EVERYBODY HATES TREASURY’S GUIDANCE: Treasury’s long-awaited guidance for EV tax credits is sparking aggravation on Capitol Hill for trying to redefine a term most lawmakers thought they knew well. Under the law, EVs will only qualify for full tax credits if their batteries are made with critical minerals from the U.S. or countries that have a “free trade agreement” with it. And the administration’s take on it is broader than most. In common parlance, a free trade agreement has typically meant deals that contain enforceable standards and tariff reductions. But the White House has pointed out that U.S. law doesn’t specifically define “free trade agreement.” They are eager to make less-ambitious deals — like the new critical minerals agreement with Japan — qualify as well. The Hill begs to differ. Lawmakers are not happy with what they see as an attempt to skirt the law’s domestic manufacturing incentives. Ways and Means trade subcommittee Chair Adrian Smith (R-Neb.) accused the administration of “ignoring the law” and promised a bipartisan coalition to “stop this blatant overreach.” Fair enough, coming from a Republican. But Democrats on the committee had similar critiques as well. Rep. Suzan DelBene (D-Wash.), a free trade-supporting Democrat, also said guidance “bypasses the intent of Congress” by “redefining our understanding of a free trade agreement.” And she took aim at the new agreement with Japan, expected to be the precursor to another critical minerals deal with the EU, saying it “undermines Congress’ constitutional authority to regulate foreign commerce.” It’s not just the House. Senate Finance Chair Ron Wyden (D-Ore.) and ranking member Mike Crapo (R-Idaho) on Friday also said Biden has an obligation to get congressional approval for the Japan critical minerals deal and any others, adding to months of frustration from the committee over the administration’s engagement with Congress on trade. Europe is leery as well. Late last week, EU diplomats told POLITICO they are increasingly nervous about the critical minerals negotiations because the legal format of the final deal remains unclear. The EU’s trade chief, Valdis Dombrovskis, said earlier in the week that “we are currently discussing with the U.S. the exact content and the potential legal procedures.” Two EU officials insisted the European Commission needs to secure a mandate from member countries for any free trade agreement, even if it’s limited in scope. What’s more, such deals typically require the approval of the European Parliament and EU countries, a process that usually takes several months. Our Steven Overly and Barbara Moens have more on the trade issues in the IRA guidance here. MEXICO AGREES TO COMBAT UNION BUSTING AT AUTO PLANT: The U.S. and Mexico announced an agreement Friday to address union busting at a Mexican auto parts factory, the third such deal the nations have reached under the U.S.-Mexico-Canada Agreement. USTR alleged in January that workers at the Manufacturas VU auto parts plant in the northern Mexico border town Piedras Negras were not allowed to freely vote on which union to join, using a portion of the USMCA that allows the trading partners to investigate workers’ rights issues in other nations. Mexico agreed to investigate, and earlier this month concluded that the workers were not being allowed to freely associate. On Friday, the government committed to an extensive remediation plan, including sanctioning officials or firms that intimidate workers. USTR Katherine Tai said in a statement that the “harm from these violations is ongoing,” and pledged to “closely monitor the plan’s implementation,” meant to conclude at the end of September. The announcement will please a group of Democratic trade lawmakers who last week wrote to USTR, pushing it to hold Mexico accountable for the labor provisions in USMCA. WTO MEMBERS BICKER OVER REFORM: Members of the World Trade Organization promised at the last ministerial conference that they’d draw up a plan to revamp the trade body by the next iteration in 2024. But the prospects of all 164 members getting on the same page are looking pretty dim. Countries bickered over where and how the discussions should take place within the organization on Friday, showing just how difficult it might be for them to agree on substance, beyond the question of form. Guatemala’s Deputy Permanent Representative Marco Molina is now acting as an informal facilitator for the talks, according to a Geneva trade official. Format sticklers: But India and the likes of Russia, Cambodia, Bangladesh and Indonesia are worried about the format of the talks, saying that they absolutely need to remain informal if they’re being discussed within the Dispute Settlement Body meeting. Otherwise, the talks would have systemic implications, India’s representative said, according to the Geneva-based trade official. (Meanwhile, Delhi refuses to provide written answers to a host of countries’ questions about the country’s controversial public food stockholding programs, according to another Geneva trade official). Positive vibes? The U.S., EU and Chinese diplomats encouraged the current format of talks: Whereas the U.S. representative emphasized that Washington wants to see fundamental changes to the WTO’s dispute settlement system, the EU representative was pleased about the “change of gear” toward more concrete discussions. The Chinese envoy hoped for sticking points to be whittled down before the summer break. The beef: The ailing trade body is beset by problems on a number of fronts that have made it difficult to negotiate new trade deals and to resolve disputes. A major trigger for reform talks was the United States killing the second tier of the dispute settlement system in 2019 by blocking the appointment of new judges. Next up: Diplomats meet again for the dispute settlement body on April 28, and from now on Norwegian Ambassador Petter Ølberg will chair the meeting, taking over from Botswana’s Ambassador Athaliah Molokomme. WASHINGTON “FALLING SHORT” ON TRADE DEALS, U.S. BUSINESS LEADER SAYS: Washington needs to ink more trade deals with strategic allies, according to Jay Timmons, who’s the president and CEO of the U.S. National Association of Manufacturers — a powerful business lobby that represents more than 14,000 companies in the U.S. “We have not been in the game when it comes to negotiating free trade agreements for four presidents. That's not good for the United States in terms of our economy, but it's also not good in terms of our leadership around the world,” Timmons said in an interview with the POLITICO Europe team during his trip to Europe. Goals? EU-U.S. deal: He added that for his organization, “the penultimate goal is for a U.S.-EU trade agreement, a U.K.-U.S. trade agreement, as well as trade agreements from the United States with lots of our allies around the world, where, frankly, we're falling short.” Timmons pointed to the failed EU-U.S. TTIP talks and the withdrawal of the U.S. from the Trans-Pacific Partnership as “huge missed opportunities.” Prodding Biden: “President Biden possibly more than any president in recent memory understands the importance of the North American and European alliance,” Timmons said, “so pairing that with the economic realities and imperatives — I think it's their next step.” PIIE boss blasts U.S. industrial policy: Adam Posen, who heads up free-trade think tank PIIE, slammed Washington’s “zero-sum” trade tactics of reshoring production to hurt China in Foreign Policy, saying that they are based on “profound analytic fallacies.” Those fallacies are “that self-dealing is smart; that self-sufficiency is attainable; that more subsidies are better; and that local production is what matters. Each of these assumptions is contradicted by more than two centuries of well-researched history of foreign economic policies and their effects,” Posen writes.
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