China Files Complaint Against US Over Discriminatory Electric Vehicle Subsidy Policies: Uncertainty Looms as WTO Appellate Body Remains Blocked

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

The Chinese government has filed a complaint against the United States with the World Trade Organization, accusing it of implementing discriminatory requirements for electric vehicle subsidies. As of January 1st, 2023, electric car buyers in the US are no longer eligible for tax credits of $3,750 to $7,500 if critical minerals or battery components were made by Chinese, Russian, North Korean or Iranian companies. These tax credits are part of President Joe Biden’s climate legislation known as the 2022 Inflation Reduction Act.

The Chinese Commerce Ministry did not specify what prompted the complaint but criticized the US for formulating discriminatory subsidy policies for new energy vehicles under the act. According to the statement, these policies excluded Chinese products and distorted fair competition in 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 this case is uncertain as the functioning of the WTO’s Appellate Body has been blocked since late 2019 by the US. 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 own investigation into Chinese subsidies for electric vehicles, concerned about potential threats to its auto industry.

As a result of the new US rule, only 13 out of over 50 electric vehicles on sale in the US are eligible for tax credits, down from about two dozen models in 2023. Automakers are working to source parts that would make their models eligible for these credits.

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