Very quietly and under the radar, the U.S. government’s premier agency for international trade is remaking Washington’s trade policy. In late March, the U.S. Trade Representative (USTR), Katherine Tai, negotiated an agreement with Japan that aims to strengthen and diversify critical mineral supply chains. Access to these minerals is crucial for many green technologies, such as electric vehicle batteries, solar panels, and wind turbines, and thus essential for the Biden administration’s climate agenda.
So far, so good. The problem begins with what USTR office did next: It posted the text of the agreement under a list of free trade agreements (FTAs) the United States has with 20 different countries. It also claimed that “this agreement will enable us to deepen our existing bilateral relationship.” This would not matter if it were not for the fact that the agreement does not free or “deepen” any trade between the two parties, and it does not meet the generally accepted criteria for any trade agreement at all.
The agreement is filled with aspirational language to improve cooperation but lacks any change in market access that would meaningfully deepen trade ties, nor does it include enforceable obligations that are typical of trade agreements. This should come as no surprise, because for the USTR to agree to any increase in market access—such as lowering tariffs—it requires congressional consultation and approval. (The U.S. Constitution explicitly grants Congress the power “to regulate commerce with foreign nations.”) In negotiating this agreement and claiming it has the same standing as existing FTAs, the USTR has weakened U.S. trade policy and set a dangerous precedent. If any agreement can now count as an FTA, the term becomes meaningless, the White House removes constitutional checks on its trade decisions, and U.S. businesses lose out on opportunities to expand their markets.
If the deal is not a deal, why did the USTR negotiate it in the first place? The answer lies in the Biden administration’s scramble to clean up the legislative and diplomatic mess created by the Inflation Reduction Act (IRA), U.S. President Joe Biden’s signature climate initiative. A key aspect of that law is a tax credit of up to $7,500 that Americans can receive when they purchase certain electric vehicles (EVs). However, when Congress wrote the rules on those tax credits, it restricted them to vehicles assembled in North America—including Mexico and Canada, where U.S. automakers have major operations. Congress also required that an increasing percentage of EV battery components, including the critical minerals now mostly sourced from China, be supplied from North America as well—or from other countries with which the United States has an FTA, such as Chile.
The problem, as any car buyer knows, is that the United States is a major market for automobiles manufactured in Japan and the European Union—with which the United States does not have an FTA. Since these are close U.S. allies, for which the auto industry is a critical employer, the IRA’s restrictions on their EV exports threatened to set off a major conflict over trade. Understandably from their perspective, the Europeans and Japanese see the restriction of IRA subsidies to regional producers as blatant protectionism, whether under a green or any other label.
The administration’s answer has been to negotiate mini-deals with trading partners—and slapping the name “FTA” on them to ensure that the partners are not excluded from the U.S. market by the IRA’s provisions. To this end, the U.S. Treasury Department appeared to loosen the definition of what constitutes an FTA—and thus qualifies a trade partner for IRA benefits according to the letter of the legislation. In consultation with the USTR, the Treasury Department published a notice of proposed rule-making on April 17 that outlined criteria for what could qualify as an FTA. A few are typical of FTAs, such as reducing or eliminating trade barriers (think tariffs, quotas, and regulatory restrictions), and establish “high-standard disciplines,” such as commitments on environmental protection, labor rights, and digital trade. However, the Treasury Department takes this further and expands what the U.S. government considers an FTA to agreements that merely obligate signatories to avoid new trade barriers. This is contrary to the well-established practice of negotiating reciprocal concessions that reduce existing trade barriers and allow enforcement through sanctioned retaliation or litigation. Instead, the Biden administration’s new criteria suggest that market access is now optional—enabling it to circumvent congressional approval.
With this trick, the critical mineral deal with Japan now qualifies as a free trade agreement for the purposes of the IRA. The administration is currently in the process of negotiating a similar agreement with the European Union. No serious trade expert would consider either of these deals an FTA, but under the new Biden administration rules, they would qualify as FTAs and thus exempt the partners from IRA restrictions.
Unsurprisingly, these actions have irked lawmakers. U.S. Sen. Joe Manchin argued that “the administration is attempting at every turn to implement the bill it wanted, not the bill Congress actually passed.” Sens. Ron Wyden and Richard Neal—like Manchin, both Democrats—echoed similar concerns, adding that “agreements should be developed transparently and made available to the public for meaningful review well before signing—not after the ink is already dry.”
The lawmakers make important points: Typically, when negotiating a free trade agreement, the president requests trade promotion authority from Congress, which allows the final text of a deal to be submitted for an up-or-down vote without amendments. Congress is kept in the loop throughout negotiations and also sets forth negotiating criteria that the president must meet, such as the inclusion of environmental or labor standards. Presidential trade promotion authority expired in July 2021, and Biden has not sought its renewal. That’s not so odd; presidents tend to request it when negotiations are imminent or underway. Tai has suggested that she can nonetheless consult with Congress on these more limited deals. However, the loss of trade promotion authority removes important procedural steps that ensure adequate congressional oversight and public input on these deals.
Beyond this, the new rules proposed by the Treasury Department are troublesome because they expand the definition of an FTA to include deals that are no such thing. The new definition applies even in the absence of any reciprocal concessions—for example, when the parties merely cement the status quo by promising not to impose additional barriers, including tariffs on exports. Mentioning the latter in the draft rules is particularly curious, since export tariffs are already prohibited in the United States by the Constitution.
Under the critical minerals deal with Japan, for example, the language does not provide reciprocal, or even additional, access to U.S. and Japanese markets for these minerals. It’s essentially putting the status quo on paper and slapping the heading “FTA” on it.
Pro-trade members of Congress are rightly concerned that the mini-deal squanders an opportunity to pursue a truly high-standard and comprehensive trade agreement with Japan, where U.S. economic interests go far beyond critical minerals. In his statement for the Senate Finance Committee’s hearing on the president’s trade agenda this March, Wyden called on Tai to bring trade agreements before Congress and warned that “the U.S. cannot conclude agreements with Japan, Indonesia, or the EU that leave issues facing our exporters unaddressed.” A major issue, he argued, was expanding export opportunities in these markets—something that trade agreements typically include. Similarly, Rep. Dan Kildee pointed to the U.S.-Mexico-Canada Agreement, which included strong environmental and labor provisions, as a good example of the type of trade agreements that should be pursued. In contrast, the Biden administration’s only major trade initiative, the Indo-Pacific Economic Framework, is as unambitious as the Japan deal, with a limited scope that does not include market access.
This raises a more basic question: Should agreements that fail to provide market access even count as trade agreements (let alone free trade deals)? Furthermore, in the case of the EU, can a deal on critical minerals be called a trade agreement when there’s nothing to trade? Europe is not producing any minerals to sell to the United States, and the EU imports nearly all of these minerals from countries other than the United States.
The proposed rule simply says that Congress did not actually mean to restrict the credits to FTA partners, but rather “countries with which the United States has reliable and trusted economic relationships.” This sounds a lot like friendshoring—another ill-defined term. All of this points to an urgent need for Congress to clearly define the term “FTA” instead of allowing the administration to use the lack of a clear statute to do an end run around the IRA. Furthermore, the USTR’s authority to negotiate trade agreements is unclear and open to challenge. Even if the pathway to a successful constitutional case against the White House could prove difficult—not least for political reasons—Biden will be justifiably accused of executive overreach.
While one should applaud the Biden administration’s efforts to avoid a destructive confrontation over trade with Washington’s closest allies, it should be careful how it does this. And though sharing the text of an executive agreement on the USTR website is welcome, it has no place under the “FTA” heading.
Congress should call on the administration to begin comprehensive trade negotiations with the EU and Japan. It should also request that the administration establish a page on the USTR website that shares the text of every executive agreement on trade the United States has in effect. This would improve transparency in trade policymaking overall and provide the public and researchers with the data to analyze the efficacy of these mini-deals.
One thing is clear: In exploiting the vagueness in U.S. law on what constitutes trade agreements in order to circumvent congressional legislation, the administration risks an unstable future for U.S. trade policy. If Congress fails to rein in the Biden administration, the gap in traditional trade agreements will be filled with backroom deals that subvert the constitutional checks and balances that ensure the interests of all Americans are considered in foreign economic policy.
