There has been a lot of Twitter discussion about the possibility that the electric vehicle (EV) tax credits in the Build Back Better Act violate USMCA or WTO obligations. There are actually three components to these tax credits, and I thought it was worth doing a quick analysis of each one, because the examination of the consistency with trade obligations is different for each.
The three specific components are as follows (with numbers 2 and 3 lumped together in the legislation):
- (1) Domestic content requirements ("The term `domestic content qualifications' means, with respect to any model of a new qualified plug-in electric vehicle, that vehicles of that model-- ``(A) are assembled by a manufacturer which utilizes not less than 50 percent domestic content in the component parts for final assembly of such vehicles, and ``(B) are powered by battery cells which are manufactured in the United States (with such battery cells to be included for purposes of the requirement described in subparagraph (A)), as certified by the manufacturer, at such time, and in such form and manner, as the Secretary may prescribe.")
- (2) Domestic assembly requirements tied to (3) a unionization requirement ("The term `domestic assembly qualifications' means, with respect to any new qualified plug-in electric vehicle, that the final assembly of such vehicle occurs at a plant, factory, or other place which is operating under a collective bargaining agreement negotiated by an employee organization (as defined in section 412(c)(4)), determined in a manner consistent with section 7701(a)(46).")
These requirements can be found in "Part 4--Greening The Fleet And Alternative Vehicles."
Let's look at each one separately (keeping in mind that these requirements are tied to subsidies, and that's how the SCM Agreement is implicated).
The domestic content requirements are easy. They violate at least GATT Article III:4, SCM Agreement Article 3.1(b), and USMCA Article 2.3(1). There is no conceivable defense I can think of that would have any credibility here. They inherently discriminate against foreign goods.
Now it gets a bit tricky though. Let's start with the domestic assembly requirement, and put aside the unionization requirement for now.
One issue is the following: Does a domestic assembly requirement have any impact on imported goods? In theory, you could do domestic assembly with entirely foreign-made parts as inputs, so there's an argument that such a measure has no effect on imports. However, my guess is that assembly in any particular country correlates strongly with using inputs of goods from that country, so there would be a good de facto discrimination claim against such a requirement. But you would need to gather some evidence to prove it.
What about discrimination against foreign services through the domestic assembly requirement? There are probably a number of labor and other services aspects to assembly. Whether a violation exists here depends in large part on what services liberalization commitments the U.S. made.
Now we get to the unionization requirement. Thinking about such a requirement in the abstract (i.e. not tied to domestic assembly as it is in this bill), my sense of both the U.S. and Canada is that there is some mix of unionized and non-unionized auto factories; I'm not sure how the rest of the world does things. So would a country that has mostly non-unionized factories have a de facto discrimination claim against subsidies tied to a unionization requirement? Maybe, but at some point -- either in the obligations or the exceptions -- you would have to get into the purpose of the unionization requirement, and I suspect that a panel would find that any de facto discrimination that resulted here was justified by the legitimate policy purpose of promoting unions.
What that suggests is, Congress could modify the statute so that there is a unionization requirement not tied to domestic assembly, and such a requirement would not be inconsistent with trade obligations, although it would irritate some foreign governments whose manufacturers use non-union labor.
This analysis is my quick impression of the issue. Let me know if I missed anything in the statute or if you have a different view of WTO/USMCA law here!
