of EVs and green energy and boosting US manufacturing.
Georgia’s newly-elected Democratic senators and its Republican governor, concerned about the impact of SKI abandoning its plants, urged the companies to settle and even participated in the negotiations. They asked President Biden to reverse the ITC’s proposed ban.
CIT rules against tariffs on downstream steel and aluminum products
The US Court of International Trade handed down a rare decision against the president’s use of unilateral trade laws. In a split 2-1 decision issued on April 5th, it found that the expansion of the 25% steel and 10% aluminum Section 232 tariffs to downstream products was “invalid as contrary to law” because it breached the statutory deadline for setting tariffs under the statute. According to the new ruling, which came in a split 2-1 decision, “Because the president issued Proclamation 9980 [expanding the tariffs] after the congressionally-delegated authority to adjust imports of the products addressed in that proclamation had expired, Proclamation 9980 was action outside of delegated authority.” As a result, all tariffs paid by the plaintiff are to be refunded.
The Biden administration can appeal the ruling – some analysts say they expect it to do so. If it does so, it will indicate that it likes having expansive presidential trade powers and options for imposing unilateral tariffs even though, as in this case, they may harm domestic manufacturers and cause friction with allies.
There were parallel cases filed by other importers of derivative products, and they are likely to lead to a similar outcome. US companies challenging the Section 232 tariffs haven’t had many wins until now. They did prevail in a challenge to President Trump’s doubling of the Section 232 tariff on Turkish steel, in a ruling that determined that there are limits to the president’s authority under Section 232.
Strategic Competition Act
On April 8th, a sweeping, 283-page bill – the Strategic Competition Act – was introduced by Senate Foreign Relations Committee Chairman Bob Menendez (D-NJ). It has provisions targeting US-China economic and technological competition and addressing Chinese abuses. “I am incredibly proud to announce this unprecedented bipartisan effort to mobilize all US strategic, economic and diplomatic tools for an Indo-Pacific strategy that will allow our nation to truly confront the challenges China poses to our national and economic security,” Menendez said.
The bill would beef up government activity in a panoply of areas relating to China and to the US’s ability to constrain China’s ambitions. It would provide government assistance to develop infrastructure and technology needed to compete with China, direct work with allies to counter China’s weapons and space systems and strengthen alliances to confront China’s human rights and territorial abuses, including strengthening ties with Taiwan, improve US intelIectual property (IP) and investment protection, and beef up export control enforcement and monitoring of Chinese activities in the US. It also calls for reaching trade deals with US allies to help in confronting China.
The bill has support from the committee’s ranking Republican Sen. Jim Risch (R-ID), though he said he expects Republicans to have input into the final version. The committee has scheduled an April 14th session to debate it.
Separately this week, the Commerce Department Bureau of Industry & Technology added seven new Chinese entities to its Entity List of countries with restricted access to US technology, because they are considered too close to the Chinese military. The newly listed entities will not be able to purchase US technology/products without a license. All seven are centers focused on supercomputing or making advanced microchips. “Supercomputing capabilities are vital for the development of many – perhaps almost all – modern weapons and national security systems such as nuclear weapons and hypersonic weapons,” Commerce Secretary Gina Raimondo said in a statement on the new listings.
FY22 admin budget request indicates priorities: domestic spending, not defense
President Biden finally submitted a preliminary version of his FY22 budget request to Congress, on April 9th – a “skinny” version, with the full, detailed request yet to come “in the months ahead,” the White House said. Due at the beginning of February, the president’s budget request is often late when there is a new administration, though this is a particularly long delay. The budget request will be crafted to mesh with both the $1.9 trillion pandemic relief package passed earlier this year and the president’s new “infrastructure-plus” proposals for an American Jobs Act and American Families Act costing trillions.
The request proposes a whopping increase in domestic programs and a slight increase in defense-related programs. As well as boosting social programs, there is a particular emphasis on reducing CO2 emissions, seeking spending aimed at the electricity, transportation, and industry sectors to reach net-zero emissions by 2050. Progressives are angry that there is any defense hike, and deficit-hawks – or at least Republicans and some centrist Democrats – are alarmed at the huge domestic spending increase and many want a larger defense increase.
L.C. reports on trade matters for business as well as Founders Broadsheet.
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