Critical Minerals Mini Deals for IRA Likely to Be Contested in Court, Experts Say
Critical mineral arrangements with the EU or other allies are likely to end up in court, Georgetown Law Professor Kathleen Claussen said during a discussion of the legality of a mini deal with the EU. There are two facets of the legality question -- is a sectoral agreement legal under World Trade Organization rules about nondiscrimination, and does the administration have the authority to qualify these agreements as free trade agreements, as it implements the Inflation Reduction Act.
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The U.S. and the EU have already said they seek to have a critical minerals agreement that will give European recyclers or processors of critical minerals the same preference as Canadian, Mexican, Korean, Chilean or other FTA partners have (see 2303100073). This is not an issue of lowering tariffs on lithium or other electric battery inputs, but rather that a battery made with these materials would qualify for consumer tax credits.
Kelly Ann Shaw, a former deputy director of the National Economic Council under President Donald Trump, who also previously served as Republican Trade Counsel for the House Ways and Means Committee, said "this [IRA] language is not necessarily clear as drafted. There is no statutory definition of a free trade agreement. Now, that may not have been what Congress meant … but the administration is interpreting as drafted." Shaw and Claussen were speaking during a Washington International Trade Association program on March 22.
"Treasury's in a tough spot," Claussen said. "I would argue it’s made it tougher for itself."
Claussen said that the Treasury Department is correct in saying there is no definition of what a free trade agreement is, and therefore it has flexibility to consider more than the 20 countries that have traditional comprehensive FTAs with the U.S.
But, she said, instead of saying FTAs include agreements such as the Japan mini-deal concluded during the Trump administration or even narrow agreements to open market access to U.S. chicken exports, they have said they will negotiate new critical minerals-specific deals.
"Why is this a problem? Treasury does not have any authority to negotiate trade agreements," Claussen said. The Office of the U.S. Trade Representative does, but there is no trade promotion authority passed by Congress asking USTR to obtain critical minerals agreements.
"What appears to be happening is that Treasury seems to be relying on USTR’s organic statute," she said -- the same argument USTR uses for its authority to enter into an Indo-Pacific Economic Framework.
Claussen said she agrees with critics that say that argument's pretty weak. She said Congress is unhappy both with the delegation question, and on the substance.
So, she asked, what could Congress do? It could pass legislation, either to limit the wiggle room in the FTA language for the critical minerals, or it could authorize negotiations of this kind.
Neither is likely, she said. So, instead, conversations will smooth things over between Congress and the White House.
Shaw agreed. "These constitutional issues are real," she said, adding: "but in almost every situation they get resolved politically through conversations between the executive branch and Congress. And most of these conversations happen behind closed doors."
But even with Congress' complaints allayed, the path for these mini deals is not clear, Claussen argued.
"Frankly, it’s not difficult to see a way to the courthouse. All roads lead to the U.S. courts. It’s not difficult to construct about 15 different arguments where Treasury has run afoul of the Administrative Procedure Act," she said.
She said if players in the auto industry thought they were disadvantaged by a broader group of countries supplying critical minerals for EV batteries, they could argue that Treasury's actions were not consistent with the statute's text, nor with Congressional intent, "and you could back that up with statements from senators, [that] this is not what we meant."
But, in response to a question from International Trade Today, neither Claussen nor Shaw said they thought such a case would call into question the tariff reductions achieved in the earlier Japan mini deal, which also was not approved by Congress (see 1909260014).
Claussen said courts could be considering a narrow claim about interpreting the IRA, rather than the legitimacy of mini deals generally.
Shaw said, "Courts have been really reluctant to get in the fight between the executive [branch] and Congress. ... I’m not sure that this makes its way to the Supreme Court with a ruling that ... binds the way trade policy is made moving forward."
In fact, both lawyers agreed that the court might decline to judge the case at all, under the political affairs doctrine.