The European Union (EU) has sent its first formal response against the U.S. Inflation Reduction Act (IRA) due to the billions of dollars worth of tax credits and subsidies set aside for local manufacturers.
The IRA provides $369 billion in funds to climate and green energy policies, including tax credits to electric cars made in North America as well as support the development of domestic battery supply chains. It also offers tax credits for producing electricity from renewable sources, generating hydrogen, ensuring sustainable aviation, and boosting advanced manufacturing production.
The EU has listed nine tax credit provisions in the IRA as problematic, some of which it claims clearly violate World Trade Organization (WTO) rules owing to their discriminatory nature. These provisions restrict tax credits and subsidies solely to products made in the United States or companies operating in the country.
The European Commission wants Washington to give EU companies the same advantage as that of other trading partners.
The commission claimed that the IRA would give American firms an advantage that would enable them to outcompete other foreign companies while threatening economic growth and jobs in Europe.
WTO Position, Other Trade Partners
In a recent interview with Bloomberg, WTO Director-General Ngozi Okonjo-Iweala said that the United States and its trading partners should try to resolve their disagreements regarding the subsidies without pushing the situation into a trade conflict.“We don’t want a subsidy war … We don’t want it to degenerate to the lowest common denominator where countries can’t compete because they don’t have the money to give these subsidies,” she said.
Though Okonjo-Iweala specifically did not state whether U.S. subsidies violated WTO regulations, she insisted that subsidy programs must not favor domestic goods and services against others.
South Korea, a key trading and defense partner of the United States, is also reportedly unhappy with the Biden administration’s decision to restrict subsidies for electric vehicles and batteries to those manufactured in America.
Major South Korean car manufacturers such as Kia and Hyundai do not have any operational electric vehicle plants in the United States.
Meanwhile, Canada has recently indicated that it plans to set up tax credits for green investments in a bid to discourage companies from getting lured into the United States.
