Blinken Says Momentum Building on Addressing EU's IRA Trade Discrimination Complaints

With just four weeks until many of the rules for subsidies under the Inflation Reduction Act are scheduled to begin, Europeans continue to press for a strategy that includes European manufacturers rather than preferencing the North American auto industry -- and Executive Vice President Valdis Dombrovskis said, "We are leaving this meeting slightly more optimistic than we were entering this meeting."

Dombrovskis was speaking in College Park, Md., just outside Washington, where the third meeting of the U.S.-EU Trade and Technology Council began Dec. 5.

At the press conference, reporters pressed American and European officials for specifics on the "tweaks" President Joe Biden alluded to last week, as he suggested the restrictions on critical mineral inputs were meant to include all allies, not just those that have a formal free trade agreement with the U.S. (see 2212010025).

No specifics were forthcoming, but Secretary of State Antony Blinken told reporters that the two sides talked about the EV tax credit, the commercial vehicle tax credit and the critical minerals supply chain. He said their conversations built momentum on these issues.

Margrethe Vestager, the European Commissioner for Competition, said the EU presented an analysis that "shows there is a potential for fallout of the Inflation Reduction Act on the European industrial base," and that it was "really helpful" to see that the U.S. is concerned about that result. Dombrovskis said the discussion "helped us to move things forward."

A White House spokesperson suggested that the "complex implementation process" at agencies would be the mechanism to address the concerns. "No, we don’t have any plans to go back to Congress for legislative changes to the Inflation [Act] at this time," she said.

Vestager said at the press conference that while the EU wants to see an implementation of the Inflation Reduction Act that doesn't disadvantage its companies, the most important thing to remember is that the U.S. is now engaged in fighting climate change.

European Commission President Ursula von der Leyen had given a speech the day before the TTC meeting that also emphasized Europe's welcome of the U.S.'s return to ambition to fight climate change, but also the problems with a 'Buy American' logic that she said underpins part of the IRA.

She noted that its subsidies that preference North American inputs come at a time when European industry is already suffering because of sky-high energy prices on the continent as a result of the invasion of Ukraine and a rapid move away from Russian oil and natural gas imports.

"It is against this backdrop that the Inflation Reduction Act has received so much additional scrutiny in Europe, but also in the rest of the world. There is a risk that the IRA can lead to unfair competition, could close markets, and fragment the very same critical supply chains that have already been tested by COVID-19," she said.

"If you are a consumer in the United States, you get a tax break when you buy electric vehicles, EVs, if they were manufactured in North America. And if you are a battery producer for those same electric vehicles, you get a tax break if you produce in the U.S. This means that a car manufacturer gets a double benefit for producing in North America and buying parts in the U.S. What is more, this could also attract critical components and raw materials towards the U.S. and away from transatlantic supply chains. This creates, of course, an attractive investment environment on clean tech in the U.S. But we already see how this could also affect Europe's own clean tech base by redirecting investment flows. We have all heard the stories of producers that are considering to relocate future investment from Europe to the U.S.," she said.

She said with China's aggressive investments in EVs, both the U.S. and the EU have a common interest to preserve their auto industries as the industry transitions away from the internal combustion engine -- and they should establish a critical raw materials "club" so that neither region is dependent on China's critical minerals processing.

She also said that the EU should establish its own investments like those in the IRA.

"So yes, the EU will respond in an adequate and well calibrated manner to the IRA. But does this mean that we will engage in a costly trade war with the United States in the middle of an actual war? This is not in our interest. Nor in the interest of the Americans," she said. "And it would harm global innovation, too. That is why we have to work so hard in Europe and the U.S. now to address the distortions."

The TTC joint statement said: "To support our shared desire of tackling climate change, the United States and the European Union intend to launch a new Transatlantic Initiative for Sustainable Trade to advance our shared objective of achieving a green and sustainable future. We also took stock of the work of the dedicated U.S.-EU Task Force on the Inflation Reduction Act and noted the preliminary progress made. We acknowledge the EU's concerns and underline our commitment to address them constructively. We underline the TTC’s role in achieving this and in supporting a successful and mutually supportive green transition with strong, secure, and diverse supply chains that benefit businesses, workers, and consumers on both sides of the Atlantic."

The joint statement also said that the U.S. and the EU will develop a common international standard for megawatt charging systems for heavy-duty vehicles, and that a prototype developed by the industry is a good development. They want the standard adopted "by 2024 at the latest."

They also are working on joint recommendations, to be released next year, on government funding of electro-mobility charging infrastructure and recommendations on vehicle-to-grid integration pilots.