China Disturbed by the IRA, Says It Violates WTO Rules

Chinese Ministry of Commerce said it suspects that the U.S. Inflation Reduction Act (IRA) is in violation with the WTO rules, and added that it will adopt measures to safeguard its rights when necessary. The ministry also said China will follow and evaluate the implementation of the U.S. law. The IRA, signed by Biden into law last month, eliminates federal tax credits for electric vehicles (EVs) made outside North America.

The $437 billion legislation included funding for consumer tax credits to offset the costs of EVs. But to qualify for the tax credits, automakers must assemble vehicles in North America and source a significant percentage of major battery components, including metals like lithium, nickel and cobalt, from the U.S. or countries that have free trade agreements with the U.S.

The new tax credit rules means that 70% of EV models sold in the U.S. would not be eligible for subsidies. Some industry analysts also believe that one of the targets of the legislation is China, the world’s largest manufacturer of neighborhood electric vehicles (NEVs).

China is also the world’s largest producer of major battery components, with leading Chinese battery makers including CATL and BYD jointly accounting for about half of global market share.

Previously the EU and South Korea also voiced concerns regarding the new tax credit rules included in the IRA. The European Commission said it is assessing a number of discriminatory elements in the IRA for local content and local production requirements to see if it’s in line with WTO requirements and with government procurement agreements.

South Korea also said it will consider filing a complaint at the WTO, citing possibilities that the new law could violate WTO rules and a bilateral free trade deal. Some South Korean officials have also been disappointed by what they call “betrayal” by Washington after South Korean automakers announced plans to establish new manufacturing sites in the U.S. or expand existing ones.

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