U.S. trade agency backs proposed EV tax credit despite Mexico’s objections

The U.S. Trade Representative’s office said on Friday it was committed to legislation strengthening the U.S. electric vehicle industry despite its inclusion of a tax credit that has drawn threats of retaliation from Mexico, which calls it “discriminatory”.

The proposed $12,500 electric vehicle tax credit would include $4,500 for EVs built in the United States by union workers, effective after 2027. It is included in the Biden administration’s sweeping climate and social spending legislation now under consideration by Congress.

Mexican Economy Minister Tatiana Clouthier said the tax credit was “discriminatory,” and would violate the U.S.-Mexico-Canada Agreement on trade. Mexico is analyzing a range of legal actions in response that may include tariffs, Clouthier said on Thursday.

“In the past we have imposed tariffs and we would have to do or propose something very important and strategic for those products, in those places where it hurts them … so that the consequences can be felt,” Clouthier told a news conference.

She added that it was “totally contrary to free trade” and has previously rebuked the United States https://www.reuters.com/world/americas/mexican-minister-chides-us-protectionism-ahead-summit-2021-11-17 for pursuing what she described as protectionist policies that were liable to backfire and spur more migration to the U.S. border.

U.S. Trade Representative Katherine Tai has said she is aware of trading partners’ objections and was discussing the matter with them.

“The Biden-Harris Administration is committed to tackling the threat of climate change by supporting the transition to electric vehicle manufacturing,” USTR spokesman Adam Hodge said in a statement.

“We will continue to engage a range of stakeholders, including our close trading partners, as Congress considers legislation to strengthen U.S. leadership in the sector,” he added.

In late October, Mexico, along with the European Union, Germany, Canada, Japan, France, South Korea, Italy and other countries wrote U.S. lawmakers https://www.reuters.com/business/autos-transportation/international-opposition-mounts-proposed-us-ev-tax-credit-2021-10-30 saying the proposed electric vehicle tax credit violates international trade rules.

The proposal has been backed by U.S. President Joe Biden, the United Auto Workers (UAW) union and many congressional Democrats, but opposed by major international automakers, including Toyota Motor Corp, Volkswagen (DE:VOWG_p) AG, Daimler AG (DE:DAIGn), Honda Motor Co, Hyundai Motor Co and BMW AG.

The EV tax credit issue was also expected to be raised by Canada’s trade minister, Mary Ng, during meetings this week with Tai in Washington, along with other U.S.-Canadian trade irritants, including on U.S. softwood lumber tariffs.