[CTC] EU says electric vehicle tax credits could violate WTO rules (demonstrating Need for Climate Peace Clause)

Thu Aug 11 16:12:03 PDT 2022

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https://tradejusticeedfund.org/statement-eu-threatens-trade-challenges-on-climate-ira-provisions-demonstrating-need-for-climate-peace-clause/ <https://tradejusticeedfund.org/statement-eu-threatens-trade-challenges-on-climate-ira-provisions-demonstrating-need-for-climate-peace-clause/>
EU Threatens Trade Challenges on Climate IRA Provisions, Demonstrating Need for Climate Peace Clause

For Immediate Release: Aug. 11, 2022
Contact: Mike Stankiewicz, mike at tradejusticeedfund.org <mailto:mike at tradejusticeedfund.org>, (202) 255-7472

WASHINGTON, D.C. – A new warning issued by the European Union <https://click.actionnetwork.org/ss/c/wehEm_vu1NBVXOKYSqOxTNKUapXL7jKVAQb-z-G5uk6EfZkvxRBKHxV3l6zDH-lwOcbqMVm0J1wxoTP_HIQOMu9OC5llugQKRCVGenIySXHgFZmbEUlB9DXQRvFru49H9oMLze7k9cJRUki4_bB5TmkfcUFODtYz27ytnql7ig_2Denf5xqVkWEnD80q-biAB0eRiH0D9f2Nr6BXU9wojCK83ofdvPkknyYuoCjGt0LrQgAbfxrVbV0nEXKvtKVduOBzbLAorC0Dq0jmEj4rZF4zujVZ29cRqy-swrLn4xFi_A-Yak1871eELC2z6Gwkc5E3OljXCcPODXWtyJKXh6IJ0b-nOhkFXC3eFF579gsb-tnjZxR88WTx2OciWH1mQ2k6h7o4A-UjD-dGTm7FCcuDLJGa37aVkA-mTzODbm0uTxjCRh__Lf5i2oxi8EM8f9JuykpV08jjQHrMwFg-L4elr-WhFlJkfsvOIDw_hpMhLWxgsyLAahC3qLnH2fr9ybN-2IIhmLtCYw0Dp8Ux1A/3oi/0bdUs6mLSNiEZzQ90IXn6g/h0/bB13P4na7LvTH5MBuaxvU-raOjECp5nDa7I0hdA1ezI> (EU) claiming that the U.S. Electric Vehicle tax credit in the Inflation Reduction Act of 2022 appears to violate global trade rules demonstrates the need for a “Climate Peace Clause” to protect green jobs initiatives from trade disputes, environmental and other civil society groups said today.  

A Climate Peace Clause is a commitment from governments to refrain from using dispute settlement mechanisms in international trade and investment agreements to challenge other countries’ climate and green jobs policies.  In response to the EU warning — one of several from countries opposing elements of the EV tax credit that would stimulate new green jobs — civil society organizations released the following statements:
Arthur Stamoulis, executive director of the Trade Justice Education Fund: "The EV tax credit included in the Inflation Reduction Act encourages more of the production of electric vehicles and batteries in the U.S and in neighboring countries. This type of program should be strengthened and expanded in order to create the new green jobs critical to addressing the urgency of the climate crisis.  And yet, at the exact moment we should be promoting more green jobs initiatives in the U.S., we instead have the EU and other countries using threats of trade attacks to try to bully the U.S. into eliminating these types of programs, creating a race to the bottom in trade and climate. It is time for countries to come together and agree to stop using trade rules to challenge common sense climate and green jobs policies needed to build the clean energy economy. The U.S. should work with other countries to commit to a Climate Peace Clause and create a race to the top on trade and climate. I urge the EU to reconsider this counterproductive action."

Hebah Kassem, acting director of A Living Economy at Sierra Club: "As President Biden is likely poised to sign the IRA into law soon – the single largest investment ever in climate action – it is a shame that one of the U.S.'s closest allies is threatening this progress, citing antiquated trade rules written long before governments were taking climate change seriously. It’s clear that the time for a Climate Peace Clause is now – so that all countries can get to the urgent business of taking bold climate action without fear of unnecessary challenges from trade agreements."

Melinda St. Louis, Global Trade Watch director at Public Citizen: "Decades after we first learned about the problem of climate change, the U.S. is now finally taking some of the necessary steps to address it. Meanwhile, there are trade agreements all over the world that stand ready to undermine that progress. Investing in green jobs is a key way that the U.S. and other countries around the world can create the political support needed to transition to a carbon-free economy. It’s time to end this circular firing squad where countries threaten and, if successful, weaken or repeal one another’s climate measures through trade and investment agreements. The EU should withdraw this threat and instead celebrate that the U.S. is finally taking these first critical steps to address the climate crisis, and the U.S. and trading partners should immediately agree to a Climate Peace Clause to protect future climate policies around the world from trade challenges.

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EU: Proposed electric vehicle tax credits could violate WTO rules
Inside US Trade, 8/10/22

Tax credits for electric vehicles built in North America proposed by Democrats in the Inflation Reduction Act would discriminate against foreign manufacturers and “appear to” violate World Trade Organization rules, the European Commission contends.

The Inflation Reduction Act, passed by the Senate last week, includes electric vehicle tax credits the administration sees as central to its goal of reducing emissions.

Among other provisions, the bill features a “clean vehicle credit <https://insidetrade.com/node/174623>” that could total up to $7,500 if content requirements for critical minerals and battery components were met. To be eligible for a $3,750 critical minerals tax credit, an electric vehicle battery would have to be “(i) extracted or processed in any country with which the United States has a free trade agreement in effect, or (ii) recycled in North America, is equal to or greater than the applicable percentage,” it states. The applicable percentage would begin at 40 percent on Jan. 1, 2024, and ramp up 10 percentage points each year until it hits 80 percent on Dec. 31, 2026.

The House is expected to vote on the proposal on Friday; it is expected to pass and to be signed by the president.

However, the European Commission says the EV tax credits might run afoul of WTO rules.

“[W]e are deeply concerned with the domestic content and local assembly requirements in the current proposed text of the electric vehicle tax credit,” a Commission spokesperson told Inside U.S. Trade in an email. “In particular, the current text requires that critical minerals must be extracted or processed in the United States or in a country with which the United States has a free trade agreement in effect, or recycled in North America. It further requires that a certain value percentage (increasing over time, up to 100% in 2028) of the battery components must be manufactured or assembled in North America and that final assembly of the car occurs in North America.”

As described in the bill, the tax credit “is therefore clearly discriminatory, favouring certain mineral resource-rich countries, North American battery production and car assembly, to the detriment of EU products exported to the U.S.,” the spokesperson added. “These provisions appear to violate WTO rules and also risk to undermine our shared EU-U.S. climate ambitions.”

The U.S. Senate passed the Inflation Reduction Act on Aug. 7 after Sen. Joe Manchin (D-WV) and Senate Majority Leader Chuck Schumer (D-NY) reached a deal on a package smaller than the Build Back Better proposal advanced last year by the administration. That package, which Manchin opposed, would have limited EV tax credits largely to U.S.-made vehicles; it also would have benefited vehicles made with union labor. Canada and Mexico opposed that proposal as inconsistent with the U.S.-Mexico-Canada Agreement; the EU also opposed it.

Although the Commission said it agrees that tax credits help to drive the demand for electric vehicles and promote sustainability, the spokesperson said “This is why such tax credits should be fair and should not discriminate between foreign and domestic car manufacturers.”

The Commission added that “Subsidy schemes for electrical vehicles in the EU are available for domestic and foreign producers alike. This not only respects international trade rules but also is the best way to achieve the intended reduction of emissions to the benefit of the world’s climate.”

“The EU therefore continues to urge the United States to remove these discriminatory elements from the bill, and to ensure its full compliance with WTO rules,” the statement adds.

Arthur Stamoulis
Citizens Trade Campaign
(202) 494-8826

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