The 2023 Trade Agenda and Congress - What You Need to Know

Transcript

Good afternoon everyone. I am Alan Price, a partner at Wiley Rein.

I'm joined here today by my colleagues Tim Brightbill and Nova Daly.

Today's webinar is on the 2023 trade agenda and

Congress and what you need to know.

We appreciate everyone joining us

today and we hope to be able to

answer questions after we conclude

our direct presentation here.

Since we're lawyers,

we're gonna always start with a disclaimer,

and we have lots of fine print here.

And obviously I'll just summarize this,

but this is a webinar,

is intended to provide some general

news about legal developments and

should not be construed to be providing

legal advice or a legal opinion.

And obviously consult with an attorney

if you have a specific legal question.

This presentation is also intended to be

for private audiences and comments are

not made for publication in the media,

so this is off the record.

For those folks in the media.

The discussions we are having today

represent our personal views and not

the views of any of our clients or

representative views of Wiley Rein LLP.

As I said, time permitting,

we would really be happy to answer questions.

So please, please,

please submit questions as we go along.

Today, our agenda will focus on

congressional and other challenges

to the Biden trade agenda.

We'll also be talking about China

and the continued trade tensions,

as well as the decoupling going on

between both of the United States and

China on trade and non-trade areas.

We'll talk about some of the new

opportunities under the Inflation

Reduction Act and the CHIPS Act,

but in a fairly summary way because

there's a lot to unpack there.

And we'll discuss key trade issues

and policies in the year ahead.

As we move forward.

We can start a little bit and talk

about the administration and the trade

agenda and what's going on the Hill.

In very broad terms,

the Biden trade agenda is a worker centered

trade policy that empowers workers,

defends their rights,

and encourages a race to the top.

And this theme has been the

same now for two plus years.

It is a little substantially

different than I think the prior

administration and that yes,

there is a fundamental reset of US

trade policy that this administration

has carried taken on in many respects,

but it has different emphasis

and a different touch to it.

It's promoting a more sustainable

environmental practice as and

enforcing certain trade agreements.

And improving the resilience of US

and global supply chains or a core

focus of it that starts to take this

in a different direction than what

we had in the prior administration.

And basically we're looking at

an administration with a number

of different priorities,

looking at using current and future

trade agreements to do so and

different types of trade agreements

and also making very targeted

approaches in certain key product

areas such as semiconductors,

large capacity batteries,

critical materials and pharmaceuticals.

In doing all of this,

there's a core focus also on realigning

US China bilateral trade relationship.

And in doing that again, it is not,

it is not simply putting China in one box

and the rest of the world in another box.

This is a complicated relationship

to redefine.

Turning to the major players

in the Biden Administration,

we have some key quotes and I

urge folks to read these.

I'm not gonna read through all of them.

I'll just hit a couple of

key highlights on this.

First of all, Katherine Tai is the United

States Trade Representative.

And as you see from her statements here,

you know they're new approach to trade

advances the needs of our workers,

protects the environments and

creates and inclusive price

prosperity and we heard some of that.

In the State of the Union address last

night and the discussion of focus on

also benefiting blue collar workers in the way we approach trade.

So trade is not just for the bottom

line or for the cheapest prices,

but we're looking at trade that has the

best benefit for the average worker.

We saw statements from Gina Raimondo that

are much more focused on key technologies.

Again, export controls are part of the

purview of the Commerce Department.

We need to stay ahead of China and we

need to deny them the technology that

they need to advance their military.

And so those are key aspects.

The other aspect that enters into all

of this is also the supply chain issues.

Those supply chain issues were

driven home by the pandemic,

but also relate to the hollowing out

of US manufacturing capabilities that

were allowed to happen under the last

20 years and reversing course on that.

And that is a core underlying theme

to a lot of what has happened in

the context of the first two years.

Of the Biden Administration.

Now I'd like to continue.

I'd like to hand this off to my colleague here,

Nova Daly, to talk about

congressional challenges

to the Biden trade agenda, Nova.

Alan, thank you so much. So just to talk a little bit

about the congressional challenges

that we're likely to see in

terms of the Biden trade agenda.

You know, there still are free

traders out there in Congress,

though their voices have been quite muted.

That said, the R's generally,

Republicans generally believe in

a trade expansion. Principle.

So you're going to see a little

bit of that coming out of Congress.

And one example was last year.

In the law that became the CHIPS Act,

originally there was a yoseikan

the COMPETES act, and there was trade

provisions in there that fell away.

And the reason was because there's a

dynamic fight between getting trade

promotion authority and extending or

amplifying trade adjustment assistance.

No agreement was reached.

And because the Republicans wouldn't

let the other programs happen and

Democrats wouldn't let TPA go through,

it fell apart. That said,

in the destruction of that trade chapter,

certain things fell away.

Miscellaneous Tariff Bill,

general system preferences,

and Level the Playing Field Act,

which we'll discuss a little later.

So anyway, this year,

in terms of the aperture for trade and

the ability for a trade bill to happen,

it's pretty slim,

especially with the loss of people like Hunter, Portman and Representative Brady.

But it's not foreclosed. There's always an opportunity.

TAA, Trade Adjustment Assistance

was extended by one year,

and so there's going to be

pressure to extend other programs.

So keep an eye on the Ways and

Means committee and the Senate

Finance and Senator Schumer,

and we'll see where it goes.

The other big front in terms of

congressional challenges will be

is Biden tough enough on China?

Obviously this administration

is taking some strong moves and

export controls and other matters,

but you have some new.

Focused by the Republicans

on China trade and especially

Representative Gallagher,

who's now head of a Select Committee on China.

He's going to be steamrolling China issues and rank.

And his ranking member of the

ranking member of the committee,

Raja Krishnamoorthi, is no fan of China either.

So many initiatives are going to be bipartisan.

If you want to know what

that committee is gonna do,

read the Cox Report that was

done a few years back and that'll

give you some focus.

But there's already territorial

competition happening up in Congress,

which will make the China fight

even that more attenuated.

For instance, TikTok's CEO Shou Zi Chew is

going to be testifying before the

House Energy Committee in March,

and already the Financial Services

Committee had a hearing on China

competition and outbound investments.

Looking toward exports.

And that's Representative McCaul.

He has oversight.

Well, he's chairman of the Foreign

Relations Committee.

If you've seen newer tougher measures

happening and we have seen it in

our firm with certain clients,

certainly measures on Huawei that

clamp down on the export controls.

One of the big reasons is because of

people like Senator McCaul who said

he's going to do a 90 day review of

the export control program at Commerce

to determine where and why so many

applications were approved to send

technology to companies like Huawei.

So big clampdowns happening as a

result of that political pressure.

Senator Rubio and Hawley and Cotton and

others are gonna continue to be hawks.

But again, the big deal is who's

tougher on China.

And that's a dividing line between

the Democrats and Republicans in terms

of congressional leadership on trade.

The Ways and Means has a new chairman.

I'll talk about them in the next slide.

And then Senate Finance,

the same dynamics going to exist you,

Senator Wyden, Crapo, both fair and free traders.

And so we'll see where that goes.

Really, the leadership in terms of where Schumer

wants to go is where I think we're headed.

So let's talk about some of the key

Congressional players out there.

Kevin McCarthy, he's been a free trader and loaded

that in the past. He's from an Ag district,

so he's always going to be supporting

trade expansion and want to give

aperture to folks that want to do that.

But he's also pretty tough on China

and China hawk he's referred to

the US China relationship as a Cold War.

Now I want to talk about

Representative Smith.

He's the new chair of the Ways and Means.

There's gonna be a lot of eyes

on how he's going to run that

committee in terms of trade.

But for the most part from what we've seen

from what he's said and his positions,

he's seems to going to like he's

going to continue many of the Trump

Administration error in terms of

looking and the way he looks at trade.

For instance,

I'll give you a quote that he said himself.

He said we are the party of

the working class,

we're not the party that

we were ten years ago.

And we have to make the policies of

this committee and the Chairman of

this committee pushes those policies.

So it'll be very interesting

dynamic up there.

Representative Gallagher,

who I alluded to earlier,

the last slide, he's the real deal.

He's a marine, Princeton Grad,

2 MA, and a PhD from Georgetown.

So he takes seriously his jobs and his roles.

I'm gonna give you a quote so you

get the flavor of where his committee

is going to come out, he said.

The greatest threat to the United

States is the Chinese Communist Party.

The CCP continues to commit genocide,

obscure the origins of the Corona pandemic,

and steal hundreds of billions of

dollars worth of American intellectual

property and threaten Taiwan.

He says the Select Committee

will push back in bipartisan

fashion before it's too late.

So and his PhD dissertation

was on the Cold War.

Senator Schumer, he's an advocate, he's gonna be a

proponent for passing trade agenda.

But you know, he's gonna obviously want

to go where the administration wants to.

And then Senator Wyden's obviously

an advocate for expansion,

but he won't press it,

the votes aren't there.

Next, I'm going to turn it over to Tim.

So what are some of the international trade

controversies and key issues that the

administration and Congress are working on

that we as trade lawyers are working on,

on behalf of our clients and on industries?

None of these are going to be a big surprise.

China on many, many fronts, one of the

few issues with bipartisan agreement,

we're going to use many of the

trade policy tools to drive foreign

policy with respect to China.

And all of that was true.

Even before a certain balloon was shot

down earlier this week, Russia sanctions,

that is going to continue to be an issue.

We certainly have clients that are affected,

domestic industries that want to ensure

that the Russia sanctions are as effective

as possible and also country companies

and industries that are trying to comply.

We see Russia abating those sanctions

in some situations by transhipping.

We're providing raw material inputs

to places like China and Vietnam,

so it'll be interesting to see how the

administration is able to address this.

And of course, there have been reports with respect to

new tariffs on Russian aluminum as well.

With Canada and Mexico, we've got the US,

Mexico, Canada agreement implementation.

There have been several important

dispute settlement decisions covering

everything from auto parts to dairy,

including US losses.

And focus will be on whether the United

States is willing to implement in cases

where it loses and continue to honor

the provisions of USMCA and where will

there be enforcement in other aspects of.

USMCA going forward.

With the European Union,

a variety of challenges,

everything from the treatment

of electric vehicle preferences

and the Inflation Reduction Act,

waste shipment rags that could result

in challenges in terms of shipments

of scrap and shifts in trade flows

between the United States and the

European Union and other countries.

So we're monitoring that very closely.

We have export control issues.

And we have the CBAM, which will be implemented by the

EU later this year.

We'll talk more about the renewable

energy and green implications there.

Finally, we have the challenge of the World

Trade Organization where the

appellate body is currently suspended,

where any signs of reform of the

dispute settlement system are very low.

That process is moving very slowly.

And there are other WTO negotiations

for the most part that are either on

hold or have produced only partial results.

So all of these are things that we're

going to be monitoring going forward.

To the next slide, again,

China and these trade tensions will be

the dominant issue in trade policy and

trade enforcement for the foreseeable future.

So let's just zoom in on

a few of those and Nova and I will go through these.

These are the four that we'd like

to cover in a little more depth of

the human rights initiatives and

most notably the Uyghur Forced Labor

Prevention Act and then what's going

on with China and export controls,

investment restrictions and CFIUS

and foreign country screening regimes.

My next slide, so I'll start us

off by again looking at the Uyghur

Forced Labor Prevention Act,

which passed nearly unanimously,

again, bipartisan support that

the United States does not want

to be importing products that are

the product of forced labor.

And so we want to ensure that those

products coming from the Xinjiang region

of China do not enter the US market.

The scope is very broad.

The scope covers the entire supply chain.

So it's not just finished products of course,

but everything all the way back

to mining for solar panels,

which we've done other webinars

on in more detail on the UFLPA

goes all the way back to the silk,

the raw material silicon,

and all the way through the supply chain.

There is a rebuttable presumption that

forced labor applies to any items

coming from the Autonomous region and

that is that has led to sweeping.

Enforcement and some very strong

enforcement actions by Customs

and Border protection earlier in

the history of the Act.

And of course this is important

because of the huge number of people

that are estimated to be living

in forced labor and the variety

of industries that are covered.

The early enforcement has been strong

on this, again for selected sectors,

including solar, where it's reported that $400 million

worth of goods have been detained

by Customs and Border protection.

Some goods are now starting to be released,

but it is clear that importers

and foreign manufacturers need to

demonstrate that the entire supply

chain is outside of the Xinjiang region,

and that is a difficult demonstration

to make for complex products and

products where there are a lot of

raw material inputs.

The coverage of this act is broad

because there are many industries,

agricultural, extractive and manufacturing,

that run through the Xinjiang province.

So just a few of those are solar,

mining, agriculture,

including cotton and tomatoes,

very high on the list, all the way up

to much more sophisticated products,

auto parts, electrical machinery,

semiconductors, and so forth.

More than 10,000 companies in

the Xinjiang province.

And of course, we are also seeing changing trade flows

along with the enforcement of the Act.

We're seeing raw materials that are

transported across China and outside

of China for further manufacturing.

So that is why complete

supply tracing is required.

And we have continuing concerns and

are monitoring situations where the

Chinese Government has transferred,

where there's been transfer

not only of raw materials but

of laborers from the Xinjiang.

Region to factories across the country

or even outside of the country to

engage in these forced labor practices.

So this will continue to be an

area of high focus for the US

government and for many companies

and industries in the year ahead.

Alright, let's go back over to

Nova on export controls.

Thanks, Tim. So export controls,

that was sort of a backwater issue

maybe 10 years back or even five years

back are now pretty much the center of

the universe in terms of the fight on

China and US technology leadership.

You know, already this administration

has taken fairly significant action

to add many Chinese entities to

its SDN list and restrict exports

of semiconductor technologies.

But it's going to need to work with allies

because it's a porous world.

And if another country has

the technology you have and it's

not exportable from our country,

then it's going to be exported from there.

That's what they've seen in the past.

So that's why this administration

is definitely going to work with

its allies to control.

The export of products,

especially semiconductors,

you see that example recently

with the agreement with Japan

and the Netherlands to restrict

semiconductor exports and technologies.

But of course the detail is going to be

in the scope of what they restrict as well.

As I noted earlier,

given the oversight of Representative McCaul,

you're going to see a lot tougher action on

Chinese entities and more listed already for,

as I mentioned,

for Huawei, even exports.

Of very easy products,

nuts and bolts products are getting

denied and that's going to increase likely.

Not only for Huawei,

but for a number of other entities.

So understanding the supply chains

you and your companies have or other

companies have and where those

vulnerabilities are with existing

listed companies and potentially

future listed companies is going to be

a key priority for companies to stay

ahead of getting in the mix of not

only their ability to produce products,

but also source from places where the

IR and focus is not going to get hit.

So. Also a little bit just to mention sort of where

you need to focus though,

your oversight is sort of AI,

quantum biotech, that's where

the administration is really

looking on top of semiconductors

in terms of future restrict.

In terms of Russia,

we're just throwing that in there.

You know, with Russia there's plenty

of room for export restrictions

that haven't happened already.

While there are service restrictions

on things like accounting,

oil management consulting and quantum,

you know, more services are out

there and they can be restricted

if things continue to ramp up.

And then, and that goes for basic

products that EAR99 products more,

there's a there's allowances for trade.

Russia, but those can be closed down as well.

And just to get into the

enforcement side of things,

this administration is doing a

lot more cooperation with Canada,

the EU and the UK on enforcement.

The assistant secretary at the BIS

has taken a strong view that not

only should penalties increase

in terms of the amounts that are

being penalized, this includes

voluntary filings, but also that penalties be public,

so a public shaming.

So that's going to make it very

interesting in terms of businesses

to ensure that not only are you

meeting the obligations of the law,

but understanding that the

penalties are being ramped up

significantly for not doing so.

Alright, let's talk about one

of the key topics out there

in terms of the investment world is,

is the United States going to do

an outbound investment regime?

Congress last year, Cornyn and

Senator Coons had put in a bill

for outbound investment screening.

It didn't make it into law,

but nonetheless the administration

has decided that this is something

that is seriously considering

under an executive order.

It's been taking in quite a long

time for the executive order.

Can get out of the administration,

but for many people in this,

in this circle of this issue,

it's not a matter of if it's going to happen.

It's just a matter of when and then also

it's going to be a matter of the scope of it.

In terms of what it's gonna do,

what people think it's gonna do,

recently as I mentioned earlier,

there was a hearing by the

Financial Services Committee

where their chair Patrick McHenry.

Sort of went against the

outbound investment screening.

So the Republicans are sort of taking

a position that we it's alright to

do CFIUS where it's inbound,

but where it comes to outbound,

that's something that they really don't

want to put their hands into.

Nonetheless,

with all the pressures going on

with new Select Committee,

with competition between members and

between parties on who's tougher on China,

it's going to be hard to see a

situation where some form of

outbound screening doesn't happen.

Many prognosticators think that

it's going to be something.

In the likes of a monitoring where that's

you just have to do self reporting with

no real blocking powers initially.

But that'll ramp up with blocking

some discrete technologies,

especially when it comes to

some discrete investments,

especially when it comes to semiconductors.

Next slide, please.

So let's talk a little bit about CFIUS.

We have a lot to go through and

I got a couple of CFIUS slides.

But I guess the key things

that I wanna sort of drive here

is that CFIUS which was once a

committee is now an institution.

And when I ran the committee

back in the Bush Administration,

we I had five analysts and one intern.

Now there are over 70 people at Treasury

alone working on CFIUS issues and

it may even be higher than that.

So it is a big institution now.

The mandatory the new FIRRMA law

that was passed a few years back

has made filings mandatory.

It's made CFIUS the center of and

and knowledgeable by investment houses.

So you know big investments that have

sort of caught the caught the eye of CFIUS.

TikTok obviously a Fufeng one was

a farm investment in North Dakota.

Twitter was almost captured by

CFIUS Voyagers.

Another one out there which has to do

with personal data that I just note.

But nonetheless the committee and its

jurisdiction have expanded and so

have their people and that's so has

the amount that they want to look at.

Congress is even thinking of

expanding CFIUS further with the

farmland investment happening in

North Dakota that if it did not

find jurisdiction you have senators

like Tester and Representative

Johnson putting out new bills that

would expand CFIUS' abilities to see

those transactions because

it currently doesn't have

jurisdiction and also Greenfield,

which is new investments in the United

States that aren't an acquisition

of business but new investment.

I'm gonna make this real quick

FIRRMA Amendments as I said

the jurisdiction has increased,

non controlling investments fall under

a mandatory process for reviews.

There are countries that are exempted.

A number of the five I countries

are five intelligence countries,

UK, Canada, Australia and a number of countries

want to get themselves on that list

and that's why I'm going to talk

a little bit about the expansion

of a CFIUS-like regime globally.

But the key thing to understand is

that filings are mandatory and because

there's a mandatory element to them,

there's also a penalty for not

filing if you have a transaction that

meets some of the qualifications.

Put basically the big category

of mandatory filings with those

in the critical technology with

critical technology companies,

companies that have ITAR,

certain export controls, nuclear,

emerging foundational technologies and

acquisition of those kind of companies.

A could trigger mandatory filing

and it behooves,

especially with the civil

and monetary penalties,

monetary penalties that are

put in place for not filing.

That's something to certainly

keep an eye on and last,

before I turn, turn it over to Alan, just to talk about globally

what's happening out there,

we've been in talks while

we've not been talks,

but we know that the Ireland itself

is doing a new CFIUS-like regime.

The EU countries have expanded theirs,

Canada has expanded its Japan and so

it's happening globally and many of

it in response to what's the Chinese

investments that have happened,

but also in response to American

pressure that these other

countries have a similar regime.

To the United States regime.

And that could in the end help

their companies as well if there's

if they're an exempted investor.

So with that said,

I'm going to turn it over to Alan.

Thank you, Nova.

Gonna discuss briefly some of the

new opportunities under the Inflation

Reduction Act and the CHIPS Act.

Before we start in this,

it's important to put this into context.

Since the mid 2000s,

we started to focus on China's quest

to become the factory of the world,

and it sounded like an you know.

A benign issue when it first was raised,

but China's across multiple industries,

whether we're steel or aluminum

or solar or semiconductors,

has followed the same game plan.

Game plan is pretty easy to follow

massive subsidies into a large

number of state actors to create

a few national champions also.

Collapsing in doing so,

collapsing prices in the area,

taking massive market shares

with a goal of not caring about

profitability or returns on investment.

Driving out market based companies

throughout the world from producing

because they can't compete on

and when they're unprofitable

eventually taking control of

manufacturing capability know how an

intellectual property capabilities.

This pattern whether was initially

dismissed as oh it's an issue for

certain backwater industries or Heavy

Industries now has become a threat

throughout the high tech center sectors

and we are now seeing a number of.

Steps to combat that,

some of these steps involve trade

type remedies which were an export

controls which we've talked about.

But a number of these steps now

involved what I'll call carrots.

Carrots that are focused on recreating

domestic supply chains in the United

States or supply chains with like

minded ally countries and there are,

there are a number of provisions in

these acts that are critical for that.

And the industrial provisions of

the IRA are intended, for example,

many of them to enhance green

energy production decarbonization,

but also to encourage greater supply

chain resiliency for necessary inputs to

support the green energy economy as well as,

I think, basic industrial capability

in the United States.

The IRA provides support everything

from electric vehicle production

to solar and wind installations,

and you start seeing this get

fairly detailed into very specific

products such as torque tubes,

which are steel tubes for

solar trackers and arrays,

and so you see a variety of different

permutations of this throughout the act.

These supports are intended to encourage

and enhance domestic manufacturing

and really just support these green

energy efforts at the same time.

So as we move forward,

there are a number of provisions in this.

A key area for all of these provisions

is that there are a number of domestic

content requirements to receive the benefits,

often tax benefits or financial

benefits to for domestic manufacturing.

And it's very deliberate that they

are in essence aimed at domestic

manufacturing since if we're

putting subsidies in,

do we want the subsidies to go to.

To US efforts, US producers and US

jobs, or do we want those to go to other

countries who are essentially free

riding on the US investments?

And so far the act as

defined puts a number of specific benefits for US production

and only components and identified

that are produced in the United States

are eligible for these credits.

So you see countries like

like the EU raised concerns.

There are some provisions to

provide some benefits to free

trade agreement countries depending

on what the what the item is,

but again folks want to benefit from this.

And I think the US,

the statue is pretty clear that the

goal is to benefit US manufacturing

to the maximum of extent possible.

This has obviously become one area of

contention between the US and the EU

and we will see how this all works out now.

The Statute on the next slide please.

The statute also is interesting

because it provides for monetization

of many of the tax credits.

This is important because many of

the industries and many of the

companies may not have taxable income.

They may be startups,

they may be cutting edge.

Companies in certain areas.

Or they may have tax losses from the past.

So for these incentives to have

value they need to be monetized.

And so this, this Statute creates you know,

creates an ability in many cases

to do that by allowing the credits

to be taken or provided to off or

sold to other companies so that

they can be monetized and they can

be benefiting the producers.

In the United States as they develop.

There are many areas in implementation where there are a variety

of open questions and again, the statute has a number of specific

implementation requirements,

but it's up to interpretation.

Treasury has a great deal

of control over this. The effective dates on many of

this is the beginning of 2023.

So everyone is waiting on

Treasury to move quickly,

as it is promised to do,

to get as much guidance out

as possible with the goal of.

Everyone knowing what they need

to do to qualify here so that

they produce in ways that benefit,

that can benefit from these incentives

and strengthen domestic supply chains.

1. I'd like to now turn over you know,

a little of this discussion on,

on some of the specifics on

clean energy to Tim Brightbill.

Thanks, Alan. We wanted to zoom in

just a bit on solar and industry

that we've worked with for more

than a decade on behalf of domestic

interests and it's certainly true that.

The Inflation Reduction Act

has potentially game changing

benefits for solar power and solar

manufacturing in the United States.

The estimates of growth and

investment are extremely high.

The administration estimates

investment of $370 billion in

energy and climate change programs.

With the goal of reducing carbon

emissions by 40% by the end of

the decade and the benefits are up

and down the solar supply chain,

which is important because we

have lost the solar supply

chain in the United States and

this is an effort to get it back.

So the benefits do cover not just

the solar panels, but the cells,

the wafers, the polysilicon and other inputs as well.

And in many cases the credit is

tied to a set amount per Watt.

Four cents per cell or per production

quantity $12.00 per square meter for wafers.

So this is going to significantly expand

solar manufacturing in the United States,

including cells which have not

currently been made here and wafers.

2 prominent examples already announced

a $2.5 billion investment by Q cells

which will go into the state of Georgia,

already the largest manufacturing

facility in the Western Hemisphere.

And cubic PV, which is adding 10 gigawatts of

wafer capacity for solar in Ohio,

has also made significant investments.

Those are just a few.

There are going to be many more.

And part of the reason why there will

be more is because government support

in many cases increases as you make

more as production volumes increase.

So this should be a good result for

domestic manufacturing as well As for

the environment where utility scale

solar deployment is estimated to increase 5.

Hold annually and that will get us

to nearly 50 gigawatts in 2024.

So it's a combination of new investments

as well as trade remedies that are in

place which are also critically important.

There are of course antidumping and

countervailing duties on China and Taiwan.

We have the section 201 duties which are

still in place and circumvention cases

on four countries that are ongoing,

although the administration and the

Commerce Department have suspended

tariffs until 2024. That might result from those cases.

Let's turn now to the NDAA and the

CHIPS for America Act which has

similarly game changing benefits for

domestic manufacturing of semiconductors.

And why is this so important?

As you've already heard earlier

in this presentation,

United States does have serious

capability gaps for producing

semiconductors for defense needs,

economic needs,

particularly in the most advanced

and leading edge chips.

For new technology products,

so there are vulnerabilities in

the global supply chain,

about 75% of manufacturing capacity

concentrated in China and East Asia,

Taiwan in particular.

And of course the geopolitical

tensions are extremely high there.

It's even more stark when you look at the

most advanced semiconductor manufacturing

capacities of below 10 nanometer where vast,

vast majority of that is located.

100% is located either in Taiwan or in

South Korea, a very challenging situation.

We have, as Alan alluded to,

another situation where foreign

government subsidies are driving the

vast majority of the cost difference

for producing those chips overseas.

And that unfortunately gives an

artificial cost advantage of 25

to 40% compared to US production.

And so that has already resulted

in consolidation in the industry.

And market power in potentially

concerning hands,

we've also seen that market

conditions have changed significantly

where we've rapidly moved from a

shortage of semiconductors last

year to an oversupply already.

And the concern that China will

just continue to add in non

economic ways to that overcapacity.

The number of new fabs,

semiconductor fabs being built

in China is simply astounding.

So we have the CHIPS and Science Act.

We have, of course,

appropriations are needed to

implement the provisions of the NDAA.

And so we're looking for those

appropriations to follow up.

But this will involve significant

investment in public research and

development technology hubs across

the country and also efforts to combat

the misappropriation or theft of US

research in this critical sector.

So we want to this is another

sector where we want to regain.

Strength and dominance in the

industry and reduce those supply

chain vulnerabilities for so many

critical industries on the next slide.

So how does the money breakdown

from the CHIPS for America Act?

The vast majority is manufacturing

incentives, $39 billion run

through the Commerce Department.

And this will be of course,

direct financial assistance to build,

expand or modernize semiconductor facilities.

And this is throughout the supply chain.

So fab, assembly, testing,

packaging, R&D all along.

And that will include not

just the newest technologies,

but mature and legacy.

Technologies and semiconductors

as well then research and

development another $11 billion.

I won't go through all the programs,

but a national Technology center

focusing on advanced

packaging manufacturing initiatives,

a new government and industry

partnership in terms of a

semiconductor institute and a

very important R&D set of research

programs in this area as well.

Still more, there will be a workforce and

education fund of $200 million targeted at

creating and maintaining and expanding this

the semiconductor workforce domestically,

innovation funds, wireless supply chain

innovation funds and an investment tax

credit for semiconductor manufacturing,

including manufacturing equipment.

So again, this is a pivotal

opportunity for companies.

In this space next slide,

the opportunity will become

much more clear very shortly.

So the funding opportunity announcement from

the Commerce Department is will come out

this quarter and very likely this month.

And what will the Commerce Department

want applicants to identify.

We listed what we think the likely key

factors here are in terms of project

scope and sector serve the capacity

of the types of semiconductors to

be produced who is going to handle.

Back end assembly, testing and packaging,

what will be the cost share with

the government?

What will be delivered in

terms of workforce equity,

environmental concerns,

benefits to disadvantaged?

Audiences where will raw materials

be sourced?

Who will control the intellectual property,

and will the companies adhere

to guardrails or prohibitions?

All of these are things that Commerce

Department will want to know in

order to provide the funding.

So it is an important once in a

lifetime kind of funding opportunity

for semiconductors as it is for

solar and renewable energy.

And we're helping many companies to

get in line and make their best case.

Alan back over to you. Thanks, Tim.

So let's go back and start talking

about some of the key trade issues

and policies for the for the year.

And I have to give my colleague Nova

a credit for coming up with this

little visual on this one because

we are seeing a sort of fundamental

redefinition of the rules of trade.

And I'll talk about that

more as we go along here.

But the concepts of free trade and fair

trade are fundamentally changing.

Talk about that as we start looking more at

strategic trade in new terms of art here.

So obviously, as we've discussed,

a large focus on is on China,

but decoupling will require

redefining the global rules of trade.

And that's not a small thing.

It won't happen overnight and it won't

happen with a quick consensus on anything.

And it goes far beyond dispute

resolution at the WTO.

But whether or not many of the

core tenants that the US helped to

create as the rules of trade post

World War II are going to continue

to be have the same focus and are

how are we going to get there and

how are we going to modify them?

We'll look at some of the tools that

have been used and will be used,

including section 232 and Section 301

and various concepts of national security.

National security and economic

security are no longer separate items

and really have merged together.

And the way we now think about trade.

And we think not only this

administration thinks about trade,

but again,

how it builds off of some of the

steps taken by Ambassador Lighthizer

and in the prior administration.

But starts to do it in a different

and more nuanced way.

In some ways softer but bolder in terms

of trying to move the ball forward

and pull other countries along with us.

We will continue to discuss various,

trade law issues and continued

strengthening of those trade laws,

as well as trade and certain critical items

and other trade policy negotiating efforts.

As I said here.

We start talking about strategic trade,

we start talking about multipurpose trade.

What I would say is that is that the

administration needs to pull from its

point of view allies along OK and they

they sort of have certain approaches

in doing that or potential allies abroad.

And it wants to do that in a way,

in a way that's different than

what we'll call traditional free

trade agreements where we often.

Bargained away duties.

Of course the US doesn't have

duties on most products,

normal customs duties anymore and virtually,

you know, 98% of products.

But how do we now negotiate

to bring people along here?

What are our key issues?

And so we started these dialogues with

other key sets of allies to try to bring

them along on common sets of concerns,

whether it is labor,

digital issues,

agricultural issues,

competition, trade facilitation.

Their technology allowances,

such as with the Indo

Pacific economic framework,

looking at supply chains for

critical sectors, resiliency,

information sharing and how we start

to try to bind us together in ways

that that can create the types of

common interest to move forward.

Similarly, you see this in the US

EU Trade and Technology Council.

Again, common issues of things

like supply chain, semiconductor,

solar panels, digital economy.

How we're dealing with Russia and

investment screening all areas

that are being worked on in that

context as well as the American

Partnership for Economic Prosperity,

which is our work on this

essentially similar agendas with

with elsewhere in the Americas.

All of this ultimately has a focus of

China and that will also be part

of what the administration focuses on,

but also the way Congress focuses.

And while I think there's

strong bipartisan agreement on

the China issues in Congress,

once you get into the,

once you get past scoring points on

specific political issues out there or

opportunities that each side may have.

There's not full consensus on

how you really do that.

To the degree you could just deal with

China as China versus having to pull

along a larger group of countries in

a way that is creative and different,

and we see the administration

trying to do things.

Things that are creative and different,

realizing that you just can't put

China in a box and say everything

else is OK because China is too

large to be in a box by itself

is too permeated throughout the

global economy to do that.

So it involves a much more complex

set of issues to execute

this type of policy here.

And while everything has

one ultimate goal here, this nuances and the differences.

Are going to be a substantial and

areas of political dispute at times.

Both domestically and internationally,

and we're now in an area of

what we call the that we,

the administration starts to

talk about as strategic trade

or multi-purpose trade policy.

It's no longer free trade or fair trade.

At this point, national security and

economic security are merging and

therefore the trade-offs are

changing and the idea that permeated

many of our past trade agreements that

these ideas were separable is no longer.

Accepted as, as,

as being realistic and I think our

areas that we see again convergence.

And a bumpy way between.

Across political parties

to ultimately get there,

but it will be bumpy and there

will be areas of dispute.

Next slide obviously one of the key

areas that always exists in trade is

our trade remedy areas that AD/CVD

laws remain a primary area defense

against unfair trade in the first

area of defense for most industries

whether it's steel or solar or

semiconductors or wind towers.

Or numerous other products.

That is a key area.

We did see in 2022 a decline in cases,

but you know again we still have major

cases renewed and critical steel

products and a variety of other products.

And so we continue to see this as

a core underpinning for a lot of

domestic industries and dealing

with unfair competition.

We also honestly see a variety

of new cases and products coming

forward in 2023 as supply chains

have normalized and now we see.

Sharp decreases in freight rates

and container rates and restoration

of sort of abilities to ship

large volumes in a way that was

more complicated in 2021 and 2022.

So we see cases picking up as a result

of all that and we continue to see

needs to deal with circumvention

and evasion of trade orders as

being a primary area.

Of activity for the next year.

Moving on,

we continue to see 232 as having

an interesting and important role

in trade policy.

Section 232 provides for the imposition

of duties for national defense

reasons and duties were imposed

against steel and aluminum in March of 2018.

The initial design of the program was at.

25% duty that against all imports,

with very limited exceptions.

Over time,

these have been narrowed and modified

through a variety of bilateral negotiations.

And obviously this will continue

to potentially change,

but this program has sort of been

a hallmark in marking a change in

approach where national security,

economic security who are recognized

to merge in here and below you'll

see are on the on the right side

here you'll see a chart of some

of the changes that have happened

over time in the program.

But the program remains in effect.

Now one of the things that.

Has recently next slide has come up

as some of them came as came about

as a result of the US EU agreement

is something called the global

arrangement on steel and aluminum trade.

This is attempting to negotiate again

new rules here and while there are

some who will look at this as just a

steel and aluminum provision at its core.

When you look at the concept

it's actually very,

very different than that and

very bold and potentially.

Could have profound ways and we

again we US approaches trade.

What will be unknown is whether

or not the US succeeds in this

approach and how receptive the EU

is to it. The global arrangement

concept is to deal with both

overcapacity common problem,

the skill industry and many other

industries that have been created in

many cases by the Chinese and the way

they subsidize overbuilt capacity,

cause prices to collapse etcetera and

also deal with carbon intensity concerns

and steel and aluminum and again for

example in steel the US is by far the lowest has a skill industry with

the lowest carbon emissions of

any major region in the world.

Again a unique part about the US without

any sort of CAP and trade program,

just the way the industry evolved and

as a result how can we do something

to deal with overcapacity and

to stop the trade or limit the

trade of carbon intensive products.

There's a lot of the imports are just

bad for the environment just like there

are a lot of Labor concerns with imports,

it turns out one of the major.

Advantages that is undisciplined by the

WTO and it's become part of the core problem with the WTO concepts is

that it encourages diminution of the

environment and so how do you really

deal with that and global arrangement is

one concept of how to try to address this.

The idea is to create a low carbon

club which would allow countries

that are part of the club to trade

more freely than with non members.

In this area USTR prepared an

initial concept paper that was shared

with industry stakeholders.

Both in the US and in Europe and

early December,

late January of 2022 and 2023,

the concept paper is very broad.

It provides for commitments to abide by

an undefined industry emission standards,

commitments to refrain from undefined

levels of excess capacity and or

production and limits activities of state

owned enterprises with an idea that

there would be 0 or low tariffs on imports.

Members depending on carbon intensity

levels with higher tariffs against non

members also depending on carbon intensity.

Of the steel or aluminum.

The talks are currently

limited to the US and the EU,

though eligibility could be expanded

to include others after the US,

EU and EU conclude an agreement

if they conclude an agree.

What is critical about this is that.

At its core, the idea of a carbon

club with terrifying and in the

way that that had been conceived,

many of the traditional concepts

of at the core of the WTO,

such as national treatment

and MFN requirements,

would be eliminated or not

followed on steel and aluminum.

And so it's a different concept.

It's a concept to try to read

fundamentally redefine how we

trade and what's important here.

And so, you know,

therefore countries that are all

other trade partners and members of

the WTO don't get the benefits of

all the concessions that have been

that that may have been negotiated

here and maybe paying increased

duties if they have high emissions

and if they're not part of this

effort to control excess capacity

and don't live by a new set of rules.

Whether or not this is accepted

and how it moves forward is

going to be an open question.

But again,

it shows the type of ambition and

creativity we are seeing by USTR

and the US government and trying

to redefine rules of trade in ways

that are incremental but bold and

trying to do it by bringing other

countries along in a cooperative

way and then spinning it and then

expanding out after you deal with it.

In initial negotiation and try

to set up a set of new rules for

the rules of the road.

Alright, so we're coming up on the hour.

We just want to hit a few more concepts here.

I will mention by the way that

the slides will be available not

immediately but after the presentation.

To those of you who signed up and

please feel free to ask questions,

I'm not sure we'll get to them,

but we would get to you after

the presentation as well.

I think Alan already did a good job outlining

what we're calling strategic trade policy,

at least until someone comes

up with a better name for it.

But I think we if you,

we tend to lose sight of

the forest for the trees,

but we are seeing.

Still changes here and long lasting

ones where we're not just looking

at free trade agreements with zero

tariffs or importing the cheapest

products at the lowest cost.

We want trade policy to do new things.

We want it to properly address labor rights,

to help set environmental standards,

to set rules for digital trade.

So we have rules that are in contrast

to those that China is trying to

set and also to encourage supply

chains that are more domestic and

more regional in nature and also to

force the World Trade Organization.

You know,

there are sort of international

rules organizations to change.

I don't think this is just a

Biden Administration phenomenon

and it's not radical changes,

but it is important ones that we're

watching and that your companies do

have an ability to interact with.

In terms of what might be coming from the

administration in terms of other actions,

our sense is that the administration

is less interested in new national

security actions under Section 232,

for example.

But it may very well be willing to

take additional Section 301 action

against China based on continued and

new distortive trade practices where

those harm US industries and sectors.

So those sectors are being reviewed

and we would not be surprised to see.

Those kind of things happen in a variety

of sectors with respect to China.

There is trade legislation that Nova

mentioned the Leveling the Playing

Field Act at 2.0 that was introduced

in the last session and passed

house as part of the COMPETES Act.

Now Senators Brown and Portman

were architects of that.

on the House side,

of course with Senator Portman retired,

now there are new champions being

identified and then Congress.

Representative Sewell and

Johnson on the House side,

I won't go through all the key elements,

but this bill is about China.

It's about cheating and it's

it does cover things like the

China Belt and Road program,

a third country subsidies,

what happens when you bring a trade

case against China and then there's

a shipment through other countries

that sort of whack a mole problem.

So these are the kind of things the

legislation will address and we think

it's likely to be introduced early

in the new Congress.

Next slide, I'll just mention

that our firm tracks has a clean

Energy Opportunity tracker.

Look at all the agencies that

are looking for comments,

opportunities to comment or funding

opportunities in the next few months alone.

So you do need to be following

all of these agencies and we do

make this list as Clean Energy

tracker available to our clients.

Alan, won't you take us home over to

You. OK. Thank you, Tim.

Well, we're up we've now just exceeded our hour.

So we'll conclude this real quickly.

We anticipate obviously there will be

Hill clashes with the Administration.

Those are inevitable.

Both parties are going to be tough

on China and it'll be, however,

both a unifier and divider as

you get into the details on that.

And even within each party I

think you will see differences.

There will be a focus on decarbonization

and critical technologies.

Trade cases will continue to

be a major issue, major tool.

The climate agenda and its implementation

is obviously a focus of business and

supply chains will continue as both a

political and business opportunity.

And finally, the areas of trade

and climate are goals that are

increasingly in the, you know,

at conflict with each other and.

How those are resolved will either

create new trade paradigms or be a major

area of dispute and a path forward.

No matter how it happens,

It will be bumpy.

So that include concludes

our presentation.

I know we have a couple of questions.

I'm not sure we have any time left for,

for

you want to be respectful of time.

So I think what we'll do is

reach out to folks afterwards.

But thank you for those questions

and we're always available to answer

those or other questions that you may

have on all of these developments.

We're looking

forward to a fascinating year

ahead. Thank you.