WTO Threats Against US Electric Vehicle Tax Credit Prompt Calls for 'Climate Peace Clause'

South Korea and the European Union's critiques of electric vehicle tax credit provisions in the Inflation Reduction Act--which U.S. President Joe Biden is expected to sign into law as soon as Friday--have sparked urgent calls for a global "climate peace clause" whereby nations would agree not to use archaic trade mechanisms to undermine the emission-reduction policies of other countries.

"It's time to end this circular firing squad where countries threaten and, if successful, weaken or repeal one another's climate measures through trade and investment agreements," Melinda St. Louis, Global Trade Watch director at Public Citizen, said in a statement Thursday.

"The U.S. should work with other countries to commit to a Climate Peace Clause and create a race to the top on trade and climate."

The E.U. and Seoul have specifically expressed concerns that the Inflation Reduction Act (IRA) limits EV tax credit eligibility to vehicles assembled in North America, a restriction that European Commission spokesperson Miriam Garcia Ferrer called "discriminatory" under World Trade Organization rules.

"It is discriminating against foreign producers in relation to U.S. producers," Ferrer told reporters earlier this week. "We continue to urge the United States to remove these discriminatory elements from the bill and ensure that it is fully compliant with the WTO."

Reutersreported that "South Korea also said on Thursday that it has expressed concerns to the United States that the bill could potentially violate WTO rules and a bilateral free trade deal."

"South Korea's trade ministry said in a statement that it has asked U.S. trade authorities to ease battery component and final vehicle assembly requirements," the outlet noted. "South Korea's auto industry group on Friday said it had sent a letter to the U.S. House of Representatives, requesting that the United States include EVs and battery components manufactured or assembled in South Korea as eligible for U.S. tax benefits, citing the U.S.-Korea Free Trade Agreement."

Such objections have sparked concerns that U.S. efforts to subsidize the production and greater adoption of electric vehicles to counter transportation emissions--the largest source of greenhouse gas pollution in the U.S.--could draw formal complaints at the corporate-dominated WTO, potentially posing legal challenges to the EV tax credits and other attempts at climate action.

Global trade mechanisms, specifically Investor-State Dispute Settlement (ISDS) provisions found in many agreements, have frequently been used by governments and corporations to challenge nations' climate policies, hampering the fight against the worsening planetary emergency.

"At the exact moment we should be promoting more green jobs initiatives in the U.S., we instead have the EU and other countries using threats of trade attacks to try to bully the U.S. into eliminating these types of programs, creating a race to the bottom in trade and climate," said Arthur Stamoulis, executive director of the Trade Justice Education Fund.

"It is time for countries to come together and agree to stop using trade rules to challenge commonsense climate and green jobs policies needed to build the clean energy economy," Stamoulis added. "The U.S. should work with other countries to commit to a Climate Peace Clause and create a race to the top on trade and climate. I urge the E.U. to reconsider this counterproductive action."

Hebah Kassem, acting director of A Living Economy at Sierra Club, added, "It's clear that the time for a Climate Peace Clause is now--so that all countries can get to the urgent business of taking bold climate action without fear of unnecessary challenges from trade agreements."