EU Appreciated Flexibility in EV Battery Components Guidance; Still Asking For More

Most of the attention on the EU's hopes for better treatment under the Inflation Reduction Act electric vehicle tax incentives has been focused on the possibility that critical minerals processed, mined or recycled in the EU could qualify under content thresholds for friendshoring. However, half the tax credit is linked to North American assembly of battery components, and EU trade officials said that was not as damaging to EU interests as it could have been.

European Commission Executive Vice President Valdis Dombrovskis, the top trade official for the EU, told reporters that the EU felt that the Treasury Department's guidance last month on what constitutes battery assembly did give some flexibility to manufacturers. He said, though, as the EU has asked for flexibility in implementation, "we're seeing those are not easy discussions."

The department's guidance is that as long as "50% of the 'incremental value' of the cathode electrode, anode electrode, solid metal electrode, separator, liquid electrolyte, solid state electrolyte, battery and cells" is from North America, a North-American-made electric vehicle under a price cap will be eligible for a $3,750 tax credit tied to the battery (see 2303310001).

An EU official, speaking on background at the April 14 press conference in Washington, said the guidance "offered some leeway with the question of the components, how batteries are built up, what is in under the strict rules -- so, that is already a helpful exercise."

He added that when Treasury Secretary Janet Yellen spoke with Dombrovskis, she made clear "that further guidance will come, that the details will be worked out, and also, potentially, there could be revisions of guidance already given."

The proposed rule said that definitions of prohibited material from "foreign entities of concern" would come later, as those restrictions do not begin this year; it also asked for comments on the proposed rule, so there could be changes to the final rule based on that input.

"Of course, it's not Christmas," he added. He said it's not like the EU can make its proposal of how the incentives should work, "and it will be put into a guidance. There are limits."

Reporters pressed Dombrovskis for a timeline on when a critical minerals agreement could be finalized, but he avoided making predictions, as he had all week, saying that from his perspective, "the sooner, the better." The U.S. agreed to count Japanese critical minerals as qualifying for friendshoring requirements in the EV tax credits in late March (see 2303280052), and so Treasury guidance issued March 31 included Japan as an eligible country under the rules. Dombrovskis didn't answer a question directly of why Japan had been able to conclude a deal and the EU had not, but said, "we don't see reasons why [the] EU should be treated worse than Japan."

Dombrovskis and U.S. Trade Representative Katherine Tai, in their meeting on April 13, focused on both the critical minerals negotiations and work to reach a global arrangement on steel and aluminum. From the EU perspective, Dombrovskis emphasized, such an arrangement must lift all tariff rate quotas on European metal exports. Dombrovskis was asked if the lack of a carbon tax in the U.S. is a sticking point in the negotiations -- because a carbon border adjustment tax on steel and aluminum imports to the EU will begin in 2026. "I would not call it a sticking point, but it's certainly a complication," he replied. "It's true we have different approaches on decarbonizing economies," he said, with the EU putting a price on carbon, and the U.S. choosing not to implement a national cap and trade regime or carbon tax. But, he said, they are working to see how they can manage this difference, "respecting our different approaches," in the steel and aluminum negotiations, and in talks about smoothing the way for green trans-Atlantic trade.

He elaborated on what that could mean, saying the U.S.-EU Trade and Technology Council will work on setting common standards for specific green technologies and goods, and "avoiding new barriers on green goods and services, and reducing existing ones; by protecting a level playing field and fair competition, looking in areas like green government procurement, for example." He said these are all EU ideas, and have not all been endorsed by USTR. "We are still in discussions with [the] U.S., so what is going to be concretely in, and in which order, those discussions are still ongoing."