Canada says proposed U.S. EV tax credit could violate trade deal

WASHINGTON/OTTAWA -- The Canadian government on Friday warned that U.S. proposals to create new EV tax credits for American-built vehicles could harm the North American auto industry and run foul of trade agreements, according to a letter seen by Reuters.

In the letter dated Oct. 22, Canadian Trade Minister Mary Ng told U.S. lawmakers and the Biden adminisration that the credits, if approved, "would have a major adverse impact on the future of EV and automotive production in Canada".

She said this would raise the risk of severe economic harm and tens of thousands of job losses in one of Canada’s largest manufacturing sectors, adding that U.S. companies and workers would not be immune from the fallout.

The letter also said that the "proposals are inconsistent with U.S. obligations under the United States Mexico-Canada Agreement (USMCA) and the World Trade Organization."

A U.S. House panel in September approved legislation to boost EV credits to up to $12,500 per vehicle, including $4,500 for union-made vehicles produced in the U.S. and $500 for batteries made in the U.S. Starting in 2027, vehicles would need to be assembled in the U.S. to qualify for all of the $12,500 in tax credits.

The credits would cost $15.6 billion over 10 years and disproportionately benefit the Detroit 3 -- General Motors, Ford Motor Co. and Chrysler parent Stellantis -- because they all assemble their American-made vehicles in union-represented plants.

The U.S. Trade Representative's Office did not immediately comment, but the Biden administration has praised the proposals.

The U.S. arms of foreign automakers have criticized the union tax incentive. Tesla has also been critical, though it is strongly supported by the UAW.

Ng said that Canada is deeply concerned about the "protectionist elements" of the proposed tax credits, saying they discriminate against EVs and parts produced in Canada.

"Canada is also necessary for the U.S. to achieve its EV objectives in the future," she wrote, adding that Canada is the only country in the Western Hemisphere that has all the critical minerals required to manufacture EV batteries.

Ng warned that the credits could "undermine the integrated nature of the North American automotive industry".

She said the U.S. and Canadian automotive industries rely on each other for both finished vehicles and components, with total automotive trade averaging more than $100 billion a year.