EU is assessing if US Inflation Act in breach of WTO rules

The European Union is checking whether protectionist elements of a $437 billion health, climate and tax law recently passed by the US are in violation of World Trade Organization rules, according to Trade Commissioner Valdis Dombrovskis.

“We have concerns about a number of discriminatory elements in this Inflation Reduction Act which puts requirement for local content, for local production,” Dombrovskis, who also is a European Commission vice president, told Bloomberg in Prague. “So we are assessing if it’s in line with WTO requirements and with government procurement agreement.” 

US President Joe Biden’s new laws aim to increase domestic production of electric cars and reduce reliance on China for battery components and materials. It includes tax credits for electric vehicles made in North America but the EU’s concerns go beyond this sector.

“Currently we are doing this assessment and based on that we will check what our options are to best react to this situation,” Dombrovskis said. Let’s “not jump into conclusions before we do the assessment but we are assessing the options.”

South Korea has already said it views the US rules that favor American-made EVs and batteries as a “betrayal” and that it will “actively” consider filing a complaint with the WTO.

Issues over the US Inflation Reduction Act have cast a pall over the talks leading up to the next Trade and Technology Council, a forum for the two sides to discuss trade and technology topics including semiconductors and tariffs. European and US officials plan to meet before the end of the year and announce results at the third meeting.

But the issues, especially on trade, are making it difficult to agree to a list of priorities the two sides want to focus on at the next in-person meeting. There will be no ministerial if the two sides cannot agree to concrete deliverables, a person familiar with the matter said, although officials are confident the two will.