China Accuses US of Discrimination in New Energy Vehicle Subsidy Policies: Uncertainty in WTO Dispute Settlement

China set to oppose Biden administration’s electric vehicle strategies at the World Trade Organization

The Chinese Commerce Ministry has filed a complaint against the U.S. with the World Trade Organization, accusing it of formulating discriminatory subsidy policies for new energy vehicles under President Joe Biden’s climate legislation, known as the 2022 Inflation Reduction Act. The U.S.’s new rule, which took effect on January 1, excludes electric car buyers from tax credits of $3,750 to $7,500 if critical minerals or battery components were made by Chinese, Russian, North Korean, or Iranian companies.

The Chinese government did not specify what prompted the complaint but criticized the U.S. for its discriminatory subsidy practices. The statement mentioned that these policies distorted fair competition and disrupted the global supply chain for new energy vehicles. Members of the WTO can file complaints about trade practices of other members and seek relief through a dispute settlement process.

The impact of the case is uncertain as the functioning of the WTO’s Appellate Body has been blocked since late 2019 by the U.S.-China tensions. China is a dominant player in batteries for electric vehicles and has a rapidly expanding auto industry with strengths in electric vehicles and battery technology. The European Union has also launched its investigation into Chinese subsidies for electric vehicles, concerned about potential threats to its auto industry.

Under the new rule, only 13 out of over 50 electric vehicles on sale in the U.S are eligible for tax credits, a decrease from about two dozen models in 2023. Automakers are working to source parts that would make their models eligible for the credits to remain competitive in the market

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