Top U.S. trade partners, incensed by newly reformed electric vehicle tax credits that favor North American products, are putting pressure on Washington to change course on a policy they contend may violate international trade laws.
Officials in Europe and Asia representing sizable auto manufacturing industries have been speaking out strongly against the subsidy, which Democrats beefed up in August with their signature green energy and healthcare spending bill, the Inflation Reduction Act. Some are also floating taking the matter to the World Trade Organization and introducing counter-subsidies as they lobby the Biden administration not to implement something that disadvantages products from their countries.
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Under the new law, the amended tax credit can now only be applied to vehicles with final assembly in North America, a condition designed to favor domestic and continental manufacturers and bring production back to the U.S.
By doing that, the credit removes eligibility for common makes from foreign automakers like Hyundai, Toyota, and Mercedes, where the previous subsidy could have been available for those purchases. Critics say that violates WTO rules governing trade practices, which the international body says are “dedicated to open, fair and, undistorted competition.”
The European Union, which has been looking into whether the updated EV credit transgresses WTO rules, intends to raise the issue at a December meeting of the joint U.S.-EU Trade and Technology Council, the Financial Times reported Sunday.
President Joe Biden and EU leaders launched the council in June 2021, agreeing to “embrace a green transition” and endorsing “an open global market based on fair competition.”
The EV subsidy as it stands now is “discriminatory” toward European automakers, said Margrethe Vestager, the EU’s commissioner for competition.
“As a matter of principle, you should not put this up against friends,” Vestager said. “You have what we see as an unbalanced subsidy.”
Involving the WTO is not the preferred option, Vestager said, while French Minister of Finance Bruno Le Maire has suggested new subsidies for European manufacturers could be in order.
“We need to play with the same rules if we want to defend our industries, our jobs, and our technology,” Le Maire said.
Officials in Japan, home to Nissan and Toyota, and South Korea, where Kia and Hyundai are headquartered, have also criticized the EV rules on the same grounds.
The Nissan Leaf is the only electric model from an Asian manufacturer that currently meets assembly requirements under the EV credit eligibility rules, according to a list curated and released by the Treasury Department in August.
“Friendly nations are working together to strengthen supply chains as we speak,” Yasutoshi Nishimura, Japan’s trade minister, said recently. The EV subsidy “goes against that broad strategy.”
Biden administration officials have said they are engaging with other governments about their concerns over the credits, and Biden himself has assured South Korea that his administration will keep up talks about the problem, according to South Korean officials.
“We are meeting with a lot of different parties because we need to draft the regulations — these are tax credits — that specify exactly what companies have to do to qualify for them,” Treasury Secretary Janet Yellen told the Financial Times.
The Washington Examiner reached out to the Treasury for further comment.
Democrats want to enable dramatic growth in the EV sector to serve climate change mitigation goals. Biden set an EV adoption target envisioning electric models being half of all new sales beginning in 2030.
At the same time, Biden’s “made in America” economic agenda seeks more domestic manufacturing to support U.S. jobs and to blunt Chinese dominance across sectors, including the EV supply chain.
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Sen. Joe Manchin (D-WV), who negotiated the EV provisions to exclude an earlier proposed union-labor-only requirement for the tax credit, had publicly criticized the prospect of further subsidizing EVs for months while negotiations over the Democratic bill were shaking out. He pledged in April that he would not “sign up [to transform] our energy and transportation system around EVs that have to be dependent on foreign supply chains.”
The final legislative product addressed his concerns beyond the final assembly requirement. The law now includes provisions designed to facilitate more domestic production of EV battery inputs by restricting eligibility for the credit to vehicles whose battery products meet strict requirements for the sourcing and processing of mineral inputs.
