EU Accuses US Of Breaking WTO Rules With Green Energy Incentives

US flagship green technology legislation violates global trade agreements, risks a global ‘race to the bottom’ on clean energy incentives and could lead to retaliation, Brussels claimed.

In its first formal response to the Inflation Reduction Act, EU documents seen by the Financial Times say the $369 billion package of subsidies and tax credits to US producers and consumers violates World Trade Organization treaties that state that countries like the US are not allowed to discriminate imported goods from products.

Officials in Brussels also believe the package, which was passed in August, could lead to retaliation from the EU and other US allies.

The European Commission’s comments to the US Treasury argue that five measures offering tax credits and subsidies “contain provisions with clearly discriminatory domestic content requirements, in violation of WTO rules”.

“If implemented in its current form, the law not only risks inflicting economic damage to both the US and its closest trading partners, resulting in inefficiencies and market distortions, but could also lead to a damaging global subsidy race to the bottom on key technologies and inputs. for the green transition,” the document reads, which will be published Monday on the website of the US Treasury Department. “In addition, it threatens to create tensions that could lead to reciprocal or retaliatory measures.”

The response highlights concerns in European capitals that the law will hinder investment in green technologies across the EU and increase the risk of a transatlantic trade war at a time of geopolitical uncertainty.

A subsidy race has already started, with Canada last week saying it would introduce tax credits for green investments to prevent companies from being lured to the US. Japan and South Korea have also publicly complained about the IRA.

The EU wants changes to nine of the legislation’s provisions that limit subsidies and tax credits to products made in the US, or companies operating there. The incentives affect production and investments in products such as solar panels, wind turbines and clean hydrogen.

Consumer tax breaks, which provide a $7,500 subsidy for the purchase of electric vehicles, are treated slightly differently, with Canadian and Mexican products also eligible.

The commission said the US should “treat EU companies the same as other US trading partners”.

While the EU welcomed the Biden administration’s commitment to fight climate change, it said “the green transition is not something to be achieved at the expense of others”. American companies would gain an advantage that would allow them to outperform others, putting the fight against climate change “in a zero-sum game.”

It also warned that retaliation “threatens the multilateral trading system at a time when its value is more important than ever to both US and European companies”.

While some EU member states, such as France, are already asking for retaliation, EU Trade Commissioner Valdis Dombrovskis has so far favored negotiations.

A task force of senior US and Commission officials met for the first time last week. The EU response said it “hopes to find constructive and amicable solutions”.

“The task force is a clear high-level commitment from the US to address the serious concerns raised by the EU regarding the law,” it added.

The US Treasury Department is responsible for implementing the IRA, but has not yet specified how much can be changed without asking Congress to rewrite sections. Analysts believe Congress likely won’t, as the bill was a delicate compromise that was only passed through the Senate thanks to the casting vote of Vice President Kamala Harris.

US Trade Representative Katherine Tai defended the subsidies in an interview with the FT last week, but said she was hopeful that the disagreements with the EU could be resolved.

Source: The New York Daily Paper