Podcast: Trade Policy Challenges to U.S. Infrastructure Goals

Francisco Sánchez: Hello, everyone, it's a pleasure to be here to talk about challenges in the infrastructure initiatives. This is the second of two podcasts where we are focused on the infrastructure plans that are being debated over the last several weeks and going forward. Joining me today is Vanessa Sciarra. Vanessa is the vice president of trade and international competitiveness at the American Clean Power Association (ACP), a multi-technology renewable energy industry trade group. ACP represents solar storage, wind and transmission companies, along with manufacturers and construction companies, developers and owners, operators, utilities, financial firms and corporate purchasers of the clean energy value chain. Boy, Vanessa, that's a mouthful. Also joining us is my law partner, Nasim Fussell. Nasim works at the intersection of international trade and public policy to help clients navigate the regulatory and legislative landscape in Washington, D.C.

During our first podcast, we talked about the various infrastructure plans that are being debated. We talked about broad issues that are kind of defining the debate. One is the definition of what is infrastructure. Republicans and some conservative Democrats view the proper definition is that of more traditional things in infrastructure, like bridges and roads. The Biden administration and progressive Democrats tend to view infrastructure in much broader terms, including clean power and human infrastructure, like child and elder care. And finally, another issue focusing the debate is how this is going to be paid and we discussed that as well in the first podcast. So today we want to talk about challenges that are posed to industries that want to move forward and take advantage of an infrastructure package that gets passed. And to do that, I want to first turn to Vanessa, who will talk to us about these challenges through the eyes of the clean power industry. Vanessa, take it away.

Vanessa Sciarra: Thanks, Francisco. So welcome back to the listeners and I want you to engage in a visual exercise. I want you to stand in front of the U.S. Capitol and then turn around and walk to the other end of Pennsylvania Avenue, to the White House, because on the challenges side, we are talking about largely engaging with the executive branch on issues which were either created by the former president or are being created by this administration. There are three reasons why I think clean energy is facing numerous headwinds in the challenging category in the coming months and years. The first is, frankly, the legacy of the Trump Administration, which was a large number of tariffs that were put onto U.S. imports by the administration and are in many ways proving to be a drag on growth in the clean energy industry. And I will elaborate on that in a minute. The second trend here is the need for the Biden Administration to do a balancing, and the balancing is between their stated goals of being American worker-centric policy builders and having a building back better U.S. manufacturing base, while also supporting rapid deployment of clean energy capacity, which will inevitably include some reliance on imports. So that's sort of the second trend. And the third trend is really a further complication because of the position of the U.S. administration on China, which is not unique to the Biden Administration. There were concerns about China dating back to the Obama Administration, and certainly the Trump Administration had grave concerns about Chinese government practices, and the Biden Administration does as well. Basically, what that means is the Executive Branch is increasingly hawkish, leading to a debate about whether we should decouple from China, whether we should engage in a robust, sort of strategic, competitive partnership, how we should stay competitive when it's clear that the Chinese economic machine is something that is a hegemonic competitor to the U.S. economy. So those three trends are creating a tension, very much notable in the administration that results in hesitation to remove tariffs, many of which are directly impacting clean energy. And I'm going to talk in the rest of my time primarily about tariff policy.

Tariffs are defined by U.S. statutes. Congress has the right to impose tariffs, which are basically taxes on imports. Most of that authority has been delegated during the 20th century to the executive branch because it's very detailed work and the programs are referred to by section numbers, meaning a section of a statute. So I'm going to refer to some of the policies by their statutory names. The first that I'm going to talk about, they're called Section 201 tariffs. So Section 201 is a method for domestic industry to claim tariff protection when it is being subjected to a surge of imports, creating certain congeries results in the domestic industry. And we had a situation where such tariffs, at the request of U.S. businesses, were put on certain solar cells and module imports by the Trump administration. Under this particular statute, there's a four-year life to those tariffs, and the fourth year anniversary will be next February. But if the domestic parties want four more years of protection, they have to seek an extension of that program. They have a limited time to do that, and that deadline is actually August 7 of this year. If the domestic manufacturers make a request like that, there will be a process involving a government agency called the International Trade Commission. It is a public process and you are able to watch it. It will be virtual, by the way. It's a public hearing, and there are filing of public documents and then the commission makes a recommendation to the president. Now, to be clear, under the statute, this particular set of tariffs is the decision of the president. And so the president will likely have to make some sort of decision on this program later in the year, but his deadline would be February because that's when the current set of tariffs expires. Just to be very clear with everyone: ACP's goal is to strenuously oppose the tariff extension. We feel that the tariffs have not necessarily done what they were meant to do and in fact, have served as a tremendous problem for clean energy deployment. And if extended, we are concerned that four more years of tariffs, and these are on global imports of solar cells and panels, would be devastating to deployment and the deployment targets that the Biden Administration is setting for solar projects. So that whole process will play itself out over the summer and fall of this year. But that's the first set of tariffs that will either get renewed or will extinguish next February.

A second set of tariffs are called Section 232 tariffs. And those were instituted by the Trump Administration on global steel and aluminum products, with a rationale that those U.S. industries needed protection from imports. And the specific provision of the statute refers to something known as national security. National security in Washington means whatever you say it means. It's not a well-defined term in statute, but generally speaking, it basically means that the decision-maker believes that there needs to be some sort of domestic production of those commodities, particularly with respect to wartime readiness or other military needs. The result of these tariffs have been, I would argue, very counterproductive. As a result of the tariffs, we've seen very high metal commodity prices in the steel and aluminum markets, with very little increased investment or modernization by U.S. industry players. Meanwhile, there has been a large and negative impact on metal users in many sectors. And if you think about the way metal is used in manufacturing, you will realize that includes all sorts of autos and RVs and trailers, in addition to construction materials and for my purposes, clean energy products. So removal of these tariffs is a high priority for us. It will be difficult, frankly, due to the political power of parties that are affected on the beneficial side by the tariffs. But the process looks like it's being started. The Biden administration on its return from Europe last week did say that they were talking with the European Union about some sort of removal of those tariffs on products being exported from Europe. So that will be interesting to see how that particular set of tariffs are dealt with by the administration.

Then there's a third set of tariffs with another number, Section 301 tariffs. So these tariffs were put on Chinese imports, a large range of Chinese imports, after an administration investigation concluded that China was engaging in unfair practices regarding intellectual property and technology transfer. The resulting tariffs range from 25 percent to 7.5 percent, but they cover $350 billion of exports that leave China for the United States. So it's a large part of our trade with China, at least the trade as it was in the middle of the administration. So given the current administration's posture toward China, we think it's unlikely that those tariffs will be removed any time soon. And frankly, there's a reason for that, which is that they provide leverage in discussions with the Chinese over economic policy. We are not arguing that there aren't reasons to have those tariffs and have that sort of discussion with the Chinese. What we would like to see is a new process, which did exist under the Trump Administration but has since finished, for seeking an exclusion from certain tariffs, particularly related to clean energy products. So examples would be: In the wind turbine business, there are certain gearboxes and large castings that are simply not made in the United States. We don't have a supply chain for those. And those would be, in many cases, imported from China. And in the solar space, things like inverters and junction boxes, again, would be something that we would want an exclusion from the tariffs for. So this is a way that you can maintain the Chinese tariffs broadly, but grant limited exclusions when you have a lack of a supply chain which hasn't been built up yet outside of China. And we would argue that if you don't grant those exclusions, you're going to have some clean energy delay because people aren't going to be able to get some of those inputs that they need to produce these large scale wind projects and solar projects. And lastly, I'm just going to touch on an area that's not really tariffs, but it does affect trade, and it is an important discussion.

So many of you may have read in the paper. It's been highly publicized recently that the Chinese have engaged in a very unpleasant forced labor situation in Xinjiang Province in China. This is largely targeted at Uyghurs, who are an ethnic minority in western China. There are very credible allegations from many, many sources that the Uyghurs are being put into detention camps and basically being forced to work in industry under, what the world would conclude to be, a forced labor condition. And the U.S. has a very strict policy of not allowing imported products which are produced with forced labor under another federal statute. So this is an area where the government is under a lot of pressure to figure out how to prevent those products from entering the United States. On the clean energy side, we've been working very, very hard with our companies to make sure that they are not importing or using any products that are made in that province by nature of this type of forced labor work. And the issue is going to be how to figure out which products fall in the category of sort of clean imports, meaning imports that are not tainted by a supply chain that has this forced labor in it. We're working really hard to make sure that happens, but we are also very concerned that the rest of the world needs to be worried about this. And I think the administration is trying to convey that message to our trading partners in some cases with mixed results, because some of our trading partners feel very concerned about criticizing the Chinese for reasons that have to do with economic reliance. Again, I don't want to leave that not mentioned because it's coming up a lot in the press, and it's a topic that the solar industry takes very seriously. If you are more interested in that, I'm happy to follow up with people if they have more questions about that. But I'm going to stop and turn it back to Francisco.

Francisco Sánchez: Well, thank you very much, Vanessa. Nasim, would you care to comment on Vanessa's observations?

Nasim Fussell: Yes. Thank you, Vanessa, for a very thorough overview of some of the challenges that the industry is facing today. I'd like to add a few additional details to some of Vanessa's comments on challenges that the industry is currently facing. In her discussion on tariffs, Vanessa indicated that the companies would like to see the resumption of a Section 301 product exclusion process. The good news is that it's not just importers that would like to see this happen. Now, there was definitely an attempt by the Senate recently to do that on Section 301 in the U.S. Innovation and Competition Act, which passed the Senate on June 8. There was language inserted through an amendment by Senators Crapo and Wyden, the leaders of the Senate Finance Committee, to include an exclusion process within USTR or the China 301 tariff. But the process for that remains very unclear in the House of Representatives for the time being. So we'll see where all of this goes. On the part of USTR, Ambassador Tai has said that she is going to conduct a top-to-bottom China review and that any consideration of reinstituting an exclusion process will be a part of that. But I think the Senate made very clear that there's a lot of eagerness and interest in doing that sooner than later. Despite the uncertainty on the House side in terms of legislation, members of the House have made clear that they want to see the process resume as well. In late April, over 100 Republicans and Democrats in the House sent a letter to Ambassador Tai urging her to reestablish an exclusion process. And there have been numerous conversations with her since then, including most recently in a conversation that the House New Democrat Coalition had with Ambassador Tai. So there's a lot of interest here, and it's something that I think everybody is watching closely, both on the Hill and in the importer community, to see if this process can get started.

On the tariff front, there are a number of other challenges as well. Some of that, I guess just focusing on legislation, involves the expiration of various trade programs, all of which at the end of the day, when expired, amounts to cost - not just for Vanessa's industry, but many, many others as well. For example, on December 31, 2020, the Miscellaneous Tariff Bill and the Generalized System of Preferences both expired. These are two trade programs. One is a tariff trade preferential treatment program, and another one is a program that provides temporary tariff suspension or reduction for inputs used for U.S. manufacturing of products that are then exported. Both of these expired at the end of 2020. It's not unprecedented for these programs to expire with a little bit of a lapse, but we are now heading into almost eight months of lapse and the costs are racking up and importers are really eager to see these programs renewed. The Senate, as part of its China package, also included MTB and GSP renewals. But unfortunately, the House and Senate are not aligned here on what's going on and what to do next. House Democrats have introduced their own version of renewal for both programs. House Republicans have introduced their own separate bill and seem to be working in good alignment with the Senate. And what the future holds is unclear at the moment. On top of that, Trade Promotion Authority expired at the end of June. So, you know, what that tells us is that there are definitely no new comprehensive free trade agreements on the horizon. So, the combination of expired programs, additional tariffs, this all further complicates the tariff outlook and just makes a long list of challenges from a tariff standpoint.

Now, switching gears for a moment, I'd like to touch briefly on what Vanessa described as the Biden administration balancing between a worker-centered trade policy and building back better and supporting rapid deployment of clean energy capacity. The challenge here lies in threading the needle in a way that strengthens workers and furthers the administration's agenda without making trade a bad word. Trade has always been a difficult issue politically, but the benefit, as Vanessa laid out, are important. And when there are challenges such as the one she has described politically and from a policy standpoint, it just becomes more and more difficult, I think, to find a clear path for a solution. We're going to have to find a way, though, to thread this needle that, as I said, doesn't make trade a bad word. And what I mean there is that we have to be able to demonstrate the benefit and be able to move forward and help companies and entire industries realize those benefits without making it seem as though that is in some way harmful across the board. One area, just to provide an example, where this seems to be coming up a lot besides tariffs is Buy American and domestic preference programs. President Biden said in his State of the Union address earlier this year that all investments in the American jobs plan will be guided by one principle, Buy American, and yet he said that this would not violate any trade agreement that the United States has. So clearly, the administration is aware of concerns of many of our allies and even U.S. businesses about the continuation or proliferation of protectionist trade policies, but they are also trying to further this domestically-focused agenda. And as Vanessa characterized it, this domestic building back better, supporting the rapid deployment of U.S. manufacturing, but at the same time trying to support rapid deployment of clean energy capacity, which I think if you ask anyone in the industry, they'll say that will require, at least in the immediate term, some reliance on trade and not just this industry. So we'll see where this heads, but hopefully any new Buy America policies - Buy America, Buy American, domestic preference requirements - any such policies that are incorporated in the new legislation to further U.S. infrastructure will exclude procurement covered by trade agreements, just as in the 2010 American Recovery and Reinvestment Act. But even then, I think there were some challenges and we're likely to hit a few bumps in the road here. But as this legislation is coming together, I think particularly in this next week, it's an opportunity for stakeholders and allies to weigh in with the Hill to explain what challenges this would raise if we have too many requirements along the lines of domestic preference requirements, Buy American, Buy America, in our infrastructure package. The bottom line is that protectionism, particularly here in the context of an infrastructure package will, in the long run, definitely benefit a small number of businesses and industries, but to the detriment of many others, while also deteriorating U.S. trade relations. So, again, I think this is a really, really critical threading the needle that needs to occur here so that we can make sure that we really have a robust program.

And finally, a few quick points to tie this all together. What I'm hearing from Vanessa is that the U.S. clean power industry wants to contribute to the modernization of U.S. infrastructure and wants to help the United States be more competitive with China. However, this will be hard to do with one hand tied behind its back, whether it's legacy trade irritants such as Section 201, 232 or 301 tariff or new domestic preference requirements and government involvement in supply chain, the vast majority of U.S. industries will only be able to do so much with protectionist trade policies hindering full potential. So hopefully in these coming months and years we will see some policies developed that take account of all of this and we'll be able to make some headway in developing in a very strong way the U.S. clean power industry. And with that, I will hand it back to Francisco.

Francisco Sánchez: Thank you, Nasim. And I'll say that you and Vanessa tackled a review of the challenges as Congress and the administration look to pass an infrastructure bill. You did a great job of identifying the challenges that we should keep an eye out for. And to our audience, let me remind you that Nasim and I and our colleagues at Holland & Knight are closely monitoring the infrastructure debate. If you have any questions or we can help you in any way regarding this and other public policy issues, please reach out to us. Thank you for joining us. Thanks to Nasim and Vanessa.