US-EU Working Diligently on Green Steel Standards; Grappling With EV Tax Credits

European Commission Executive Vice President Valdis Dombrovskis and U.S. Trade Representative Katherine Tai, just after their meeting Oct. 13, said they have confidence they can manage their differences over electric vehicle tax credits without the issue turning into a formal trade dispute.

The Inflation Reduction Act restricts tax credits for electric vehicles to cars and trucks assembled in North America; the credits also are dependent on a certain amount of the value of the battery and the critical minerals in the battery being sourced in North America or being sourced or processed in a country with which the U.S. has a free trade agreement. The EU and the U.S. do not have an FTA.

"We were raising questions related to the Inflation Reduction Act and concerns we're having on some of the provisions there," Dombrovskis said at their joint press conference. He said the EU wants to engage positively with the USTR and the commerce secretary "and address the issues before they become disputes."

It's not clear how much flexibility there is to accommodate the EU's concerns, as the statute's linkage of the tax credits to regional content is explicit. However, Tai said, "I have every confidence that this is something we can work through with the EU, right now, in this period of time."

A year ago, Tai and Dombrovskis lowered tensions over the 25% tariffs on EU steel and 10% tariffs on EU aluminum by instituting tariff rate quotas and by setting forth a path to remove the TRQs in two years if the EU and the U.S. could agree on a way to privilege steel that's made with a lower carbon intensity and to restrict access to their respective markets for countries contributing to non-market excess capacity (see 2111010039).

One of the tasks they have is: to develop "a common methodology for assessing the embedded emissions of traded steel and aluminum." When asked by International Trade Today how they have progressed in that goal, Tai declined to say, but added, "Let me just say the issues that you are raising are exactly the ones we are working on."

Dombrovskis said, "We are working very much with this deadline of October 2023 in mind. Our teams are in intensive contact and certainly we'll be following up also in our bilateral discussions in coming weeks and months."

Tai said the teams met just this week. "We're very conscious of that two-year deadline that we gave to ourselves," she said. "It's really important for us to make progress here."