Regulatory and Legal Reform

The Federal Communications Commission voted late last week to advance a proposal that would reinstate Obama-era net neutrality rules, according to The New York Times (subscription).

What’s going on: “The commissioners at the Democratic-led agency voted 3 to 2 along party lines to kick off a monthslong process to bring back so-called net neutrality regulations.”

• In an NAM-supported move in 2018, the previous administration repealed net neutrality regulations put into place by President Obama in 2015, saying they stymied innovation.

Why it’s important: Last week’s proposal—which telecommunications companies have pledged to fight—“will ultimately enable the agency to categorize high-speed internet as a utility, like water or electricity. … The agency will then be able to police broadband providers for net neutrality violations.”

• That’s precisely why the proposal to restore the rules is problematic, critics say. A trade group representing telecom firms “wrote letters this week to the House and Senate Intelligence Committees warning of ‘mission creep’ by the F.C.C.”
• In 2017, then-FCC Chairman Ajit Pai said net neutrality laws amounted to “special interests [who] weren’t trying to solve a real problem but [were] instead looking for an excuse to achieve their longstanding goal of forcing the Internet under the federal government’s control.”

Government overreach: Indeed, the 2015 net neutrality rules—very similar to the ones now being advanced—were a prime example of agency overreach, said NAM Chief Legal Officer Linda Kelly in 2018.

• The 2015 FCC’s “heavy-handed approach … was neither appropriate nor necessary for the rapidly evolving, highly competitive broadband market,” Kelly said.
• Net neutrality laws also decrease investment in broadband, the NAM has told policymakers.

Up next: The FCC will take public comments on the proposed rules. The commission could vote to adopt new regulations as soon as early next year.

The last word: “Manufacturers are disappointed the FCC is moving forward with its proposal to regulate 21st-century broadband with rules designed for the era of the rotary phone,” said NAM Vice President of Domestic Policy Charles Crain. “Reinstating this misguided, overreaching policy of the past is a recipe for stymied innovation and outdated infrastructure.”

Hydrogen demand is likely to skyrocket in the next few decades—if permitting delays and other setbacks don’t stymie it, according to WSJ Pro (subscription).

What’s going on: “A new report from consulting firm McKinsey forecasts a fivefold rise in hydrogen demand to 600 million metric tons a year by 2050, if climate change is limited to 1.5 degree Celsius. On current trajectories, however, that supply could be between 175 million to 291 million metric tons a year if steps aren’t taken to speed up permitting and lower both equipment and investment costs, the report warned.”

• The report identified three major challenges to meeting the rising demand: increased costs, a slow permitting process and “lack of access to capital,” which can be attributed largely to higher interest rates.

Incentives abound: Government incentives for hydrogen are on the rise. Up to $300 billion has been made available worldwide for hydrogen-energy projects this year, a sixfold increase from 2021.

• Last week, the Energy Department announced $7 billion in subsidies to create seven clean-hydrogen “hubs” in the U.S.

More support required: More action from government is still needed—particularly when it comes to allowing hydrogen projects to proceed.

• “Faster permitting times are needed to bring more hydrogen projects online, as well as the renewable energy to power their electrolyzers, industry experts say. A recent report from the International Energy Agency said current project lead times are too long and can act as a barrier to clean hydrogen uptake.”

What we’re doing: Manufacturers have long been urging policymakers to fix the broken U.S. permitting system.

• The NAM recently laid out a multistep plan for Congress “to modernize and update our nation’s antiquated permitting system.”

Under the Toxic Substances Control Act, businesses must keep up with all of the requirements and restrictions relating to chemical substances. Although manufacturers fulfill their obligations with the utmost care, the Environmental Protection Agency isn’t keeping up its end of the bargain.

Dr. Alan Dyke is the chief technology officer at Boulder Scientific Company—a specialty chemical company based in Mead, Colorado—and a member of the Society of Chemical Manufacturers & Affiliates. In his opinion, the EPA must change its approach if manufacturers in the U.S. are to remain competitive.

The company: Serving clients in many sectors, from pharmaceuticals to defense and aerospace, Boulder Scientific makes a number of complex and unique catalysts and compounds. The company proudly keeps all their manufacturing processes inside the United States.

• “We work with an end user to produce materials inside America with the right level of safety and quality, and to make those materials available for them within American borders,” Dyke explained. “We don’t outsource any manufacturing outside the U.S.”

The challenge: The EPA continues to miss congressionally mandated deadlines to review and approve compounds, creating havoc in an industry dependent on clockwork efficiency.

• “We’ve encountered delays because of the time it takes to file a document, the variability of response times from the EPA and the sheer number of documents we have to file,” said Dyke.
• At the same time, the EPA is imposing more regulations on chemical manufacturers that are difficult to navigate or confusing.
• “To make one of our compounds might take 10 different chemical intermediates from the first raw materials through to the end product,” he explained. “Each one of those materials requires a filing for each one of those compounds. And if any one of those steps is not approved, it interrupts our delivery process.”

The impact: These problems don’t just affect chemical manufacturers; they also cause problems throughout the supply chain and for customers and end users, who are forced to wait through a series of unpredictable delays.

• “During the past two years, we’ve seen a level of frustration building at the end-user level,” said Dyke. “Customers are considering sourcing from other countries where the system is more predictable and they won’t have to face these delays.”

The NAM, members of the NAM’s Council of Manufacturing Associations and Conference of State Manufacturers Associations recently launched Manufacturers for Sensible Regulations, a coalition addressing the impact of the current regulatory onslaught coming from federal agencies. To learn more, and get involved, go here.
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Under the Toxic Substances Control Act, businesses must keep up with all of the requirements and restrictions relating to chemical substances. Although manufacturers fulfill their obligations with the utmost care, the Environmental Protection Agency isn’t keeping up its end of the bargain.

Alan Dyke, Ph.D. is the chief technology officer at Boulder Scientific Company—a specialty chemical company based in Mead, Colorado—and a member of the Society of Chemical Manufacturers & Affiliates. In his opinion, the EPA must change its approach if manufacturers in the U.S. are to remain competitive.

The company: Serving clients in many sectors, from pharmaceuticals to defense and aerospace, Boulder Scientific makes a number of complex and unique catalysts and compounds. The company proudly keeps all their manufacturing processes inside the United States.

• “We work with an end user to produce materials inside America with the right level of safety and quality, and to make those materials available for them within American borders,” Dyke explained. “We don’t outsource any manufacturing outside the U.S.”

The challenge: The EPA continues to miss congressionally mandated deadlines to review and approve compounds, creating havoc in an industry dependent on clockwork efficiency.

• “We’ve encountered delays because of the time it takes to file a document, the variability of response times from the EPA and the sheer number of documents we have to file,” said Dyke.
• At the same time, the EPA is imposing more regulations on chemical manufacturers that are difficult to navigate or confusing.
• “To make one of our compounds might take 10 different chemical intermediates from the first raw materials through to the end product,” he explained. “Each one of those materials requires a filing for each one of those compounds. And if any one of those steps is not approved, it interrupts our delivery process.”

The impact: These problems don’t just affect chemical manufacturers; they also cause problems throughout the supply chain and for customers and end users, who are forced to wait through a series of unpredictable delays.

• “During the past two years, we’ve seen a level of frustration building at the end-user level,” said Dyke. “Customers are considering sourcing from other countries where the system is more predictable and they won’t have to face these delays.”

The next step: Should the EPA fail to correct its course, even businesses dedicated to remaining in the U.S. may reach a breaking point, Dyke cautioned.

• “We are considering sourcing raw materials and advanced intermediates in other countries—and even establishing manufacturing in other countries—because registration and filing is easier in other places,” he said.
• “And that’s really concerning, because if we’re thinking about doing things outside the United States, then I can guarantee a number of SOCMA members are thinking similarly.”

The CHIPS effect: Even as the U.S. government encourages companies to manufacture semiconductor chips in the United States through the CHIPS Act, the EPA’s delays are making it harder to fulfill critical goals. Boulder Scientific, which does significant business with the chips industry, is caught up in this bottleneck.

• “The frustration from the folks who are buying those materials from us is that the incentive to support the CHIPS Act is strong, whereas the current EPA filing process is not efficient—and so there’s a mismatch,” said Dyke. “We’re not able to perform the way we would want to in support of that government incentive.”

The last word: “Manufacturers are facing an onslaught of environmental regulations like we have never seen before,” said NAM Vice President of Domestic Policy Brandon Farris. “The industry supports commonsense regulations that contribute to a healthy environment but don’t prevent manufacturers from creating the products that make modern life possible.”

The NAM, members of the NAM’s Council of Manufacturing Associations and Conference of State Manufacturers Associations recently launched Manufacturers for Sensible Regulations, a coalition addressing the impact of the current regulatory onslaught coming from federal agencies. To learn more, and get involved, go here.

The NAM is pushing back on proposed changes by the Federal Trade Commission and the Department of Justice that would expand filing requirements drastically for companies considering mergers, harming manufacturers of all sizes.

What’s going on: In June, the FTC—with the agreement of the Antitrust Division of the DOJ—announced an overhaul of the premerger notification rules under the Hart-Scott-Rodino Act.

• The HSR Act requires companies to provide notice to the FTC prior to consummating a merger, but the FTC’s proposed changes would lead to as much as a sevenfold increase in the time it takes to file the HSR form, according to the proposal.
• The proposed amendments would also necessitate complex and lengthy information reporting, as well as significantly enhanced document production—resulting in disclosure overload for companies pursuing mergers or acquisitions.

Why it matters: M&A activity is critical to the manufacturing industry. Larger businesses use M&A for efficiency and expansion, while smaller companies benefit from opportunities for capital formation and growth.

• The burdensome nature of the FTC’s proposal could disincentivize or delay promising, pro-consumer deals.

Manufacturers speak out: Last week, the NAM urged the FTC to withdraw the proposed changes to “protect businesses’ ability to grow and drive economic expansion in the United States.”

• The proposal would result in significant costs and delays for manufacturers, “stifl[ing] job-creating growth in the manufacturing industry without any corresponding benefit to the agencies, merging parties or the public,” NAM Vice President of Domestic Policy Charles Crain told the FTC.
• “If adopted, the proposal would dramatically increase the information that merging entities would be required to provide to the agencies before consummating a transaction … postponing the opportunities and job-creating investments that these transactions can create,” he added.

In a victory for manufacturers, the House yesterday passed an NAM-backed bill that would prohibit states from banning the sale of new gas-powered vehicles, the Washington Examiner reports.

What’s going on: “Lawmakers voted 222–190 to pass the Preserving Choice in Vehicle Purchases Act, which would amend federal law to block state attempts to eliminate the sale of vehicles with internal combustion engines as well as prohibit the Environmental Protection Agency from issuing waivers that ban such sales.”

The background: In recent months, the EPA, National Highway Traffic Safety Administration and state of California have all proposed measures to limit emissions from light- and medium-duty vehicles.

Why it’s important: The range of frequently conflicting regulations is creating confusion and regulatory uncertainty for manufacturers.

• The Preserving Choice in Vehicle Purchases Act would eliminate that confusion by “harmoniz[ing] vehicle emissions standards,” NAM Managing Vice President of Policy Chris Netram told lawmakers. “When manufacturers have regulatory clarity, we can focus on what we do best—innovating, creating jobs and investing in America.”

What’s next: The measure now moves to the Senate.
 

A federal policy that prevents the deportation of thousands of immigrants brought to the U.S. as children was deemed illegal for a second time on Wednesday by a federal judge, according to Reuters (subscription).

What’s going on: “The decision by Texas-based U.S. District Court Judge Andrew Hanen deals a fresh setback to the program, called Deferred Action for Childhood Arrivals (DACA), and its 579,000 enrollees and other immigrants who might have hoped to be approved.”

• In 2021, Hanen found the policy unlawful, and in his decision this week found that a 2022 regulation issued by the Biden administration had not fixed the “legal deficiencies” he’d found the year before.

What it means: The Department of Homeland Security will be able to renew the immigration status of those enrolled in DACA before Hanen’s 2021 ruling, according to Reuters.

• This week’s ruling—a response to a suit brought by Texas and eight other states that say the policy breaches federal regulatory law—doesn’t require U.S. immigration officials “to take any immigration, deportation or criminal action against any DACA recipient, applicant or any other individual that would otherwise not be taken,” Hanen wrote.

The administration responds: The White House responded that in keeping with the order, it would continue to process renewals for current DACA enrollees.

• Department of Homeland Security Secretary Alejandro Mayorkas said in a separate statement that the ruling “undermine[s] the security and stability of more than half a million Dreamers who have contributed to our communities.”

Why it’s important: Ending the DACA program—particularly at a time when there is an acute worker shortage—does a tremendous disservice to U.S. manufacturing competitiveness, according to the NAM, which has long advocated fixing the broken American immigration system.

• This week’s ruling “only underscores the need to protect those who have never known a home other than the U.S.,” the NAM said Wednesday. “Manufacturers urge Congress to reform our immigration system, using the principles laid out in … ‘A Way Forward,’” the NAM’s immigration-policy blueprint.

Washington, D.C. – The National Association of Manufacturers released a new study outlining steps to improve health care supply chain resilience to allow manufacturers in the United States to better prepare for and adapt to the next disruption. The study analyzes lessons learned from the COVID-19 pandemic, during which manufacturers across the United States produced critical health care supplies in a highly unpredictable environment that affected every industry level.

“During the COVID-19 pandemic, manufacturers in the United States helped lead our response and recovery and learned many lessons in the process,” said NAM Chief Economist Chad Moutray. “Policymakers should utilize these lessons to bolster our supply chain for the next disruption. This analysis, which was conducted by the Manufacturing Policy Initiative at Indiana University, reveals that there are key policy actions needed to strengthen the manufacturing supply chain. Research shows a more balanced regulatory agenda, with an emphasis on clarity, predictability and coordination, will help mitigate the effects of the next disruption.”

Key Themes

Seven key lessons from the pandemic can be examined for future efforts to build resilience:

• Speed matters: Manufacturers need to be able to serve demand quickly.
• Information matters: Manufacturers need timely access to accurate information.
• Costs matter: Firms face the costs of taking action within the supply chain, as well as the costs of managing market unpredictability and policy environment uncertainty.
• Networks matter: Partnerships can support information sharing and networks to help manufacturers navigate the disruption.
• Size matters: Small and medium-sized manufacturers and new firms can be differently—and uniquely—challenged compared with established larger manufacturers.
• Technology matters: Technology can enable manufacturers to enhance production, innovate or improve efficiency, as well as support broader efforts to build partnerships.
• Flexibility matters: Responses can come from unexpected sources and need a flexible policy environment.

Areas of Opportunity

The report identifies four key areas of opportunity to enhance health care supply chain resilience:

• Fostering a conducive regulatory environment: Manufacturers and their partners need clear and streamlined regulations as well as a flexible regulatory framework in advance of the next disruption.
• Supporting partnerships for stronger information sharing and networks: Sustained information channels between manufacturers and policymakers will improve access to information for all parties and mitigate disruptions.
• Ensuring a healthier “baseline” industry: Small business plays a pivotal role in the U.S. Robust entrepreneurship and scaling of new manufacturers contribute to a more competitive industry.
• Prioritizing changing workforce needs: Workforce development must be prioritized so that manufacturers can pivot across product lines and sectors to meet the needs of the next disruption.

-NAM-

The National Association of Manufacturers is the largest manufacturing association in the United States, representing small and large manufacturers in every industrial sector and in all 50 states. Manufacturing employs nearly 13 million men and women, contributes $2.91 trillion to the U.S. economy annually and accounts for 55% of private-sector research and development. The NAM is the powerful voice of the manufacturing community and the leading advocate for a policy agenda that helps manufacturers compete in the global economy and create jobs across the United States. For more information about the NAM or to follow us on Twitter and Facebook, please visit www.nam.org.

The NAM and the Kentucky Association of Manufacturers are hitting back against an attempt by the Securities and Exchange Commission to force privately held businesses to make public financial disclosures.

What’s going on: On Tuesday, the NAM and KAM filed suit in federal court challenging the SEC’s novel reinterpretation of its Rule 15c2-11.

• The reinterpretation—on which the SEC has not granted companies the opportunity to comment—would require private firms to release confidential financial information publicly.

The background: Rule 15c2-11 requires disclosures to protect investors in publicly traded companies issuing so-called “penny stocks.” But the SEC has broadened the rule’s application to include privately held companies that issue corporate bonds to large institutional investors under an entirely different regulation, called Rule 144A.

• Everyday investors can’t purchase corporate bonds issued under Rule 144A, so there is no reason to require public disclosures from these businesses.

Why it’s important: Expanding Rule 15c2-11 will mean higher borrowing costs and reduced liquidity in both the manufacturing industry and throughout the larger economy, according to a new EY report released by the NAM.

• The reinterpretation would lead to job losses of more than 100,000 every year, according to the analysis.

Manufacturers speak out: “The SEC never allowed public comment on its novel reinterpretation of Rule 15c2-11, there is no conceivable benefit to the new standard and the SEC did not consider the impact that its about-face will have on privately held businesses,” said NAM Chief Legal Officer Linda Kelly. “The NAM Legal Center is filing suit to hold the SEC accountable and protect manufacturing growth, job creation and U.S. competitiveness.”

• KAM President and CEO Frank Jemley added: “The SEC’s unlawful overreach threatens privately held manufacturers in Kentucky and across the country, so the Kentucky Association of Manufacturers is proud to join the NAM in this important litigation.”

Washington, D.C. – The National Association of Manufacturers and the Kentucky Association of Manufacturers filed a lawsuit in federal court today challenging the Securities and Exchange Commission’s attempt to impose unwarranted public disclosure requirements on privately held businesses.

The SEC has adopted a novel reinterpretation of SEC Rule 15c2-11, imposing the rule’s public disclosure requirements on private companies that raise capital via corporate bond issuances under SEC Rule 144A—without giving manufacturers the opportunity to provide comment on the damaging impacts of such a consequential change.

According to EY economic analysis released by the NAM today, the SEC’s expansion of Rule 15c2-11 will result in decreased liquidity and increased borrowing costs in the manufacturing industry and throughout the economy—leading to job losses exceeding 100,000 annually.

“The SEC’s attempt to force private companies to disclose confidential financial information publicly is a clear violation of the Administrative Procedure Act,” said NAM Chief Legal Officer Linda Kelly. “The SEC never allowed public comment on its novel reinterpretation of Rule 15c2-11, there is no conceivable benefit to the new standard, and the SEC did not consider the impact that its about-face will have on privately held businesses—which could exceed 100,000 lost jobs each year. The NAM Legal Center is filing suit to hold the SEC accountable and protect manufacturing growth, job creation and U.S. competitiveness.”

“The SEC’s unlawful overreach threatens privately held manufacturers in Kentucky and across the country, so the Kentucky Association of Manufacturers is proud to join the NAM in this important litigation on behalf of all manufacturers in the U.S. to counter the SEC’s regulatory onslaught,” said KAM President and CEO Frank Jemley.

EY analysis highlights the damaging economic impacts of the SEC’s actions:

The economic impacts of the SEC’s expansion of Rule 15c2-11 will be felt disproportionately in the manufacturing industry, which accounts for more than half of all nonfinancial issuers of corporate bonds under Rule 144A. Across the economy, the change will result in 30,000 jobs lost each year over the first five years the new interpretation is in effect. The job losses will increase over time—rising to 50,000 jobs lost each year after five years and 100,000 jobs lost each year after 10 years.

These job losses are attributable directly to the decreased liquidity and increased borrowing costs associated with the SEC’s new interpretation.

Background:

• SEC Rule 15c2-11 requires broker-dealers to ensure that key information about companies issuing over-the-counter equity securities is current and publicly available prior to quoting those issuers’ securities.
• SEC Rule 144A allows for resales of securities (primarily corporate debt issuances) to qualified institutional buyers—large financial institutions that own or manage more than $100 million in securities. Retail investors cannot purchase Rule 144A securities. Notably, under Rule 144A, issuers are obligated to make their financial and operational information available to QIBs.
• In September 2021, the SEC’s Division of Trading and Markets issued a no-action letter applying Rule 15c2-11 to Rule 144A debt. This decision contradicted the historical application of Rule 15c2-11 to OTC equity securities and bypassed important rulemaking safeguards required by the Administrative Procedure Act.
• The NAM and the KAM filed petitions for rulemaking with the SEC in November 2022 seeking both permanent and temporary relief from the application of Rule 15c2-11 to Rule 144A securities. Following the petitions, the SEC temporarily delayed enforcement of its novel reinterpretation until January 2025, but the agency has not acted to reverse this damaging decision permanently.

-NAM-

The National Association of Manufacturers is the largest manufacturing association in the United States, representing small and large manufacturers in every industrial sector and in all 50 states. Manufacturing employs nearly 13 million men and women, contributes $2.90 trillion to the U.S. economy annually and accounts for 55% of private-sector research and development. The NAM is the powerful voice of the manufacturing community and the leading advocate for a policy agenda that helps manufacturers compete in the global economy and create jobs across the United States. For more information about the NAM or to follow us on Twitter and Facebook, please visit www.nam.org.