China’s challenge of U.S. clean energy subsidies has the potential to dramatically change the World Trade Organization — depending on how the Biden administration decides to defend them.
U.S. officials could argue that climate change amounts to an international emergency that justifies countries taking actions, such as subsidizing green industries, as the U.S. has done in the Inflation Reduction Act of 2022, outside the bounds of global trade rules.
If validated by a WTO dispute settlement panel, such an approach would broaden the scope of when countries can invoke a national security exception from trade rules far beyond what was imagined when the WTO’s rules were written decades ago. And that could open the door to countries imposing a number of trade-distorting measures to reduce carbon emissions without fear of the WTO striking them down.
Some proponents of the rules-based system fear that a WTO decision that determines climate change is an “emergency in international relations” could also prompt countries to try to use the WTO’s national security exception to shield questionable trade actions for an expansive list of other reasons, such as pandemics, food security, plant and animal health concerns, financial stability, industrial policy and poverty reduction.
