Leibowitz on Trade: The Impact of the Inflation Reduction Act

Congressional Democrats remain divided on those issues and have been unable to make progress on new trade initiatives. Moreover, most trade issues are not subject to the Byrd Rule (reconciliation) in the Senate, so they are subject to the 60-vote threshold to pass legislation in the Upper House. The IRA, by contrast, was not subject to the 60-vote rule in the Senate. All 50 Democrats/Independents voted for it. All 50 Republicans voted against it. Vice President Kamala Harris broke the tie—and here we are.

Nevertheless, the IRA does impact international trade issues to a great extent. First, it affects the global competitiveness of US manufacturers. It is the first statute that explicitly authorizes the executive branch to address climate change. It does not give the executive complete authority. It creates tax incentives to promote green energy, but it does not authorize financial penalties or increased regulation of fossil fuels—that was the nub of the deal between Sen. Chuck Schumer, the Senate majority leader, and Sen. Joe Manchin.

That deal appears to allow more oil and gas production and thereby more exports to Europe and other US allies in the face of Russian cuts in their oil and gas exports. If more pipelines and other conventional energy projects are permitted, Europe’s winter will not be as bitter.

The tax incentives in the bill ignite a familiar debate. When government imposes a tax on an economic activity, there tends to be less of that activity. When government subsidizes an activity by throwing money at it, there tends to be more of it. In this bill, tax credits and government spending encourage renewable energy projects. But little is in the bill to discourage fossil fuel projects. That was part of the Schumer-Manchin agreement. We will, of course, see how that plays out. The bill, however, clearly picks renewable energy projects as winners over the next ten years or so.

The IRA plays the subsidy card in multiple ways—electric vehicles get a big tax credit, for example. It also includes subsidies for wind, solar, lithium-ion batteries, and other technologies. Research support for carbon capture and storage and other remedial measures are as well.

One of the chief issues that divides Republicans and Democrats is that one party believes that government support will lead to favorable policy outcomes while the other is very skeptical about that.

No doubt Democrats want to do more to encourage climate action and to discourage the use of fossil fuels by putting the thumb of government on the scale of the economy. But the 50-50 Senate eliminated that possibility, raising the stakes for the mid-term elections in November.

In a related development, the law appears to be changing too. In the term that ended last month, the Supreme Court made an important decision curtailing the authority of the Environmental Protection Agency (EPA) to regulate carbon emissions from electric generating plants. The court held that the Clean Air Act did not authorize regulation by shifting power production from fossil fuel plants to renewable energy plants. (West Virginia v. EPA). In so doing, the court for the first time explicitly embraced a doctrine that has affected earlier cases–the “major questions” doctrine. This doctrine holds that Congress should speak clearly and explicitly when authorizing the regulation of large parts of the economy. Thus, courts should not interpret an unclear statute to authorize regulatory restrictions that restructure major parts of the economy. As Justice Antonin Scalia said in Whitman v. American Trucking Associations (2001), Congress “does not hide elephants in mouseholes.”

This “major questions” doctrine is not limited to environmental regulation. Indeed, it has been invoked in several cases dealing with other areas of law, such as banning cigarettes or requiring Covid vaccinations as a condition of employment. Now that “major questions” is expressly the law of the land, a new question has been raised—the continued validity of the Chevron doctrine, an area that strongly impacts international trade jurisprudence.

Alongside the “major questions” doctrine is the Chevron doctrine, named for a 1984 Supreme Court decision. Chevron holds that a statute that is unclear may be interpreted by the agency responsible for enforcing it. If the agency interprets an ambiguous statute in a “reasonable” way, the courts must accept that interpretation and sustain the agency’s interpretation even if the judges might have decided the issue differently. Long a controversial notion, the Chevron doctrine has been criticized by a number of judges (including Supreme Court Justice Brett Kavanaugh) and scholars. Deferring the interpretation of statutes to agencies is a key feature of what some call the “administrative state.”

Consider this—if a case considers a “major question” of government regulation of the economy or individuals, the courts must find an explicit delegation of regulatory authority to the executive branch of government or there is no authorization. On the other hand, if Congress leaves the answer to a question open by passing an unclear statute, the Chevron Doctrine says that the agency to whom authority was delegated can fill that gap with a “reasonable” interpretation. Future cases dealing with a host of issues, including the regulation of international trade among others, will have to decide which doctrine more clearly applies—“major questions” or Chevron deference.

Antidumping and countervailing duty matters have traditionally fallen into the Chevron deference category, with agency (usually the Commerce Department) interpretations generally accepted by the courts. Of course, if the interpretation is not considered reasonable, or the agency found an “ambiguity” in the statute that a court thinks is clear, the courts have overturned these interpretations. But much of the time, the courts defer to the agency.

Other areas are less clearly eligible to Chevron deference, such as Section 232 and 301. In those areas, courts appear to defer to presidential decisions and subject them only to minimal review—but agency determinations matter also.

It is too early to say how all these questions will affect real-world decisions in future cases. But lawyers, traders, manufacturers, and others are already thinking about them. Future cases could limit Chevron deference—we will see.

Lewis Leibowitz

The Law Office of Lewis E. Leibowitz
5335 Wisconsin Avenue, N.W., Suite 440
Washington, D.C. 20015
Phone: (202) 617-2675
Mobile: (202) 250-1551
E-mail: lewis.leibowitz@lellawoffice.com