The EU is working hard with the US government on a plan to relax clauses in the Inflation Reduction Act that discriminate against European manufacturers. EU Commission President Ursula von der Leyen could present an agreement in principle during her visit next week, an EU official confirmed after talks in Washington. The top trade representative of the US government, Katherine Tai, expressed confidence in a Bloomberg interview that the conflict with the EU would be resolved.
Winand von Petersdorff-Campen
Economic correspondent in Washington.
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In essence, it is about a clause in the Inflation Reduction Act, which grants buyers full subsidies for electric cars if so-called critical materials in the traction battery initially come to 40 percent (later 80 percent) from North America including Canada and Mexico, or from countries with which the USA has free trade agreements. The EU does not belong to this circle, nor does Japan and Great Britain.
Now, however, a solution is emerging. The US Treasury Department had shown the legal path when it made it clear that the term free trade agreement is not defined in the law. This opened up scope for less comprehensive agreements below a classic free trade pact.
Time for agreement is pressing
There is now a limited trade agreement between the two economic blocs on critical materials, which include clauses on sustainable promotion and worker protection. The American government could fix such an agreement by executive order, the EU member states would have to ratify it. The procedure would have the advantage of leaving the US Congress out. Democratic Senator Joe Manchin, one of the main authors of the Inflation Reduction Act, had already sharply criticized attempts to water down the law and threatened legislative action. Brussels apparently does not expect EU countries to object to such an agreement.
Time is running out for such an agreement. The US Treasury Department wants to make public in March how the subsidy rules are to be interpreted. Days to a few weeks are needed to formulate the text for the agreement, the EU official said. Ratification by the EU states could take more time.
From the EU's point of view, such an agreement would be the second breakthrough in negotiations with the United States: In December, both sides agreed that the rules for local production should not apply to leased vehicles. This will allow American consumers to take advantage of the full subsidy in the form of a $7500 tax credit if they buy European electric cars and meet the other eligibility criteria.