world trade
Dispute over subsidies – Biden receives von der Leyen
Joe Biden, President of the USA, awaits EU Commission President Ursula von der Leyen in Washington. photo
© Matt Rourke/AP/dpa
The Europeans seemed caught off guard when US President Biden signed a law with the motto “Made in America”. In Berlin or Paris, people fear competitive disadvantages.
US President Joe Biden receives EU Commission President Ursula von der Leyen in the White House on Friday. Defusing the trade conflict surrounding the promotion of green technologies is at the top of the agenda.
At the meeting (8 p.m. CET) in the US capital Washington, the main focus should be on the dispute over a US law that provides for billions in investments in climate protection and subsidies for US industry. This has raised concerns about competitive disadvantages in Germany and the EU.
A milestone has been set
The problem from a German and European perspective with the so-called Inflation Reduction Act (IRA): Many subsidies and tax credits are linked to the fact that profiting companies use US products or produce them themselves in the USA. The law is an important domestic political success for the US President. He had already made it clear in the past that he would not unravel the law again. This means that the main focus is now on room for interpretation and questions of application. Nothing will change in the basic direction of the law.
Biden had recently made it clear again and again that he wanted to focus more on favoring domestic industry. As recently as Thursday, during a speech in the US metropolis of Philadelphia, he said: “I spoke to our European friends (…) to make it clear to them: We’re not trying to deny them anything.” But the US would be at the beginning of the supply chain – and not at the end. And even if in the end not all of the 80-year-old’s climate projects made it into the package – the law is still a milestone in US climate policy.
There are several sticking points
A stumbling block for Europeans is now tax breaks for electric vehicles. The US Treasury Department still has some leeway here when it comes to which vehicles are eligible. That could help the Europeans. A sticking point, however, is the requirement that a certain percentage—and increasing in the coming years—of critical car battery minerals must come from the United States or be recycled in North America in order to qualify for a portion of the tax break. It is also possible that the battery minerals come from a country with which the USA has a free trade agreement.
The United States has various free trade agreements – for example with Canada or Mexico. However, there is no such agreement with the European Union. One possibility is now to conclude such an agreement with Brussels for the area of critical minerals. Because the term free trade agreement is not defined in the US climate law. Then European-made electric vehicles could be eligible for tax credits. Legally, however, it should not be that easy. Because there are also doubts as to whether such mini agreements on individual sectors actually pass as classic free trade agreements.
Green industry program in response
However, a real trade war is not in Brussels’ or Washington’s interest. This is especially true at a time when the West wants to stand together in the face of Russia’s war of aggression in Ukraine. Both sides are likely to want to avoid a situation such as the years-long dispute over state aid for the US aircraft manufacturer Boeing and its European rival Airbus. The USA and the EU had subsidized their own aircraft manufacturers for many years and then sued each other before the World Trade Organization (WTO) for distorting competition. WTO arbitral tribunals had declared the subsidies illegal and allowed punitive tariffs worth billions.
Nevertheless, Germany, France and other EU states have repeatedly made it clear that there must be a European answer to the US law. Finally, EU Commission President von der Leyen presented a new green industrial program that is intended as a reaction to the US and Chinese subsidy policy. It reported an investment requirement of hundreds of billions of euros in climate-friendly technologies. To this end, Brussels wants to expand and accelerate access to subsidies and give the EU states more freedom for targeted subsidies.
It was now unclear whether Biden and vor der Leyen would present concrete solutions on Friday or more general declarations of intent. EU and US representatives have been working in the background for months to defuse the conflict. According to the US government, the joint meeting will also focus on support for Ukraine, which has been attacked by Russia, and the “challenges” posed by China.