Is
the age of so-called 'unfettered free trade' and multilateral commerce under
the World Trade Organization (WTO) framework drawing to a close?
These
issues are mostly the result of wealthy nations attempting to bend the rules to
undercut competition or impede the operation of crucial organs, such as dispute
and resolution mechanisms, in order to safeguard their corporate interests.
Now, these countries appear to be moving away from the ideals of free trade and
have begun to implement protectionist measures, violating the WTO rules, under
the guise of a green transition to safeguard the planet.
In
recent years, the United States (US) has frequently passed measures to restrict
competition in the name of national security, safeguard employment and
industry, and disrupt global supply networks. The United States Congress, for
example, has enacted the American Innovation and Competition Act, which
includes $52 billion to encourage domestic semiconductor production and $200
billion for scientific and inventive research.
In
2022, Congress passed the Chips and Science Act. Later that year, the Inflation
Reduction Act (IRA) was approved. The implementation of the controversial IRA,
a multibillion-dollar subsidy scheme for the country's auto sector, which is
struggling to compete with China's cheaper electric cars (EV), is viewed as a
new challenge to the multilateral trade order.
The
regulation expressly prohibits investors from receiving subsidies for each new
energy vehicle manufactured if they use so-called foreign entities of concern
(FEOCs) in their supply chains, thus violating WTO norms.
The
US and EU have begun violating WTO norms to discourage Chinese competition
through discriminatory national policies.
The
IRA states that the new energy vehicle tax incentives will save consumers
$7,500 per unit. However, an eligible clean vehicle cannot contain any battery
components made or assembled by the FEOCs, corporations, or entities specified
by the US. Thus, American automobile owners are ineligible for EV subsidies if
specific components were manufactured by Chinese, Russian, North Korean, or
Iranian producers.
China,
which became the world's top electric car exporter last year and is thought to
be the primary target of this subsidy scheme, has filed a protest with the WTO
seeking comment on the IRA.
China
claims that the Act unjustly targets automobiles that employ Chinese battery
components. "This move is not only to protect the interests of Chinese EV
companies and promote a fair, competitive environment for the global EV
industry but also to firmly uphold the rule-based multilateral trading
system," a Chinese official said following the submission of the
complaint.
Beijing
claims that the IRA has a significant detrimental impact on the stability of
the global industrial supply chain and the climate for fair competition, and
its WTO lawsuit against the US echoes the international community's concerns.
However,
when she concluded her visit to China last Monday, US Treasury Secretary Janet
Yellen stated that a decade ago, a surge of low-cost Chinese steel into the
global market "decimated industries across the world and in the United
States". She underlined that Washington "will not accept" a
situation in which underpriced Chinese goods flood the global market again,
wreaking havoc on other industries, and that the US's friends and partners have
similar worries.
Even
though the IRA is a Chinese-specific measure, its consequences are perceived
worldwide. Initially, South Korea contemplated using the WTO against the IRA.
The European Union (EU), Canada, New Zealand, and other WTO members have all
denounced the IRA.
In
a letter to the US Treasury in November 2022, the European Commission argued,
"If implemented in its current form, the Act risks causing not only
economic damage to both the US and its closest trading partners, resulting in
inefficiencies and market distortions, but it could also trigger a harmful
global subsidy race to the bottom on key technologies and inputs for the green
transition."
Nonetheless,
these nations' prior unhappiness has subsided as a result of their common worry
of China's expanding dominance in new energy industries such as EVs and solar
power. Threats to trade have also spurred the US to establish Critical Minerals
Agreements with select nations, granting them access to EV tax benefits in the
IRA. The EU appears to be joining the US in its campaign against Chinese EVs.
A
recent EU-US Trade and Technology Council meeting condemned the 'threat' posed
by "third-country use of non-market economic policies and practices,"
a clear reference to China's state subsidies, which the West claims are causing
a global glut of solar panels, EVs, and a variety of other manufactured goods.
It also committed to non-economic remedies to such (Chinese) policies, such as
export bans and investment screening, in order to 'enhance' economic security
in the EU and the United States.
Indeed,
Beijing has been involved in discriminatory policies for several years, banning
non-Chinese businesses from selling EV batteries to Chinese automakers,
according to a European expert. The actions that the US and EU have promised to
conduct are akin to condemning China's non-market practices while supporting
the same ones domestically.
On
the surface, the efforts taken by the United States to preserve its car sector
appear to violate the World Trade Organization's Agreement on Subsidies and
Countervailing Measures, which is why American groups are calling for WTO rule
modification. The Chinese challenge against the IRA at the WTO has generated
suggestions for a Climate Peace Clause to "stop WTO attacks on policies
needed to fight climate change".
Legally,
China has a point—the IRA violates WTO rules—and is likely to win its case.
Will the Chinese case succeed in sustaining multilateralism as intended at the
WTO's inception? That seemed extremely implausible.