Tai in Europe as EV sparks fly

With help from Ari Hawkins and Camille Gijs

Quick Fix

— Foreign concern about the new U.S. electric vehicle tax credit shows no signs of abating as U.S. Trade Representative Katherine Tai attends a meeting of the European Union’s Foreign Affairs Council in Prague today.

— Progressives are already lining up against Commerce Secretary Gina Raimondo as a possible successor to Treasury Secretary Janet Yellen, if the former Federal Reserve chairman leaves the Biden administration after the midterm elections.

— A Republican takeover of the House in the Nov. 8 elections could improve the chances of a trade package being approved in the “lame duck” session, a top lawmaker said.

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Driving The Day

TAI’S BATTERY-FUELED TRIP TO THE EU: The overseas trip comes as a newly created transatlantic task force to discuss EU concerns about the recently-enacted tax credit will meet sometime this week, and France and Germany are discussing possible retaliatory measures targeted at the United States.

Japan, South Korea, China and Russia have also raised issues with the provision, which legal experts agree violates core tenets of the World Trade Organization rules.

USTR’s advisory on Tai’s trip did not mention the tax credit, but listed three desired areas of cooperation that could be threatened by increased trade friction with the EU: “building supply chain resilience, holding Russia accountable for its invasion of Ukraine and confronting the non-market economic challenges posed by China and other economies.”

Tai will also hold bilateral meetings with European Commission Executive Vice President Valdis Dombrovskis; French trade minister Olivier Becht; Swedish trade minister Johan Forssell; Irish trade minister Dara Calleary; and Czech trade minister Jozef Síkela, whose country currently holds the EU presidency.

“Crucial that EU & U.S. stay on the same page as we face overlapping global challenges,” Dombroskis wrote on Twitter Sunday after meeting with Tai.

The cause of the fuss: The new Inflation Reduction Act requires electric vehicles to be assembled in North America to qualify for an $7,500 tax credit that has been in place for a number of years. That provision went into effect immediately after Biden signed the law, reducing the number of EV models that qualify for the tax break from 60 to 18 and excluding numerous imports from the EU, South Korea and Japan, industry officials said.

The new law also contains additional domestic content requirements on critical minerals and battery components that go into effect starting next year.

Comments due Friday: Both U.S. and foreign automakers have raised concern about the speed at which the new requirements go into force.

The Treasury Department is expected to issue guidance by the end of the year on how the provisions will be implemented, and interested parties have until Friday to submit comments to try to influence the outcome.

The guidance could ease some of the concerns raised by U.S. trading partners and automakers, but “it’s unclear how far they can go or will be able to go,” Jennifer Safavian, president of Autos Drive America, an industry group, said during a discussion last week hosted by the Washington International Trade Association.

She noted that Treasury Secretary Janet Yellen recently dampened hopes that the department’s guidance will provide much help.

“I’ve heard a lot about the concerns of the Koreans and Europeans about those rules, and we’ll certainly take them into account,” Yellen told reporters. But “the legislation is what it is … We have to implement the law that was written.”

Congressional fix may not be viable: The easiest solution would be for Congress to change the law, “but I think most people probably assume that that’s quite a hill for us to climb,” Safavian said. Affected companies will press to see what’s possible in the upcoming “lame duck” session after the Nov. 8 congressional elections, she said.

View from Stockholm: Forssell, Sweden’s newly appointed trade minister, told our European colleague Camille Gijs he planned to raise the issue in his meeting with Tai.

“Yes, of course, this is an important question for the EU as a whole,” Forssell said. “So we welcome now that the EU and the U.S. have agreed upon a dialogue to try to discuss these difficult, but very important questions.”

But he kept his rhetoric in check when asked whether he thought that a transatlantic trade war was close. “I don’t want to talk in those kinds of terms … Our opinion is that this is not in line with the WTO rules,” Forsell said.

OPERATION BLOCK RAIMONDO: Key players on the Democratic Party’s left flank are poised to oppose Raimondo for Treasury secretary if Yellen leaves, as some officials expect.

Yellen’s departure has been the subject of speculation for months, and she has been sidelined on a number of key policy issues by the White House. On top of that, a potential shift in power on Capitol Hill could lead to nasty fights over the federal debt limit and other issues, giving her reason to want to exit, according to people familiar with the situation.

Sen. Elizabeth Warren (D-Mass.) and other progressive lawmakers have criticized Raimondo for employing alumni of big technology firms at the Commerce Department and for her stance on tech regulation, among other complaints.

Warren’s allies said they expect public sector labor unions, some of which have clashed with Raimondo for years, to try to steer the president away from her for the Treasury job once Yellen’s fate becomes clearer. Ben White and Gavin Bade have more here.

BIDEN’S BUSY SUMMIT WEEK: After COP27, President Joe Biden will travel to Phnom Penh, Cambodia, for the annual U.S.-ASEAN Summit and the East Asia Summit on Nov. 12-13. That’s an important opportunity for him to meet with leaders of several ASEAN countries involved in the U.S.-led Indo-Pacific Economic Framework negotiation.

Biden will then attend the annual G20 summit meeting in Indonesia on Nov. 13-16, the White House said in a statement. However, there was no mention of whether Biden would meet with Chinese President Xi Jinping at the Bali event, as the two sides have discussed.

APEC exception: Vice President Kamala Harris will represent the United States at the annual APEC leaders summit in Bangkok, Thailand, on Nov. 18-19. The White House statement did not say why Biden would not attend.

His absence will be an inauspicious start to U.S. plans to host the APEC meeting cycle in 2023 for the first time since 2011. But most of the 21 APEC economies are also members of the G-20, Asean and East Asia groupings.

BRADY SAYS TRADE PACKAGE STILL POSSIBLE IN LAME DUCK: The top Republican on the House Ways and Means Committee told Morning Trade he still believes it possible for lawmakers to agree on trade package containing renewal of the Generalized System of Preferences and the Miscellaneous Tariff Bill in the lame-duck session.

“I’m hopeful that once the election is done, cooler heads can prevail and we can find common ground going forward,” said Rep. Kevin Brady (R-Texas).

Democrats are threatening to reject a comprehensive trade package that does not include the revival of the Trade Adjustment Assistance program, which provides job training assistance to workers who were displaced as a result of trade. Republicans are pushing back against this demand unless it comes with a long-shot renewal of Trade Promotion Authority, legislation that would send a signal for the Biden administration to pursue more market-opening trade deals.

Possible election impact: Brady said he thinks the odds of striking a deal would be improved if Republicans capture control of the House in the Nov. 8 election.

“My experience has been in lame-duck sessions where there is a change in the majority, there are greater opportunities to find common ground on issues. You have an outgoing majority that wants to complete their work and you have an incoming majority that would like to get issues off the table so they can start fresh,” Brady said.

TAI: LET’S ‘WAIT AND SEE’ ON CHINA: The Biden administration will continue to pressure China to undertake reforms, but is reserving judgment on how leadership changes in Beijing will affect the economic relationship between the countries, Tai told Bloomberg on Friday.

“I think it’s really ‘wait and see’ and ‘to be determined,’” she said. “That is the question that everyone is asking right now, not just with respect to trade, but the entire relationship.”

The cautious remarks came after the Chinese Communist Party confirmed Xi Jinping as the country’s supreme leader, including a third term as president. At the same time, Vice Premier Liu Hu, who was China’s lead on trade with the United States, lost his position in the CCP Politburo and is expected to leave his current government post by March.

The White House is prepared for Beijing to intensify its control of the economy, but Tai didn’t rule out the possibility China could surprise the world with more market-based reforms.

“We are prepared for a scenario where there is a doubling down, there is no movement on reform,” Tai said. But the U.S. is aware that it must also “be prepared for decisions that will be made that may surprise you,” she said.

However, that day “might not come anytime soon,” Tai said.

A CLOSE-UP LOOK AT CHINA’S WTO BEHAVIOR: Former chief World Trade Organization spokesperson Keith Rockwell provides a first-hand account of China’s record at the WTO in a new brief for the Hinrich Foundation, a think tank devoted to promoting sustainable trade.

Rockwell, who retired this year after 25 years at the WTO, takes issue with critics who say that the United States and other countries were too easy on Beijing more than two decades ago “by agreeing to accession terms that were overly favorable to China.”

Rockwell acknowledges a case can be made that WTO rules “do not fully encompass the intricacies of China’s unique economic model” and that Chinese leaders have created an “increasingly hostile” trade and investment environment in recent years.

“But the case can equally be made that, in the context of the WTO, China has played a role that has been largely constructive and supportive of the global trading system,” Rockwell wrote.

Opportunity knocks: The former Washington-based journalist praised the skill of China’s representation at the WTO, which he said has given it growing influence within the institution.

“China’s position within the WTO remains strong and could grow stronger,” Rockwell wrote. “Chinese trade officials have handled WTO matters, particularly those important to developing countries, adroitly and pragmatically. Rising U.S. hostility to the WTO, culminating in open disregard for its rules, and the EU’s focus on multiple European crises, have created a leadership vacuum which presents Beijing with an opening.”

GRASSLEY CALLS FOR USTR ACTION ON MEXICAN CORN BARRIERS: Sen. Charles Grassley (R-Iowa), in the midst of his “toughest reelection fight in 40 years,” has called on the Biden administration to begin dispute settlement proceedings against Mexico over impending barriers to imports of genetically-modified corn.

“Its (sic) long overdue for Pres Biden & USTR to use USMCA to challenge Mexico on their threat of banning GMO corn,” Grassley wrote on Twitter. “Pres Biden stop being weak This game of chicken will cost Iowa farmers big time.”

Iowa is the biggest corn producing state, and Mexico is the largest export market for U.S. corn this year. That relationship is at risk because of Mexican President Andrés Manuel López Obrador’s promise to end imports of corn grown using biotech and certain herbicides by 2024. Biotech corn makes up more than 90 percent of the U.S. crop.

A USTR spokesperson said the trade agency “remains actively engaged” on the issue. “We have underscored the importance of avoiding a disruption in U.S. corn exports and returning to a science- and risk-based regulatory approval process for all agricultural biotechnology products in Mexico,” the spokesperson said.
— Russia will suspend its participation in the United Nations-brokered grain export deal with Ukraine after drone attacks on the Crimean city of Sevastopol, CNN reports.

International Overnight

— Traders are bracing for a fresh spike in grain prices after Russia’s exit from the UN-brokered grain deal, Bloomberg reports.

— A sudden and surprising spike in European exports of washing machines, refrigerators and electric breast pumps to Russia’s neighbors is raising concerns among trade officials about export control evasion, Bloomberg reports.

— The Asia-Pacific has more to lose than any other region if the global trade system splits up in the wake of geopolitical tensions, the International Monetary Fund warned, CNBC reports.

— As the U.S. sets out a plan to become a major hydrogen producer with a hefty investment by the end of the decade, Japan is a possible destination for exports, Nikkei Asia reports.

— Antony Blinken’s trip to Canada highlighted that fact that Biden has yet to visit the country, our Canadian colleague reports.

— The U.K. is prioritizing reaching a free-trade agreement with India, but does not have a new deadline after missing one this month, Reuters reports.

— Representatives from 32 U.S. agribusiness firms jetted into Kenya on Sunday as part of an American government delegation scouting for trade opportunities, The Sunday Standard reports.

— India has extended curbs on sugar exports by one year until October 2023 but is still expected to fix a quota for this year’s overseas sales, Reuters reports.

— Brazil will need to seek alternative wheat sellers because Argentina’s crop failure has curtailed production and compromised its ability to export, analysts said, pointing to the United States, Canada and even Russia as possible suppliers, Reuters reports.

— The Commerce Department has set preliminary anti-dumping duties on white grape juice concentrate from Argentina.

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