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TWN
Info Service on WTO and Trade Issues (Jul24/18) Geneva, 17 Jul (D. Ravi Kanth) — China on 16 July requested the establishment of a World Trade Organization dispute panel to adjudicate against “certain subsidy measures” adopted by Washington under the US Inflation Reduction Act (IRA) that are “contingent upon the use of domestic over imported goods or that otherwise discriminate against goods of Chinese origin.” In what appears to be a move to coincide with China’s ninth trade policy review at the WTO on 17 July, an event during which the US inveighed against what it claimed were Chinese subsidy-driven state-owned enterprises, Beijing sought to expose Washington’s allegedly “hypocritical double-standards” on its hundreds of billions of dollars of subsidies for promoting green goods as well as its domestic semiconductor development policies, said people familiar with the development. In its panel request (WT/DS623/3), China stated that it held consultations with the US on 7 May “with a view to reaching a mutually satisfactory solution” on several alleged violations of the WTO agreements by the US over its subsidies to promote domestic green sectors as well as semiconductor industries. “Unfortunately,” China said, “these consultations failed to resolve the dispute.” “Therefore, China submits this request pursuant to Articles 4.7 and 6 of the DSU, Article XXIII:2 of the GATT 1994, Article 8 of the TRIMs Agreement , and Articles 4 and 30 of the SCM Agreement.” China said that the US Inflation Reduction Act, P. L. 117-169, 136 Stat. 1818 (“IRA”), which was signed into law by President Joe Biden on 16 August 2022, “may be the largest single subsidy measure in modern economic history.” According to the Chinese panel request, “Official estimates of the climate-related subsidies provided under the IRA place their value at $393 billion. Other independent studies have estimated that the value of these subsidies exceeds $1 trillion.” Further, China contended that “while the subsidies provided under the IRA are massive and far-reaching in their economic effects, this request for the establishment of a panel 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 challenged the following measures: “(1) the Clean Vehicle Credit; (2) the Investment Tax Credit for Energy Property; (3) the Clean Electricity Investment Tax Credit; (4) the Production Tax Credit for Electricity from Renewables; and (5) the Clean Electricity Production Tax Credit.” Suggesting that the subsidy programs being implemented by the US are titled differently, China said in a footnote that “the names used in this request for the establishment of a panel are taken from Building a Clean Energy Economy: A Guidebook to the Inflation Reduction Act’s Investments in Clean Energy and Climate Action (The White House, January 2023) (version 2), available at http://www.cleanenergy.gov. China said Part A of the panel request addresses “the Clean Vehicle Credit (subsidy (1)), while Part B addresses subsidies (2) through (5) (hereinafter referred to collectively as the “Renewable Energy Tax Credits”).” While noting that it “strongly supports national and international efforts to reduce and mitigate the effects of climate change, including through the use of clean energy subsidies provided in accordance with the WTO Agreement,” China said that “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.” According to China, “subsidies that violate the WTO Agreement, including subsidies that are contingent upon the use of domestic over imported goods or that otherwise discriminate against imported goods, remain prohibited and threaten to undermine international cooperation on reducing and mitigating the effects of climate change.” Consequently, “the subsidies at issue in this request for the establishment of a panel are of this type. They are discriminatory, protectionist, and contrary to WTO rules,” China argued. Worse still, the US subsidy programs “do nothing to advance the shared interest that all Members have in addressing climate change and are to be condemned,” China said. On the Clean Vehicle Credit, China said that “Section 13401 of the IRA establishes the Clean Vehicle Credit for qualifying electric vehicles (“EVs”).” “To qualify for the Clean Vehicle Credit, final assembly of the qualifying vehicle must take place in North America,” China said. It said that “the North American assembly requirement is a condition for obtaining either or both of the two components of the Clean Vehicle Credit: (1) the critical minerals component, worth $3,750 per vehicle; and (2) the battery component, worth an additional $3,750 per vehicle.” In a similar vein, China said that “to qualify for the $3,750 critical minerals component of the Clean Vehicle Credit, a percentage of the value of applicable critical minerals contained in the vehicle battery must (i) be extracted or processed in the United States; (ii) be extracted or processed in a country with which the United States has a free trade agreement; or (iii) have been recycled in North America. Applicable percentages increase from 40 percent prior to 2024 to 80 percent after 2026.” According to China, “the qualifying critical minerals include, inter alia, aluminium, cobalt, lithium, nickel, and graphite.” SUMMARY OF MEASURES AT ISSUE China listed a raft of measures at issue stemming from the IRA: a. The Inflation Reduction Act, P. L. 117-169, 136 Stat. 1818; b. Internal Revenue Service, Section 30D New Clean Vehicle Credit, Proposed Rule, 88 FR 23370 (17 April 2023); c. Internal Revenue Service, Section 30D Excluded Entities, Proposed Rule, 88 FR 84098 (4 December 2023); d. Internal Revenue Service, Clean Vehicle Credits Under Sections 25E and 30D; Transfer of Credits; Critical Minerals and Battery Components; Foreign Entities of Concern, Final Regulations, 89 FR 37706 (6 May 2024); e. Department of Energy, Interpretation of Foreign Entity of Concern, Proposed Rule, 88 FR 84082 (4 December 2023); f. Department of Energy, Interpretation of Foreign Entity of Concern, Final Rule, 89 FR 37079 (6 May 2024); g. Internal Revenue Service, Definition of Energy Property and Rules Applicable to the Energy Credit, 88 FR 82188 (22 November 2023); h. Internal Revenue Service, Section 45Y Clean Energy Production Credit and Section 48E Clean Electricity Investment Credit, Proposed Rule, 89 FR 47792 (3 June 2024); i. Internal Revenue Service, Domestic Content Bonus Credit Guidance under Sections 45, 45Y, 48, and 48E (12 May 2023) (Notice 2023-38); j. Internal Revenue Service, Domestic Content Bonus Credit Amounts under the Inflation Reduction Act of 2022: Expansion of Applicable Projects for Safe Harbor in Notice 2023-38 and New Elective Safe Harbor to Determine Cost Percentages for Adjusted Percentage Rule (16 May 2024) (Notice 2024-41). LEGAL BASIS OF THE COMPLAINT China requested the establishment of a panel over the measures listed above as they are “inconsistent with the United States’ obligations under multiple provisions of the covered agreements.” Beijing said that it considers that the Clean Vehicle Credit is inconsistent with the following provisions of the covered agreements: a. Article I:1 of the GATT 1994, because by conditioning eligibility for the Clean Vehicle Credit on the North American assembly requirement, the critical minerals requirement, and the battery requirement (whether these three requirements are viewed separately or in any combination), and also by restricting eligibility for the Clean Vehicle Credit in the case of vehicles incorporating critical minerals and battery components produced by so-called “foreign entities of concern”, the United States does not accord to products of Chinese origin immediately and unconditionally the same advantages, favours, privileges, or immunities in respect of matters referred to in paragraph III:4 of the GATT 1994 that the United States accords to like products originating in the territory of other countries. b. Article III:4 of the GATT 1994, because by conditioning eligibility for the Clean Vehicle Credit on the North American assembly requirement, the critical minerals requirement, and the battery requirement (whether these three requirements are viewed separately or in any combination), and also by restricting eligibility for the Clean Vehicle Credit in the case of vehicles incorporating critical minerals and battery components produced by so-called “foreign entities of concern”, the United States does not accord to products of Chinese origin treatment no less favourable than the treatment accorded to like products of national origin in respect of laws, regulations, and requirements affecting the internal sale, offering for sale, purchase, transportation, distribution or use of the affected products. c. Article 2.1 of the TRIMs Agreement, because the measures at issue appear to be investment measures related to trade in goods that are inconsistent with Article III:4 of the GATT 1994. d. Article 2.2 of the TRIMs Agreement, because the measures at issue appear to be investment measures related to trade in goods, compliance with which is necessary to obtain an advantage, and which require the purchase or use by an enterprise of products of US origin or from any US source, as provided for in paragraph 1(a) of the Annex to the TRIMs Agreement. e. Articles 3.1(b) and 3.2 of the SCM Agreement, because the Clean Vehicle Credit is a subsidy contingent, whether solely or as one of several other conditions, upon the use of domestic over imported goods. China considers that the Renewable Energy Tax Credits are inconsistent with the following provisions of the covered agreements: a. Article III:4 of the GATT 1994, because by conditioning eligibility for bonus subsidy amounts on the use of US-origin goods, the United States does not accord to products of Chinese origin treatment no less favourable than the treatment accorded to like products of national origin in respect of laws, regulations, and requirements affecting the internal sale, offering for sale, purchase, transportation, distribution or use of the affected products. b. Article 2.1 of the TRIMs Agreement, because the measures at issue appear to be investment measures related to trade in goods that are inconsistent with Article III:4 of the GATT 1994. c. Article 2.2 of the TRIMs Agreement, because the measures at issue appear to be investment measures related to trade in goods, compliance with which is necessary to obtain an advantage, and which require the purchase or use by an enterprise of products of US origin or from any US source, as provided for in paragraph 1(a) of the Annex to the TRIMs Agreement. d. Articles 3.1(b) and 3.2 of the SCM Agreement, because the bonus subsidy amounts available for the Renewable Energy Tax Credits are subsidies contingent, whether solely or as one of several other conditions, upon the use of domestic over imported goods. In addition, and as a consequence of the foregoing, the measures at issue appear to nullify or impair benefits accruing to China, directly or indirectly, under the cited agreements, it said. China asked that its request for the establishment of a panel be placed on the agenda for the next meeting of the Dispute Settlement Body (DSB), which is scheduled for 26 July 2024, and that the DSB establish a panel with standard terms of reference as set out in Article 7.1 of the DSU (Dispute Settlement Understanding). Besides, there are several other measures of the IRA that are inconsistent with the WTO’s covered agreements, China maintained. When the request comes up for consideration at the DSB meeting on 26 July, the US could block China’s panel request. However, if China persists with a second request, as per the provisions of the DSU, the US would not be able to block the establishment of the panel. +
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