World trade: Subsidy dispute: EU and USA take important step

In the dispute between the United States and the European Union over US subsidies for green technologies, there are signs of rapprochement. US President Joe Biden and EU Commission President Ursula von der Leyen announced in a joint statement yesterday that they wanted to negotiate an agreement on minerals for car batteries “immediately” after a meeting in the White House.

Such an agreement should make it possible for electric vehicles manufactured in Europe to also qualify for US tax credits. The goal: European manufacturers should not be disadvantaged in the allocation of US subsidies. There had recently been particularly large differences on this topic.

Fear of competitive disadvantages

Von der Leyen and Biden spoke behind closed doors for around an hour and a half. It was also about other topics such as the war in Ukraine, but the subsidy dispute was reportedly the focus. The background to the dispute is a US law that provides for billions in investments in climate protection and subsidies for US industry.

In Germany and the EU, this had triggered great concerns about competitive disadvantages. The problem from a German and European perspective with the so-called Inflation Reduction Act (IRA): Many subsidies and tax credits are linked to the fact that profiting companies use US products or produce them themselves in the USA.

Agreement on electric car subsidies

A stumbling block for Europeans is the tax breaks for buyers of electric vehicles provided for in the law. These tax benefits are subject to certain requirements. These include requiring a certain percentage — and increasing in the coming years — of car battery parts to come from the US or a country with which the US has a free trade agreement. EU manufacturers of electric cars fear major disadvantages in the US market. Because the United States has various free trade agreements – for example with Canada or Mexico. However, there is no such agreement with the European Union.

The aim now is to conclude an agreement with Brussels for the area of ​​critical minerals. The term free trade agreement is not defined in the US climate law. In the joint communication from the EU Commission and the White House, there is now talk of a “targeted agreement”. After the meeting, Von der Leyen emphasized that it was agreed to work on ensuring that critical raw materials extracted in the EU would have the same access to the American market as if they had been extracted on the American market. “We will work on an agreement on that.”

Better arrangements in the future

Biden and von der Leyen also made it clear that they wanted to better coordinate their respective major subsidy programs, the IRA and the EU’s new green industry program. With the green industry program, Brussels also wants to expand access to subsidies and give the EU states more freedom for their own subsidies in the future. A new dialogue format is now planned. It should help to coordinate the respective programs in such a way that they strengthen each other. “Both sides will take steps to avoid disruptions to transatlantic trade and investment flows that could result from their respective incentives.”

The IRA is a major domestic political success for the US President. He had already made it clear in the past that he would not unravel the law again. This means that the main focus is now on room for interpretation and questions of application. Nothing will change in the basic direction of the law. Biden had recently made it clear again and again that he wanted to focus more on favoring domestic industry.

In the past, the Europeans had accused the US of protectionism. Chancellor Olaf Scholz said in January that he welcomed the fact that the US wanted to invest billions in energy and climate protection. However, the SPD politician warned that requirements for certain products should not lead to discrimination against European companies. EU and US representatives have been working in the background for months to defuse the conflict.

The Ukraine war was also an issue

Von der Leyen also used the visit to Washington to discuss Russia’s war of aggression in Ukraine with the US President. She thanked the US for their enormous help in ending dependence on Russian fuel. Both sides made it clear that they wanted to step up action against supporters of Russia.

“We are taking new steps together to target other players in third countries around the world.” The focus is on preventing Russia from circumventing sanctions. They are working in lockstep to limit Russian revenues while ensuring energy supplies in emerging and developing countries.

Concrete measures were initially not mentioned. As in the conversation with Chancellor Scholz last week, Biden raised concerns that China could support Russia with arms deliveries. In such a case, the US is considering sanctions against China. It had been signaled in Brussels and Berlin that they would support this if necessary.