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TWN
Info Service on WTO and Trade Issues (Feb26/04) Geneva, 3 Feb (D. Ravi Kanth) — After losing a trade dispute comprehensively to China at the World Trade Organization on 30 January concerning the Biden administration’s renewable energy tax credits, the United States Trade Representative (USTR) slammed the panel ruling. The USTR argued that the ruling reinforces what the Trump administration has said for years: that existing WTO rules are inadequate to address “massive and harmful excess capacity in numerous sectors, including in energy technology.” The panel ruling concerns the Biden administration’s provision of hundreds of billions of dollars in climate- related subsidies, estimated at around $393 billion – one of the largest single subsidy measures in US history – and whether the subsidies are consistent with global trade rules. The trade dispute was launched by China at the WTO in March 2024, challenging certain subsidies provided by the Biden administration as part of its Inflation Reduction Act (IRA) of 2022. China argued that the subsidies accorded primacy to the “use of domestic over imported goods or that otherwise discriminate against goods of Chinese origin.” The subsidies include: (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. China said 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,” adding that “non-prohibited, non-discriminatory subsidies have a role to play in this transition.” Beijing said that “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.” A panel was established in December 2024 and it issued its final report to China and the US this month, ruling in favour of China in that the US subsidies violate several WTO provisions. Following its comprehensive analysis, the three-member panel – comprising Ms. Athaliah Lesiba Molokomme, former chair of the WTO’s General Council from Botswana; Ms. Elaine Feldman, a former Canadian official; and Ms. Amina Mohamed, also a former chair of the WTO’s General Council from Kenya – ruled that the domestic content requirements in the tax credits offered to American renewable energy companies, especially “the Domestic Content Bonus Credits, are inconsistent with Article III:4 of the GATT 1994 because by making eligibility for bonus subsidy amounts conditional on the use of US-origin goods.” The panel ruled that such a credit “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.” Further, the IRA credits such as “Domestic Content Bonus Credits” are inconsistent with Article 2.1 of the TRIMs Agreement because the conditions are investment measures related to trade in goods that are inconsistent with Article III:4 of the GATT 1994. Besides, the domestic content bonus credits, according to the panel, “are inconsistent with Articles 3.1(b) and 3.2 of the SCM Agreement because they are subsidies granted or maintained by the United States contingent, whether solely or as one of several other conditions, upon the use of domestic over imported goods.” The US also failed to demonstrate that the domestic content bonus credits are “measures necessary for the protection of public morals under the general exception in Article XX(a) of the GATT 1994” or qualify under security exceptions. Prima facie, the panel pronounced that “under Article 3.8 of the DSU [Dispute Settlement Understanding], in cases where there is an infringement of the obligations assumed under a covered agreement, the action is considered to constitute a case of nullification or impairment.” Further, the panel recommended that “pursuant to Article 19.1 of the DSU, that the United States bring the ITC/PTC Domestic Content Bonus Credits into conformity with Article III:4 of the GATT 1994, and Article 2.1 of the TRIMs Agreement.” The panel requested the US to withdraw “the ITC/PTC Domestic Content Bonus Credits by 1 October 2026 at the latest.” US RESPONSE In response, the USTR said: “Incredibly, the WTO report finds that the United States has broken WTO rules by defending industries that China unfairly targeted for global dominance, but does not say a word about the harms caused by China’s industrial policies and massive excess capacity. It is also absurd that the WTO panel questioned whether the United States has deep and abiding concerns with ensuring that the conditions of competition within the US market are fair.” The USTR added: “As our words and our actions have shown, the United States has long-standing and serious concerns with excess capacity and its impact on market-oriented economies.” The USTR further said: “This report only underscores the serious doubts that the United States has long expressed regarding the capacity of the WTO to regulate trade in a world marked by severe and sustained trade imbalances.” The USTR conveyed unmistakably that Washington remains “committed to defending our companies, securing supply chains, and rebalancing trade. We will always take necessary measures to support US jobs and pursue economic and national security.” That the USTR is committed to carrying forward the MAGA (Make America Great Again) trade policy by crippling the WTO’s dispute settlement system appears to be vindicated, to the extent that the US expects either that the WTO bends all its rules to let the US do what it wants, or it will reject the multilateral trade body, said a former Appellate Body official. Although the Trump administration previously appeared to reject such renewable energy subsidies in favour of policies based on the notion of “drill baby, drill,” it seems to have taken a different stance after losing the trade dispute. It would be puzzling and intriguing to see whether the Trump administration appeals the panel ruling to the dysfunctional Appellate Body to keep it frozen for years to come, or intensifies its opposition to the WTO’s rulings, said people familiar with the development. Meanwhile, a spokesperson for China’s commerce ministry said that “the panel found that the US clean energy subsidy measures at issue are inconsistent with WTO rules, rejected the United States’ defense that the measures were adopted to protect US “public morals”, and recommended that the United States bring the measures at issue into conformity with its WTO obligations, including by withdrawing the inconsistent measures.” China commended “the objective and fair ruling of the panel. China has always been a staunch guardian of WTO rules and a firm defender of the international economic and trade order.” Beijing said it hopes that “the United States [will] respect the panel ruling, abide by WTO rules, and take prompt actions to correct its wrong practices, so as to safeguard the international economic and trade order and promote the stable and orderly development of international trade.”+
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