US and EU Groups Call for 'Ceasefire' on Trade Challenges to Climate Policies

A coalition of more than three dozen progressive advocacy groups based in the United States and the European Union on Monday implored E.U. policymakers to stop pursuing challenges to the Inflation Reduction Act and urged governments on both sides of the Atlantic to start prioritizing decarbonization over corporate-friendly trade rules.

"As part of any E.U.-U.S. transatlantic sustainable trade initiative, we urge the E.U. to refrain from challenging the IRA with trade instruments. And we call on the U.S. and E.U. to commit to a Climate Peace Clause to protect climate policies around the world from trade disputes, as well as to make good on climate financing and green technology transfer to countries in the Global South," says a letter sent to the U.S.-E.U. Trade and Technology Council.

The letter comes as European Trade Commissioner Valdis Dombrovskis travels to Washington, D.C. for meetings this week with top U.S. officials, including Treasury Secretary Janet Yellen and U.S. Trade Representative Katherine Tai.

Amid an ongoing disagreement over North American electric vehicle manufacturing incentives, renewable energy tax credits, and other green provisions in the IRA, Dombrovskis plans to "negotiate better outcomes for the E.U.," according toPolitico, just as the U.S. Treasury Department prepares to release "a list of criteria for what qualifies as a free trade agreement, potentially making more countries eligible to receive tax credits under the IRA," which was passed by congressional Democrats and signed into law by President Joe Biden last August.

"Countries desperately need to enact bold climate measures and cannot allow outdated trade rules to get in the way."

The letter's 41 signatories—including the Institute for Agriculture and Trade Policy, the Transnational Institute, and other civil society organizations representing millions of people—noted that "at the most recent meeting of the U.S.-E.U. Trade and Technology Council, the Global Trade Working Group announced its intent to embark on a transatlantic sustainable trade initiative."

Melinda St. Louis, the director of Public Citizen's Global Trade Watch, said Monday in a statement that if the U.S. and the E.U. are serious about this, "they first need to commit to 'do no harm' by refraining from attacking one another's climate legislation."

While the IRA "was far from the comprehensive legislation needed to address the urgent climate crisis," states the letter, "it was the result of a difficult compromise negotiated in a narrow but historic window of political opportunity and is a critical step that the U.S. has taken to meet its climate commitments."

Despite this, the E.U. "claims that the structure and the domestic content requirements of tax incentives for electric vehicle, electric battery, and renewable energy production offered through the IRA violate World Trade Organization (WTO) rules," the letter continues. "And it has repeatedly threatened to refer the matter to the WTO Dispute Settlement Body, attempting to force the U.S. to change this law. The E.U. even publicly complained about the incentives before the bill had passed, potentially threatening passage of the important legislation, which passed by the narrowest of margins."

"Time is running out to meet our climate commitments," it adds. "Investments in green jobs and production of green products will be needed to usher in the clean energy transition the world needs," and that requires "adapt[ing] the rules to accelerate a just transition."

"Will the Biden administration stand up to these trade threats and implement the law as intended to create green jobs and boost manufacturing in the clean energy economy?" asked St. Louis. "And will they commit to supporting other countries as they enact their own bold climate policies?”

Fabian Flues, a trade campaigner with PowerShift Germany, insisted that there is no other reasonable choice.

"This is simple: climate action has to take precedence over trade rules," said Flues. "The E.U. would do the fight against climate change a huge disservice if it challenged the Inflation Reduction Act in trade tribunals. Instead, the E.U. should increase its efforts to pursue a genuine ecological and fair industrial policy. Such efforts must be accompanied by increased climate financing and green technology transfer so that countries in the Global South don't lose out from increased climate action in the U.S. and E.U."

According to the coalition:

As advanced economies and major current and historic emitters of greenhouse gases, it would be a powerful step for the U.S. and E.U. to agree to a Climate Peace Clause—a binding commitment by these governments to refrain from using dispute settlement mechanisms in the WTO or other trade and investment agreements to challenge each other's climate policies. Not only should the E.U. refrain from using trade rules to challenge the IRA, but both should commit to refraining from challenging other countries' policies meant to hasten the green transition. This would set an example and create the much-needed space for governments to adopt and maintain the climate policies needed to create green jobs and meet their commitments under the Paris climate agreement.

Such an agreement between these two powers must also include climate financing for countries in the Global South and the sharing of green technologies, as outlined in the United Nations Framework Convention on Climate Change and the Paris agreement, to support/contribute to climate solutions that are truly sustainable and equitable for all. This will be necessary to support the clean energy transition in countries that cannot afford similar subsidy-based incentives. A true transatlantic collaboration to address catastrophic climate change, and related global social, health, and biodiversity crises, will entail supporting—rather than undermining—green industrial policies on both sides of the Atlantic. Further, we must work together to meet commitments for financial support and technological transfer to developing countries and to transform inequitable global structures in order to facilitate a just transition for all.

This is not the first time labor and environmental groups have demanded that policymakers stop impeding sorely needed climate action by weaponizing global trade rules. As Biden hosted French President Emmanuel Macron just before a December meeting of the U.S.-E.U. Trade and Technology Council, activists held a protest outside the White House to denounce the leading role that Macron has played in fostering E.U. opposition to the IRA.

On the same day, the Sierra Club and the Trade Justice Education Fund published an analysis outlining the need for a Climate Peace Clause.

As the groups' research explained, North American production requirements were key to securing the political support needed to enact the IRA, but progress on creating green jobs and slashing planet-heating pollution remains at risk of being derailed by Investor-State Dispute Settlement complaints and other objections filed at neoliberal trade institutions.

As Trade Justice Education Fund executive director Arthur Stamoulis said Monday, "Countries desperately need to enact bold climate measures and cannot allow outdated trade rules to get in the way."

"By committing to not challenge other nations' climate initiatives as violations of old trade rules," Stamoulis added, "the United States can simultaneously encourage countries to take more ambitious climate action and better defend its own climate-focused industrial policy."