Akademik Veri Yönetim Sistemi
7th Politics and IR Congress, Trabzon, Türkiye, 9 - 11 Ekim 2024, cilt.7, ss.169-170
THE LEGAL ANALYSIS OF US INFLATION REDUCTION ACT’S MASSIVE, WTO- INCONSISTENT SUBSIDES
In August 2022, the President of the United States (US) Joseph R. Biden signed an ambitious Bill called the Inflation Reduction Act (IRA). The main purpose of the Bill is to speed up the US’ transition to a cleaner-energy economy while substantially reducing its greenhouse gas emissions. Such a sizable Bill (i.e.,274-page-long) addresses vide range of climate-related issues and introduces new policy tools by changing quite a few provisions in certain Federal Acts, especially the Internal Revenue Code. According to the estimates, the IRA allocates $121 billion direct government spending budget for such a green transition while opens up hundreds of billions of dollars uncapped tax credit opportunities. These direct government spending and various tax credits combined would reach $1.2 trillion in 2031.
Upon the IRA’s release, most of the countries and commentators welcomed the US comeback to climate mitigation fora. Soon after the IRA’s major provisions were carefully evaluated however, these countries began showing their harsh reactions. To them, hiding under the “politically clever name” (i.e., Inflation Reduction Act) and under the politically correct mission (i.e., climate change mitigation), the United States aims at responding China over its supremacy in the green industry by establishing its own, mostly domestic, green supply chains, attracting more direct investment to the industry, creating more jobs, breaking China’s leadership in critical minerals and becoming the global leader in the clean energy industry by providing World Trade Organization (WTO)-inconsistent, trade-distorting and discriminatory massive subsidies. Indeed, such subsidies are currently subject of a dispute (i.e., DS623) at the Dispute Settlement Body.
This study offers an analysis on whether or to what extent the IRA’s major provisions could be deemed inconsistent with international trade law particularly with General Agreement on Tariffs and Trade and the Agreement on Subsidies and Countervailing Duties (the SCM Agreement). Since majority of these government involvements into the economy seem to satisfy the subsidy definition—i.e., financial contribution by government or any public body in a form of direct transfer of funds (e.g. grants, loans, and equity infusion) or any form of income or price support, which confers a benefit, making recipients “better off,” in the marketplace while some of them could also be viewed as specific under the SCM Agreement, this study finds that several IRA-introduced subsidy packages are seemed discriminatory and could fall into prohibited and actionable subsidies, thereby WTO-inconsistent. What is worse is that the trade system is currently unable to provide proper legal remedies for such inconsistencies as WTO’s Dispute Settlement Body has been dysfunctional because of the US resistance on not appointing judges for the Appellate Body.
Since the current anarchic trade order keeps prevailing until the rule-based system is reset in an undetermined future, this study, then, concludes with a warning for developing countries,including Türkiye, to use this chaotic atmosphere as an opportunity to engage in a wider (even protectionist) trade policies and place themselves in the global green energy industry before all the global supply chains set up.
Keywords: Inflation Reduction Act, International Trade Law, World Trade Organization, Dispute Settlement Body, Appeal into Void.