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Congressional Authority Over Trade Deals

To appease industrialized allies, the White House could undermine the
delicate coalition backing domestic green manufacturing.

The White House is brokering trade deals with Europe that could loosen
sourcing rules in the Inflation Reduction Act (IRA), President Biden's
plan for green domestic manufacturing.

At a G20 meeting in India last week, Treasury Secretary Janet Yellen
said that she had discussed agreements on critical minerals "that
would enable Europe to qualify as a free-trade partner."

Normally, Congress would have a say in ratifying free-trade agreements.
But the Biden administration is trying to sidestep that process.

"It would be an agreement that would not require the agreement of
Congress," Yellen told The New York Times
<[link removed]>.
Responding to complaints that the IRA could spark a subsidy war, she
added, "We're not trying to steal jobs. This is our climate plan."

But the IRA was not only a climate plan-it was a plan for jobs, taxes,
supply chain resiliency, and domestic manufacturing, lashing groups with
competing interests to the same mast. If Treasury now broadens key
provisions to soothe disgruntled trade partners, it could unravel the
delicate domestic political coalition that backed the law.

If Congress wanted to write Europe into the IRA, it would have done so,
according to Rep. Ro Khanna (D-CA), an industrial-policy advocate who
has put forward legislation to reshore manufacturing. "We have a trade
deficit with Europe," he told the Prospect, and "they have tons of
subsidies for their stuff."

Unilateral action by the executive branch would also have broader
implications for future trade deals. The move chips away at the
separation of powers, with the executive co-opting the legislative
function to amend a major law.

"I am committed to effective implementation of the clean-energy
provisions of the Inflation Reduction Act, and I want to work with the
administration," Sen, Ron Wyden (D-OR) told the Prospect on Wednesday.
"However, I am increasingly concerned about the administration's
decision to ignore Congress and go it alone when it comes to trade
deals."

Geopolitically, developing countries and others excluded from the deal
see any special exemption as the worst of both worlds: American
favoritism for industrialized allies, under the guise of a free-trade
agreement.

[link removed]

Battery Metals Sourcing

At issue in current negotiations are IRA rules encouraging the domestic
production of critical minerals and other battery components. By next
year, in order to qualify for the full consumer tax credit, at least
half the value of the critical minerals in a car battery must be
extracted or processed in the U.S., or in a country with which the U.S.
has a free-trade agreement (FTA).

The U.S. has bilateral investment treaties
<[link removed]>
with countries like Lithuania and Poland, and in general European
countries are close allies with America. However, Europe has long
resisted entering an FTA with the U.S., since the deals are loaded with
non-trade regulations like limiting privacy rules and raising chemical
and pesticide levels in food imports.

Nevertheless, last week European Trade Commissioner Valdis Dombrovskis
told reporters that the U.S. has "indicated openness to find ways how
to treat us as a free trade agreement-equivalent partner
<[link removed]>."

"I think the word 'free trade' was meant to mean reliable friends
and partners with whom we can feel we have secure supply chains,"
Yellen told The New York Times
<[link removed]>.

But the trade language in the IRA was painstakingly crafted, excluding
all but a few strategic partners. Language around final assembly for
vehicles, for example, was constrained to "North America," limiting
cooperation to Mexico and Canada. In contrast, by including free-trade
partners in mining supply chains, the U.S. stands to benefit from its
partnerships with Chile and Australia, major lithium producers.

"The word 'free trade agreement' actually has a particular
meaning," said Lori Wallach, a trade expert at the American Economic
Liberties Project. It refers to a bevy of statutory and regulatory
treatments, she said, far beyond what Treasury is actually seeking to
grant Europe.

"They're not calling it what it is, which would be something like a
memorandum of understanding, because that doesn't fix the problem that
Treasury wants to fix, which is cutting into the domestic content
rules," Wallach said.

Even if the administration has the statutory authority to strike these
kinds of agreements with the EU, said Tim Meyer, a trade expert at Duke
Law School, "Secretary Yellen's suggestion that the definition of a
free-trade agreement could be stretched to include essentially any trade
agreement is definitely an expansion."

Several critics emphasized concerns that Yellen's move could set new
precedent for making trade policy ad hoc, with little transparency or
public review.

"Congress must be involved in these negotiations. I have urged robust
consultation throughout the discussion of trade agreements proposed by
the Administration, and I expect to receive such consultation. The
Administration cannot repeat the mistakes of past failed trade
negotiations that too often have been conducted in secret," Rep. Rosa
DeLauro (D-CT), ranking member of the Appropriations Committee, told the
Prospect in a statement.

Roy Houseman, legislative director for the United Steelworkers, which
represents tens of thousands of mine workers, struck a more conciliatory
tone. He pointed to complementary critical mineral deposits and
suggested that Europe and the U.S. could pool resources.

"Vanadium is important for steelmaking and EV vehicles of the future,
and we should try and encourage the long-term viability of these
existing facilities first, before resources are spent through
international trade discussions," Houseman said, adding, "Tungsten
is one where we don't have as much domestic capacity, but the
Europeans have some more."

Labor groups may be holding their punches, given recent wins from the
Biden administration, and since they see the EV manufacturing credit as
more significant than the consumer one.

It's not the first time Yellen has been the target of criticism on IRA
tax credits. In late December, Treasury issued guidance saying that
consumers can dodge the domestic-content rule by leasing, rather than
buying, an electric car. Last month, Sen. Joe Manchin, who as the swing
vote designed key provisions, accused her of cherry-picking tax credit
rules and "not following the law
<[link removed]>."

Manchin has also said he did not realize
<[link removed]>
that Europe is not a free-trade partner.

[link removed]

With Global Resentment of IRA, Europe's Special Pleading

Late last year, a delayed spat broke out between Europe and the U.S.
over domestic subsidies in the IRA. On a state visit, French President
Emmanuel Macron declared that the law risked "fragmenting the West."

In response, Biden pledged to "tweak" industrial policy to make it
more friendly to European allies. He apparently made that commitment
spontaneously
<[link removed]>,
even as other parts of the administration have continued to push back at
European criticism. ("We hope that the European industrial base will
succeed, but it's up to Europe to do some of the work
<[link removed]>,"
clean-energy adviser John Podesta told the Financial Times last month.)

With Europe crying foul on the IRA, Yellen has emphasized a new regime
of "friendshoring," or deepening economic ties with allies.
Developing countries argue that the stance carries forward all the
capriciousness and political favoritism of the neoliberal trade era,
while abandoning the fig leaf of "free trade," which at least gave
them an opening when they sought access to U.S. markets.

"You have to give it to Biden Administration, pushing FTAs as
preferential treatment in domestic industrial strategy is just exquisite
empire muscle flexing," economist Daniela Gabor wrote on Twitter.
"FTA were always Trojan Horses for suppressing industrial upgrade ...
but at least handwaved about level playing field."

The battery metals arrangement is not the only looming trade deal on
which the Biden administration has snubbed Congress. The administration
may not seek congressional approval for the Indo-Pacific Economic
Framework (IPEF), a security deal that has been led by Commerce
Secretary Gina Raimondo.

In a December letter
<[link removed]>,
a bipartisan group of senators including Wyden, Debbie Stabenow (D-MI),
Tom Carper (D-DE), and Rob Portman (R-OH) argued that an agreement like
IPEF, which would "regulate foreign commerce and reshape international
trade flows," should go through Congress.

The IPEF negotiations are being conducted with a near-total lack of
scrutiny. A ministerial meeting in Palm Springs last month attracted
only a smattering of trade justice groups to protest. "It's
coincidentally got the same countries that TPP had," said Will
Wiltschko of the California Trade Justice Coalition, referring to the
Obama administration's failed Trans-Pacific Partnership, which did
need and never received congressional ratification.

Congress has historically enjoyed constitutional power over trade
activity. But during Cold War trade liberalization, Congress ceded much
of that power to the executive branch, according to a 2019 paper
<[link removed]>
by Meyer and Vanderbilt law professor Ganesh Sitaraman.

Access to U.S. markets was a key part of American soft-power strategy
after World War II. Congress delegated negotiating authorities to the
president, as well as various powers to respond to emergencies in
international economic affairs.

"As trade drifted further away from the balance struck by our
separation of powers and became increasingly rooted in the
presidency," Meyer and Sitaraman write, "agreements liberalizing
trade rules became more viable-but at the cost of the political
sustainability that comes with greater congressional involvement."

~ LEE HARRIS, STAFF WRITER

Editor's note: Ganesh Sitaraman is a Prospect board member. David
Dayen contributed reporting.

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