The World Trade Organization (WTO) ruled last week that incentives included in the Inflation Reduction Act (IRA) violate several global agreements because they provide additional tax benefits to domestic suppliers. The international economic group’s recommendation is that the United States eliminate the domestic content bonus offered on the investment tax credit and the production tax credit.
In March 2024, China requested face time with the United States to discuss IRA subsidies that discriminate against goods of Chinese origin. Chinese representatives said the bonus incentives attached to the ITC and PTC for using U.S.-made components violated the 1994 General Agreement on Tariffs and Trade, the Agreement on Trade-Related Investment Measures and the Agreement on Subsidies and Countervailing Measures.
A Dispute Settlement Body (DSB) was established at the WTO, which included representatives of Canada, Japan, Korea, Malaysia and Vietnam. The group ultimately decided that the bonus credits for domestic content violated the three global trade agreements and “impeded the benefits accruing to China under those agreements.”
The DSB has recommended – but not required – that the United States withdraw ITC/PTC bonus credits for domestic content by October 1, 2026. It concluded that the United States had not demonstrated that the bonus credits for domestic content were necessary to protect public morals.
The Office of the United States Trade Representative issued a statement following the WTO panel report:
“Incredibly, the WTO report finds that the United States has violated WTO rules by defending industries that China has unfairly targeted for global dominance, but says not a word about the damage caused by China’s industrial policies and massive overcapacity. It is also absurd that the WTO panel questioned whether the United States has deep and abiding concerns about ensuring fair conditions of competition in the U.S. market.
“As our words and our actions have shown, the United States has long-standing and serious concerns about overcapacity and its impact on market-oriented economies. This report only underscores the serious doubts the United States has long expressed about the WTO’s ability to regulate trade in a world characterized by serious and persistent trade imbalances.
“The United States remains committed to defending our businesses, securing supply chains, and rebalancing trade. We will always take the necessary actions to support American jobs and pursue economic and national security.”
