China Takes on US in WTO Over IRA Subsidies for Clean Energy and EVs

China contends the IRA tax credits for renewable energy and EVs violate WTO regulations


China has formally petitioned the World Trade Organization (WTO) for dispute consultations with the U.S. regarding certain tax credits under the country’s Inflation Reduction Act (IRA) to promote the production of electric vehicles (EV) and renewable energy projects.

The request was circulated to WTO members last week, and China has contended that U.S. tax credits are contingent on the use of domestic over imported goods or discrimination against goods of Chinese origin. This, it has argued, violates the provisions under the General Agreement on Tariffs and Trade 1994, the Agreement on Trade-Related Investment Measures, and the Agreement on Subsidies and Countervailing Measures.

Widely recognized as a game-changer for U.S. energy transition efforts, the IRA was signed into law in August 2022. It proposes $369.75 billion in energy security and climate change programs over ten years.

According to China, independent studies have estimated that the value of subsidies for clean energy and e-mobility programs under IRA exceeds $1 trillion.

“While the subsidies provided under the IRA are massive and far-reaching in their economic effects, this request for consultations concerns only certain subsidies provided under the IRA that are contingent, in one way or another, upon the use of domestic over imported goods or that otherwise discriminate against goods of Chinese origin,” China has said.

China has named Clean Vehicle Credit, Investment Tax Credit for Energy Property, Clean Electricity Investment Tax Credit, Production Tax Credit for Electricity from Renewables, and Clean Electricity Production Tax Credit as discriminatory products originating in that country.

“International trade in clean energy products, including the inputs to those products, can accelerate and reduce the costs of the clean energy transition when undertaken in accordance with the WTO Agreement. Non-prohibited, non-discriminatory subsidies have a role to play in this transition,” China said in its petition.

However, China contended that the subsidies under IRA are “discriminatory, protectionist, and contrary to WTO rules.”

“They do nothing to advance the shared interest that all members have in addressing climate change and are to be condemned,” the request for consultations said.

Last December, the U.S. Department of Treasury and the Internal Revenue Service proposed regulations and provided guidance to the advanced manufacturing production credit established by the IRA. The new Section 45X provides a credit for the domestic production and sale of solar and wind energy components, inverters, qualifying battery components, and applicable critical minerals.