Editor's note: Alexandr Svetlicinii, a special commentator on current affairs for CGTN, is an associate professor of Global Legal Studies at the University of Macau, where he also serves as program coordinator for Master of Law in International Business Law. The article reflects the author's opinions, and not necessarily the views of CGTN.

On January 30, the World Trade Organization (WTO) circulated a panel report on China's complaint against U.S. green energy subsidies, which asks for their withdrawal.

In this case, initiated in 2024, China challenged the compatibility of U.S. large tax credits accorded under Joe Biden administration's landmark climate law, the Inflation Reduction Act of 2022 (IRA), saying granting these subsidies was contingent upon the use of domestic products, which effectively discriminated against goods imported from China and other WTO members.  

The panel's report supports China's arguments and confirms the incompatibility of U.S. measures with WTO trade rules.

The IRA covers a number of areas including climate change, energy transition, industrial policy, healthcare and tax reform. Notably, the climate change objectives and green energy transition under the IRA are pursued through an industrial policy that incentivizes domestic manufacturing and supply chain relocation.  

The IRA contains a number of discriminatory provisions featuring domestic-content requirements for clean vehicles and renewable energy tax credits. Their inclusion in the IRA was not accidental. It reflects the drafters' strategic policy choices combining climate, industrial, geopolitical and labor market objectives.  

To attract investment and localize supply chains within the U.S., the IRA aims at promoting the "buy American" policy, "protecting" American workers, and strengthening U.S. economic security. But instead of using tariffs that are frequently employed by the current Trump administration, Biden's administration opted for tax credits conditioned on domestic production and investments, which led to a contradiction with WTO rules.

EU leaders have also expressed their dissatisfaction with the IRA as it discriminates against European companies as well. A report prepared by the European Parliament labeled the IRA "a frontal attack on the WTO's international trade order" and "a continuation of President Trump's hard-nosed 'America First' approach."  

The European Parliament adopted a resolution criticizing the IRA for its discriminatory provisions that "undermine the level playing field." Some EU politicians also called for the European Commission to initiate a trade dispute against the U.S. in the WTO, but economists and policy makers cautioned against it, concerned about further deterioration of EU-U.S. economic relations and a possible subsidy race.

Subsequently, China activated the WTO dispute settlement mechanism and challenged the compatibility of the IRA subsidies with WTO rules. Why China, among all WTO members?  

First, the IRA directly discriminates against Chinese products. Second, the U.S. industrial policy threatens China's strong position in global clean technology supply chains. Third, China views the U.S. approach to green industrial policy as a form of hidden protectionism. Finally, China consistently turns to the WTO dispute settlement, thereby expressing its support for multilateral trade governance at a time when it is increasingly challenged by other global actors.

The WTO panel concludes that the renewable energy tax credits under the IRA are inconsistent with WTO rules because the granting of subsidies was conditional on the use of U.S.-origin goods. As a result, the U.S. failed to accord Chinese goods treatment no less favorable than that given to domestically produced goods.  

Also, the panel says the U.S. failed to demonstrate that the subsidies for renewable energy were measures necessary for the protection of public morals and therefore cannot benefit from the permitted exceptions under WTO rules.

However, the Office of the U.S. Trade Representative has promptly dismissed the WTO panel's report, stating, "This report only underscores the serious doubts that the United States has long expressed regarding the capacity of the WTO to regulate trade." On the other hand, China's Ministry of Commerce characterized the WTO ruling as "objective and fair," validating China's arguments that discriminatory subsidies undermine fair trade and market access.  

This ruling indicates that U.S. trade protectionism goes against the trend of the times and is doomed to fail. China will continue to promote high-quality development of the clean energy industry and safeguard the multilateral trade order.

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