Biden’s green subsidies law stirs tensions in the EU

Top European Union officials
will use a trade meeting with US counterparts on Monday to
press concerns about Washington’s huge new green energy subsidy
package.

While EU countries welcome the new commitment to energy
transition, they fear the $430 billion Inflation Reduction Act
(IRA) will unfairly disadvantage their companies relative to
rivals in the United States.

Why is Europe angry?

The 27 EU countries are worried their companies will be cut
off from US tax credits for components used in renewable
energy technologies like electric cars, offered under the new
law on condition they are made in North America.

EU countries consider that some $207 billion (200 billion euros) of the US subsidies are tied to locally produced
content provisions that potentially violate World Trade
Organisation (WTO) rules.

European Commission President Ursula von der Leyen said on
Sunday that while competition was a good thing, there should be
a level playing field.

Not only do the tax breaks put European companies at a
disadvantage to US rivals, but EU state aid rules in their
current form prevent member countries from offering similarly
generous tax breaks to companies looking to set up factories.

The EU is not Washington’s only ally up in arms about the
package, with South Korea also concerned its carmakers will not
be eligible for the US tax breaks.

READ MORE: Senate Democrats pass $740B ‘Inflation Reduction Act’ package in US

What does Europe want?

Since any major revision by the US Congress is out of the
picture, European officials say their best hope is to secure
exemptions along the same lines as those already granted to
Canada and Mexico.

After French President Emmanuel Macron raised concerns last
week during a state visit to Washington, US President Joe
Biden opened the door to making “tweaks” to the package.

EU governments want a solution quickly, possibly with an
arrangement agreed at an EU-US Trade and Technology Council
meeting on December 5. A draft joint statement said ahead of the
talks the package was on the agenda.

Although neither side wants to rekindle trade tensions that
damaged transatlantic relations during the Trump administration,
the head of the European Parliament’s trade committee Bernd
Lange said a negotiated settlement would only yield small
changes, and that Europe should file a complaint at the WTO.

But such a riposte from Europe would be likely to face
resistance from traditionally free-trade-friendly nations such
as the Netherlands and Sweden.

READ MORE:
‘Super aggressive’: Macron slams Biden’s subsidies policy during US visit

Can Europe also support its companies?

France has led calls for Europe to respond with state
support of its own for European companies, including through a
“‘Buy European’ act” and large-scale subsidies.

While not as vocal about the possibility for a massive
subsidy programme, Germany has shown interest in supporting
European industry, although its coalition-led government is far
from united about how to do so.

European governments can also pool resources to subsidise
cross-border projects deemed to be in the broader EU interest,
but getting such initiatives approved by the European Commission
can often prove long and complicated.

With a number of big projects in the pipeline, French
Economy Minister Bruno Le Maire and his German counterpart
Robert Habeck last month called on the Commission to streamline
and speed up the approval process.

Von der Leyen said that the EU’s state aid rules should be adapted in response to the US green subsidy push.

READ MORE: Biden, Macron vow to work closely to help Ukraine, pressurise Russia

Source: Reuters

Top European Union officials
will use a trade meeting with US counterparts on Monday to
press concerns about Washington’s huge new green energy subsidy
package.

While EU countries welcome the new commitment to energy
transition, they fear the $430 billion Inflation Reduction Act
(IRA) will unfairly disadvantage their companies relative to
rivals in the United States.

Why is Europe angry?

The 27 EU countries are worried their companies will be cut
off from US tax credits for components used in renewable
energy technologies like electric cars, offered under the new
law on condition they are made in North America.

EU countries consider that some $207 billion (200 billion euros) of the US subsidies are tied to locally produced
content provisions that potentially violate World Trade
Organisation (WTO) rules.

European Commission President Ursula von der Leyen said on
Sunday that while competition was a good thing, there should be
a level playing field.

Not only do the tax breaks put European companies at a
disadvantage to US rivals, but EU state aid rules in their
current form prevent member countries from offering similarly
generous tax breaks to companies looking to set up factories.

The EU is not Washington’s only ally up in arms about the
package, with South Korea also concerned its carmakers will not
be eligible for the US tax breaks.

READ MORE: Senate Democrats pass $740B ‘Inflation Reduction Act’ package in US

What does Europe want?

Since any major revision by the US Congress is out of the
picture, European officials say their best hope is to secure
exemptions along the same lines as those already granted to
Canada and Mexico.

After French President Emmanuel Macron raised concerns last
week during a state visit to Washington, US President Joe
Biden opened the door to making “tweaks” to the package.

EU governments want a solution quickly, possibly with an
arrangement agreed at an EU-US Trade and Technology Council
meeting on December 5. A draft joint statement said ahead of the
talks the package was on the agenda.

Although neither side wants to rekindle trade tensions that
damaged transatlantic relations during the Trump administration,
the head of the European Parliament’s trade committee Bernd
Lange said a negotiated settlement would only yield small
changes, and that Europe should file a complaint at the WTO.

But such a riposte from Europe would be likely to face
resistance from traditionally free-trade-friendly nations such
as the Netherlands and Sweden.

READ MORE:
‘Super aggressive’: Macron slams Biden’s subsidies policy during US visit

Can Europe also support its companies?

France has led calls for Europe to respond with state
support of its own for European companies, including through a
“‘Buy European’ act” and large-scale subsidies.

While not as vocal about the possibility for a massive
subsidy programme, Germany has shown interest in supporting
European industry, although its coalition-led government is far
from united about how to do so.

European governments can also pool resources to subsidise
cross-border projects deemed to be in the broader EU interest,
but getting such initiatives approved by the European Commission
can often prove long and complicated.

With a number of big projects in the pipeline, French
Economy Minister Bruno Le Maire and his German counterpart
Robert Habeck last month called on the Commission to streamline
and speed up the approval process.

Von der Leyen said that the EU’s state aid rules should be adapted in response to the US green subsidy push.

READ MORE: Biden, Macron vow to work closely to help Ukraine, pressurise Russia

Source: Reuters