Interpretation of Foreign Entity of Concern

<RULE> DEPARTMENT OF ENERGY <CFR>10 CFR Chapter III</CFR> <RIN>RIN 1901-ZA02</RIN> <SUBJECT>Interpretation of Foreign Entity of Concern</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Office of Manufacturing and Energy Supply Chains (MESC), U.S. Department of Energy. <HD SOURCE="HED">ACTION:</HD> Notification of final interpretive rule. <SUM> <HD SOURCE="HED">SUMMARY:</HD> On December 4, 2023, the U.S. Department of Energy (DOE or the Department) published in the <E T="04">Federal Register</E> for public comment a proposed interpretive rule on DOE's interpretation of the statutory definition of “foreign entity of concern” (FEOC) in the Infrastructure Investment and Jobs Act, also known as the Bipartisan Infrastructure Law (BIL), which applies to multiple programs related to the battery supply chain. This statutory definition provides that, among other criteria, a foreign entity is a FEOC if it is “owned by, controlled by, or subject to the jurisdiction or direction of a government of a foreign country that is a covered nation.” In this final interpretive rule, DOE responds to public comments, clarifying the term “foreign entity of concern” by providing interpretations of the following key terms: “government of a foreign country;” “foreign entity;” “subject to the jurisdiction;” and “owned by, controlled by, or subject to the direction.” </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> This final interpretive rule is effective May 6, 2024. </EFFDATE> <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Widad Whitman, U.S. Department of Energy, Office of Manufacturing and Energy Supply Chains at Email: <E T="03">FEOCguidance@hq.doe.gov,</E> Telephone: (202) 586-3302. </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">Table of Contents</HD> <EXTRACT> <FP SOURCE="FP-2">I. Background and Purpose</FP> <FP SOURCE="FP-2">II. Discussion of Comments</FP> <FP SOURCE="FP1-2">A. Summary of Comments</FP> <FP SOURCE="FP1-2">B. Foreign Entity</FP> <FP SOURCE="FP1-2">C. Government of a Foreign Country</FP> <FP SOURCE="FP1-2">D. Subject to the Jurisdiction</FP> <FP SOURCE="FP1-2">E. Owned by, Controlled by, or Subject to the Direction</FP> <FP SOURCE="FP1-2">F. Other Comments</FP> <FP SOURCE="FP-2">III. Explanation of Final Interpretation and Changes From the Proposed Interpretive Rule</FP> <FP SOURCE="FP1-2">A. Purpose</FP> <FP SOURCE="FP1-2">B. Foreign Entity</FP> <FP SOURCE="FP1-2">C. Government of a Foreign Country</FP> <FP SOURCE="FP1-2">D. Subject to the Jurisdiction</FP> <FP SOURCE="FP1-2">E. Owned by, Controlled by, or Subject to the Direction</FP> <FP SOURCE="FP-2">IV. Regulatory Review</FP> <FP SOURCE="FP-2">V. Final Interpretive Rule on the Definition of Foreign Entity of Concern</FP> <FP SOURCE="FP1-2">A. Overview</FP> <FP SOURCE="FP1-2">B. Foreign Entity</FP> <FP SOURCE="FP1-2">C. Government of a Foreign Country</FP> <FP SOURCE="FP1-2">D. Subject to the Jurisdiction</FP> <FP SOURCE="FP1-2">E. Owned by, Controlled by, or Subject to the Direction</FP> <FP SOURCE="FP-2">VI. Approval of the Office of the Secretary</FP> </EXTRACT> <HD SOURCE="HD1">I. Background and Purpose</HD> Section 40207 of BIL (42 U.S.C. 18741) provides DOE $6 billion to support domestic battery material processing, manufacturing, and recycling. Section 40207(b)(3)(C) directs DOE to prioritize material processing applicants that will not use battery material supplied by or originating from a “foreign entity of concern” (FEOC). Similarly, section 40207(c)(3)(C) directs DOE to prioritize manufacturing applicants who will not use battery material supplied by or originating from a FEOC and prioritize recycling applicants who will not export recovered critical materials to a FEOC. FEOC is defined in BIL section 40207(a)(5). The relevant paragraph lists five grounds upon which a foreign entity is considered a FEOC, described in subparagraphs (A) through (E). Subparagraphs (A), (B), and (D) address entities designated as foreign terrorist organizations by the Secretary of State, included on the Specially Designated Nationals and Blocked Persons List (SDN List) maintained by the Department of the Treasury's Office of Foreign Assets Control (OFAC), and alleged by the Attorney General to have been involved in various illegal activities, including espionage and arms exports, for which a conviction was obtained, respectively. Subparagraph (C) states that a foreign entity is a FEOC if it is “owned by, controlled by, or subject to the jurisdiction or direction of a government of a foreign country that is a covered nation (as defined in [10 U.S.C. 4872(d)(2)]).” The “covered nations” are the People's Republic of China (PRC), the Russian Federation, the Democratic People's Republic of North Korea, and the Islamic Republic of Iran (10 U.S.C. 4872(d)(2)). BIL section 40207(a)(5) provides no further definition of the term “foreign entity” or of the terms used in subparagraph (C). Subparagraph (E) of BIL section 40207(a)(5) provides an additional means by which an entity may be designated to be a FEOC: a foreign entity is a FEOC if it is “determined by the Secretary [of Energy], in consultation with the Secretary of Defense and the Director of National Intelligence, to be engaged in unauthorized conduct that is detrimental to the national security or foreign policy of the United States.” The Secretary of Energy has not exercised this authority, as of this date. In addition to affecting which entities DOE will prioritize as part of its BIL section 40207 Battery Materials Processing and Battery Manufacturing and Recycling Grant Programs, the “Foreign Entity of Concern” term is cross-referenced in section 30D of the Internal Revenue Code (IRC) (26 U.S.C. 30D), as amended by the Inflation Reduction Act of 2022 (IRA). Section 30D provides a tax credit for new clean vehicles, including battery electric vehicles. Section 30D(d)(7) excludes from the definition of “new clean vehicle” “(A) any vehicle placed in service after December 31, 2024, with respect to which any of the applicable critical minerals contained in the battery of such vehicle (as described in [section 30D(e)(1)(A)]) were extracted, processed, or recycled by a [FEOC] (as defined in section 40207(a)(5) [of BIL] (42 U.S.C. 18741(a)(5))), or (B) any vehicle placed in service after December 31, 2023, with respect to which any of the components contained in the battery of such vehicle (as described in section 30D(e)(2)(A)) were manufactured or assembled by a [FEOC] (as so defined).” On December 4, 2023, DOE published in the <E T="04">Federal Register</E> its notice of proposed interpretive rule and request for comments related to the definition of FEOC contained in section 40207(a)(5) of BIL (88 FR 84082). The comment period closed on January 3, 2024. After careful consideration of available information related to the battery supply chain and comments received, DOE is now issuing this final guidance regarding which foreign entities qualify as FEOCs, under BIL 40207(a)(5)(C), as a result of being “owned by, controlled by, or subject to the jurisdiction or direction of a government of a foreign country that is a covered nation.” For the purposes of this document, DOE uses the term “interpretive rule” and “guidance” interchangeably. At a future date, DOE may decide to initiate a separate rulemaking to implement the Secretary's “determination authority” contained in BIL section 40207(a)(5)(E) (42 U.S.C. 18741(a)(5)(E)). To get the benefit of input from the public and interested stakeholders, the Department specifically requested comments on its proposed interpretation of the terms discussed in its proposed interpretive rule (88 FR 84082). The proposed interpretive rule was intended to solicit public feedback on DOE's interpretation to better understand stakeholder perspectives prior to implementation of finalized guidance. The Department considered all comments received during the public comment period and modified its proposed approach, as appropriate, based on public comment as described in section III of this document. This final guidance proceeds as follows: Section II of this document provides a discussion of comments received and DOE's response to those comments; section III of this document provides an explanation of final interpretation and changes from the proposed interpretive rule; section IV of this document provides information on Regulatory Review of this interpretive guidance; section V of this document provides DOE's final interpretive rule on the definition of Foreign Entity of Concern; and section VI of this document provides the approval of the Office of the Secretary. <HD SOURCE="HD1">II. Discussion of Comments</HD> <HD SOURCE="HD2">A. Summary of Comments</HD> DOE received 84 comment submissions in response to the proposed interpretive rule. Comments were received from original equipment manufacturers; cell producers; materials suppliers; component suppliers; trade organizations; a nonprofit organization; a consultant; foreign governments; and individuals. Forty-two—half of the total comments received—were from anonymous sources. Several comments included confidential business information, along with a non-confidential version to be uploaded to the docket for public viewing. Additionally, at the request of the governments of the Republic of Korea, Chile, and Australia, DOE met with delegations from each country. Meeting notes of these ex parte communications have been posted to the public docket. Commenters generally expressed support for the issuance of guidance, welcoming additional clarity on the definition of the term “foreign entity of concern.” Many comments raised specific concerns about the feasibility of compliance without bright-line administrable standards to govern which entities qualify as FEOCs. Many other submissions raised specific concer ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 88k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━