The ongoing dispute between China and the US regarding the latter's clean energy subsidies under the Inflation Reduction Act (IRA) has escalated into a formal process, as the World Trade Organisation (WTO) has established a panel to address the issue.

The WTO’s Dispute Resolution Body (DSB), agreeing to China's second request, will examine whether specific tax credits included in the IRA comply with the multilateral trading system's regulations. Eighteen nations, such as the European Union, Russia, the United Kingdom, Japan, and Australia, have reserved their rights to participate as third parties in the proceedings.

China contends that the IRA's subsidies for clean energy projects preferentially benefit US goods while discriminating against imports, which violates WTO regulations. Initially, the US had opposed the establishment of a dispute resolution panel, arguing that its actions under the IRA were essential for combating climate change. However, it has since expressed disappointment over China's decision to seek a panel for the second time.

When China made its first request, it stated that consultations with the US had not resolved the conflict. The IRA was described as potentially the largest subsidy measure ever enacted, with official estimates of its climate-related provisions at $393 billion, while other assessments suggested the total could exceed $1 trillion.

China acknowledged that while many of the IRA's subsidy provisions were problematic, its challenge at the WTO was specifically directed at those provisions that contravene WTO rules. These included subsidies contingent upon the preference for domestic goods over imports or that discriminate against goods from China.

The provisions in question consist of the Clean Vehicle Credit and various Renewable Energy Tax Credits, which encompass the Investment Tax Credit for Energy Property, Clean Electricity Investment Tax Credit, Production Tax Credit for Electricity from Renewables, and Clean Electricity Production Tax Credit.

China emphasized that it understands the importance of clean energy transition benefits for all members but asserted that this should not come at the expense of the fundamental principle of non-discrimination, which is vital to the multilateral trading system. It argued that increased protectionism is not a viable solution to the climate crisis.

In response, the US claimed that China's request to the DSB undermines global efforts to tackle the climate crisis and develop a resilient clean energy supply chain. The US characterised China’s complaint as a regrettable attempt to hinder progress on critical issues, reinforcing reliance on China's excess non-market capacity and harming the broader interests of all WTO members.

The two nations are currently engaged in a contentious trade battle over clean energy supremacy. Earlier this month, the US announced significant tariff increases on imports of solar cells, electric vehicles (EVs), batteries, and critical minerals sourced from China. This new tariff regime, which will take effect on September 27, 2024, will impose a 100% tariff on EVs manufactured in China, a 50% tariff on solar cells, and a 25% tariff on EV batteries, critical minerals, aluminum, and steel. Additionally, a 50% tariff has been proposed for polysilicon