Subsidy Dispute: Habeck Hopes for Agreement During His Visit to the USA

by | 7. Feb 2023 - 15:33 | Politics

Inflation Reduction Act: Economics Minister considers “de facto free trade status” for EU in critical minerals possible.

Vice Chancellor and Economics Minister Robert Habeck traveled to Washington D.C. on Monday, where he will meet with representatives of the U.S. government together with his French counterpart Bruno Le Maire. The talks will focus on the Inflation Reduction Act (IRA), which has been causing friction in transatlantic relations for months.

The legislative package enacted by U.S. President Joe Biden provides billions in subsidies for the domestic green tech industry, including tax benefits for the purchase of electric cars. However, these must be assembled predominantly in the USA, and parts of the battery, including the critical minerals it contains, must also come from there. There are exceptions for countries with which the United States has free trade agreements, such as Canada and Mexico. The EU is not one of them and therefore fears massive disadvantages for European vehicle manufacturers. A growing number of automakers are considering increased investment in the U.S. as a production location if Europe fails to find an adequate response to the IRA, Bloomberg reports (paywall). One possible response was unveiled last week with the Green Deal Industrial Plan (we reported), which aims to ensure competitiveness in the area of climate-friendly technologies.

Meanwhile, when it comes to implementing the Inflation Reduction Act, the EU is calling for similar treatment to Canada and Mexico, even considering a complaint to the World Trade Organization (WTO). However, a working group set up to settle the conflict has already been able to negotiate some compromises, according to WirtschaftsWoche.

Industry calls for avoidance of trade conflict

Habeck told Reuters news agency he was confident that “de facto free trade status” could be achieved for the EU in the area of critical minerals for solar cells, batteries and semiconductors. He also advocated joint action to fight the climate crisis and “friendly, fair competition,” with the development of common green lead markets.

The Federation of German Industries (BDI) also urged a “cautious trade policy response to the IRA.” “The EU should promote improvements for European companies,” said BDI CEO Tanja Gönner ahead of Habeck’s trip, adding that a subsidy race or even a trade conflict should be avoided by both sides. What is needed, on the other hand, is an improvement in the framework conditions in Europe, for example through simplified planning and approval procedures as well as “meaningful support” for companies. The Green Deal Industrial Plan is a step in the right direction, said Hildegard Müller, President of the German Association of the Automotive Industry (VDA). She also calls for a strengthening of the European location and a deepening of the transatlantic partnership. It is important, however, to prevent the U.S.’s subsidy practices from triggering imitators and backlash.

Photo: iStock/SurkovDimitri

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