The World Trade Organization (WTO) last week ruled that incentives included in the Inflation Reduction Act (IRA) violate multiple global agreements because they offer additional tax breaks to domestic suppliers. The recommendation of the international economic group is for the United States to remove the domestic-content bonus offered to the investment tax credit and production tax credit.
In March 2024, China requested face-time with the United States to discuss IRA subsidies that discriminate against Chinese-origin goods. Chinese representatives said that the bonus incentives attached to the ITC and PTC for using American-made components violated the General Agreement on Tariffs and Trade 1994, the Agreement on Trade-Related Investment Measures and the Agreement on Subsidies and Countervailing Measures.
A dispute settlement body (DSB) was established at the WTO, which included representatives from Canada, Japan, Korea, Malaysia and Vietnam. The group ultimately decided that the domestic-content bonus credits did violate the three global trade agreements and “impaired benefits accruing to China under those agreements.”
The DSB has recommended — but did not require — that the United States withdraw the ITC/PTC domestic-content bonus credits by Oct. 1, 2026. It concluded that the United States did not demonstrate that the domestic-content bonus credits were necessary for the protection of public morals.
The Office of the United States Trade Representative issued a statement following the WTO panel report:
“Incredibly, the WTO report finds that the United States has broken WTO rules by defending industries that China unfairly targeted for global dominance, but does not say a word about the harms caused by China’s industrial policies and massive excess capacity. It is also absurd that the WTO panel questioned whether the United States has deep and abiding concerns with ensuring that the conditions of competition within the U.S. market are fair.
“As our words and our actions have shown, the United States has long-standing and serious concerns with excess capacity and its impact on market-oriented economies. This report only underscores the serious doubts that the United States has long expressed regarding the capacity of the WTO to regulate trade in a world marked by severe and sustained trade imbalances.
“The United States remains committed to defending our companies, securing supply chains and rebalancing trade. We will always take necessary measures to support U.S. jobs and pursue economic and national security.”
