WTO faults US in dispute brought by China over clean energy subsidies

The World Trade Organization has faulted the United States in a dispute brought by China over US green energy subsidies, in a ruling slammed by Washington on Friday as “absurd”.

The global trade body’s dispute panel said that large tax credits granted under former president Joe Biden’s landmark climate law, the Inflation Reduction Act (IRA), were “inconsistent” with several WTO agreements and should be withdrawn.

That law, which was signed by Biden in 2022, was the largest climate investment in US history, but it has been dramatically eroded since President Donald Trump came to power last year.

China hailed the panel ruling as “objective and impartial”.

But US Trade Representative Jamieson Greer was harshly critical, saying in a statement that the ruling showed that “existing WTO rules are inadequate to address massive and harmful excess capacity in numerous sectors, including in energy technology”.

It “underscores the serious doubts that the United States has long expressed regarding the capacity of the WTO to regulate trade in a world marked by severe and sustained trade imbalances”, he said.

China launched the WTO dispute in March 2024, accusing Washington of unfair competition over its support to companies in the energy transition sector and to electric cars manufactured on US soil.

The WTO agreed in September that year to set up a panel of experts to examine the case, which focused on US investment tax credits (ITCs) and production tax credits (PTCs) for renewable energy projects, as well as electric vehicle subsidies.

The United States insisted at the time that the act was a tool to address the climate crisis and “invest in US economic competitiveness”.

It was also meant to counter Beijing’s subsidies for electric vehicles and the wider green industry within China, which has poured vast state funds into domestic firms as well as research and development.

China has denied that its industrial policies are unfair and has repeatedly threatened retaliation to safeguard its companies, and charged that the IRA “distorts fair competition, seriously disrupts global new energy vehicle industrial and supply chains, and violates WTO rules”.

The panel ruling Friday upheld all of China’s claims on the ITCs and PTCs, finding the measures inconsistent with the 1994 General Agreement on Tariffs and Trade (GATT), the Agreement on Trade-Related Investment Measures, and the Agreement on Subsidies and Countervailing Measures.

“The panel recommends that the United States withdraw the ITC/PTC Domestic Bonus Credits by October 1, 2026 at the latest,” it said.

The panel meanwhile did not rule on the issue of the clean vehicle tax credits, as those credits were terminated through Trump’s so-called One Big Beautiful Bill last July.

“Incredibly, the WTO report finds that the United States has broken WTO rules by defending industries that China unfairly targeted for global dominance, but does not say a word about the harms caused by China’s industrial policies and massive excess capacity,” Greer said.

“It is also absurd that the WTO panel questioned whether the United States has deep and abiding concerns with ensuring that the conditions of competition within the US market are fair,” he added.

A Chinese foreign ministry spokesman meanwhile insisted “the United States should face up to its errors, acknowledge the WTO-inconsistency of its measures, and promptly rectify the violations”.

“China hopes that the United States will work with China, take concrete actions, and jointly uphold global economic and trade order and promote stable development of the world economy,” he added.

Both China and the United States now have 60 days to appeal the panel decision.

But the WTO’s Appellate Body has remained paralysed since late 2019, after the United States during Trump’s first term blocked the appointment of new judges, so any appeals are filed “into the void”.