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Shifting to a New Trade Policy Paradigm: the US Inflation Reduction Act

Shifting to a New Trade Policy Paradigm: The US Inflation Reduction Act

By: Professor J Anthony Vanduzer, Faculty of Law, University of Ottawa

Introduction

The WTO and other trade treaties have underpinned globalization of economic activity following World War II by reducing barriers to trade and securing market access.1 In the wake of the financial crisis in 2007 and, more recently, production and delivery delays flowing from the COVID-19 pandemic, spikes in fuel and food prices caused by the war in Ukraine, and geo-political shifts (especially the trade war between the US and China), concerns regarding the costs and skepticism regarding the benefits of globalization have become widespread. In particular, security concerns, broadly conceived, are shifting how countries think about the interdependence of their economies that flows from globalization. In turn, changing views regarding globalization are profoundly affecting trade policy in some countries. Traditional trade priorities like expanding market access in a non-discriminatory way are being subordinated to security concerns and the promotion of domestic economies through industrial policy.

Nowhere is this more evident than in the 2022 US Inflation Reduction Act (IRA), the centre-piece of the Biden Administration’s climate policy. The IRA provides massive subsidies to support US transition to a zero-carbon economy. But subsidies to US consumers who buy electric vehicles and other kinds of “clean” vehicles (“Clean Vehicle Subsidies”) are only available to vehicles that meet minimum thresholds for content from the US and some other countries. These features are primarily intended to encourage investment in the US and boost US jobs and are contrary to the basic non-discrimination norms of the multilateral trading system.

China’s supply chain dominance motivated the Clean Vehicle Subsidies in the IRA

Why do the Clean Vehicle Subsidies take the form they do? To ensure that US consumers have American made clean vehicles to buy, US industry needs secure access to the batteries they require. The challenge for the US is that China dominates supply chains for clean vehicle batteries and the critical minerals, like cobalt and lithium, that are essential to build them. China has major investments in critical mineral-producing countries world-wide and has a strangle-hold on supply. China is also dominant in the refining and processing of critical minerals and the largest producer of battery components. The US and its allies, by contrast, have few critical minerals deposits, limited capacity to refine and process them, and relatively few battery production plants.

The concentration of clean vehicle supply chains in China means that the supply of minerals and technology essential to carbon transition is at risk from local events in China, like flooding as seen recently. But the more important risk, however, is from state action, such as restrictions on critical mineral exports—a strategy that China has engaged in the past as recently as this year. Congress passed the IRA with the goal, in part, of reducing US dependence on China for components of the clean energy supply chain.2

The IRA Clean Vehicle Subsidies

How does the IRA reduce dependence on China? The Clean Vehicle Subsidies are only available for vehicles that are assembled in North America and meet content requirements for their batteries and the critical minerals in them that favour the US as well as Canada, Mexico and to a lesser extent, other countries with which the US has a free trade agreement. To be eligible for the subsidies, 40% of the critical minerals in vehicle batteries must have been extracted or processed in the US or a country that has a free trade agreement with the US or recycled in North America. The sourcing percentage for critical minerals will increase to 80% by 2027. As well, 50% of the vehicle battery components must be produced or assembled in North America. This percentage increases to 100% by 2029. By 2024, a vehicle cannot have battery components manufactured or assembled by a Chinese entity. Beginning in 2025, qualifying vehicles’ batteries cannot contain critical minerals extracted, processed, or recycled by a Chinese entity.

These conditions on the availability of Clean Vehicle Subsidies are meant to shift critical minerals extraction and processing, battery production, and clean vehicle production away from China and to the US and some of its allies. One goal is arguably environmental. The US needs resilient supply chains to secure access to inputs for the production of clean vehicles. But the Clean Vehicle Subsidies also seek to encourage the reorganization of supply chains for reasons that have nothing to do with the environment or climate change, such as:

  • enhancing US economic competitiveness in clean vehicles and components by attracting investment in clean vehicle manufacturing, battery production, and critical minerals extraction and processing and boosting US jobs;
  • improving the position of the US in its geo-political competition with China; and
  • protecting US national security.

International reaction to the Clean Vehicle Subsidies

When the IRA was first announced, a number of key US trading partners, including the EU, Japan, and China, reacted very negatively. One obvious concern was that Clean Vehicles Subsidies would not be available to clean vehicles manufactured in countries outside North America, impairing the competitive position of clean vehicle exports to the US market and encouraging the shift of investment in final assembly to North America. Investment in North American battery production will also be encouraged.

The incentives to invest in the US are especially strong because there are additional IRA subsidies for US battery production. Canada, a beneficiary of most of the preferences in the Clean Vehicle Subsidies, was concerned that the IRA would make the US the preferred North American destination for investment in the clean vehicle supply chain. Some countries, including Canada, have responded by adopting significant domestic subsidy programs, raising concerns about the risk of a subsidy war, including non-WTO compliant subsidies.

Conclusion

The IRA overall is undoubtedly an “historic commitment to build a clean energy economy.”3 But the discriminatory features of the Clean Vehicle Subsidies are motivated more by a US desire to secure supply chains for critical minerals, batteries, and clean vehicles with substantially reduced participation of China than carbon transition. The discriminatory design of the Clean Vehicle Subsidies is partly to ensure the resilience of these supply chains in the interests of securing access to the inputs needed for US clean vehicle production, but it is also to promote domestic economic growth and security and advance US geo-political aims in relation to China. The US has never before made subsidies contingent on local content requirements. These overtly discriminatory features of the Clean Vehicle Subsidies are not consistent with WTO rules. They strongly confirm America’s drift away from respect for the WTO rules and toward a discriminatory “America First” industrial policy. Indeed, the Clean Vehicle Subsidies demonstrate the emergence of a new paradigm for US trade policy in which considerations related to security, economic security and geo-politics take precedence over traditional trade policy priorities, setting a worrying precedent for the future of the rules-based multilateral trading system.

  1. J Anthony VanDuzer, “A Canadian Perspective on Fifty Years of International Economic Law” (2023) 46:1 Dal LJ 441, online: <digitalcommons.schulichlaw.dal.ca/cgi/viewcontent.cgi?article=2213&context=dlj> [perma.cc/6PRD-ALW7].
  2. The White House, Building a Clean Energy Economy: A Guidebook to the Inflation Reduction Act’s Investments in Clean Energy and Climate Action (Washington: The White House, 2023) at 26, online: <www.whitehouse.gov/wp-content/uploads/2022/12/Inflation-Reduction-Act-Guidebook.pdf > [perma.cc/PF6E-VM6N].
  3. Ibid at 2.

 

 

Gender-testing in sport: World Athletics’ DSD Regulations are Inconsistent with the International Olympic Committee’s new Framework on Fairness

By: Professor Maria C. Dugas

On November 16, 2021, the International Olympic Committee (IOC) released its Framework on Fairness, Inclusion and Non-discrimination on the Basis of Gender Identity and Sex Variations (the “Framework”).[1] This post will highlight some of the inconsistencies between the Framework’s principles and World Athletics “2018 Eligibility Regulations for the Female Classification (Athletes with Differences of Sex Development)” (“DSD Regulations”).[2]

The Framework:

seeks to promote a safe and welcoming environment for everyone involved in elite-level competition, consistent with the principles enshrined in the Olympic Charter. The Framework also acknowledges the central role that eligibility criteria play in ensuring fairness, particularly in high-level organised sport in the women’s category.[3]

The IOC is explicit that they are not creating rules and regulations. Instead, the Framework is meant to help sporting organizations, like World Athletics, develop criteria that are applicable in their context, like elite-level track and field. That said, the principles set out in the Framework call into question the legitimacy of World Athletics’ DSD Regulations, and begs the question: will World Athletics revoke them?

Before highlighting the inconsistencies between the Framework and the DSD Regulations, a bit of context. World Athletics (formerly the IAAF) is the governing body for the sport of athletics (e.g. track and field). They have been regulating who is eligible to participate in the “female” category at elite-level competition essentially since the beginning.[4] Most recently, their regulatory efforts have used testosterone levels to define who is eligible to compete in the female category. Initially the threshold was set at 10nmol/L, but that was lowered to 5nmol/L in the DSD Regulations. Athletes who are identified (through invasive physical and mental assessments) to have differences of sex development and testosterone levels above 5nmol/l must reduce their testosterone levels to compete in the female category in middle-distance running events.

The DSD Regulations were created in response to the Court of Arbitration (CAS) for Sport suspending the 2011 IAAF Regulations Governing Eligibility of Females with Hyperandrogenism to Compete in Women’s Competition,[5] following a complaint by runner Dutee Chand.[6] Chand successfully argued that the 2011 Regulations were prima facie discriminatory and that World Athletics failed to adduce sufficient evidence to conclude that testosterone increased female athletic performance such that participation in female events was unfair.[7] The DSD Regulations rely on two scientific “studies”, BG17 and BKHE18, to conclude that testosterone increases athletic performance for female athletes in middle distance running events (400m to 1mile) such that regulation is necessary to achieve “fairness” in the sport.[8]

Caster Semenya, a South African runner and multi-Olympic and World Champion middle-distance runner, challenged the DSD Regulations to CAS in 2018. Joined by Athletics South Africa (her National Federation), Semenya argued that the DSD regulations were discriminatory, unreasonable, unnecessary, disproportionate, and arbitrary. Although CAS had some concerns with the regulations,[9] it ultimately rejected her challenge. Her appeal to the Swiss Federal Tribunal was also dismissed.[10] Her case is currently before the European Court of Human Rights (ECtHR).

Back to the inconsistencies between the DSD Regulations and the Framework. The Framework establishes 10 principles that:

should be taken into consideration by International Federations and other sports organizations when exercising their responsibility in establishing and implementing eligibility rules… ensuring safe and fair competition in the context of inclusion and non-discrimination on the basis of gender identity and sex variations.[11]

Although the IOC states the Framework should be considered as a whole, this comment focuses on principles 1 to 3, 5 to 7, and 9. Principle 1 is the inclusion principle. It outlines that everyone should be welcome and able to participate in sport “safely and without prejudice” and that the sporting environment should be welcoming to people of all gender identities. It also states that where eligibility criteria are established, this should be done in a manner that respects the principles set out in the Framework. Because the DSD Regulations set out eligibility criteria, it should be reviewed for consistency with the Framework. As will become evident, the DSD Regulations oppose safety and inclusion because they single out athletes with DSD and subject to them to unnecessary medical intervention.

Principle 2 prioritizes athlete’s physical, psychological, and mental well-being in establishing eligibility criteria, and the need to prevent negative impacts on athletes through the design, implementation, or interpretation of eligibility criteria. As Semenya argued at the CAS, the DSD Regulations, and gender regulation in sport more broadly, cause severe harm.[12] They exclude Relevant Athletes from competing in female events; they force women to undergo intrusive medical assessments, including measuring the size of their clitoris. Women will suffer psychological harm as a result of being stigmatized and labelled; women will most likely face public scrutiny since it is “virtually certain” that cases will become publicly known; and the Relevant Athlete will likely undergo medical treatment that has adverse mental and physical health risks, including cardiovascular disease, sterility,[13] depression, fatigue, osteoporosis, muscle weakness, low libido, and metabolic problems. As a result, the athlete may require life-long hormone replacement treatments.[14]

Principle 3 addresses non-discrimination. Eligibility criteria should not “systematically exclude” athletes based on their gender identity, physical appearance and/or sex variations. Further, “no athlete should be subject to targeted testing because of, or aimed at determining, their sex, gender identity and/or sex variations.” The DSD Regulations explicitly violate this principle. First, the common basis for a complaint that an athlete should be investigated for compliance with the DSD regulations is appearance—typically where the athlete’s appearance does not conform with the ideal of “western femininity”.[15] Second, the regulations explicitly target and seek to identify athletes with DSD, which is classified as a sex variation. Third, testosterone regulation is a subset of the broader gender-regulation context, which has historically been about identifying who is/is not a woman.[16]

Principles 5 and 6 speak to perceived athletic advantage and the need for evidence. Principle 5 requires that no athlete is excluded from participation based on an “unverified” competitive advantage and that athletes should not be deemed to have an unfair advantage until evidence determines otherwise, in accordance with principle 6, which sets evidentiary standards. The evidence should be based on “robust and peer reviewed research” that demonstrates a “consistent, unfair, disproportionate competitive advantage” that “exists for the specific sport” being regulated. BG17 and BKHE18, the two reports said to support the DSD Regulations, were not peer reviewed because the authors would not release the full dataset.[17] They have been highly criticized, including by the World Medical Association, as being “highly flawed,”[18] “weak,”[19] and “clearly unreliable.”[20] The studies were also performed by doctors associated with World Athletics, which is a conflict of interest.[21]

Principle 7 relates to health and bodily autonomy. First, no athlete should be “pressured… to undergo medically unnecessary procedures of treatment to meet eligibility criteria.” World Athletics has a history of pressuring athletes to undergo treatment, including unnecessary surgical interventions.[22] The most common way for athletes to maintain their eligibility is through oral testosterone suppressants. World Athletics successfully defended using oral contraceptives for this purpose at CAS. Although discriminatory, CAS ruled that the use of oral contraceptives was not disproportionate because there was insufficient evidence to show oral contraceptives alone caused social, mental, and psychological problems, and because the side effects are “not different in nature to those experience by the many thousands, if not millions, of other XX women, who take oral contraceptives.”[23] CAS is not saying there are no side effects to the medically unnecessary treatment, just that women experience similar side effects in other contexts (importantly, not related to sports participation, but done for legitimate medical reasons like preventing pregnancy).[24] Second, athletes should not be required to undergo gynaecological or other invasive physical examinations aimed at determining their sex, sex variations, or gender. The DSD Regulations explicitly require gynaecological and other physical examinations to determine whether athletes have DSD.[25]

Finally, principle 9 addresses the right to privacy. It precludes the use of an athletes’ medical information, including testosterone levels, for purposes that are not disclosed to the athlete at the time of collection. For example, where medical information is collected for anti-doping purposes, it cannot be used to determine testosterone levels for non-anti-doping purposes, like determining whether an athlete is Relevant Athlete under the DSD Regulations.  Again, the DSD regulations explicitly contravene this principle. Not only did BG17 and BKHE18 use samples obtained for anti-doping purposes to conduct their studies,[26] but the DSD Regulations state that samples collected for anti-doping purposes are a reliable source to trigger an investigation into whether an athlete is a “Relevant Athlete under the Regulations.”[27]

This is not an exhaustive assessment of how the Framework interacts with the DSD Regulations. That will follow in due time. However, this brief overview does highlight numerous inconsistencies between the two. In addition to Semenya’s human rights complaint, the United Nations identifying various possible human rights violations in the DSD Regulations,[28] and the World Medical Association demanding their the immediate in 2019,[29] the inconsistencies identified here emphasize that World Athletics should suspend the DSD Regulations.

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