The EU’s two biggest member states have urged the Biden administration to extend benefits contained in the US’s flagship green economy to European firms, in a bid to end what threatens to become a major transatlantic trade dispute.
In a joint paper, German economy minister Robert Habeck and French finance minister Bruno Le Maire said it was in the US and EU’s mutual interest to “swiftly find common ground” in the stand-off over the $369bn Inflation Reduction Act, calling for a “green economic partnership” with the US.
Both Paris and Berlin want to see Washington extend subsidies for American, Canadian and Mexican green technologies to “partners and allies”, including the EU.
The EU has warned that the act, which includes $369bn-worth of subsidies and tax credits for green technologies, is damaging to the bloc’s industrial base and breaches World Trade Organization rules. Brussels has created a task force with the White House aimed at resolving the dispute.
US president Joe Biden said early this month during a visit by France’s Emmanuel Macron that “tweaks” to the rules could make it easier for European companies to participate in the regime, but that the details have yet to be ironed out.
The joint French-German paper said: “It is in our mutual interest to swiftly find common ground here and to avoid disruptions to the level playing field between close partners, at a time of trustful co-operation to face the Russian war against Ukraine.”
The EU, South Korea, Japan and the UK have all criticised the subsidies for electric car manufacturers in the US and its neighbours, saying the measures were discriminatory against their companies and in violation of WTO rules.
Rules in the US regime requiring green content to be sourced locally should be waived to ensure that European products were eligible for the same tax credits that apply to US products, Habeck and Le Maire said.
In addition, Paris and Berlin want greater transparency by both sides when it comes to reporting the green subsidies that are being doled out.
Bernd Westphal, spokesman on economic policy for Germany’s governing Social Democrats, said it was only fair that the US extend preferential terms to the EU that are already on offer to Canada and Mexico, as well as waive local content rules for European firms.
“American companies operating in Europe currently have access to a whole host of EU funds and programmes, such as electric car subsidies, business development funds, access to research and technology, and all the other benefits you get from the EU single market,” he said. “So it would be good if we seek a rapprochement on this basis.”
The two EU capitals also floated steps aimed at improving Europe’s own domestic support for green technologies. This would entail a new “green industrial policy”, involving measures such as speeding up state aid approvals for transformational green technologies.
Targeted tax credits and subsidies should be permitted under fast-track procedures for industrial sectors, they said, as should measures that matched public support being offered in the US in areas including wind, heat pumps and hydrogen.
The two capitals also want to halve the time needed to gain EU approval for an Important Project of Common European Interest (IPCEI). The IPCEI regime permits member states to join forces for backing big innovative projects without flouting EU state aid rules, as long as they make a “significant contribution” to the union’s growth, jobs and competitiveness.
When it comes to additional EU spending, Paris and Berlin said that, as a first step, existing unused funds could be reoriented to building a green industrial base. In a letter to leaders last week, European Commission president Ursula von der Leyen went further, saying she wanted to “further boost” the REPowerEU plan, an energy transition vehicle, while setting up a collective sovereignty fund to support national capitals.
Additional reporting by Guy Chazan in Berlin
