119th CONGRESS

1st Session

S. 1325

1. Short title
2. Sense of Congress; Purpose
3. Rule of construction
101. Foreign pollution fee
201. International partnership agreements
202. Application of foreign pollution fee in partnerships
203. Support for participation of low-income and lower-middle-income countries in international partnership agreements
204. Treatment of certain facilities relating to pollution fees
205. Definitions
301. Annual report

1. Short title

This Act may be cited as the "Foreign Pollution Fee Act of 2025".

2. Sense of Congress; Purpose

(a) Sense of Congress - It is the sense of Congress that—

(1) - the United States has led the world in carbon emissions reductions over the past 15 years, cutting more emissions than any other nation;

(2) - the United States economy is 55 percent more carbon-efficient than the global average;

(3) - on average, goods produced in China generate more than 3 times the carbon emissions of equivalent American-made goods, while Russian-made goods produce 5 times the emissions, which gives foreign polluters an unfair cost advantage over American manufacturers;

(4) - Federal environmental regulations impose an estimated $400,000,000,000 in annual costs on the economy of the United States, placing a disproportionate burden on American businesses and workers;

(5) - manufacturers in the United States face staggering environmental regulatory compliance costs, averaging $17,200 per employee, which are costs that foreign competitors, particularly in China, do not bear;

(6) - American businesses spend a higher percentage of their revenue on environmental compliance than many of their global competitors, making it harder to compete internationally;

(7) - as a result of these costs, companies in the United States have lost market share to foreign producers operating under weak, underenforced, or nonexistent environmental standards;

(8) - China is by far the world’s worst air and water polluter, responsible for 30 percent of global carbon emissions;

(9) - the Chinese Communist Party effectively subsidizes its exports by refusing to enforce basic environmental protections, undercutting responsible manufacturers in the United States;

(10) - China’s state-controlled industries operate as an extension of the Communist Party, using predatory trade practices, including environmental exploitation, to eliminate American competition and expand Beijing’s control over global markets;

(11) - United States trade policy has given foreign polluters a competitive edge at the expense of American workers for decades, rewarding bad actors while punishing responsible manufacturers in the United States;

(12) - China has been the primary beneficiary of these policies, with the United States losing approximately 5,000,000 jobs in the last 2 decades, with half of that loss directly attributable to the growing trade deficit with China; and

(13) - recognizing and rewarding manufacturers in the United States for their environmental leadership would strengthen domestic industry, create high-paying jobs, and reduce America’s dependence on high-emitting producers like China and Russia.

(b) Purpose - The purpose of this Act is to level the playing field for American workers and manufacturers by ensuring that China and other foreign adversaries cannot exploit weak environmental standards, lack of enforcement, and noncompliance to gain an unfair advantage in global trade.

3. Rule of construction

Nothing in this Act, or any amendments made by this Act, shall be construed to authorize the creation of any carbon tax, fee, pricing, or other mechanism that imposes additional costs to any covered product (as defined in section 4695(a) of the Internal Revenue Code of 1986, as added by this Act) which is produced domestically and sold, used, further refined, or distributed within United States or exported to another country for sale or use.

101. Foreign pollution fee

(a) In general - Chapter 38 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subchapter:

201. International partnership agreements

(a) In general - The United States Trade Representative, at the direction of the President, may—

(1) - engage in negotiations with countries to encourage the establishment and expansion of international partnership agreements, as provided in this title;

(2) - establish agreements with foreign countries with respect to proposals to enter into international partnership agreements;

(3) - implement such an agreement; and

(4) - perform the oversight and enforcement role necessary to uphold any such agreement.

(b) Requirements for international partnership agreements -

(1) Products - An international partnership agreement may be entered into under this title on the basis of one or more covered products.

(2) Parties -

(A) In general - Subject to the requirements under subparagraph (B) and paragraph (3), the United States may enter into an international partnership agreement under this title with—

(i) - one country; or

(ii) - multiple countries.

(B) Exclusion of nonmarket economy countries - The United States may not enter into an international partnership agreement under this title with a nonmarket economy country.

(3) Requirements - An international partnership agreement entered into under this title is required to provide for—

(A) - creation of interoperable methods to promote pollution reduction through trade mechanisms by assessing pollution intensity differences between countries;

(B) - maintenance of the ability of a country that is a party to the agreement to determine methods of pollution reduction within that country;

(C) - reduction of any fee or charge between countries that are parties to the agreement in a manner compatible with the process described in section 202;

(D) - compatible pollution monitoring, reporting, and verification methods that—

(i) - allow for interoperable methods to be used to calculate the pollution intensity of covered products and countries that are parties to the agreement, on the basis of the available information within each such country;

(ii) - allow for similar methods to be used to calculate the pollution intensity of covered products imported from countries that are not parties to the agreement; and

(iii) - allow for each country that is a party to the agreement to consistently validate the monitoring and reporting information of the other countries that are parties to the agreement with respect to products covered by the agreement; and

(E) - collaboration between the parties to the agreement on developing and implementing policies—

(i) - to address market distortions, including excess capacity, caused by the policies or practices of nonmarket economy countries; and

(ii) - to determine whether covered products are produced in facilities owned or controlled by a foreign entity of concern.

(1) In general - The requirements described in subsection (b) with respect to an international partnership agreement are required to be achieved—

(A) - for high-income countries and upper-middle income countries, not later than 3 years after entering into the agreement; and

(B) - for low-income countries and lower-middle-income countries, not later than 5 years after entering into the agreement.

(2) Applicability of benefits -

(A) In general - Except as provided by subsection (f), countries described in paragraph (1)(A) shall not receive the treatment described in section 4695 of the Internal Revenue Code of 1986, as added by title I, until the requirements under subsection (b) are met.

(B) Termination - The United States shall maintain the right to terminate an international partnership agreement at any time pursuant to the terms of the agreement.

(d) Publication; congressional review - An international partnership agreement entered into under this section shall be—

(1) - published in the Federal Register; and

(2) - treated as a final rule prepared by an agency, including with respect to review by Congress under chapter 8 of title 5, United States Code (commonly referred to as the "Congressional Review Act").

(e) Restrictions on negotiations relating to domestic policy - The authority provided by this section does not include the authority to negotiate or enter into an agreement that would establish carbon taxes, fees, pricing, or other mechanisms that impose additional costs on products produced by a United States entity.

(f) Delay in application of foreign pollution fee To negotiate with free trade agreement countries - In the case of a country with which the United States has a free trade agreement in effect that is negotiating for a partnership agreement under this title, the application of the fee under section 4696 of the Internal Revenue Code of 1986, as added by title I, may be delayed for not more than 12 months to provide time to complete the negotiations.

202. Application of foreign pollution fee in partnerships

(a) In general - In accordance with section 4695 of the Internal Revenue Code of 1986, as added by title I, a reduced fee shall be applied under section 4692 of such Code with respect to a covered product imported from a country that is a party to an international partnership agreement entered into under this title.

(b) Failure To meet requirements - If a covered product is produced in a country that is a party to an international partnership agreement entered into under this title but does not meet the requirement described in subsection (a), the fee applied under section 4692 of the Internal Revenue Code of 1986, as added by title I, with respect to the covered product shall be calculated based on the variable charge determined under section 4693(a) of the Internal Revenue Code of 1986, as added by title I.

(1) In general - During the 5-year period following the entry into force of an international partnership agreement under this title between the United States and a low-income country or lower-middle-income country—

(A) - the pollution intensity requirement described in subsection (a) shall be considered to be met with respect to covered products produced in the country; and

(B) - no fee shall be applied to covered products imported from that country.

(2) Modifications to requirements -

(A) In general - During the 10-year period beginning after the completion of the 5-year period described in paragraph (1), the pollution intensity requirement described in subsection (a) shall be considered to be met with respect to a covered product produced in a country described in paragraph (1) if new capacity in that country for the production of the covered product developed during the 10-year period described in paragraph (1) is not more than 50 percent more pollution intense than the baseline pollution intensity at the time of the entry into force of the international partnership agreement.

(B) Future development - For the 10-year period beginning after the completion of the 10-year period described in subparagraph (A), and each 10-year period thereafter, the pollution intensity requirement described in subsection (a) shall be considered to be met with respect to a covered product produced in a country described in paragraph (1) if new capacity in that country for the production of the covered product developed during the preceding 10-year period is not more than 25 percent more pollution intense than the baseline pollution intensity at the beginning of such preceding 10-year period.

(3) Application of fee - If the requirements described in paragraph (1) or (2), as applicable, are not met with respect to a covered product, the fee specified in subsection (b) shall apply.

(d) Treatment of evasion of fee - Nothing in this section shall supersede section 4694(g) of the Internal Revenue Code of 1986, as added by title I, with respect to potential evasion of the fee assessed under section 4692 of such Code if—

(1) - a determination is made under such section 4694(g) with respect to a producer; and

(2) - the producer is owned, operated, or financed in or by a country that is not a party to an international partnership agreement entered into under this title.

203. Support for participation of low-income and lower-middle-income countries in international partnership agreements

(a) In general - The United States Trade Representative, at the direction of the President and in consultation with the heads of the relevant Federal agencies, may include, in an international partnership agreement entered into under this title with a country described in subsection (b), provisions providing for—

(1) - the provision of treatment described in section 202(c) to that country;

(2) - the extension of untied or tied aid through a United States export, development, or trade agency to support energy technology deployment and manufacturing and secure supply chain development, including financing and technical assistance provided by the United States Agency for International Development, the Department of State, the Millennium Challenge Corporation, and the United States International Development Finance Corporation;

(3) - lower initial requirements relating to pollution data monitoring and alternative methods to more accurately project and model pollution under the agreement;

(4) - support for expansion of monitoring and reporting of pollution using best practices; and

(5) - technical assistance to ensure full compliance with the terms of the agreement.

(b) Countries described - A country described in this subsection is—

(1) - a low-income country or a lower-middle-income country; and

(2) - a country that the United States Trade Representative determines—

(A) - meets investment thresholds in environmental infrastructure commensurate with the revenue foregone as a result of not charging the fee under section 4692 of the Internal Revenue Code of 1986, as added by title I, with respect to covered products imported from the country;

(B) - meets procurement thresholds of covered products and related goods and services produced in the United States and other countries that are parties to international partnership agreements under this title;

(C) - provides preferential market access for energy and environmental, security, and healthcare goods and services produced in the United States; and

(D) - adopts certain labor and environmental standards.

(1) In general - The United States Trade Representative shall establish benchmarks or requirements to assess the progress of a country described in subsection (b) in fully implementing the terms of an international partnership agreement entered into under this title.

(2) Benchmarks - The benchmarks and requirements established under paragraph (1) with respect to a country shall include—

(A) - improving methods of monitoring, reporting, and verifying pollution levels;

(B) - if, after the entry into force of the international partnership agreement, new manufacturing or production capacity for a covered product is built in the country but that capacity is owned or operated, or the majority of the financing for that capacity is provided, by an entity associated with a country that is not a party to an international partnership agreement, treating the new capacity—

(i) - at the pollution intensity of the country that is not a party to an international partnership agreement if the pollution intensity for the covered product produced in that country is greater than the pollution intensity of the covered product produced in the country that is a party to the international partnership agreement;

(ii) - as not eligible for the treatment of a country that is a party to an international partnership agreement described in section 202; and

(iii) - in accordance to the requirements of section 4695 of the Internal Revenue Code of 1986, as added by title I; and

(C) - if, after the entry into force of the international partnership agreement, the ownership, a stake of ownership, or operation of manufacturing or production capacity for a covered product that is in operation on the date of entry into force is transferred to an entity in a country that is not a party to an international partnership agreement, treating such capacity—

(ii) - as not eligible for the treatment of a country that is a party to an international partnership agreement described in section 202; and

(iii) - in accordance to the requirements of section 4695 of the Internal Revenue Code of 1986, as added by title I.

(d) Termination - The United States shall maintain the authority to terminate the application to a country with which the United States enters into an international partnership agreement under this title of the provisions described in subsection (a)—

(1) - if the country does not meet the benchmarks and requirements under subsection (c); and

(2) - pursuant to the terms of the international partnership agreement.

(e) Inclusion of other international partners - To the maximum extent practicable, the United States shall seek to include additional high-income countries and upper-middle-income countries in international partnership agreements entered into under this title with low-income countries or lower-middle-income countries.

204. Treatment of certain facilities relating to pollution fees

(a) In general - The Commissioner of U.S. Customs and Border Protection and the Administrator of the Environmental Protection Agency shall jointly develop a process under a facility located in a foreign country may apply to have products produced at the facility be treated at a pollution intensity specific to the facility (in this section referred to as "facility-specific treatment") instead of the pollution intensity for the country.

(b) Eligibility requirements - To be eligible for facility-specific treatment under subsection (a), a facility is required to—

(1) - be placed in service after the date of the enactment of this Act;

(2) - be—

(A) - owned or operated by a United States entity; or

(B) - located in a country—

(i) - with which the United States has entered into an international partnership agreement under this title; or

(ii) - with which the United States has a free trade agreement in effect;

(3) - comply with procedures to allow for ongoing verification of direct emissions by United States officials or their designees, including requirements that the facility—

(A) - deploy pollution monitoring equipment able to report in real time the levels of pollution emitted by the facility;

(B) - provide access to real-time pollution monitoring data;

(i) - the volume and type of fuels consumed within the facility for the production of each covered product;

(ii) - emissions associated with any fuel combustion within the facility for the production of each covered product, including for industrial processes and any electricity, heat, or steam production; and

(iii) - all emissions associated with the chemical and physical transformation of raw materials within the facility for the production of each covered product; and

(D) - allow for spot inspections to ensure compliance with the requirements of this subsection;

(4) - account for the indirect emissions from the production of electricity, heating, and cooling that is produced outside the facility and consumed in the production of a covered product;

(5) - account for the emissions associated with the manufacture of input materials or precursors that are consumed in the production of a covered product;

(6) - disclose the volume and value of all covered products produced in the facility;

(7) - for facilities that manufacture a mix of covered products and products that are not covered products, disclose the fraction of production of covered products as a share of total output volume and value; and

(8) - identify the covered entity with respect to covered products produced at the facility for which the covered entity is not the owner of the facility.

(c) Reconsideration of determinations of pollution intensity - The Commissioner of U.S. Customs and Border Protection and the Administrator of the Environmental Protection Agency may establish a process under which a United States entity a subsidiary of which owns or operates a facility granted facility-specific treatment under subsection (a) may petition for reconsideration of the determination of the pollution intensity specific to the facility.

(d) Application of variable charge - A product produced by a facility granted facility-specific treatment under subsection (a) and imported into the United States shall be subject to the variable charge determined under section 4693(a) of the Internal Revenue Code of 1986, as added by title I, aligned with the pollution intensity difference of a product produced by the facility and the baseline pollution intensity.

(e) Ineligibility of facilities in or owned by nonmarket economy countries - A facility is not eligible for facility-specific treatment under subsection (a) if—

(1) - the facility—

(A) - is located in a nonmarket economy country; and

(B) -

(i) - is owned, partially owned, or operated by the government of the country or an entity owned or controlled by that government; or

(ii) - has received financing, including in the form of a tax credit or a limit on tax liability, to operate the facility by the government of the country or an entity owned or controlled by that government; or

(2) - the facility is owned, partially owned, or operated by—

(A) - an entity owned or controlled by the government of a nonmarket economy country, without regard to whether the facilitated is located in such a country; or

(B) - a foreign entity of concern.

(f) Termination of facility-Specific treatment - The eligibility of a facility for facility-specific treatment under subsection (a) may be terminated at the sole discretion of the United States if the facility fails to satisfy any of the requirements under subsection (b) or becomes ineligible under subsection (e).

(g) Confidentiality of information - Any information or data provided to the Commissioner of U.S. Customs and Border Protection or the Administrator of the Environmental Protection Agency pursuant to subsection (b) relating to operational practices or manufacturing processes of a facility seeking facility-specific treatment under subsection (a), may not be publicly disclosed, unless such information or data is otherwise publicly available.

205. Definitions

(a) In general - In this title:

(1) Free trade agreement - The term free trade agreement means an agreement with 1 or more countries that—

(A) - reduces or eliminates tariffs and non-tariff barriers between the countries that are parties to the agreement; and

(B) - is approved by Congress.

(2) Nonmarket economy country - The term nonmarket economy country means any foreign country that the Secretary of Commerce determines, pursuant to section 771(18) of the Tariff Act of 1930 (19 U.S.C. 1677(18)), does not operate on market principles of cost or pricing structures, so that sales of merchandise in that country do not reflect the fair value of merchandise.

(3) United States entity - The term United States entity means an entity organized under the laws of the United States or any jurisdiction within the United States.

(b) Other terms - In this title, the definitions set forth in section 4691 of the Internal Revenue Code of 1986, as added by title I, apply.

(1) In general - Subject to paragraph (2), the terms high-income country, upper-middle-income country, lower-middle-income country, and low-income country shall be defined based on the classification of the economy of a country by the World Bank.

(2) High-income and upper-middle-income countries - In the case of any country which, as of January 1, 2025, is classified by the World Bank as a high-income country or an upper-middle-income country, such country shall not be eligible to be reclassified as a lower-middle-income country or a low-income country.

301. Annual report

(a) In general - Not later than one year after the date of the enactment of this Act, and annually thereafter, the Secretary of the Treasury shall submit to Congress a report—

(1) - describing the efforts of the Department of the Treasury—

(A) - to help United States entities that manufacture covered products counter unfair competition from nonmarket economy countries; and

(B) - to increase jobs in the United States;

(2) - assessing the competitive advantage of the United States with respect to greenhouse gas intensity; and

(3) - assessing the impact of this Act and the amendments made by this Act on the United States trade deficit and economic activity.

(b) Biennial reviews - In each report required by subsection (a) submitted during an odd-numbered year, the Secretary shall include an assessment of whether this Act and the amendments made by this Act are achieving their intended policy goals.

(c) Covered product defined - In this section, the term covered product has the meaning given that term in section 4696 of the Internal Revenue Code of 1986, as added by title I.

119-S1325

Foreign Pollution Fee Act of 2025