EPA Issues Final Rule to Phase Down HFCs as White House Announces Measures to Prevent Illegal Imports

November 9th, 2021 Nithya Nagarajan & Camron Greer Leave a comment

The United States Environmental Protection Agency (EPA) has finalized a rule intending to reduce the production and consumption of hydrofluorocarbons (HFCs) in the United States by enforcing a cap and phasedown program under the American Innovation and Manufacturing (AIM) Act. According to the EPA, the final rule will phase down U.S. production and consumption of HFCs by eighty-five percent over the next fifteen years. Beginning January 1, 2022, allowances will be required to produce or import HFCs. The first of such allocations are to be announced by the EPA by October 1, 2021. The AIM Act instructs the EPA to issue a fixed quantity of transferrable production and consumption allowances, which producers and importers must hold in quantities equal to the amount of HFCs they produce or import. Alongside the EPA’s final rule, the EPA and other federal agencies under the Biden Administration announced additional actions intended to reduce consumption of HFCs, with a focus on curtailing and controlling illegal imports.

The final rule establishes HFC production and consumption baselines, a statutory phasedown schedule of allowed production and consumption, and the EPA’s approach to allocating and allowing transfer of allowances. According to the EPA, a global HFC phasedown is expected in order to avoid the most severe consequences of climate change. Producers and importers of HFCs should begin to consider how to adapt their businesses to the phasedown and how to take advantage of potential HFC alternatives. According to the phasedown schedule, steep reductions in allowances are planned for 2024 and 2029 to bring HFC production and consumption down to thirty percent against the baseline.

The EPA will set the initial allocation for each producer and/or importer based upon the individual entity’s production and/or import for the highest three-year period during the 2011-2019 period. The AIM Act had originally established the baseline to be the three-year period of 2011-2013, but the proposed rule published by the EPA in May 2021 had modified that to 2017 to 2019. Now with the final rule, the EPA has determined that using the average of the highest three years in the 2011 to 2019 window would ensure an equitable phasedown consistent with prior phasedowns.

The Administration announced the formation of an interagency task force consisting of the EPA and the Department of Homeland Security (DHS) to prevent and disrupt illegal importation of HFCs into the United States. The announcement of measures to prevent illegal imports follows reports of a surge in illegal trade in HFCs in Europe due to the European Union’s strict regulation of the greenhouse gases. The White House nods to this issue in its fact sheet on the matter, referring to “rates of noncompliance similar to what has been observed in other countries…” With the issuance of the EPA’s final rule, the U.S. has adopted a similar policy on HFCs but aims to avoid the enforcement issues observed in Europe, which have undermined the purpose of HFC regulations.

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Nithya Nagarajan is a Washington-based partner with the law firm Husch Blackwell LLP. She practices in the International Trade & Supply Chain group of the firm’s Technology, Manufacturing & Transportation industry team.

Camron Greer is an Assistant Trade Analyst in Husch Blackwell LLP’s Washington D.C. office.

Archives, Global Trade Daily, International Trade

Foreign Direct Investment (FDI) and Supply Chain Disruption: Key Takeaways From the 2nd Quarter

July 12th, 2021 Al Guarnieri, Sam Moses, and Michael Chen Leave a comment

There was a jump in foreign direct investment (FDI) activity in the second quarter. While COVID-19 restrictions remain a factor, business is picking up at an extraordinary velocity as companies spend the cash they’ve had sitting on the sidelines for their industrial expansion projects. At the same time, supply chain issues continue to plague international businesses, and filling open job positions can be a daunting task in the U.S. In other words, the second quarter was a wild ride for international businesses.

Those are a few takeaways from our conversations with dozens of business leaders from Taiwan, Singapore, Vietnam, China, Brazil, Germany, Austria, Italy, the U.K., and other countries around the world. The focus of those conversations has been navigating FDI and supply chain disruption. Below are some of the main trends we are seeing and examples of how companies are adapting.

FDI Trends

The level of FDI inquiry we received in the Southeast U.S. last quarter was enormous, including in areas such as electric vehicles, pharma, food, and consumer products. In the Southeast and more broadly, there has been an increased focus among foreign investors on acquisitions as the method of FDI. There is certainly an appetite for that among businesses looking to be sold, as valuations are high, and the multipliers paid can be significant.

An international company we talked to, for example, is considering acquiring a company in the Carolinas and then coupling it with a greenfield expansion. That kind of coupling is a trend we have seen, although there may be a delay between the acquisition and the ensuing expansion. We have also seen an uptick in acquisitions by European and U.S. companies that are backed by Chinese investors.

While multi-national ownership is not a new phenomenon, tighter U.S. trade and investment regulations have been implemented over the last few years. These regulations apply to all foreign-owned companies and require consideration. For example, business leaders and their advisors need to consider the potential impact on the transaction of requirements under the Committee on Foreign Investment in the United States (CFIUS), which has the authority to block, impose mitigation measures, or unwind transactions that could impair U.S. national security. Likewise, foreign ownership or foreign nationals may also impact a company’s need to evaluate and comply with export, immigration, and other U.S. regulations.

We also have seen in Q2 continued focus in Washington on enhanced U.S. content requirements. Companies should consider U.S. content requirements, now existing and those under consideration. There has been an increasing awareness of the risks manufacturers face tied to changing content requirements in the U.S. Two examples: the Federal Acquisition Regulatory (FAR) Council is scheduled to develop new “Buy American” regulations in July under an executive order from President Joe Biden, and it is expected that if an infrastructure package gets through Congress, it will include a variety of Buy American requirements.

In addition, foreign investors are often finding it hard to find qualified workers in the U.S., just like many American businesses right now. The pre-pandemic solution for that – bringing in your own team from another country – is challenging due to U.S. visa regulations and because of travel restrictions that remain due to COVID-19. In some parts of the world, consulates have been shuttering services again, making it difficult to secure the visas international businesses need to send their expat teams to the U.S. Moreover, quarantine requirements here and abroad continue to dissuade travelers, including requirements for those who have been vaccinated. A global executive overseas recently told us, “What businessperson can really spend a week or two out of pocket [in quarantine]?”

Supply Chain Disruption

Supply chain disruption continues to be a big struggle, including shortages of materials. We continue to help clients navigate the legal aspects of that, such as whether they can claim force majeure to manage contract risk (more detail on that here.) Operationally, businesses have continued to see huge increases in shipping costs combined with difficulty finding space on container ships or getting the containers out of the port. One executive told us even if his company offered to pay double the freight cost, it wouldn’t make a difference – there was no space on any ships.

International businesses continued in Q2 their steps to address many of these challenges. Whether you call it Onshoring or Reshoring, many companies are, when cost-effective in their industry, looking to shorten the supply chain, increase U.S. content, and add supplier redundancy.

For example, a European company we talked about within the second quarter is shifting its U.S. operation so the base product can be produced in the USA in addition to Europe, thereby providing redundancy to supply and a “U.S. made” product. In this case, the company is licensing the production to a third party that will produce and supply the U.S. subsidiary. We are hearing other examples of this kind of onshoring, which can be helpful both in terms of supply chain disruption and U.S. content requirements.

Final Takeaways

While the coronavirus pandemic is far from resolved globally, progress in the U.S. against the virus is already leading to enormous FDI activity. The continuing supply chain disruptions may also be contributing to the level of FDI activity, as companies have had time to learn lessons and adjust their strategy in ways to manage the current challenges and plan for the next unexpected event. The exact speed and depth of those adjustments will come further into light through the rest of this year.

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Al Guarnieri, Sam Moses, and Michael Chen are attorneys in Parker Poe’s Manufacturing & Distribution Industry Team. Al and Michael are based in Charlotte, North Carolina, and Sam is based in Columbia, South Carolina. They can be reached at alguarnieri@parkerpoe.com, sammoses@parkerpoe.com and michaelchen@parkerpoe.com.

Archives, Global Trade Daily, International Trade

Corporate Reporting on the SDGs: What are the Challenges and Opportunities?

February 19th, 2021 Camila Corradi Bracco, Content Development & Program Delivery, Global Reporting Initiative Leave a comment

Since the launch of the Sustainable Development Goals (SDGs) in 2016, the role of the private sector in fulfilling the 2030 Agenda has been widely acknowledged, as set out under SDG 12. Yet to assess how companies are actually contributing towards these Global Goals, we need greater transparency on their impacts.

Over the past four years, GRI has championed the participation of companies in measuring their performance on the SDGs. As we look ahead to the Decade of Action needed to achieve the SDGs, it is clear that further progress will be needed, including doing more to increase private sector contributions.

Progress so far

At the end of 2020, a four-year Action Platform for Reporting on the SDGs, from GRI and UN Global Compact, concluded. This included a Corporate Action Group (CAG) that connected business representatives in a peer learning platform, which successfully helped companies define and improve their SDGs reporting.

Research on CAG participants revealed:

1. Increased clarity on how to engage with the SDGs from a business perspective

2. Improvements in how they measured SDGs performance

3. Better prioritization of the most relevant SDGs

4. More integration of the SDGs into business decision-making processes

However, the findings also indicate that many companies continue to face challenges with understanding and disclosing their SDGs contributions, with opportunities to make corporate reporting more relevant and effective.

Improving data quality and addressing gaps

Reporting on priorities at the SDG target level, within each of the overarching Goals, and linking them to the business strategy, is often missing. Overall, deeper connections between material topics with SDG targets and corporate priorities are needed. We also see there are opportunities to further explore the links between SDG priorities and the contributions of companies in the countries and jurisdictions where they operate.

Most importantly, corporate reporting on the SDGs often focuses on positive contributions that companies make to the SDGs, with a lack of transparency and accountability for negative impacts. This issue was also highlighted by KPMG research in December.

Reporting that has impact

Identifying SDG priorities throughout the value chain is a complex undertaking, as is demonstrating the cause-and-effect relationship between SDG contributions and business performance. Moreover, because of the interconnected and interdependent nature of the SDGs, companies need to identify and take account of synergies and trade-offs between positive and negative impacts.

Efforts to quantify impacts on the SDGs and contextualize them (for example, considering the social thresholds and planetary boundaries) needs strengthening. That is why it is necessary to move beyond assessing activities and outputs and focus on how to disclose outcomes and impacts. This is crucial as it enables businesses to manage their performance and demonstrate accountability for their impacts.

Making SDG reporting relevant to stakeholders

There is increasing interest from a wide range of stakeholders in business contribution to the SDGs, including how companies are aligning products, services and business strategy with the SDGs. Policy makers, investors, consumers, labor organizations and civil society all increasingly demand that companies show transparency through providing quality data and balanced reporting.

However, different stakeholders have different expectations and data requests. Steps business can take to provide more strategic and relevant information include:

-Providing aggregated or disaggregated information that allows stakeholders to assess their performance and contribution to the SDGs

-Setting long-term SDG-related performance targets, and regularly reporting on progress

-Clearly demonstrating how the business strategy aligns with the SDGs

Proactive communications on the issues that matter most – to both the company and stakeholders – is crucial. Not only does provide the necessary information to assess corporate sustainability performance and impact, it also allow stakeholders to make decisions that contribute to the SDGs.

Driving business action through reporting

Inspired by the progress to date and the opportunities still to come, GRI is launching a Business Leadership Forum on corporate reporting as a driver for achieving the SDGs. This forum, to commence in March, will offer participating companies practical insights on sustainability reporting, focusing on how to raise the quality and strategic relevance of their reporting.

The forum is built around a series of online sessions that will bring together corporate reporters and representatives from key stakeholder groups – including the investment community, governments, regulators, members of the supply chain, civil society and academia.

The experiences of the past four years have shown that both businesses and stakeholders benefit from strategic and relevant SDG-related information. Sustainability reporting is an essential driver of the transformational change that is required to achieve the SDGs. As we look ahead to the Decade of Action and the pandemic recovery phase, the case for meaningful corporate reporting on the SDGs is more compelling than ever before.

Archives, Global Trade Daily, Stories

Keys to Success for B2B Relationships

November 26th, 2019 Vincent Ney Leave a comment

In my 25-year career in business, I have serviced a wide range of industries, professionals, and businesses. I have operated in both business-to-consumer (B2C) and ‘business-to-business’ (B2B) spaces, and have learned much about how to engage with different types of clients and their various needs.

Many entrepreneurs make the mistake of thinking that being in a B2B industry is less complicated than a B2C, because your client intrinsically understands general business principles. However, I find B2B can often be more complicated than B2C, because each organization you serve has a highly variable set of needs, values, and processes.

Below are six questions you should ask when assessing a new B2B client that will help you understand how you can best serve them.

What are their core values and mission statement?

The core values and mission statement of an organization create their guiding principles; their ‘north star.’ It is as important to understand this information when you are making a B2B sale as it is when you enter a business relationship with any of your clientele. Understanding your clients’ core values and mission statement will allow you to relate your services to what is important to them; and it will help your client more easily see the value you bring to their organization.

How are they funded?

Are they self-funded? Do business decisions have to run through a private equity firm? Understanding how your client is funded will help you better understand their internal processes, and will also help you understand how to most effectively communicate with them. Understanding their source of funding can also reveal an abundance of information about the internal dynamics of the organization.

What regulatory pressures are they facing?

This may seem out of left field, but understanding the regulatory burdens of the company or industry you are working with will help you gain an understanding of the outside pressures and complications of running their business. It is also important to know how your client stays updated on any regulatory changes. Many companies subscribe to association or lobbying groups to address and/or advocate for positions and policies on the company or industry’s behalf.

What are the relationship dynamics between the company and its leadership?

This may seem like a sensitive area, but it will help you better serve your clientele in the long run. For companies with medium-to-large sized workforces, find out what the employees’ views of company leadership are. Has leadership been promoted from within, or hired from outside? For smaller companies, find out whether the business owner hired has friends and family. How invested are the employees in the success of the organization, and what drives that investment?

How many employees does my client have?

While this seems like a relatively simple question, this can tell you more about a client than you think. A large employer, for example, will likely have more infrastructure to support a B2B relationship than a company with only a few employees whose culture is more ‘all hands on deck.’

When considering this factor, you can also elaborate and understand better who you should be communicating with, who should receive important documents, and how their internal processes work.

How can my services or product help them grow?

It is of chief importance to learn the customer’s business or industry so you can clearly articulate your business’ value proposition and how your product or services can help them grow. Learning more about their business and the life cycle of when your product or services will best serve their needs and how they can articulate it to their team.

Overall, there are many questions you must ask when entering into a B2B business arrangement. Taking steps to enhance your own understanding of the complexities of B2B clientele relationships and asking the right questions at the right time can and will lead to a successful and mutually beneficial business relationship.

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Vincent Ney is the Founder and President of Expansion Capital Group, a business dedicated to serving American small businesses by providing access to capital and other resources, so they can grow and achieve their definition of success. Since its inception, ECG has connected over 12,000 small businesses nationwide to approximately $350 million in capital.