Guest Post: WTO Law Compatibility of the UK’s New Electric Vehicle Grant Scheme
On July 15th, UK media outlets reported a new government scheme to support the purchase of EVs with a price of under £37,000. The two grant levels are £3,750 or £1,500 depending on the carbon emission scores attained by the vehicle. According to the reports, Chinese EVs will be excluded despite being some of the cheapest on the market. This raises the possibility of discrimination between domestic and imported products.
Further insight on the reported exclusion can be gained from the Department for Transport’s on-line Guidance. There are two distinct grant eligibility aspects. First, ‘[m]anufacturers must hold a verified Science Based Target. This requirement is open to, and within the power of, individual manufacturers. Secondly, the carbon emissions incurred in vehicle assembly and battery cell production locations must be ‘below certain thresholds’. As will become apparent, this aspect is not within the power of individual manufacturers.
For the Science Based Target, ‘manufacturers can set their own overall decarbonisation targets’, making them eligible for a Science Based Target certificate. The accepted evidence also extends to an entry on the Science Based Targets Initiative online dashboard. This aspect does not appear to be scored. The question is whether the manufacturer’s own targets have been formally recognized and recorded. Given that certification here is open to all manufacturers, there are no obvious issues in relation to WTO law discrimination norms.
The scoring is done in relation the second aspect - carbon emissions incurred in vehicle assembly and battery cell production locations. As noted, these ‘must be below certain thresholds’. The thresholds do not appear in the Guidance. However, it is specified that 30% of the overall environmental score is attributed to vehicle assembly, and 70% to the battery production location. These scores are awarded based International Energy Agency’s (IEA) country-level national electricity generation carbon emissions factors. We now arrive at the key point for GATT / WTO law compatibility. It is specified that, ‘vehicles assembled in countries with higher carbon intensity in electricity generation (for example, more reliant on fossil fuels or coal) will receive a higher score’. Ignoring the oddity that a high score is a bad score, the key point is that these scores are premised on how the country of origin generates electricity in general. An EV produced in a factory powered by renewable energy would score badly if the factory is in a country with an overall energy mix biased towards fossil fuels. There is very little an individual manufacturer can do to move the dial on the score they attain.
China’s EVs could be ineligible for the grants based on this scoring. While the IEAs data is behind a paywall, another authoritative source indicates that, for 2024, 62% of China’s electricity production was from fossil fuels. For the UK, the same source indicates that this figure is 35%. This could mean that China’s EVs are above the currently unspecified thresholds for carbon emissions incurred for assembly and battery production. The further comment below will assume that this is the position.
GATT Rules and Exceptions
As is well known, there are two ways to ‘thread the needle’ in relation to WTO law compatibility. The first question is whether any rule is breached. If breaches are confirmed, the second question is whether they can be justified or exonerated under an exceptions provision. Under the first question, the grant scheme would breach the GATT Article III:4 national treatment obligation, assuming that Chinese EVs are ineligible based on China’s energy mix. Assuming further that EU produced EVs are eligible (the Written Statement to Parliament refer to ‘UK and other manufacturers)’, the GATT Article I most favoured nation obligation would also be breached. Importantly, these breaches tell us virtually nothing about whether the grant scheme should ultimately be impugned. This is because the Appellate Body has interpreted these provisions as not involving any consideration of regulatory context. In other words, the respondent state is not invited, at this stage of the overall analysis, to defend the measure on the basis that it pursues legitimate objectives in a proportional manner. Arguments to this effect are deferred to the second stage of the analysis under the GATT Article XX General Exceptions provision. As between the two overall stages, the first would be straightforward (breaches would be confirmed); the second less so.
The Grant Scheme under GATT Articles III:4 and I
Under both GATT Article III:4 and Article I, the first question is whether EVs from different countries below the price threshold are ‘like products’. This would be easily established based on the case law criteria intended to reveal the nature and extent of the competitive relationship between products – that is, their physical properties, end-uses and consumers' tastes and habits. Within any particular EV segment or price band, there is intense competition between EVs from different countries.
Under GATT Article III:4, imported products must be, ‘accorded treatment no less favourable than that accorded to like products of national origin in respect of all laws, regulations and requirements affecting their internal sale, offering for sale [or] purchase …’. Clearly, if China’s EV are not eligible for the grant this will amount to less favourable treatment. The grant scheme disturbs the ‘effective equality of opportunities’, or the ‘competitive relationship’ between like domestic and imported products. (Panel Report, Canada – Autos DS139, para. 10.78)
The treaty language is different under GATT Article I, but no more difficult to satisfy. If EU EVs are eligible for the grant, this ‘advantage’ must be ‘accorded immediately and unconditionally to the like products originating in’ China and other WTO Members.
GATT Article XX
In relevant part, GATT Article XX provides:
Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures:
(b) necessary to protect human, animal or plant life or health;
…
(g) relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption;
In Brazil – Retreaded Tyres (DS332), the Appellate Body recognized that trade restrictive measures which pursue climate change mitigation goals can be justified under GATT Article XX(b). The interpretation and application of the provision will bend to the reality and nature of the mitigation challenge. WTO members cannot be expected to empirically demonstrate the exact degree to which a measure contributes to the mitigation effort at any particular point in time. Under the paragraph (b) ‘necessary’ standard, the looser question is whether the measure at issue is, ‘apt to produce a material contribution to the achievement of its objective’ (para. 151).
However, the ‘degree of contribution’ question under the ‘necessary’ standard is nestled among others. A more exacting initial question is to define what the objective of the measure is.
The Written Statement to Parliament opens with this:
The government is making it easier and cheaper to own an electric vehicle. Today (15 July 2025), the government has launched an Electric Car Grant to support the transition to zero emission vehicles and incentivise sustainable automotive manufacturing.
A dispute settlement panel presented with this would have several questions before embarking on its legal analysis. If the objective is to make it cheaper to purchase EVs, why are EVs from China, some of the cheapest on the market, excluded? How is sustainable automotive manufacturing incentivised when there is nothing excluded Chinese manufacturers can do to gain eligibility?
Some reflection here might lead to the objectives being refined and explained along the following lines. The objective is to make it cheaper to purchase EVs which are produced in a sustainable manner. At present, it might be claimed, the only feasible method to assess sustainability is via the carbon intensity of electricity production in the country of origin. It is not currently feasible to assess the carbon intensity of the electricity actually consumed by individual manufacturers. Under the scheme, the highest permissible fossil fuel content in the overall energy mix is 40% (recall that we do not know what the threshold is, but this would seem to be the most obvious way to achieve the reported exclusion of China’s EVs). Based on this threshold, UK and EU made EVs are eligible, while Chinese made EVs are not.
In response, a panel would probably seek further clarification. Is it really not currently feasible to assess the carbon intensity of the electricity actually consumed by individual manufacturers? What is the thinking behind the 40% threshold (or whatever threshold results in the exclusion Chinese EVs)? Are there international standards identifying a bright line demarcating sustainable from non-sustainable automotive manufacturing? The further discussion below identifies how the legal analysis and outcomes might be affected depending on the responses to, and resolution of, these, and other, questions.
Under GATT Article XX, it can often be difficult to separate and demarcate the aspects of challenged measures to be considered under the sub-paragraphs, from those to be considered under the chapeau. One approach, evident to some extent in EU – Seal Products (DS400,401), is to consider the main thrust of the measure under the relevant sub-paragraph, while deferring other more problematic aspects to the chapeau. This approach will be adopted here; the matter of allocating different parts of a measure to the various legal standards within Article XX arguably does not make much difference to the outcome.
If the main thrust of the grants is to accelerate the take up of EVs, it would probably be possible to satisfy the ‘necessary’ standard of Article XX(b). In Brazil - Retreaded Tyres (DS332), the Appellate Body explained this standard as follows:
…[I]n order to determine whether a measure is ‘necessary’ … a panel must consider the relevant factors, particularly the importance of the interests or values at stake, the extent of the contribution to the achievement of the measure's objective, and its trade restrictiveness. If this analysis yields a preliminary conclusion that the measure is necessary, this result must be confirmed by comparing the measure with possible alternatives, which may be less trade restrictive while providing an equivalent contribution to the achievement of the objective (para. 178).
The value of protecting human health and life is clearly of the highest importance. Further, the grants will very plausibly contribute strongly to EV take-up. In turn, this makes a positive contribution to climate change mitigation efforts. The degree of trade restrictiveness is moderate; there is no import ban or quota on Chinese made EVs. There is also no obvious reasonably available alternative to the grants which would be as effective in promoting EV take up.
But, of course, it would remain to apply the chapeau to the problematic aspects of the grant scheme. On the concept of ‘unjustifiable discrimination’ under the chapeau, the Appellate Body noted in Brazil – Retreaded Tyres:
We have difficulty understanding how discrimination might be viewed as complying with the chapeau … when the rationale for discriminating does not relate to the pursuit of or would go against the objective that was provisionally found to justify a measure under a paragraph of Article XX’ (para. 227).
Clearly, the exclusion of Chinese EVs, often the cheapest, undermines the headline objective of accelerating the take-up of EVs. Here, the UK might argue that, while there is discrimination, it is not ‘arbitrary or unjustifiable’. It might be argued that the discrimination is explained by the present non-feasibility of assessing the carbon intensity of the electricity actually consumed by individual manufacturers. While this question cannot be resolved here, reference can made to the EU Battery Regulation and its draft implementing Regulation.
Annex II of the Battery Regulation provides the, ‘essential elements on how to calculate the carbon footprint’. This includes, ‘the energy … used in a specific manufacturing plant to produce a specific battery model’. The draft implementing Regulation details the methodology to be used:
2.4.Electricity modelling
The carbon footprint of the consumption of electricity shall be that of the national average electricity consumption mix …
By way of derogation from the first paragraph, the carbon footprint of directly connected electricity shall apply in accordance with section 2.4.1.
2.4.1.Directly connected electricity
The carbon footprint of directly connected electricity shall apply if the electricity is supplied to the process in question from a production asset within the same installation or via a direct line …
Based on this content, the non-feasibility argument might run into some difficulty. It is hard to see why Chinese manufacturers cannot be afforded the opportunity to demonstrate that their directly connected electricity meets the carbon intensity threshold for grant eligibility. Indeed, affording this opportunity would strengthen the achievement of the grant scheme’s objectives. If Chinese manufacturers can show that they meet the threshold, their relatively cheap EVs become even cheaper for UK consumers. If no Chinese manufacturer meets the threshold, giving them the opportunity to meet it affords a real incentive to improve manufacturing sustainability. This would mean that a dubiously claimed objective of the grant scheme would actually be achieved.
This type of issue came up in the Appellate Body’s very first case, United States – Gasoline (DS2). The chapeau of GATT Article XX was not satisfied because of the unfairness in subjecting foreign refiners to a statutory cleanliness baseline, while granting domestic refiners individual baselines. The Appellate Body rejected US arguments to the effect that administrative difficulties precluded individual baselines for foreign refiners, while a statutory baseline would be financially burdensome for domestic refiners:
‘[W]hile the United States counted the costs for its domestic refiners of statutory baselines, there is nothing in the record to indicate that it did other than disregard that kind of consideration when it came to foreign refiners’ (page 28).
The analogous question in the present context is whether it is unfair not to make any attempt to establish the carbon intensity of electricity used for of EVs produced in China, preferring instead to declare the non-eligibility of Chinese EVs based on China’s general exergy mix. Again, the outcome here depends on the feasibility of allowing Chinese manufacturers the opportunity to demonstrate that their directly connected electricity meets the carbon intensity threshold for grant eligibility. The message from US – Gasoline is that any claimed administrative or technical difficulties would have to be persuasively demonstrated to avoid a finding of ‘arbitrary or unjustifiable discrimination’ under the chapeau of GATT Article XX.
The United States – Shrimp (DS58) case is also instructive in relation to how the chapeau might be applied. Effectively, the US would only permit imports of shrimp when caught in the waters of countries having adopted, ‘essentially the same comprehensive regulatory regime as that applied by the United States to its domestic shrimp trawlers’ in relation to protecting sea turtles. This meant that, ‘shrimp caught using methods identical to those employed in the United States [had] been excluded from the United States market solely because they have been caught in waters of countries that have not been certified by the United States’ (para. 165.) This amounted to ‘arbitrary and unjustifiable discrimination’ under the chapeau. Similarly, the UK is conditioning grant eligibility on countries having a comparable energy mix to the UK, and potentially excluding EV’s produced as sustainably, or even more sustainably, than UK produced EVs. These exclusion clearly undermine the achievement of the grant scheme’s objectives. However, the outcome here depends on the feasibility point explained in the previous paragraph.
If it is not Feasible to Assess Carbon Intensity of Electricity Actually Consumed?
Suppose that a panel were to accept the non-feasibility argument. Would this mean that the grant scheme, while breaching GATT Articles III:4 and I, is exonerated under GATT Article XX(b) and / or (g)? This outcome is unlikely. In WTO dispute settlement, panels and the Appellate Body often refer to the, ‘design, the architecture and the revealing structure of a measure’. WTO Members also often frame their arguments with reference to this language. If the grant eligibility threshold does indeed exclude all of China’s EVs, it might well be that this, in itself, falls foul of the chapeau. To use another of its phrases, there would be, ‘a disguised restriction on international trade’.
A panel here would question the explanation for the choice of threshold. Even if this choice could be explained with reference to some extrapolation from an international standard on manufacturing sustainability, a chapeau breach would likely remain. This is because of the precipitous drop in the grant level, from £3,750 to £1,500, and then to nothing. A comparison can be made with the case law under GATT Article III:2 second sentence. The final question here is whether dissimilar taxation is applied, ‘so as to afford protection to domestic production’. In Philippines – Distilled Spirits (DS396), this protective application was revealed by the measure’s structure under which, ‘all domestic distilled spirits [enjoyed] the favourable low tax, while the vast majority of the imported spirits are subject to taxes between 10 and 40 times higher’ (para. 245).
It is not currently known what the thresholds are to qualify for the grants in terms of the carbon intensity of electricity production in the country of origin. However, it is reasonable to suppose that UK produced EVs will be eligible for the larger grant. As between the China and the UK, the relative proportions of electricity production from fossil fuels are approximately 62% and 35%. In order to avoid a chapeau breach, the available grant level would need to approximately reflect these proportions. The percentage difference between the carbon intensity numbers is 56%. This means that if UK EVs qualify for the £3,750 grant, Chinese EVs should quality for approximately 56% of this figure, or £2,100.
Without thresholds corresponding approximately with these values, it would be difficult to dispute the allegation that the thresholds are arbitrary and amount to a ‘disguised restriction on international trade’. To quote the Appellate Body in US – Gasoline, ‘[t]he measure would simply be naked discrimination for protecting locally-produced goods’ (page 21).
How to Bring the Grant Scheme into Conformity with GATT
If the UK were minded to remove the violation, the clearest and easiest way to do so would be to remove the scoring system based on the general energy mix of countries. This would remove the breaches of GATT Articles III:4 and I. Recourse to GATT Article XX would not be required. This step would involve some watering down of the purported objective in relation to sustainable manufacturing. However, it would not amount to the abandonment of this objective. As indicated, the present requirement for manufacturers to hold a verified science based decarbonisation target, is WTO law compliant.
If the UK wished to retain a scoring system linked to the sustainability of manufacturing, changes would be required to achieve compliance with the chapeau of GATT Article XX. The required change depends on whether it is currently feasible to assess the carbon intensity of electricity actually consumed in China’s manufacturing plants. If this is currently feasible, these manufacturers must be afforded the opportunity to show that their production meets or betters the scoring thresholds. If not feasible, grant eligibility could then be based on the carbon intensity of the country of origin. However, the scoring thresholds and level of grant availability would need to approximately reflect this carbon intensity. There would need to be more levels of grant availability gradually declining as carbon intensity increases. The current levels under which the grant falls away completely above a certain carbon intensity falls foul of the chapeau as a ‘disguised restriction on international trade’.
What About WTO Disciplines in Relation to Subsidies?
Might the discussion above be besides the point on the basis that the grant scheme is covered by another exceptions provision? GATT Article III:8(b) provides that, ‘The provisions of this Article shall not prevent the payment of subsidies exclusively to domestic producers …’ . This provision is an exception to the national treatment obligation serving as an ‘affirmative defence’ for otherwise inconsistent measures (Brazil – Taxation DS472,497 para. 5.84). This exception would probably not be available because the grant scheme is not restricted ‘exclusively to domestic producers’. As noted, the Written Statement to Parliament refer to ‘UK and other manufacturers’ which is probably an oblique reference to EU manufacturers.
However, the provision does open up another way to remove any GATT violation. If the grant scheme were made more restrictive and open only to UK manufacturers, it would fall under GATT Article III:8(b). There would be no GATT Article III:4 national treatment violation. The restriction to UK manufacturers would also remove the GATT Article I breach. There would no longer by any discrimination as between foreign manufacturers – they would all be ineligible.
Whether of not the grant scheme is restricted to UK manufacturers, GATT Article III:8(b) does not exclude the Agreement on Subsidies and Countervailing Measures (ASCM). The first question here is whether the grant scheme falls within the ASCM Article 1 definition of a subsidy. I do not address this here other than to note a high probability that the payments satisfy the various aspects of the definition.
Assuming that there is a subsidy, it would not be a prohibited subsidy under ASCM Article 3.1(b). This category includes subsidies which are, ‘contingent … upon the use of domestic over imported goods’. In its current form, the grant scheme is not contingent on the use of domestic goods because it is open to some non-UK manufacturers. If the scheme were restricted to UK manufacturers, the contingency requirement would probably still not be satisfied. There is a coherence based point here. The restricted grant scheme would be permitted under the GATT under the Article III:8(b) exception. This permission would be rendered inutile if the restricted grant scheme were a prohibited subsidy under the ASCM. Clearly, this would be an incoherent outcome which the Appellate Body carefully avoided in Brazil – Taxation. This obviously begs the question of when the grant scheme would be contingent on the use of domestic goods. This would occur when eligibility depends not only on UK origin of the finished product, but also on UK origin of the components. The latter requirement is not an aspect of the grant scheme – therefore it would not be a prohibited subsidy even if limited to UK manufacturers.
In the absence of a prohibited subsidy, the grant scheme remains potentially subject to Part III of the ASCM dealing with Actionable Subsidies and Part V dealing with Countervailing Measures. Part III is more relevant than Part V. Part V is about regulating the circumstances in which WTO members can unilaterally impose countervailing measures on subsidized imports causing serious injury to the domestic industry. This is not strongly relevant as the grant scheme supports the purchase of EVs in the UK, rather than their export to other countries.
Part III, in contrast, has broader reach covering not only the serious injury which is the focus of Part V, but also, under Article 5, ‘serious prejudice to the interests of another Member’ Article 6.3 sets out the circumstances in which this serious prejudice ‘may arise’, including where, ‘the effect of the subsidy is to displace or impede the imports of a like product of another Member into the market of the subsidizing Member’. Clearly, if the reported exclusion of China’s EVs from the grant scheme is correct, their market displacement will likely arise.
Complaints under Part III are subject to general WTO consultation and dispute settlement rules, rather than the unilateral countervailing duties envisaged in Part V. In the event that adverse effects of the subsidy under Part III are confirmed in the dispute settlement process, the obligation is to withdraw either the adverse effects of the subsidy, or the subsidy itself. Recalcitrance here results in authorization for the complaining member, ‘to take countermeasures commensurate with the degree and nature of the adverse effects determined to exist’ (ACSM Article 7.9).
Options for the UK in Relation to WTO Law Compatibility
As noted above, if the UK were to remove the scoring system based on the general energy mix of countries, this would avoid any issue of compatibility with the GATT. It would also remove any potential challenge under the ASCM. There would be no displacement or impediment of imports if the grant scheme were made available for EVs from all countries regardless of the carbon intensity of their production.
If the scoring system based on carbon intensity of production is retained, its design and operation would need to be brought into compliance with the GATT Article XX chapeau as covered above. Such changes would remove any GATT violation. However, the possibility of challenge under the ASCM as an actionable subsidy would remain. This possibility is regrettable. The end point would be that subsidies to support the purchased of EVs produced in a sustainable manner and formulated to remove discrimination to the greatest extent feasible, remain subject to challenge under the ASCM as actionable subsidies. This is why the currently reinvigorated debate around the available of GATT Article under the ASCM is so important. It is matter of concern that the UK seems to be launching a grant scheme which breaches core principles of WTO law. However, it is also a matter of concern that, were the UK to remove the discriminatory aspects of the scheme to the greatest extent possible, the scheme would remain subject to possible challenge under the ASCM.
The grant scheme also raises question about the UK’s approach towards matters of WTO law compatibility. The author’s forthcoming work evaluates the compatibility of the UK’s primary initiative to support renewable energy – the Contracts for Difference Scheme. This was subject to WTO dispute settlement consultations with the EU which raised an issue of conformity with GATT Article III:4. The matter was settled in the consultation process and the discriminatory aspects of the scheme were removed. Should China and potentially other WTO members complain about the grant scheme, it will be interesting to see what approach the UK adopts in relation to settling any complaint at the consultation stage, or proceeding to panel formation.