News : Intel, others seek weaker China rules in chips bill

Monday, July 18, 2022

Intel, others seek weaker China rules in chips bill

Jul 18, 2022

View in browser

By Gavin Bade

Presented by USA-IT

With help from Doug Palmer

Quick Fix

— Intel and other chipmakers are lobbying to curtail limitations on their operations in China, which lawmakers are considering in their massive semiconductor subsidy bill slated to hit the Senate floor this week.

— The fate of an outbound investment review provision — another of target of corporate ire — is in doubt after a key lawmaker said last week the issue should be addressed in "another vehicle," and not the chips bill.

— And the U.S. International Trade Commission will vote today on whether to approve proposed tariffs on fertilizer imports from Russia and Trinidad and Tobago.

It's Monday, July 18. Welcome to Weekly Trade. Send us your trade news: gbade@politico.com and dpalmer@politico.com.

HAVE QUESTIONS ABOUT THE MIDTERMS? SUBMIT THEM AND JOIN WOMEN RULE ON 7/21: Now that the Supreme Court has overturned Roe v. Wade , abortion policy is in the hands of the states and, ultimately, voters. Join POLITICO national political correspondent Elena Schneider for a Women Rule "ask me anything" conversation featuring a panel of reporters from our politics and health care teams who will answer your questions about how the court's decision could play out in different states, its impact on the midterms and what it means for reproductive rights in the U.S. going forward. SUBMIT YOUR QUESTIONS AND REGISTER HERE.

Want to receive this newsletter every weekday? Subscribe to POLITICO Pro. You'll also receive daily policy news and other intelligence you need to act on the day's biggest stories

Driving the Week

CHIPMAKERS SEEK TO WEAKEN CHINA RULES IN SUBSIDY BILL: Chipmaking giant Intel and its peers have been pressing lawmakers to not constrain their business in China as they authorize billions of dollars in subsidies for the firms to produce computer chips in the United States.

Tweaking guardrails : Intel and the Semiconductor Industry Association, a sector interest group, have lobbied to weaken so-called "guardrails" in the CHIPS Act that could limit their operations in the world's second-largest economy, according to three Capitol Hill sources with knowledge. The rules, which are still being negotiated, could prevent companies that receive funding from the bill from building or expanding advanced semiconductor facilities in China.

In a statement, Intel did not deny its engagement on the guardrails, saying "legislation this complex and important requires input from all stakeholders."

"Intel and many companies in our industry have come together with our trade association to provide input to policymakers in order to ensure that we have the best legislation possible and don't inadvertently undermine the global competitiveness of companies that receive CHIPS funds," a spokesperson said.

Static vs. flexible guardrails: Key to the issue, one industry source said, is how to define an advanced microchip, which subsidy recipients could be prohibited from producing in China.

An early draft of the legislation wrote in a static limitation of 28 nanometers, meaning subsidy recipients could not produce any chips smaller and more advanced than that measurement in China. But the chipmakers want more flexible language that would allow the Secretary of Commerce to determine which chips would be off limits. That would allow chipmakers to continue adding production of older, legacy chips in China for years in the future – though they say those chips would be generations behind the ones produced in the U.S.

Ohio factory leverage: Intel, in particular, has huge leverage in the ongoing talks due to a multibillion dollar chip factory it has proposed building in Ohio. The company has already shown willingness to use that pledge to get its way in Congress, publicly delaying a groundbreaking of the new facility last month to press lawmakers to finalize the subsidies.

Now's the time : The negotiations over the China rules are coming to a head this week as lawmakers scramble to get the CHIPS bill over the line. Last week, Senate Majority Leader Chuck Schumer told senators that votes to advance the final bill could start as soon as Tuesday. On Friday, House Speaker Nancy Pelosi and her leadership team discussed the issue as well.

Decks cleared? The entire chips package has been under threat since Minority Leader Mitch McConnell pitted it against Democrats' reconciliation spending plans earlier this month. But Sen. Joe Manchin (D-W. Va.) again threw cold water on that reconciliation package last week, which could open a path for GOP senators to support the chips bill.

Manchin's comments "will green light proceeding this week to shore up the dangerous vulnerability of U.S. supply chain[s] for advanced semiconductors," Sen. John Cornyn (R-Texas), a key GOP supporter of the chips bill, tweeted on Sunday.

Outbound review under threat : Other provisions that have broad bipartisan agreement could hitch a ride on the CHIPS train, but a number of trade provisions are likely to be left on the cutting room floor.

One particularly contentious issue is a provision that would direct the federal government to review firms' new investments in China and deny them if they threaten national security. Corporate interests, including the chipmakers, have spoken out against the bill, but it appeared to gain momentum last week, when the White House threw its support behind provision.

But then on Thursday, Banking Committee Chair Sherrod Brown (D-Ohio) appeared to signal it could be left out.

Another vehicle? During a hearing, Brown's GOP counterpart on the committee, Ranking Member Pat Toomey (R-Pa.), railed against the provision, saying existing export controls are sufficient. Brown responded by saying he hoped the outbound investment issue could be addressed in "another vehicle," before moving on.

Asked to elaborate, Brown's office did not walk back his comment, nor confirm that he wants outbound investment out of the chips bill. "Senator Brown believes we must move forward and pass the CHIPS Act now," it said in a statement. "He reiterated that during the hearing."

Negotiations continued over the weekend over the exact language in a narrowed CHIPS bill and are still happening today.

A message from USA-IT:

Illegal trade is a $464-billion-a-year business that robs governments of much needed revenue to provide essential services to America. Instead of helping taxpayers, that money is pocketed by dangerous criminal organizations. That's why we're bringing together experts from the private and public sector, academia, as well as government and law enforcement agencies, combining our collective expertise to curb illegal trade for the benefit of our American communities. Learn more at USAIT.org.

TRADE PANEL TO VOTE ON FERTILIZER DUTIES TODAY: U.S. farm groups are bracing for another increase in their fertilizer costs this morning when the U.S. International Trade Commission votes on whether to approve new Commerce Department duties on imports of urea ammonium nitrate solutions from Russia and Trinidad and Tobago.

The two countries account for more than 80 percent of U.S. imports of UAN solutions, the most common type of nitrogen fertilizer. The American Farm Bureau Federation estimates about 25 percent of U.S. fertilizer operating costs are due to UAN solutions.

Proposed duties range from about 17 to 130 percent on imports from Russia and about 113 percent from Trinidad and Tobago. The United States imported more than 1.8 million short tons of UAN from the two countries last year, with Russia accounting for more than half.

CF Industries, a fertilizer manufacturer and distributor based outside Chicago, filed the case one year ago, accusing producers in both countries of "dumping" UAN in the United States at below market prices and benefiting from government subsidies that reduce costs.

The case immediately set off alarm bells for farmers , who have weathered several years of increasing fertilizer prices, even before Russia's war in Ukraine further disrupted supplies.

The current investigation also follows an ITC vote in March 2021, when the trade panel voted to approve countervailing duties on phosphate fertilizer from Russia and Morocco to offset subsidies provided by both governments.

Last year, the ITC voted 5-0 that there was enough evidence that CF Industries was being harmed by the UAN imports for the case to proceed. So, at least three commissioners would have to switch their votes for the duties to be stopped.

The National Association of Wheat Growers, the American Soybean Association and the Agricultural Retailers Association urged the commission in a joint brief to consider the bigger picture facing farmers and their customers.

"With the general inflation rate already at a 40-year high, adding further costs in the form of duties that will, in turn, have to be passed forward in the supply chain toward consumers would further compound an already-difficult situation," the groups wrote ahead of today's vote.

But CF argues U.S. trade laws are in place to protect domestic producers like itself against unfair foreign competition, and that should be the ITC's primary concern.

"The U.S. is the most open and competitive fertilizer market in the world, yet countries like Russia take advantage of our openness through unfair trade practices from state-subsidized entities," Linda Dempsey, vice president for public affairs at CF, told Morning Trade. "The trade laws are designed to remedy foreign trade abuses like these and should be fully enforced – rather than rewarding Russia for its bad behavior."

Sen. Chuck Grassley (R-Iowa) and more than 80 other members of Congress have also weighed in on the case. They sent a letter in March asking the ITC to "suspend the current process" to impose duties on UAN from Trinidad and Tobago and requesting the duties imposed on phosphate fertilizers from Morocco in 2021 be "reconsidered."

Notably, they did not ask for Russia to be let off the hook in either the UAN investigation or the earlier phosphate case, presumably because they do not want to be seen as lobbying on Moscow's behalf.

In contrast, the Treasury Department, which is under pressure to curb inflation, last week took pains to reassure farmers and consumers that sanctions imposed by the Biden administration on Russia do not cover agricultural products, including fertilizers.

A message from USA-IT:

International Overnight

— Battery companies are warning against proposed EU rules that would classify lithium as a toxic substance, POLITICO reports.

— Pacific Island nations, wooed by China and the U.S., are pressing both global powers to do more on climate change, Reuters reports.

— A lauded North Dakota corn mill is attracting scrutiny for its Chinese ownership, The New York Times reports.

— International investors are shying away from China over Xi Jinping's policies, Bloomberg reports.

DON'T MISS DIGITAL FUTURE DAILY - OUR TECHNOLOGY NEWSLETTER, RE-IMAGINED: Technology is always evolving, and our new tech-obsessed newsletter is too! Digital Future Daily unlocks the most important stories determining the future of technology, from Washington to Silicon Valley and innovation power centers around the world. Readers get an in-depth look at how the next wave of tech will reshape civic and political life, including activism, fundraising, lobbying and legislating. Go inside the minds of the biggest tech players, policymakers and regulators to learn how their decisions affect our lives. Don't miss out, subscribe today.

THAT'S ALL FOR WEEKLY TRADE! See you again soon! In the meantime, drop the team a line: dpalmer@politico.com, gbade@politico.com and soverly@politico.com. Follow us @POLITICOPro and @Morning_Trade.

A message from USA-IT:

Illegal trade is a $464-billion-a-year business, and it's growing. Criminals get rich from illegal trade by peddling fake and stolen goods, ultimately robbing governments of much needed revenue to provide essential services to America. Instead of helping taxpayers, that money is pocketed by crooks who traffic in illegal narcotics, apparel, counterfeit medications, tobacco, weapons, wildlife, and even people. That's why we're bringing together experts from the private and public sector, academia, as well as government and law enforcement agencies, combining our collective expertise to curb illegal trade for the benefit of our American communities.

We are USA-IT: United to safeguard America from illegal trade. Learn more at USAIT.org.