Washington’s Focus on the Electric Vehicle Supply Chain in 2023

In 2022, the president and US Congress solidified their support of the industry by passing sweeping legislation aimed at funding and incentivizing US electric mobility manufacturing for the next decade and beyond.

Looking ahead to 2023, the Administration will be writing the rules to implement that support. This will take the form of rulemaking for key statutes such as the Infrastructure Investment and Jobs Act (IIJA), the CHIPS Act, and the more recent Inflation Reduction Act of 2022 (IRA). On the non-tariff front, Congress passed, and the president signed, the 2021 Uyghur Forced Labor Prevention Act.

Background

• The IIJA authorized $18.6 billion to fund new and existing electric vehicle (EV)-related programs, including a nationwide network of 500,000 EV charging stations and monies for publicly accessible alternative fuel infrastructure. Also, the law injected $10.9 billion in funding for transitioning school buses, transit buses, and passenger ferries to low- and/or zero-emissions alternatives.
• The CHIPS Act allocated $11 billion in support of advanced semiconductor manufacturing research and set up a $2 billion fund to support technology transfers from laboratory to applications.
• The IRA, perhaps the most significant development from Washington, DC, injected billions of dollars in tax credits and other incentives to spur US domestic manufacturing of electric vehicles.
• In December 2022, news came that a United States-Mexico-Canada Agreement (USMCA) Dispute Settlement Panel had completed its findings on a complaint by Mexico and supported by Canada that the United States has been misinterpreting the product origin calculations for “core parts” for USMCA vehicle qualification. In January of 2023, that ruling was made public. See Long Awaited USMCA Panel Decision on Automotive “Core Parts” – What Happened and What’s Next.
• In June 2022, the Administration published its “Strategy to Prevent the Importation of Goods Mined, Produced, or Manufacture with Forced Labor.” Customs and Border Protection (CBP) has launched a vigorous and highly intrusive enforcement strategy for a number of key sectors, including the automotive industry.

What to Know

Based on the legislative developments from the last year, the EV industry should expect:

• Import Enforcement. If 2022 was the year of federal infusion of funding and policy development, 2023 will be the year of import enforcement and accountability. Supply chains will be scrutinized, and compliance will have to be demonstrated. In addition, claims of tariff preferences under US trade agreements will be closely monitored to guard against fraudulent product descriptions or county of origin. In terms of US forced labor legislation, a January 2023 article in a well-read trade media reported on a meeting with US Trade Representative Katherine Tai at which the Ambassador “suggested that auto or auto parts imported from China could be in CBP crosshairs.” (International Trade Today, January 6, 2023 Vol 39, No 4).
• Accountability. With the massive funding from Congress and the White House, federal agencies will be scrutinizing how monies have been spent, particularly whether they have been spent to meet the goals to incentive US domestic production. Global supply chains will come under the microscope. A December 2022 Treasury Department publication can be read here.
• Corporate Readiness. Companies that engage in the global marketplace dread the unknown. There is no crystal ball. But what corporate executives can do to mitigate the risk of potentially bad news on the trade front is to monitor developments, conduct self-assessments, and, where possible, build in flexibilities.
• Know Your Customer. Know Your Suppliers. Know Your Suppliers’ Suppliers. A common thread weaving throughout these developments on the trade front is Washington’s not so subtle objective of determining the essential source of imported products. That effort will shift the onus onto the private sector, with companies having to provide far more transparency into their product’s life span.

For product development and marketing executives in the electric mobility sector, 2023 is potentially a very good news story. But for general counsels and corporate compliance and procurement officers, the uncertainties of regulatory change will require extra attention. In the interim, company officials are taking a fresh look at the current legal and regulatory exposures of their supply chains to be best prepared for the trade policy changes ahead. The adage “when in uncertain times, start with what you know” is particularly relevant today.

To that end, the USMCA can play a critical “bridge” for many companies with strategic business interests in the US market.

How We Can Help

Readers can keep abreast of US trade developments for the electric mobility sector by visiting our Electric Mobility Practice page. Our USMCA Diagnostic is an excellent starting point for companies needing to understand their current and future legal risk exposures, while at the same time exploring potential revenue opportunities.

Our “Five Questions/Five Answers” podcast series provide timely discussions on fast paced developments in Washington. For instance, topics such as US tariff action on imports from China are highlighted in US China Tariffs and Your Supply Chain. Readers can subscribe to these and future podcasts on their favorite podcast platforms.