Trade Liberalization, Reshoring Both Argued in IPEF Supply Chain Comments

Almost 20 trade groups and a handful of companies disagreed on how to ensure supply chain resilience -- many arguing that liberalizing trade with allies is crucial to reduce the likelihood of shortages, or weaponization, but others asserted that friendshoring will undermine domestic production already under stress.

The groups, firms and researchers responded to a Commerce Department request for comments on both how to implement administration goals to improve supply chain resilience and on how to build out the Indo-Pacific Economic Framework's supply chain chapter. The comments were posted June 24.

The National Customs Brokers & Forwarders Association of America argued that sourcing partners and foreign plants are long-term investments. "These cannot change on a whim, simply because the U.S. seemingly abruptly decides that a long-term trading partner is no longer 'profitable' to the nation. We understand that geopolitical issues arise, but trade should not be weaponized because in the end it hurts American companies and consumers most of all," the group wrote.

If policies or tariffs must change, there needs to be a phase-in that accounts for the shipping time between continents, as doing so "when goods are ‘on the water’ is very disruptive to the supply chain and U.S. competitiveness and should be avoided at all costs," NCBFAA argued.

The group said that letting trade preference legislation like the Generalized System of Preferences benefits program regularly lapse hurts the certainty businesses want when choosing where to source imports.

"It is important that the U.S. participates wholeheartedly in the WTO, multilateral trade agreements, and long-term partnerships that yield greater foreign market access and lowered trade barriers to access the US market. If nearshoring and 'friendshoring' is the desired direction to strengthen our nation’s physical and economic security, then the government should lead with strengthening those potential trade lanes," the group wrote.

NCBFAA also argued that the ACE Single Window is not really complete, as was said in 2016. "Now eight years later, we find that some agencies are reverting to either their own systems or requiring paper (albeit submission using document imaging, not data elements)," the group wrote. Those agencies need to be held accountable through the Border Interagency Executive Council, they argued, and ACE needs ongoing funding.

The Information Technology Industry Council argued that trade openness promotes resiliency. It also told Commerce it needs to publish a list that shows all the government's supply chain diplomacy, because it's hard for stakeholders to monitor a State Department bilateral supply chain effort with Vietnam, a Commerce Department supply chain effort with Vietnam, and the IPEF supply chain work with that country. "Publicizing this list and providing details on stakeholder engagement opportunities, schedules, points of contact, and an overview of each workstream’s activities would help to improve transparency and stakeholder involvement," ITI wrote.

The National Pork Producers Council wrote that free trade agreements that provide long-term market access is what convinces the private sector to "invest in resilient, diversified supply chains."

The Trade Alliance for Health argued that the COVID-19 pandemic showed that medical goods should be on a list of key goods in the IPEF Supply Chain Agreement, and said Commerce also should include key inputs to those products on the list.

"Imports of medical goods are crucial to meet current and future domestic demand as it is impossible for a single country or even a limited number of countries to manufacture everything that is needed to produce medical goods," so Commerce should work with allies to facilitate trade, the group wrote. It noted that a substantial portion of the medical supply chain was concentrated in China before the pandemic, but said Section 301 tariffs on those goods made things worse.

The group supports the Medical Supply Chain Resiliency Act (see 2307050030), which asks the administration to negotiate tariff liberalizing agreements in the sector, and said IPEF should work to reduce tariffs on these goods, align regulations, and include promises to avoid export restraints between friends during a crisis. "Any unilateral changes to these supply chains, including measures to force onshoring, without careful coordination could cause serious disruptions and irreparable harm," the group argued.

3M, whose domestically produced N95 masks were in high demand during the pandemic, said the government should manage a stockpile of public health goods, and should preserve manufacturers' ability to surge production if demand spikes. It also said IPEF countries should align their testing requirements and other regulations, which would improve supply chain resiliency for personal protective equipment in a pandemic.

The American Feed Industry Association argued that vitamins and amino acids should be part of IPEF's key goods list, since large-scale animal production relies on these inputs for feed. "The current reliance on a limited number of suppliers for these essential nutrients, compounded by the continued pressure on the remaining U.S. production -- stemming from global market dynamics and intense competitions -- highlights the critical need to diversify supply sources," the AFIA wrote.

The U.S. makes Choline, a form of B-vitamin, but 78% of vitamin imports come from China, the group said. High dependence on a specific country "increases risk, especially if that region is prone to geopolitical instability or natural disasters," they wrote.

They also noted relying on one or a few companies also increases the chance of disruption. They recommended that the Commerce Supply Chain Task force "assess the balance between market demand and supply. Persistent imbalances can signal a fragile supply chain."

The AFIA recommended that the government establish stockpiles, create incentives for domestic production and "enhance regulatory frameworks."

The National Wooden Pallet and Container Association noted that the surge in demand for imports during the COVID-19 pandemic lockdowns led to pallet shortages, and that problems with pallets can lead to a shortage of the goods they carry. They noted that the European Union was going to require that pallets be fully recyclable by 2030, and that would have been a burden on pallet manufacturers, but its lobbying convinced the EU to carve out pallets. It noted that Mexico makes pallets from softwood lumber milled in the U.S., and that new phytosanitary standards for those pallets could cause disruptions.

The Labor Advisory Committee recommended that the Commerce Department "take the broadest possible view of which sectors are critical," and said that while it supports working with IPEF partners to improve supply chain resiliency, "critical supply chains cannot be fully near-shored or friend-shored, even to partner countries." It said at a minimum, metals, critical minerals, cars and auto parts, aerospace, shipbuilding, semiconductors, pharmaceuticals, active pharmaceutical ingredients, medical devices, advanced batteries, solar panels, wind towers, geothermal equipment and energy transmission equipment should be on the key goods list.

U.S. Steel wrote that it is concerned that an IPEF supply chain agreement that includes steel and aluminum may undermine Section 232 tariffs and quotas, which it says already support resiliency of both steel and the goods made from steel. "Until IPEF countries improve their environmental and labor standards and engage in fair global steel trade, any concessions, investment opportunities, or business partnerships in the steel sector would undermine the U.S. government’s efforts to support the domestic steel production," the company wrote.

The North American Die Casting Association suggested that higher trade remedies on metals, such as countervailing and antidumping duties on imported magnesium, hurts end users, noting that the number of magnesium die casters dropped by half after that case.

It says it wants a robust domestic industry producing aluminum, aluminum metal matrix composite, brass, copper, lead, magnesium, titanium, zinc and zinc aluminum, but it's equally important that die casting companies can source inputs from IPEF countries.

Commerce "should work with industries such as NADCA to determine which of their inputs and raw materials create vulnerability in the supply chain, and the causes for any shortages or uncompetitive global pricing," the comment said.

They warned that imported castings from India and Indonesia -- which roughly tripled from 2019 to 2021 for India, and from 2021 to 2022 for Indonesia -- could foreshadow a threat to domestic casting companies.

The Forging Industry Association noted that the 2021 executive order on America's Supply Chains and agency reports following it already highlighted its industry as one where there are vulnerabilities, and that the Pentagon has invested $893 million in domestic production since 2021 as a result.

"Over the past two decades, China has taken control of 46 percent of the global forging market, a threat to U.S. national and economic security and that of our allies in the IPEF. This type of continued and systematic market concentration in China is undermining global supply chain resiliency," the group wrote.

However, it doesn't want Chinese direct investment in IPEF countries in the sector, and said the Office of the U.S. Trade Representative should implement import monitoring that will detect surges, such as from India, and that those trends could trigger negotiations with those countries.

The Aluminum Extruders Council also complained about Chinese foreign direct investment, to make aluminum extrusions or to make aluminum parts for cars, with the aluminum coming from China. "Furthermore, local Mexican extruders are using highly subsidized Chinese and Russian unwrought aluminum to gain a price advantage when they export their extrusions to the U.S. market and acquire U.S. market share, but these third-country subsidies are not being countervailed," the council wrote.

It also complained that Chinese companies are investing heavily in fabrication and finishing plants in the Dominican Republic. Because of the Dominican Republic-Central America Free Trade Agreement, it's harder to bring an antidumping or countervailing duty petition against producers there. "In fact, the Dominican Republic was recently let out of a fifteen-country AD/CVD investigation of imports of aluminum extrusions for this very reason," the council wrote.

The critical mineral supply chain, particularly as it relates to electric vehicles, was a concern for a number of commenters.

Researchers at Carnegie Mellon University wrote that "because China dominates not only EV battery production but also production of cathodes for those batteries as well as refining of materials used in the batteries, the combined vulnerability of multiple supply chain stages is substantially larger than at individual steps alone."

The researchers also gave methodology recommendations, such as wargaming, stress tests and techno-economic modeling. "Based on the pilot National Network for Critical Technology Assessment, we strongly recommend that the Department of Commerce set up an entity that orchestrates activities by the nation’s rich variety of researchers and institutions (across academia, industry, and government) to inform its strategy with respect to supply chains and international alliances," they wrote, saying that $50 million annually needs to be dedicated to it, with at least $40 million of that sent out as research grants.

The National Mining Association said trying to determine what is critical is "nearly impossible," given how fast things change.

The association complained that it is fielding requests from "an alphabet soup of government departments and agencies including the Departments of Commerce, Defense, Energy and Interior, the Export-Import Bank, the Federal Permitting Improvement Steering Council and the Internal Revenue Service. While we understand that statutory authorities and obligations differ among these entities that may require different approaches to addressing mineral supply chains, greater coordination across the federal government is urgently needed." It said a non-partisan mining minister is needed to end these piecemeal, uncoordinated efforts.

It also said that reducing reliance on China for processed minerals is more rhetoric than reality. "China currently is the main supplier of 24 of the minerals the U.S. is more than 50 percent import reliant on."

It said the Committee on Foreign Investment in the United States (CFIUS) should have a wider purview to track outbound investments by Chinese firms, and that the U.S. should use safeguards, Section 301 tariffs, Section 232 tariffs or trade remedies to help develop domestic mining.

Rio Tinto, the international mining giant, noted that even if a friendly country mines key minerals, "ensuring that production makes its way into the hands of refiners and end users in friendly nations is equally crucial," saying it's the processing stage that is most geopolitically risky. The company wrote: "A key component of any 'de-risking' approach must be a U.S. effort to step up mining and refining activity domestically...."

Rio Tinto said it supports Japan's Critical Minerals Agreement, and that it hopes that the administration expands free trade agreements to cover the sector, including the African Growth and Opportunity Act. "The African continent is host to at least 30% of the globe’s proven critical mineral reserves and foreign entities of concern are working tirelessly to harness them for their own devices," the company wrote. "Not only does free trade boost economies and lower prices for consumers, but it is also key in making supply chains more resilient, especially when domestic industry is under pressure."

Westwin Elements, which is opening a new nickel refinery in the U.S. to produce high-purity nickel powder, nickel-cobalt alloy powder and other products, said IPEF countries, Canada and the U.S. should establish a price floor for nickel sold in their countries, which would protect their producers from Chinese predatory pricing, "create a favorable environment for attracting private investments, and expedite the exploration and development of fresh nickel reserves." It also said the IPEF agreement should not allow Chinese firms to own 25% or more of nickel mines or processing plants in the IPEF countries.