LONDON (FT) - The U.S.’s flagship green technology legislation breaches global trade agreements, risks a global “race to the bottom” on clean energy incentives, and could lead to retaliation, Brussels has claimed.
In its first formal response on the Inflation Reduction Act, EU documents seen by the Financial Times state that the $369bn package of subsidies and tax credits for American producers and consumers contravenes World Trade Organization treaties that say countries such as the U.S. cannot discriminate against imported products.
Officials in Brussels also believe the package, passed in August, could trigger retaliation from the EU and other U.S. allies.
The European Commission comments sent to the U.S. Treasury state that five measures offering tax credits and subsidies “contain provisions with clearly discriminatory domestic content requirements, in breach of WTO rules”.
“If implemented in its current form, the Act risks causing not only economic damage to both the U.S. and its closest trading partners, resulting in inefficiencies and market distortions, but could also trigger a harmful global subsidy race to the bottom on key technologies and inputs for the green transition,” the document, which is due to be published on the U.S. Treasury’s website on Monday, said.
“Moreover it risks creating tensions that could lead to reciprocal or retaliatory measures.” The response highlights concern in European capitals that the act will hamper investment in green technologies throughout the EU and heightens the risk of a transatlantic trade war at a time of geopolitical uncertainty.
A subsidy race has already begun, with Canada saying last week that it would introduce tax credits for green investment to avoid companies being lured to the U.S.