China Challenges Inflation Reduction Act's EV Tax Credit at WTO

China opened a case at the World Trade Organization against the U.S. Inflation Reduction Act's rules for electric vehicle subsidies and "other measures," the nation's Ministry of Commerce announced March 26, according to an unofficial translation.

The ministry said the IRA's prerequisite for electric vehicle subsidies, requiring certain inputs be sourced from the U.S., seriously disrupts the EV supply chain and violates WTO rules "such as national treatment and most-favored nation treatment."

The IRA, passed in 2022, included a controversial tax credit for EVs made in North America and drew international concern from its inception (see 2208110052). After the tax credit was proposed, the EU suggested the measure violates the WTO's nondiscrimination principle, while other global trade attorneys said it violates General Agreement on Tariffs and Trade Article III on national treatment and Article I on the most favored nation principle (see 2209300065).

U.S. Trade Representative Katherine Tai defended the IRA in a statement, declaring it a "groundbreaking tool for the United States to seriously address the global climate crisis," while noting that the Chinese government "continues to use unfair, non-market policies and practices to undermine fair competition and pursue the dominance of the PRC’s manufacturers both in the PRC and in global markets." She added that the U.S. is "carefully reviewing the consultation request" and that it will "continue to work with allies and partners to address the PRC’s unfair, non-market policies and practices."

China said it "firmly opposes" the tax credit and that it's seeking to defend the "rules-based multilateral trading system."

Others used China's announcement as a chance to defend the IRA, with Arthur Stamoulis, executive director of the Trade Justice Education Fund, arguing in an emailed statement that climate action "must take priority over compliance with outdated trade rules that were inked long before governments worldwide began taking the climate crisis seriously." Stamoulis dubbed the WTO suit "another example of why the U.S. and other nations should begin working with one another towards an immediate moratorium on the use of trade challenges against clean energy transition and other climate measures."

The current trade rules "need to be rewritten so that trade pacts can become tools for helping the world advance towards a clean, just and sustainable economy," he said. Stamoulis plugged his concept of a "Climate Peace Clause," which would end the use of trade agreements to challenge climate measures.