Electric Vehicle Tax Credits in IRA Deals 'Body-Blow' to WTO, Lawyer Says

Tax credits for electric vehicles made in North America -- an element of the U.S. Inflation Reduction Act -- deals a "body-blow" to the World Trade Organization beyond anything doled out under the previous administration, John Magnus, president of Tradewins, said in a post on the International Economic Law and Policy Blog. The tax credit "clearly signals" that the government does not weigh WTO-consistency when making policy decisions, and anyone concerned about the legitimacy of the world's largest multilateral trade organization should be concerned since the U.S. widened the prospect of flouting the WTO's rules, the blog post said.

Even before the IRA was passed, the tax credit was criticized for its disregard of WTO rules. The European Commission said that since the cars and trucks eligible for the tax credit must be made in North America, the measure violates the WTO's non-discrimination principle (see 2208110052). Magnus said that the move violates Article III of the General Agreement on Tariffs and Trade (GATT) on national treatment and Article I of the GATT on the most favored nation principle.

Magnus said the legislation is so concerning since it openly disregards the U.S.'s WTO commitments and shows how both Congress and the American executive consciously did not even stop to consider whether the credit was WTO consistent. "If Congress even momentarily considered WTO-consistent EV incentives, it left no record of that consideration," the post said. "The same is true of the administration. The result was a knowing, explicit, legislated breach of the WTO’s most central non-discrimination obligations."

The tax credit was objectively worse for the health of the WTO than anything pulled under the last cycle of the U.S. government, the post said. Magnus then dove into the three most controversial trade moves made by the prior administration -- Section 232 national security tariffs, Section 301 tariffs and refusing to seat Appellate Body members -- to make his case. "Nothing we might do (or might have done) administratively in regard to AB appointments, or in regard to a particular bilateral trade relationship, or in regard to 'national security'-based trade restrictions in a couple of sectors, could be as systemically impactful [as the tax credits]," the post said.