Agreement in principle between Brussels and Washington
Dhe conflict between the United States and the EU on discriminatory electric car subsidies in the US “Inflation Reduction” Act, which is worth 369 billion dollars, has been settled in principle. The EU Commission and the American government have agreed on a regulation that also gives European manufacturers free access to the subsidies. EU Commission President Ursula von der Leyen announced a corresponding agreement in principle on Friday afternoon after her meeting with American President Joe Biden in the White House. A joint statement released after the two met said they intended to immediately begin negotiations on a Critical Mineral Agreement. This is to be anchored later by the G-7 countries.
Brussels and Washington are aiming for a bilateral trade agreement for critical raw materials. This allows the US government to classify the EU as a trading partner. The EU consistently points out that its own subsidy rules do not discriminate against foreign producers. At its core is a clause in the “Inflation Reduction Act” (IRA) that only grants buyers the full subsidies for electric cars if initially 40 percent (later 80 percent) of critical materials in the drive battery come from the United States – or one Country with which they have a trade agreement. That is Canada and Mexico, but not the EU. biden said before the interview in the Oval Office that they wanted to secure supply chains for America and Europe. The US Treasury Department pointed the way to a solution when it made it clear that the term free trade agreement is not defined in law.
Washington could fix such a commodity agreement by government decree (executive order) of the president, the EU member states would have to ratify it. The procedure would have the advantage of leaving out Congress, where there are critical voices about “watering down” the IRA requirements. The negotiations between the Commission and the American government about the exception for the EU, which have been going on since last year, were therefore also carried out with the utmost discretion. Similar agreements are forthcoming with Japan and the UK.
At the end of last year, the EU and the USA agreed on another exemption from IRA requirements for the auto industry. It stipulates that the rules on the proportion of local production for electric vehicles do not apply to leased vehicles. The German automobile manufacturers in particular will benefit from this. The share of leasing vehicles in the overall car market in the USA is traditionally just under a quarter. According to Commission estimates, however, it is between 50 and 60 percent for exports by German automobile manufacturers, and in individual cases even up to 80 percent.
Also Ukraine war and China in discussion
The conversations between the Leyen According to official statements, Biden should also serve the purpose of preventing a subsidy race between the two economic blocs. However, it is unclear how this is to be done in detail. Volkswagen this week put plans for a battery factory in the EU up for grabs because of the attractive US subsidy package worth around $10 billion. Now the company wants to wait to see if the EU can keep up before choosing its location.
The Commission President and Biden also spoke about the war in Ukraine in the hour-and-a-half talk. Before the Oval Office call, Von der Leyen thanked the host for America’s enormous contribution to helping Europe end its own dependence on Russian fossil fuels. In supporting Kiev, Europe and America are close partners. The President praised the EU for its role in implementing sanctions against Russia, which Washington and Brussels closely coordinated and the assistance rendered to Kiev. As in the conversation with German Chancellor Olaf Scholz last week in Washington, the President not only addressed the problem of sanctions being circumvented by third countries, particularly in Central Asia and the Caucasus, but also the renewed concern that China could directly arm Russia support.
Jake Sullivan, Biden’s national security adviser, recently said, citing intelligence, that Beijing has not yet delivered any weapons to Moscow. But one knows that the Chinese government does not rule this out. Dual-use goods, such as drones, which can be used for both civilian and military purposes, also pose a problem. Washington has announced a sharp response in the form of sanctions in the event that Beijing provides Moscow with military support. In Brussels it is emphasized that they are basically of the same opinion or that there are no major differences in the way of looking at things. scholz had also indicated in Washington that he would support sanctions in the event of Chinese arms deliveries. But he refrained from public threats.
Putin’s war against Ukraine has meant that the differences between America and the EU over the West’s China policy have been bridged to some extent. Before the Russian invasion, important EU countries, especially Germany, were skeptical about Washington’s sharper tones against Beijing. Meanwhile, also in Europe saw the challenge posed by the authoritarian regime despite major economic ties. Von der Leyen recently spoke of the fact that relations with Beijing are about concentrating on de-risking, not decoupling, i.e. reducing dependencies but not cutting trade relations.