LDN - Business

China says Biden plan to shut it out of US battery supply chain violates WTO rules

[December 07, 2023] By Joe Cash

BEIJING (Reuters) - China said on Thursday that Biden administration plans to limit Chinese content in batteries eligible for generous electric vehicle tax credits from next year violate international trade norms and will disrupt global supply chains.

The plans will make investors in the U.S. electric vehicle (EV) supply chain ineligible for tax credits should they use more than a trace amount of critical materials from China, or other countries deemed a "Foreign Entity of Concern" (FEOC).

"Targeting Chinese enterprises by excluding their products from a subsidy's scope is typical non-market orientated policy," said He Yadong, a commerce ministry spokesperson.

"Many World Trade Organization members, including China, have expressed concern about the discriminatory policy of the U.S., which violates the WTO's basic principles," he said.

China's dominant position in the global battery supply chain has prompted United States and European officials to take action over fears that cheap Chinese EVs could flood their markets.

The European Commission is currently investigating whether Chinese manufacturers benefit from unfair state subsidies.

Washington has already passed two laws explicitly excluding investors from being able to benefit from a $6 billion allocation of tax credits for batteries and critical minerals, as well as subsidies of $7,500 for every new energy vehicle produced, should they include FEOCs in their supply chains.

The term applies to China, Russia, North Korea and Iran. The rules will come into effect in 2024 for completed batteries and 2025 for the critical minerals.

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U.S. President Joe Biden gestures as he delivers remarks on aid to Ukraine from the White House in Washington, U.S., December 6, 2023. REUTERS/Kevin Lamarque

U.S. President Joe Biden's administration is also proposing tough criteria, including a 25% ownership threshold, for determining whether a company is controlled by a FEOC.

"By establishing 'glass barriers', the U.S. is doing more harm than good to the development of EV technologies and the industry more broadly," He said, warning that the plans would "seriously disrupt international trade and investment".

China accounts for almost two-thirds of the world's lithium processing capacity and 75% of its cobalt capacity, both of which are used in battery manufacturing.

Analysts, though, have questioned whether China's position in global battery supply chains warrants the U.S. and EU rhetoric over the potential risks.

"There is a lot of hyperbole around this. And I'm not sure the measures the EU or the U.S. are considering match the scale of the risk," said Dan Marks, a research fellow for energy security at the Royal United Services think tank.

"What we should be saying is these strategies in Europe and the U.S. are really industrial strategies. They're just about having competitive industries that can survive."

(Reporting by Joe Cash and Beijing newsroom; Editing by Jacqueline Wong and Tom Hogue)

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