On February 24, the European Commission’s industrial strategy commissioner announced he was again delaying legislation aimed at supporting European industrial supply chains. The French-led Industrial Accelerator Act would attach minimum European content requirements and low-carbon standards to public procurement and manufacturing subsidies.
The act faces opposition in Europe from Germany and other countries whose governments worry it will ruffle feathers in Beijing and Washington and generally violates the open-market principles of the EU. The Trump administration has criticized “Buy European” preferences in the EU Defence Procurement Directive, even though the U.S. regularly attaches “Buy American” conditions on public spending.
Making this scuffle more interesting, it is taking place only weeks after a World Trade Organization (WTO) dispute panel found that Biden-era industrial strategies favouring domestic manufacturing violated several WTO agreements. Though the Trump administration cancelled the offending measures last year, the ruling again demonstrates the tension between climate-driven economic strategies and the disciplines against them in the rules-based trading order.
On January 30, 2026, a WTO panel ruled against the U.S. and in favour of China, which successfully argued the domestic content bonus credits attached to clean-electricity investment tax credits (ITCs) and production tax credits (PTCs) under the Biden-era Inflation Reduction Act (IRA) were inconsistent with WTO non-discrimination obligations. The panel rejected the U.S. argument that these measures were justified under the WTO’s “public moral” exception.
Under the measures in question, clean energy projects were eligible for an additional 10 per cent bonus tax credit only if they complied with two domestic content conditions. First, all structural steel and iron used in construction had to be 100 per cent of U.S. origin. Second, a specified percentage of manufactured products incorporated into electricity generation facilities (e.g., solar panels and wind turbine blades) had to be mined, produced or manufactured in the United States.
China also challenged the Biden-era clean vehicle tax credit in its WTO dispute. As originally enacted, the IRA made the tax credit available for new clean vehicles placed in service until December 31, 2023. However, the Trump administration’s One Big Beautiful Bill Act terminated this EV subsidy after September 30, 2025. China subsequently notified the WTO panel that it was withdrawing its claims concerning that measure.
This decision evokes a sense of déjà vu, recalling the WTO panel ruling against Ontario’s Feed-in Tariff program under the 2009 Green Energy Act. Whereas that program offered above-market feed-in tariff rates to renewable electricity producers, it required compliance with local content requirements, mandating that a minimum share of goods, services or labour be sourced within Ontario.
In both cases, the WTO found that the domestic content requirements were inconsistent with Article 2.1 of the Agreement on Trade-related Investment Measures (TRIMs) and Article III:4 of the General Agreement on Tariffs and Trade (GATT 1994)—core national treatment articles frequently raised in WTO disputes. The latter reads, in part:
The products of the territory of any contracting party imported into the territory of any other contracting party shall 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, purchase, transportation, distribution or use.
Canada and the U.S. advanced fundamentally different defences in each case. Canada sought to justify Ontario’s feed-in-tariff program under the government procurement exception in Article III:8(a) of the GATT 1994, whereas the U.S. argued that the clean energy domestic content bonus credits were measures “to protect public morals” under Article XX(a) of the GATT 1944 covering general exceptions.
First, the U.S. argued that China’s dominance in the renewable energy sector has been achieved through “non market and trade distorting behaviour, including unfair competition, the use of forced labour, theft and coercion.” These measures were said to violate prevailing U.S. standards of right and wrong as reflected in U.S. state and federal laws.
Second, the United States said that the measures at issue protected public morals by mitigating reliance on China, enhancing fair competition, and fostering market-oriented outcomes in the United States.
Third, the U.S. further argued that the measures were necessary to protect public morals because earlier countermeasures adopted by the United States and other countries failed to prevent China from achieving dominance in the renewable energy sector and did not enable those countries to sustain or develop their own industrial capacity.
The panel rejected this Article XX defence for several reasons.
First, while accepting that theft and forced labour may constitute “public morals” within the meaning of Article XX(a) of the GATT 1994, the panel found that the evidence submitted by the United States did not establish the existence of a broader public moral against “unfair competition” or “coercion.”
Second, in assessing the objectives of the measures at issue, the panel relied on direct evidence—such as the statutory text, implementing guidance, legislative history and official statements—and found that these materials did not describe the measures as protecting public morals. Rather, they consistently characterized the measures as advancing competitiveness, promoting reindustrialization and strengthening supply-chain security.
Third, and predictably, the WTO panel identified a logical inconsistency in the design of the challenged measures. The requirement that 100 per cent of the structural steel and iron used in construction be of U.S. origin excluded the same products from all other countries, including those that maintain close trade relations with the United States and share similar “public morals” related to market competition.
Moreover, the panel noted that the base investment and production tax credits remained available regardless of the origin of inputs, including products from China. Only the credit top-ups were contingent on domestic content. Similarly, under the manufactured products requirement, only a specified percentage of components had to be domestically sourced, beginning at 40–45 per cent and gradually increasing to 55 per cent.
Taken together, the panel argued, these structural features undermined the United States’ claim that the domestic content bonus credits were genuinely designed to protect public morals rather than to incentivize domestic production. Having concluded that the measures were not taken to protect public morals, the panel did not proceed to examine whether the measures were necessary to achieve that objective—a very difficult thing to prove at the WTO, as many countries have found out the hard way.
WTO jurisprudence has consistently recognized that member states are entitled to pursue their chosen economic and industrial development strategies, subject to compliance with specific treaty obligations. Countries hoping to avoid disputes should avoid structuring subsidy schemes in a manner that conditions eligibility on the use of domestic products, whether explicitly or implicitly.
Clean energy support schemes might also avoid trade challenges if they shift from supporting specific industries and enterprises to pursuing clearly defined policy goals that are open to all sectors. For example, governments may provide broader tax credits for technological innovation that are available to any qualifying industry.
Then again, all of this may be immaterial in this “rupture” in the global trading order. The Trump administration has abandoned clean energy and EVs for a strategy that aims to strengthen the United States’ global dominance in the fossil fuel sector, reduce compliance costs for industry through regulatory relaxation, expand hydrocarbon energy production and ease climate-related constraints.
On the same day the panel report was circulated, the Office of the United States Trade Representative (USTR) stated that “this panel report highlights what the Trump Administration has been saying for years: existing WTO rules are inadequate to address massive and harmful excess capacity in numerous sectors, including in energy technology.”
At the end of 2019, the WTO Appellate Body, which normally hears appeals to WTO disputes, became unable to function after the United States blocked the appointment of new members. As a result, while panels continued to operate, the two-tier dispute settlement system entered a state of paralysis because appeals could no longer be heard, leading to what observers have termed the “appeal into the void” phenomenon. Somewhat hypocritically, the United States Trade Representative has appealed.
To support the development of the new energy industry and to achieve climate objectives, WTO members may find it necessary to implement new energy subsidy policies. However, the policy space left under the WTO framework is limited, and members face the risk of triggering compliance challenges.
The Agreement on Subsidies and Countervailing Duties (SCM) primarily focuses on the trade-distortive effects of subsidies, yet it lacks a meaningful safe harbour or immunity mechanism for climate-motivated industrial support measures. As a result, the current framework does not fully balance economic efficiency with environmental protection.
There have been several proposals to address this dilemma. First, some suggest allowing the general exceptions under the GATT to apply to new energy subsidies. Another approach could be to reinstate the expired category of non-actionable subsidies and include new energy subsidies within that framework. WTO members might also establish a specific exception tailored to renewable energy subsidies.
All of these approaches seek to create policy space for new energy subsidies through the mechanism of exceptions. However, they also overlook the risk that such subsidies may be used as disguised trade protection under the pretext of promoting renewable energy—precisely the debate stalling Europe’s new industrial support measures.
