New Rules for Investments: How the EU intends to respond to US subsidies

Status: 04.12.2022 7:55 p.m

With its investment program for climate protection, the USA has drawn a great deal of displeasure from the EU. Commission chief von der Leyen has now outlined how Brussels could react: with more money and fewer regulations.

In the conflict over US subsidy policy, EU Commission President Ursula von der Leyen has called for a change of course in European investment policy. Von der Leyen proposes, among other things, to relax the EU regulations for public investments. In addition, additional European funds must be made available to promote clean technologies, she said in a speech at the College of Europe in Bruges. Von der Leyen also mentioned cooperation with the USA on industrial standards and the purchase of critical raw materials.

Von der Leyen did not say how much additional money the EU should provide. In concrete terms, however, she suggested that the existing REPowerEU program should first be expanded. In particular, this enables investments in energy efficiency, in renewable energy and in the infrastructure of the Energy Union. In the medium term, money should then be made available for upstream research, innovations and strategic projects via the sovereignty fund that she proposed back in September.

USA want to invest 369 billion dollars

The US law “to reduce inflation”, which has been criticized in Europe, sees investments on a large scale of around 369 billion dollars. It aims to build a new industrial ecosystem in strategic clean energy sectors. Subsidies and tax credits exist when companies use US products or produce in the US. In the EU, this is seen as discriminatory and incompatible with World Trade Organization (WTO) rules.

Among other things, von der Leyen criticized the “double advantages” of US automakers: “As a consumer in the United States, you receive a tax reduction when buying electric vehicles if the vehicles were manufactured in North America,” von der Leyen said. “And if you’re a manufacturer of batteries for those same electric vehicles, you get a tax break if you manufacture in the US.”

In addition, this could also pull critical components and raw materials into the USA and withdraw them from the transatlantic supply chains. “We are already seeing how this could affect Europe’s own clean technology base as well, by redirecting investment flows,” von der Leyen warned. In this competition, however, the same competitive conditions would have to prevail.

“Critical Raw Materials Clubs”

With a view to cooperation with the USA, von der Leyen proposed, among other things, the establishment of a “Club for Critical Raw Materials”. The production and processing of certain critical raw materials are now controlled by China, she said. Cooperation with partners and allies in sourcing, production and processing could make it possible to break the monopoly.

It is now eagerly awaited how the EU countries will react to von der Leyen’s proposals. The federal government has repeatedly emphasized that it currently sees no need for new pan-European investment programs. In addition, member states have repeatedly argued that violations of WTO rules should not be answered by relaxing their own standards.

“America’s Decision”

The head of the Trade Committee in the EU Parliament, Bernd Lange, had previously advocated tougher action. Europe should complain to the WTO about the actions of the United States. Because what you are doing there is not compatible with international trade rules. At the same time, however, the SPD politician urges caution towards the USA: “I do not believe in starting an offensive trade war with the USA now, i.e. taking the same measures as the USA have now taken,” said Lange. “If you’re in the same boat, then it makes no sense to take the helm here alone.”

The EU doesn’t really have anything in hand to take action against the Anti-Inflation Act anyway, says State Secretary in the Federal Ministry for Economic Affairs and Energy Sven Giegold from the Greens: “It’s America’s decision how much to subsidize. That’s why we America will too “We can’t say you should subsidize less. But of course we have to ask ourselves without naivety: firstly, is this still real competition and secondly: what can Europe do for itself?”

Representatives of the USA and the EU want to meet in Washington on Monday. Then the massive European concerns about US subsidies will be discussed.

With information from Holger Beckmann, ARD studio in Brussels

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