The United States, the European Union, and the United Kingdom are increasingly using trade policy tools as a means to promote certain sustainability goals related to human rights and the environment. For instance, Steptoe covered in a previous post the trade restrictions proposed at the end of 2021 aimed at illegally deforested products. More recently, amidst increasing concerns regarding forced labor in certain regions, the EU has proposed legislation which would ban making available within the EU, and exporting from the EU, products made with forced labor – resembling, to some extent, the forced labor ban that is in place in the US. Meanwhile, the UK has adopted a more piecemeal and geographically targeted approach through the adaptation of existing legislation focused on export controls and the prevention of modern slavery.
The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) recently released preliminary guidance on the implementation of a price cap policy on Russian crude oil and petroleum products. This policy has major implications for maritime service providers and maritime supply chains.
The price cap policy will be implemented by the United States, together with the G7 and the EU. The policy has two components: (1) a ban on services related to the maritime transportation of Russian origin crude oil (effective December 5, 2022) and petroleum products (effective February 5, 2022) (collectively referred to as “seaborne Russian oil”), and (2) an exception for services related to shipments of seaborne Russian oil purchased at or below a price cap. The U.S. ban on the importation of Russian crude oil, petroleum, and petroleum fuels, oils and products of their distillation into the United States will remain in place.
The level of the price cap has not yet been set. It will be established by cooperating countries via a consultative process. OFAC anticipates publishing additional, detailed guidance regarding the price cap plan closer to the implementation dates.
Continue Reading OFAC Releases Preliminary Guidance on Implementation of the Russian Oil Price Cap
The Uyghur Forced Labor Prevention Act (UFLPA) supports the existing prohibition on the importation of goods into the United States made with forced labor under Section 307 of the Tariff Act of 1930 (19 U.S.C. § 1307). Enforcement of the UFLPA began on June 21, 2022. Companies with supply chains that have links to Xinjiang specifically and China more generally should be concerned about the implications of UFLPA enforcement.
The UFLPA requires U.S. Customs and Border Protection (CBP) to apply a presumption that imports of all goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part in the Xinjiang Uyghur Autonomous Region of China (Xinjiang), or by entities on the UFLPA Entity List (described below), are prohibited from entry into the United States under 19 U.S.C. § 1307. The scope of the UFLPA extends to goods made outside of or shipped through China that include inputs made wholly or in part in Xinjiang. There is no de minimis exception. Priority enforcement areas include polysilicon, cotton, and tomatoes.…
We are likely witnessing the beginning of the largest disruption to global supply chains in the post-World War II era. Between the COVID pandemic, the ongoing U.S.-China trade war, severe weather events, cyber attacks, and now the Russian invasion of Ukraine, policymakers around the world are starting to understand that supply chain disruption is the new normal and beginning to prioritize supply chain security and resilience during what is expected to be a period of long-term international instability.
While it is difficult to predict how long Russia’s war against Ukraine will last, many commentators believe that war may be long and protracted. As long as the conflict lasts, we would expect more sanctions and other measures to be promulgated. This will prompt supply chain realignments, including greater decoupling from the Russian economy. These measures will start as temporary but could become long-term or even permanent.
In addition, China’s de facto alliance with Russia since the start of the war will likely provide additional momentum for de-coupling with China as well, including the development of regional and plurilateral approaches to onshoring/reshoring and “friend-shoring” supply chains. These shifts of alignments will have major consequences for the production and movement of goods, ranging from automobiles, semiconductors, and oil and gas, to food and agricultural commodities. Global companies will increasingly be faced with choosing between abiding by Western sanctions and export controls or Chinese and Russian law.…
On September 6, 2021, the International Chamber of Shipping (ICS) announced that it had proposed a global carbon levy on carbon emissions from ships for consideration by the International Maritime Organization (IMO) to “accelerate the uptake and deployment of zero-carbon fuels.” The International Association of Dry Cargo Shipowners (INTERCARGO) co-sponsored the proposal.
ICS, which represents national shipowner associations and over 80% of the world merchant fleet, explained in its announcement that the carbon levy “would be based on mandatory contributions by ships trading globally, exceeding 5,000 gross tonnage, for each tonne of CO2 emitted.” Funds generated by the levy “would go into an ‘IMO Climate Fund’ which, as well as closing the price gap between zero-carbon and conventional fuels, would be used to deploy the bunkering infrastructure required in ports throughout the world to supply fuels such as hydrogen and ammonia, ensuring consistency in the industry’s green transition for both developed and developing economies.”
In this article, we review the developments leading up to this proposal and its prospects, and consider the implications for the shipping industry and supply chains more generally if a global maritime carbon levy were to be adopted by the IMO.…
This November, the United Kingdom will host the 26th UN Climate Change Conference (COP26) in Glasgow, from October 31 to November 12, 2021. As part of its preparations, the UK Parliament International Trade Committee recently launched an inquiry on COP26 and international trade. The Committee will be accepting submissions until September 7, 2021 on the series of questions that make up its call for evidence. One of those questions asks,
What discussions, if any, are planned to develop a multilateral approach to carbon pricing systems (including border adjustment mechanisms), green subsidies and investment funds, the curbing of fossil fuel subsidies, a circular economy and sustainable supply chains?
A multilateral approach on most of these issues seems very unlikely, notably border adjustment mechanisms. As discussed in a previous post, the European Union is pursuing its Carbon Border Adjustment Mechanism unilaterally. The United States and others may follow suit. This post explores the possibility of reaching a multilateral agreement on curbing fossil fuel subsidies, which could have serious implications for producers and downstream purchasers.…
The European Commission’s recently released proposal for a Carbon Border Adjustment Mechanism (CBAM) forms a critical part of the European Union’s Fit for 55 Package, discussed in a previous blog. The proposed EU CBAM will require importers of certain products into the EU to pay for the tons of carbon emissions embedded in those products in the form of CBAM certificates, the price of which would be tied to the price of emissions allowances under the EU Emissions Trading System (ETS). The CBAM is expected to be phased in gradually from 2023 in the form of detailed emissions reporting requirements, transitioning to full implementation by 2026. Although the EU CBAM has yet to be approved and details of the mechanism remain to be fleshed out via implementing acts, companies would benefit by evaluating their potential exposure now, not just to the EU CBAM but also to the measures that may be implemented in response by other countries, including the United States.
Continue Reading The EU CBAM: What the Proposed Regulation Covers, What Happens Next, and What Companies Should be Thinking About Now
On April 22, 2021, President Biden will host a virtual summit with 40 world leaders to discuss the global climate change crisis. The “Leaders Summit on Climate” is intended to catalyze more ambitious emissions-reduction efforts by the world’s major economies. The United States intends to lead by example with a new 2030 emissions target as its Nationally Determined Contribution (NDC) under the Paris Agreement.
The decision to convene a summit on climate change is one of many signals sent by the Biden Administration over the past few months that the U.S. approach to climate change is shifting dramatically, both at home and abroad. The Biden Administration has made clear that climate change must be part of decision-making across the entire government, including with respect to trade policy. Stronger enforcement of the environmental standards in U.S. FTAs, the integration of climate change into government procurement decisions, and strengthening U.S. supply chains for electric vehicles are all part of this shift. The United States is also pushing climate cooperation bilaterally. It recently entered into a “Competitiveness and Resilience (CoRe) Partnership” with Japan that focuses on the development and deployment of clean-energy technologies. The United States and China also recently released a Joint Statement “Addressing the Climate Crisis” that acknowledges their shared commitment to implementing the Paris Agreement.
One of the trade-related climate policies currently under consideration by the United States is “carbon border adjustments”. President Biden included carbon adjustments in his campaign plan and USTR referenced the possibility of imposing “carbon border adjustments” in its recently announced 2021 Trade Policy Agenda. Carbon border adjustments charge a fee on imported goods based on the carbon intensity of their production process in order to reduce the incentive to relocate carbon-intensive production to jurisdictions that have not yet addressed the need for carbon emitters to internalize emission costs, commonly referred to as “carbon leakage”. They also serve to level the playing field for domestic industries that would otherwise face competition from cheaper, more carbon-intensive imports. By raising costs on imports, carbon adjustments may also incentivize other countries to adopt similar carbon pricing policies. Carbon adjustments may also rebate the cost of a domestic carbon fee on exports to help them compete in international markets.…
With the results of the US presidential election now clear, many in Washington and around the world are beginning to contemplate what international trade policy might look like after President Elect Joseph R. Biden, Jr. takes office in January 2021. Predicting that policy is difficult, since international trade issues did not take center stage during the presidential campaign. However, statements the President Elect made during the campaign, prevailing sentiments in Congress, and Biden’s reputation as a believer in multilateral institutions developed during his nearly five decades in public office, offer some clues as to the broad outlines of his international trade policy. Overall, we expect that the Biden Administration will signal more predictability and a more rules-based multilateral orientation for US international trade policy than its predecessor. At the same time, it will be difficult to unwind some Trump Administration trade policies that enjoy political support, and in certain areas, we are likely to see significant policy continuity in the short- to medium-term.
Continue Reading Client Advisory: The US Trade Agenda in the Biden Administration