Top EU Trade Official Pushing for Lenient Interpretation of Assembly for Battery Components

The top trade official in the EU, European Commission Executive Vice President Valdis Dombrovskis, said a critical minerals agreement that would secure "FTA-equivalent treatment" under the Inflation Reduction Act incentives could happen within "a few months."

The EC president and President Joe Biden had said that was their goal earlier this month (see 2303100073). The IRA says that for electric vehicles assembled in the U.S., Mexico or Canada, $3,750 of a buyer's tax credit is dependent on North American battery components, and $3,750 is dependent on the percentage of critical minerals in that battery coming from either the U.S. or a country that has an FTA with the U.S.

Dombrovskis, who was speaking to the EU parliament in Brussels on March 20, said the U.S. is working on a similar arrangement with other countries, "notably Japan, but maybe also other countries which have similar concerns" with the Inflation Reduction Act.

Dombrovskis reminded EU politicians that the EU had already secured some market access for European EVs through the Treasury Department's interpretation of the commercial vehicles tax credit. That will allow dealerships to benefit from the $7,500 credit when they lease cars to consumers, and the cars do not have to be assembled in North America.

But he said the EU is still pushing for other flexibilities, asking that "to the extent possible, simple or minimal domestic assembly requirements on battery components" would cause those battery components to qualify for the tax credits, and that not all battery components be tracked for the calculations.

Generally, in customs law, minimal assembly has not been enough to cause a product to be considered originating from the country where that minimal assembly occurred.

Dombrovskis said, with regard to how stringent local assembly requirements for battery components would be, "I don't have much kind of concrete progress to report on these ones. Those are the topics we're raising. I was doing so when I had a conversation with [Treasury Secretary] Janet Yellen a couple of weeks ago. The Task Force is working on those issues," he said, but he added that it "remains to be seen how much we'll be able to achieve on this."

Having good access to American consumers in EVs and other green transition technologies is important, because that will "grow economies of scale," he said, and support European industrial competitiveness.

Bernd Lange, chair of the EU parliament's committee on trade, asked Dombrovskis if this critical raw materials agreement would need to be ratified by the EU parliament or by Congress. He noted that Sen. Joe Manchin, D-W.Va., has said he does not think that the EU should get preferential access for critical minerals processed or recycled in Europe, and that he introduced a bill to clarify the statute.

Dombrovskis said when he and other EU leaders have talked to Biden administration officials, they said "that they would not expect legislative changes to the IRA."

Dombrovskis was also asked about ongoing talks between the U.S. and the EU on getting rid of tariff rate quotas for steel and aluminum and the prospects for preserving the trade peace achieved after at least temporarily resolving the lengthy Airbus-Boeing subsidies dispute. The latter resulted in lowered tariffs on both sides, but is contingent on an agreement to be worked out over five years on how to both discipline domestic aircraft subsidies and to protect both markets from overly subsidized aircraft made in other countries.

On aircraft, he said that EU and Office of the U.S. Trade Representative officials are focusing on current support measures, inward investments and outward investments, and nonmarket practices by third countries. Dombrovskis said there was a meeting last week on the matter. "So basically those technical exchanges are ongoing. So, which is now quiet on the political agenda. But once the work continues, it's not forgotten."

Lange asked the EVP about the Section 232 tariffs (now replaced by tariff rate quotas for EU exports).

Dombrovskis said the EU and the U.S. want to address both global overcapacity and environmental sustainability in steel and aluminum production.

"So we seek a permanent solution with a goal of establishing normal and undistorted trade in the steel and aluminium sectors, meaning lifting the remaining 232 tariff rate quotas," he said. The EU said the first draft proposal from the U.S. is comprehensive and balanced. "We continue to stay in close contact and engagement is very intensive" because they have a deadline of this October.

He said it's not clear whether the EU will need to change its laws, or Congress will have to vote to implement an agreement, if it's reached.