Does the IRA’s New Clean Vehicle Credit constitute Import Substitution Subsidies under the SCM Agreement

The Inflation Reduction Act (‘IRA’), which aims to curb inflation, was signed into law in August 2022. The IRA provides a combination of grants, loans, rebates, incentives, and other investments contributing to a new clean energy economy. The IRA includes various tax incentives, including a tax credit of up to USD 7,500 for the purchase of new clean vehicles (‘New Clean Vehicle Credit’). The IRA incurs concerns that it provides trade-distortive subsidies which would trigger protectionism in other countries, and, in particular, the New Clean Vehicle Credit brings into various issues under the WTO regime including the issue of ‘import substitution subsidies’ under the Subsidies and Countervailing Measures (SCM Agreement). This article reviews whether the New Clean Vehicle Credit meets the elements of a subsidy under the SCM Agreement (i.e., a financial contribution and conference of a benefit). This article also reviews whether the New Clean Vehicle Credit constitutes import substitution subsidies under the SCM Agreement.