FT : Veteran telecoms executive criticises bureaucracy and poor customer service

Veteran telecoms executive criticises bureaucracy and poor customer service
Former EE boss touted as potential Vodafone CEO pulls up some European incumbents

A leading figure in European telecoms has criticised some of the biggest companies in the sector for being overly complex, too centralised and failing to listen to customers after a tumultuous year in which their value has tumbled.

Dutch businessman Olaf Swantee, who ran EE for five years between 2011 and 2016 and is seen by industry insiders as one of the frontrunners to become chief executive of Vodafone, said: “incumbent telcos have too many layers [and] too much bureaucracy”. He called for this to be loosened to boost performance.

Swantee did not name any group in particular but the sector has had a bruising five years in which some of the leading groups, including BT and Vodafone in the UK, Telefónica in Spain and Orange in France, have had their valuations slashed by up to 65 per cent.

At the start of the year there were hopes that, following years of heavy investment, their fortunes would improve with several companies starting to implement above-inflation price rises and a trickle of market consolidation. But soaring energy prices and inflation have increased their cost of capital and threatened to curtail consumer spending, while dealmaking activity has been lacklustre.

Vodafone has come under particular pressure from activist investor Cevian and several of its biggest shareholders to simplify its sprawling business, shed poorly performing units and decentralise its global operations.

The board ultimately decided earlier this month to part ways with chief executive, Nick Read, who will step down at the end of the year.

Out of the incumbents only Deutsche Telekom has managed to buck the sector trend, in large part because of its thriving business in the US which has bolstered group profits and enabled the company’s share price to rise around 28 per cent over five years.

“Telcos don’t show very quickly that they’re in trouble. It takes a while before they fall apart,” said Swantee, who has also been an executive at Orange but is now an investor in the sector.


He is strategic adviser to Warburg Pincus, as well as executive chair at Community Fibre, one of the biggest alternative networks in the UK, and chair of T-Mobile Netherlands, both owned by the private equity group.

Swantee also spent two months as a non-executive director on Vodafone’s board last year before deciding to step down. He declined to comment on rumours that he is being considered for the top job at Vodafone or on recent developments at the FTSE 100 company.

“The private equity model, where you can invest a lot to improve a telco, gives it the freedom to act, to move. It will typically strengthen that business,” he said, referring to challengers like MasMovil in Spain, Sunrise in Switzerland and the broadband fibre market, which has attracted billions from investors.

“Not just in the UK, it’s in Germany, France, Switzerland, you’re seeing this explosion of fibre, and with it an opening up of a market that was very much closed, where customers would stick around forever,” he said.


Swantee said that publicly listed telcos could learn from the more agile model of privately owned challengers, and were often not “customer-centric enough” and too “far away from customer services, people, and the front line”.

He also warned that many telecoms groups had got themselves into a “death spiral” of offering investors high dividends, which was stifling their ability to invest and innovate.

“When you don’t have growth in your model, and you just have a dividend story, the risk is that over a longer period of time, you can’t transform your business anymore, you’re just a bank for your investors,” he said. “The telcos that are stuck in a high debt/ebitda ratio . . . they are having a harder time to transform themselves successfully.”

Reuters - Hedge funds set to mark worst returns in 14 years

Hedge funds set to mark worst returns in 14 years

Dec 30 (Reuters) - Global hedge funds are set to register their worst returns in 14 years in 2022 after aggressive U.S. interest rate rises hit asset prices hard, however, their declines are overall smaller than the slump seen in equity and bond markets this year.

Some hedge fund strategies that put money in commodities and currencies using macro-focused strategies and exploited price differences between related securities outperformed in 2022, handing decent gains to investors.


"More than at any time in recent history, both equities and bonds have been very sensitive to macro events, particularly to inflation prints," said Meisan Lim, managing director of hedge fund research at Cambridge Associates.

According to investment data firm Preqin, hedge fund returns have fallen 6.5% this year, their biggest since a 13% decline in 2008.

That compares with the MSCI World index's (.MIWO00000PUS) decline of 18.7% and the ICE BofA U.S. Treasury index's (.MERG0Q0) decline of 11.9%.

Strategy-wise, macro funds gained 8.2% through November this year, while equity-hedged and event-driven strategies lost 9.7% and 4.7%, respectively, according to HFR data.

"As a strategy, macro has historically been less correlated to movements in the broader stock market, helping to diversify portfolios," said UBS in a note.

"We think a continuation of tight monetary policy and high volatility should prove favourable for macro managers in 2023."

Activist funds, which use minority stakes to push for strategy and management changes to unlock shareholder value, slumped 13.8%, according to the HFR data.

Trend-following strategies succeeded in 2022 because of the inflationary environment, said Andrew Hendry, head of Asia at Janus Henderson Investors, a global asset manager that also runs a 900 million euro ($955.17 million) long-short Global Multi-Strategy Fund.

"Trend-following works on the idea that markets process information inefficiently and at different speeds, and markets that move in one direction to start with, are more likely to continue to move in that direction," Hendry said.

"The trend has had a great 2022 with things like strong commodity prices and weak bonds contributing substantially to performance."

Alongside the tumble in traditional assets from equities to bonds, net assets of global hedge funds fell 4.8% in the first three quarters of this year to $4.3 trillion. They saw a combined outflow of $109.8 billion in that period, according to Preqin data.

Just 915 funds were launched this year, the fewest in 10 years, the data showed.

>>> US After Hours Summary: Another quiet after hours session; ORIC +5.1% higher

After Hours Summary: Another quiet after hours session; ORIC +5.1% higher as Pfizer discloses stake; HSII +1.5% on deal to acquire Atreus

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: None

Companies trading higher in after hours in reaction to news: ORIC +5.1% (Pfizer discloses 12% stake in ORIC), QMCO +2.8% (files for 361,010 share offering by selling shareholders), ENVX +2.6% (names new CEO), HSII +1.5% (to acquire Atreus, an executive interim and on-demand talent business)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: None

Companies trading lower in after hours in reaction to news: PFE -0.4% (Pfizer discloses 12% stake in ORIC), DK -0.1% (enters into inventory intermediation agreement up to $800 mln with Citigroup Energy)

>>> US Close Dow +1,05% S&P +1,75% Nasdaq +2,59% Russell +2,57%

Closing Stock Market Summary

It was a decidedly good day for the stock market as some of the most beaten-up names led the main indices to sizable gains in a pent-up rebound trade. The broader market drew support from mega cap stocks, which have suffered sizable losses recently on valuation concerns and presumably tax-loss selling activity by participants who bought into the seemingly invincible stocks last year.

Entering today's session, Tesla (TSLA 121.82, +9.11, +8.1%) was down 42% for the month, Apple (AAPL 129.61, +3.57, +2.8%) was down nearly 15%, and the Vanguard Mega Cap Growth ETF (MGK) (+2.5%) was down 11.3% in December. Many stocks saw similar price action, which led to the broad-based rally effort today. Advancers led decliners by a greater than 5-to-1 margin at the NYSE and a greater than 4-to-1 margin at the Nasdaq. 

All 11 S&P 500 sectors logged gains today with mega cap leadership pushing the communication services (+2.7%), information technology (+2.6%), and consumer discretionary (+2.6%) sectors to the top of the leaderboard. On the flip side, the countercyclical consumer staples (+0.4%) and utilities (+0.8%) sectors fell to the bottom of the pack. 

The semiconductor space was another source of support for the broader market. The PHLX Semiconductor Index was up 3.3%. Taiwan Semiconductor Manufacturing Co. (TSM 76.00, +2.94, +4.0%) was a winning standout for the group after holding a 3nm volume production and capacity expansion ceremony, marking a key milestone for advanced manufacturing.

Notwithstanding today's positive price action, the S&P 500 closed below the 3,850 level, where it has been stuck since mid-December. It was still a good change of pace, though, for what was deemed a disappointing Santa Claus rally period entering today.

The Santa Claus rally period encompasses the last five trading days of the year and the first two trading sessions of the new year, and it is believed to be a good sign for how the new year will start when it produces a cumulative gain over that stretch. To be clear, 2022 was a definite exception to that belief. Recall that the 2021 Santa Claus rally produced a net gain of 1.4% for the S&P 500 and yet the S&P 500 declined 5.3% this January and 5.0% in the first quarter.

When this year's Santa Claus rally period began, the S&P 500 stood at 3,822.39. Today the S&P 500 closed at 3,849.28, which is to say Santa Claus has come in from the cold.

The Treasury market settled in mixed fashion. The 2-yr note yield rose two basis points to 4.37% and the 10-yr note yield fell six basis points to 3.83%.

  • Dow Jones Industrial Average: -8.6% YTD
  • S&P Midcap 400: -14.1% YTD
  • S&P 500: -19.2% YTD
  • Russell 2000: -21.3% YTD
  • Nasdaq Composite: -33.0% YTD

Reviewing today's economic data:

  • Initial jobless claims for the week ending December 24 increased by 9,000 to 225,000 ( consensus 220,000) while continuing jobless claims for the week ending December 17 increased by 41,000 to 1,710,000.
    • The key takeaway from the report is that the level of continuing jobless claims is the highest since February and up noticeably since September when it was just shy of 1.350 million, suggesting that a very tight labor market is showing some signs of loosening up based on the extended time it is taking for dislocated employees to find a new position.
  • Weekly EIA Natural Gas Inventories showed a draw of 213 bcf versus a draw of 87 bcf last week
  • Weekly EIA Crude Oil Inventories showed a build of 0.718 million barrels after last week's draw of 5.89 million barrels

Friday's economic data is limited to the December Chicago PMI (consensus 40.0; Prior 37.2) at 9:45 a.m. ET.

WSJ : FDA Faulted for Working Improperly With Biogen Before Clearing Alzheimer’s

FDA Faulted for Working Improperly With Biogen Before Clearing Alzheimer’s Drug
Aduhelm approval followed ‘atypical’ agency contacts with company, congressional report says

The U.S. Food and Drug Administration “inappropriately” collaborated with Biogen Inc. before approving its Alzheimer’s treatment Aduhelm in 2021, a new report from House Democrats concluded, as the agency prepares to issue decisions on similar drugs.

Biogen internal documents obtained through a congressional investigation also showed that the company expected pushback from patients and payers but priced its drug at $56,000 to maximize profit, the report says.

The findings are the latest in the saga of Aduhelm, a drug that some advocates once hoped would slow cognitive decline for some of the nation’s estimated 6.5 million Alzheimer’s patients. Critics lambasted the agency’s approval of the drug. After Medicare decided not to pay for routine uses of the drug, Biogen scrapped its promotional efforts and reported a fraction of the sales it once expected. The congressional findings come as the agency is preparing to issue decisions on similar Alzheimer’s treatments that target amyloid plaque in the brain: Biogen and Eisai Co. ’s lecanemab and Eli Lilly & Co.’s donanemab.

“Biogen stands by the integrity of the actions we have taken,” a company spokesman said.

An FDA spokesman said the agency fully cooperated with the evaluation. “It is the agency’s job to frequently interact with companies in order to ensure that we have adequate information to inform our regulatory decision-making. We will continue to do so, as it is in the best interest of patients. That said, the agency has already started implementing changes consistent with the Committee’s recommendations.”

The 18-month investigation by the Democrat-led House Oversight and Reform Committee and the Energy and Commerce Committee found that the FDA and Biogen had an “atypical” number of meetings, calls or substantive emails—at least 115 over the course of a year—while Biogen was preparing to seek approval for its drug, and that at least 66 of those weren’t properly documented. The committee also found that the agency and the company worked closely on a document prepared for outside advisers—so closely that at least one paragraph of Biogen’s submission was written by FDA officials. Republicans didn’t contribute to the report, according to spokespeople from both parties.

“I am hopeful these findings are a wake-up call for FDA to reform its practices and a call to action to my congressional colleagues to continue oversight of the pharmaceutical industry to ensure they don’t put profit over patients,” said Carolyn Maloney (D., N.Y.), chairwoman of the House Oversight and Reform Committee.

The committees also obtained the results of an internal review of the FDA and Biogen’s interactions conducted by the agency in spring 2021. The agency concluded the collaboration between its officials and Biogen was “atypical” but not “inappropriate,” given the dire medical needs of Alzheimer’s patients.

The committees found that the FDA and Biogen pursued a broad label for Aduhelm indicating that it was intended for all Alzheimer’s patients, even though the clinical trials had been limited to a smaller subset of patients. The label was later narrowed.

Biogen priced its drug at the high end of what its consultants recommended in an effort to maximize revenue and “make history” with its drug launch, according to internal documents revealed by the committees. The documents showed the company estimated some Medicare patients would have to pay as much as 20% of their income out-of-pocket for Aduhelm, the committees said, and that the drug could cost Medicare $12 billion in one year, or 36% of Medicare’s budget for physician-administered drugs and other outpatient services. Biogen later slashed its price in half.

Aaron Kesselheim, a Harvard doctor who voted “no” on Aduhelm as a member of the FDA’s outside advisory panel and later resigned from the panel in protest when it was approved, said the report raises questions about the agency’s approval of other drugs.

“I hope this inspires a full re-examination of the nature of the communications between FDA and industry,” he said. “Lines of communication need to be at arm’s length and transparent so that there remains trust in the FDA’s decisions.”

FT : EU rejects Italian demand to impose Covid curbs on arrivals from China

EU rejects Italian demand to impose Covid curbs on arrivals from China
France, Germany and other states say situation does not warrant change in coronavirus policies

The EU has rejected an Italian demand to reimpose travel restrictions on arrivals from China, as capitals across the world take divergent approaches to surging numbers of coronavirus infections in the country.

EU officials at a meeting on Thursday did not endorse a call from Giorgia Meloni, Italy’s prime minister, for the bloc to collectively follow Rome’s move to test all air arrivals from China in response to Beijing’s abrupt decision to lift its zero-Covid policies.

Meloni warned Brussels that Italy’s mandatory testing, announced on Wednesday, would be “ineffective if it is not followed at a European level”. She added: “We wish Europe would move in this direction.”

France, Germany and other EU states have instead argued that the situation does not warrant a change in their national coronavirus policies.

The EU’s health and security committee, made up of member state officials, on Thursday agreed that “co-ordination of national responses to serious cross-border threats to health is crucial”, adding: “We need to act jointly and will continue our discussions.”

The European Commission, the bloc’s executive arm, said that the BF.7 Omicron variant, prevalent in China, was already present in Europe.

“However, we remain vigilant and will be ready to use the emergency brake if necessary,” the commission said, adding that it “could be activated if needed to reintroduce restrictions in a co-ordinated manner”.

The debate over reimposing pandemic travel curbs, lifted in western countries for most of the past year, is the latest repercussion of Beijing’s decision to scrap its draconian zero-Covid policies, which has sparked a coronavirus wave infecting tens of millions of people in China each day.

The huge increase in infections and a rush of international travel bookings from China have prompted the US to demand negative test results for new arrivals. Japan, India and Taiwan have also imposed testing requirements for Chinese arrivals, in anticipation of a wave of visitors.

Equities fell in Asia and Europe on Thursday as investors worried about the surge’s impact on the global economy.

Orazio Schillaci, Italy’s health minister, said the country would use genetic sequencing of positive test results to determine whether new variants were emerging in China. There are fears any new strain could pose a higher health threat than variants already in circulation for which vaccines in use in the west offer good protection.

Italy said that 52 per cent of passengers on one post-Christmas flight from China to Milan had tested positive for coronavirus. The EU’s one-visa Schengen zone means there are no restrictions on people moving around most of the bloc.

After Thursday’s meeting of the EU committee, the French health ministry said the talks underscored the need for a coherent EU strategy, as well as for more data and for further work on measures to protect people and keep travellers informed.

But it added that “at this stage, the number of Chinese travellers to Europe is limited and will remain so for several weeks, while China’s reopening measures are put in motion and take effect”.

Governments in the Nordic countries and the UK also said they had no plans to follow Italy’s lead or were waiting for further information.

​​Norway and Finland were not considering imposing any conditions on arrivals from China because there is already a significant amount of Covid infections in the countries and few travellers from the Asian nation at this time of year, health authorities said.

“It’s pointless,” Jari Jalava, an infectious disease expert at Finland’s health authority, told state broadcaster Yle.

The German health ministry said it was “watching the situation closely and co-ordinating closely with our international partners”. Spokesperson Sebastian Gülde said: “Up till now the health ministry has no indication that any kind of worrying variant has emerged in the context of the outbreak in China, compared to the variants that are currently circulating in Germany.”

The British government also said it was reviewing whether to carry out Covid checks on arrivals from China, but insisted there were “no plans” to reimpose controls at the border.

One government official said that Britain had already experienced the Omicron wave gripping China, adding: “Our vaccines work and our vaccination rate is superb.”

However, the UK’s Health Security Agency is monitoring the prevalence and spread of harmful variants and Downing Street said all available international data would be kept under review.

WSJ : Beijing Calls for Measured, Science-Based Response to Its Covid Outbreak

Beijing Calls for Measured, Science-Based Response to Its Covid Outbreak
More countries impose travel restrictions on arrivals from China over fears a more dangerous variant may emerge from the country’s wave of infections

HONG KONG—Beijing called on foreign governments to abide by scientific principles in setting travel protocols, after the U.S. joined a growing group of countries that are imposing Covid-screening measures on travelers from China.

On Wednesday, the U.S. said it would require travelers arriving from China to show negative Covid test results or documents proving their recovery from a recent infection. Federal health officials cited concerns over a lack of accurate data from Beijing that can be used to detect new coronavirus variants that may be emerging from the outbreaks now raging across the Chinese mainland.

Until early December, China had maintained the world’s strictest Covid-testing regime for nearly three years, and it only recently said it would lift compulsory quarantine for inbound travelers. Some foreign governments have raised concerns over the speed at which Beijing dropped its “zero-Covid” strategy. The about-face came shortly after public protests erupted against the government’s use of mass virus testing and strict lockdowns—which were designed to hunt down and isolate outbreaks, but have also throttled commerce in the world’s second-largest economy.

Amid the shift, Beijing ended mass virus testing and scaled back its reports of new infections. The World Health Organization this week said it needed more information from China to make an accurate assessment of risks from the outbreak.

The U.S. measures mirror pandemic-screening protocols imposed during recent days by several governments in Asia and Europe—including Japan, India and Italy. Washington’s move comes as governments prepare for a surge in Chinese arrivals after Beijing said that from Jan. 8 it will lift border controls that led to the almost three-year collapse in outbound tourism.

Some European Union officials called for joint action in response to the Covid situation in China, and the bloc’s Health Security Committee, an informal advisory body, met Thursday to discuss the matter, according to tweets from an account run by the EU’s Directorate-General for Health and Food Safety.

The Chinese Foreign Ministry, which once vocally criticized foreign governments for restricting travel to and from China during the early weeks of the pandemic, offered a more measured response to the latest testing requirements imposed on travelers originating from the country.

“China has always believed that all countries, in adopting Covid-control measures, should do so in a science-based and proportionate manner, without affecting normal people-to-people exchanges,” ministry spokesman Wang Wenbin told reporters Thursday.

Beijing hopes that all countries can work together in ensuring safe cross-border travel, “safeguard the stability of global industrial supply chains, and contribute to international solidarity in fighting the pandemic and fostering a global economic recovery,” Mr. Wang said.

On Chinese social media, reactions to the new screening protocols appeared varied. Some users condemned what they saw as discriminatory and unscientific measures against China, while others expressed acceptance that other nations were, in some ways, doing what their own government had been doing since early in the pandemic.

“What’s there to criticize? In the past two years when other countries were opening up, were we not strict in our policies of PCR testing and quarantining people who enter our borders?” one user wrote on the popular Weibo microblogging platform. “Which country doesn’t act in its own interests?”

Hospitality businesses, meanwhile, remained hopeful that the screening measures wouldn’t deter an influx of Chinese tourists, who had been the biggest prepandemic source of travel expenditure, having spent an estimated $255 billion globally in 2019, according to data from the United Nations’ World Tourism Organization.

Trip.com Group, an online travel service based in China, said outbound-flight bookings from the mainland on Tuesday morning more than tripled when compared with the preceding day, with Singapore, South Korea, Japan and Thailand among the top destinations. Bookings to the United Kingdom, the U.S. and Australia also grew, it said.

Geoff Freeman, president and chief executive of the U.S. Travel Association, a Washington-based nonprofit representing members of the travel industry, described the new measures as highly targeted and reasonable. “We look forward to welcoming Chinese travelers back to the United States,” he said in a statement.

As part of China’s dismantling of zero-Covid policies, authorities have said they would end quarantine measures on inbound travelers and start allowing citizens to apply for passports again on Jan. 8—essentially reopening the country’s borders for the first time since early 2020, when Beijing first acknowledged the severity of the Covid-19 outbreak.

Beijing says it has adjusted Covid policies because the current strains of Omicron driving infections are less deadly than earlier on in the pandemic, and insisted they have prevented the high number of deaths seen in many Western countries. Health officials say they continue to monitor the spread of the virus and that they haven’t detected new variants so far.

Even so, these changes have stirred concern in some other countries, including the U.S., where officials worry that Chinese travelers could spread more-virulent Covid variants that may emerge from continuing outbreaks in China.

The new U.S. measures, which start Jan. 5, require all air travelers aged 2 and over who originally departed from China or the semiautonomous territories of Hong Kong and Macau to show airlines a negative result from a Covid test taken no longer than two days before starting their trip. Travelers can also show documents proving they have recovered from an infection, if they tested positive more than 10 days before their flight.

American officials say the requirement is meant to slow the spread of Covid-19 in the U.S. amid surging infections in China, pointing to how the Chinese government has reduced Covid testing and case reporting while sharing minimal data that can help identify new Covid variants.

Some medical experts, however, say the new Covid screening measures are more performative than useful, noting that Omicron has long spread across the globe—including in the U.S., where Omicron subvariants have been driving infection waves in recent weeks.

Early in the pandemic, the Trump administration barred foreign nationals who had recently visited China from entering the U.S. and implemented quarantines for Americans who had traveled to parts of China where the initial outbreak was detected.

Beijing initially denounced such measures as discriminatory against China, but also started imposing visa, health-screening and quarantine measures that curtailed travel in and out of the country—so as to keep out the virus after Chinese authorities contained the contagion within the country’s borders.

“Travel restrictions can buy some time at the beginning of a pandemic to ramp up testing and build hospital capacity,” tweeted Jonathan Reiner, professor of medicine at George Washington University’s School of Medicine and Health Sciences. “But when the virus is everywhere (as it is now) they don’t offer any benefit.”

Chinese officials and state media have also pushed back against foreign criticism of Beijing’s zero-Covid reversal, saying Western media are trying to discredit China’s battle against the pandemic. “This type of rhetoric is driven by bias, intended to smear China and politically motivated,” Mr. Wang, the Chinese Foreign Ministry spokesman, said Wednesday.

Japan said that starting Friday it will require travelers from mainland China to test negative for Covid-19 upon arrival, with those who test positive facing quarantine at designated facilities. India, Italy, Israel and South Korea have also imposed testing requirements on travelers from China. The island democracy of Taiwan, which Beijing claims as its territory, has said that from Jan. 1 it will require people traveling from the Chinese mainland to undergo Covid tests on arrival.

Australian Prime Minister Anthony Albanese, who met Chinese leader Xi Jinping in November as part of efforts to thaw chilled ties with Beijing, said his government didn’t currently plan to revise rules related to travelers from China, but would continue monitoring the situation.

“Covid is still around, it’s around here in Australia, but of course, there are new variants around the world as well,” he said in a Thursday interview with local television.

Italy’s decision to test all visitors arriving from China followed reports that around half of the passengers on two flights to Milan had been infected.

“The measure is essential to ensure the surveillance and identification of any variants of the virus in order to protect the Italian population,” Health Minister Orazio Schillaci said. In early 2020, Italy became the first country in Europe to face a serious Covid outbreak, which quickly overwhelmed the health system, brought the country to a standstill and caused tens of thousands of deaths.

WSJ : U.S. Moves to Appease Allies on EV Subsidies

U.S. Moves to Appease Allies on EV Subsidies
Electric vehicles assembled outside North America could qualify for subsidies if purchased for lease

WASHINGTON—The Biden administration on Thursday signaled its willingness to address some of the concerns expressed by European and Asian allies over a new U.S. tax credit program for electric vehicles.

The program requires all vehicles to be assembled in North America to qualify for consumer tax credits, but the Treasury Department released documents paving the way for some vehicles assembled overseas to qualify for incentives through a separate commercial EV scheme if they are purchased for lease by businesses, not for resale.

The documents were released to clarify which vehicles will qualify for the program that provides up to $7,500 per vehicle in tax incentives under the Inflation Reduction Act. According to one document, which the Treasury Department released in question-answer format, the commercial EV program also provides $7,500 in tax credits for cars and SUVs.

The European Union, South Korea, Japan and the U.K. have complained that the local-vehicle assembly and battery-content requirements discriminated against their companies and that they might violate international trade rules. Most EVs from foreign manufacturers don’t qualify for the consumer tax credit as they are assembled overseas.

The number of North American-built vehicles eligible for tax credits will increase significantly after Jan. 1. The new program replaces a previous scheme that provided up to $7,500 for electric or plug-in hybrid vehicles as long as the manufacturer hadn’t sold more than 200,000 vehicles. Under the new program, the cap will be lifted, allowing vehicles from top U.S. EV manufacturers, including Tesla Inc. and General Motors Corp. , to qualify for incentives again.

In addition to the local assembly rule, the new program requires EVs to have at least 40% of their critical minerals for batteries sourced in the U.S. or countries that have free-trade agreements with the U.S., starting in 2023. That threshold is set to rise to 80% by 2026.

At least 50% of the parts and components in the batteries also must be manufactured or assembled in North America by 2024, with that percentage rising gradually to 100% by 2028.

The Treasury Department also suggested it might expand the list of countries eligible for the critical minerals requirement, an issue that has particularly irked allies, such as the EU and Japan, that don’t have traditional free-trade agreements with the U.S.

One of the documents released Thursday pointed out that because the legislation doesn’t define what a free-trade agreement is, the Treasury Department might consider other types of trade agreements to expand the eligibility. The department didn’t provide examples of such agreements, but trade lawyers have suggested that the 2019 bilateral trade agreement with Japan and the World Trade Organization’s government procurement agreement could be candidates.

Following a meeting with French President Emmanuel Macron in early December, President Biden said the U.S. could offer what he called tweaks to the program to make it easier for European countries to participate.

The final decision on the critical minerals requirement won’t be available until the Treasury Department proposes rules on battery contents in March. The department said last week it would delay the issuance of the battery-content rules, while allowing other aspects of the program to go into effect on Jan. 1 as scheduled.

Once the battery rules are issued, many, if not all, North American-built vehicles eligible for the full $7,500 credit on Jan. 1 are expected to see the incentive amount decrease because of high hurdles imposed by the critical minerals requirement.