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China Initiates WTO Process Against U.S. over Alleged Subsidies to Electric Vehicles

Washington, D.C. (March 27, 2024) - On March 26, the People’s Republic of China (“China”), through its Ministry of Commerce, issued a statement that it had notified the World Trade Organization (the “WTO”) of its intent to invoke the organization’s dispute settlement procedures regarding the impact of the United States’ Inflation Reduction Act’s (the “IRA”) tax incentives for new electric vehicles and other green energy-related provisions.

The Ministry of Commerce’s press release did not detail the specific measures at issue, and it is likely that we will not learn of those details for another few days given the typical lag time of the WTO to post Requests for Consultation. Otherwise, the discussions of the parties to the Request for Consultation are governed by Article 4 of the WTO’s Understanding on Rules and Procedures Governing the Settlement of Disputes. Article 4.3 provides that a complaining party must first notify the WTO’s Dispute Settlement Body and request consultations with the party named in the complaint, which consultations, under Article 4.7, are agreed to last up-to 60-days, and further are to proceed confidentially under Article 4.6.

In any event, we know that the IRA significantly limits the availability of IRA tax credits for new electric vehicles under IRC § 30D(d)(7) to exclude vehicles that contain battery components from a Foreign Entity of Concern (“FEOC”), like China. This provision is meant to bolster the security of the US battery supply chain. It is widely speculated that this is the US law that China has taken issue with.

China has previously taken issue with US laws related to the production of green energy. In 2011 China’s Ministry of Commerce announced an investigation into US subsidies in the renewable energy sector, which it perceived as US restrictions against the export of Chinese renewable energy products to the US. While the parties’ WTO commitments were referenced, this investigation did not result in a formal WTO dispute resolution process. China has, however, in recent years initiated analogous WTO disputes regarding “Certain Measures Related to Renewable Energy, (2018),” (“Renewable Energy Measures”) “Safeguard Measure on Imports of Crystalline Silicon Photovoltaic Products, (2018)” (“Safeguard Measures”) and “Measures on Certain Semiconductor and other Products, and Related Services and Technologies, (2022),” (“Semiconductor Measures”).

The 2018 Renewable Energy Measures dispute and the 2022 Semiconductor Measures dispute remain in the Consultation phase, but the 2018 Safeguard Measure dispute was taken through the initial dispute resolution process and the Panel returned its decision on September 2, 2021. In that decision the Panel rejected all of China’s claims arising from the United States International Trade Commission’s determination that led to the imposition of safeguards to protect against actual or threatened serious injury to the US domestic crystalline silicon photovoltaic products industry, and found that the safeguards did not violate the Agreement on Safeguards. On September 16, 2021, China appealed this decision to the Dispute Resolution Body’s Appellate Body but the US has blocked the appointment of new judges to the WTO’s Appellate Body since 2019, and as a result this dispute remains unresolved.

This dispute and its Request for Consultation is the first in a potentially years-long dispute resolution process. Lewis Brisbois’ experienced attorneys are helping clients navigate developing, international trade business risks. For more information on these developments, contact the authors of this alert.

Authors:

Jane C. Luxton, Managing Partner - Washington, D.C. and Chair of Sustainability and Environmental, Social, and Governance (ESG) Practice

Malcolm Savage, Associate and Member of Sustainability and Environmental, Social, and Governance (ESG) Practice

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