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China tells WTO that US EV subsidies are unfair trade barriers

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trade war continues —

China says it’s unfair that only EVs made in North America qualify for tax credits.

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China money RMB and USA USD

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The ongoing dispute between the United States and China over electric vehicles shows no sign of abating. Today, Reuters reports that China has asked the World Trade Organization to set up a special panel to determine if US EV subsidies are an unfair trade barrier.

The Inflation Reduction Act of 2022 has been the most significant climate legislation in US history, with hundreds of billions of dollars of funding for the clean energy transition. Among its many details, it revamped the federal tax credit for buying a new electric vehicle.

In the past, a credit of up to $7,500 was tied to a plug-in vehicle’s battery capacity. But it’s now tied to where the car and its batteries were assembled, as well as where the battery minerals come from. Final assembly of the vehicle must be in North America, for example, and ever-increasing amounts of the battery pack’s content and value must come from North America or a country with which the US has a free trade agreement.

Even more troubling for Chinese automakers is a rule from the US Treasury Department that prohibits tax subsidies for vehicles manufactured by companies linked to “foreign entities of concern,” a category that includes Russia, North Korea, Iran, and China.

The measures were included in tax credit rules after extensive lobbying from automakers and unions in the US and politicians from both sides of the aisle. Pressure from the automotive industry also succeeded in getting the Mexican government to promise not to subsidize new Chinese EV factories south of the US border.

In May, US President Joe Biden levied a new 100 percent tariff targeted at specific Chinese imports, including EVs. In Europe, similar fears over the impact of heavily subsidized Chinese EVs on domestic car production saw the EU raise new tariffs of up to 37.6 percent on Chinese-made EVs, despite objections from the German auto industry.

China’s action at the WTO actually predates the new US EV tariffs—it first went to the trade organization in March, arguing that the US tax credits hinder fair competition and break existing WTO agreements.

China’s commerce ministry told Reuters that protectionist EV subsidies from the US “undermine international cooperation on climate change.”

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India’s plan to let 1998 digital trade deal expire may worsen chip shortage

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India’s plan to let 1998 digital trade deal expire may worsen chip shortage

India’s plan to let a moratorium on imposing customs duties on cross-border digital e-commerce transactions expire may end up hurting India’s more ambitious plans to become a global chip leader in the next five years, Reuters reported.

It could also worsen the global chip shortage by spiking semiconductor industry costs at a time when many governments worldwide are investing heavily in expanding domestic chip supplies in efforts to keep up with rapidly advancing technologies.

Early next week, world leaders will convene at a World Trade Organization (WTO) meeting, just before the deadline to extend the moratorium hits in March. In place since 1998, the moratorium has been renewed every two years since—but India has grown concerned that it’s losing significant revenues from not imposing taxes as demand rises for its digital goods, like movies, e-books, or games.

Hoping to change India’s mind, a global consortium of semiconductor industry associations known as the World Semiconductor Council (WSC) sent a letter to Indian Prime Minister Narendra Modi on Thursday.

Reuters reviewed the letter, reporting that the WSC warned Modi that ending the moratorium “would mean tariffs on digital e-commerce and an innumerable number of transfers of chip design data across countries, raising costs and worsening chip shortages.”

Pointing to Modi’s $10 billion semiconductor incentive package—which Modi has said is designed to advance India’s industry through “giant leaps” in its mission to become a technology superpower—the WSC cautioned Modi that pushing for customs duties may dash those global chip leader dreams.

Studies suggest that India should be offering tax incentives, not potentially threatening to impose duties on chip design data. That includes a study from earlier this year, released after the Semiconductor Industry Association and the India Electronics and Semiconductor Association commissioned a report from the Information Technology and Innovation Foundation (ITIF).

ITIF’s goal was to evaluate “India’s existing semiconductor ecosystem and policy frameworks” and offer “recommendations to facilitate longer-term strategic development of complementary semiconductor ecosystems in the US and India,” a press release said, partly in order to “deepen commercial ties” between the countries. The Prime Minister’s Office (PMO) has also reported a similar goal to deepen commercial ties with the European Union.

Among recommendations to “strengthen India’s semiconductor competitiveness,” ITIF’s report encouraged India to advance cooperation with the US and introduce policy reforms that “lower the cost of doing business for semiconductor companies in India”—by “offering tax breaks to chip companies” and “expediting clearance times for goods entering the country.”

Because the duties could spike chip industry costs at a time when global cross-border data transmissions are expected to reach $11 trillion by 2025, WSC wrote, the duties may “impede India’s efforts to advance its semiconductor industry and attract semiconductor investment,” which could negatively impact “more than 20 percent of the world’s semiconductor design workforce,” which is based in India.

The prime minister’s office did not immediately respond to Ars’ request to comment.

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