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Trade rift between EU and US grows over green industry and jobs

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The threat of an EU-US trade war over the Biden administration’s $370 billion climate legislation has intensified, with France estimating it will lose 8 billion euros, companies being encouraged to turn to the United States.

Brussels is demanding that products made in the EU bloc have access to the same subsidies the United States offers to a range of industries to boost green technologies and tackle carbon emissions under its law on the reduction in inflation.

The IRA measures include tax breaks for buyers of US-made electric cars, as well as a range of other significant industry credits for national clean energy initiatives, such as solar, wind, nuclear and carbon capture.

Paris has claimed it will lose 8 billion euros in investment as operations are relocated to the United States to take advantage of local production subsidies, diplomats say.

With most EU member states still calculating the potential damage, bloc countries agreed on the need for Brussels to push for ‘tangible and concrete’ measures, at a meeting of ambassadors last week , they added.

French President Emmanuel Macron and German Chancellor Olaf Scholz in a meeting on Friday also reportedly reached agreement on a European response to US action encouraging its citizens to ‘buy American’

Trade tensions have grown despite attempts by the Biden administration to improve relations with Europe after four years of rancor under former President Donald Trump.

France, in particular, has been sounding the alarm in recent weeks that the IRA is unfairly protectionist. French electric car buyers are eligible for a grant of up to €7,000, regardless of where the car was made. In the United States, an income-tested rebate of up to $7,500 will apply to new locally manufactured cars.

Two major European automakers, Stellantis, which has a major US business selling Chrysler and Fiat models, and the smaller Renault, have invested heavily in making electric vehicles ahead of the 2035 deadline for the EU to phase out the conventional fuel engine cars, with many of their production sites located in Europe.

Another example of investment that could be affected is wind power. GE last year expanded its renewable energy business in Europe with the production of wind turbine blades at a plant in Cherbourg, France.

France has urged the European Commission to respond to the IRA and was working on options itself, a finance ministry source said.

Potential responses include filing a complaint with the World Trade Organization, retaliatory tariffs or an exemption to allow EU-made products to be part of the US refund program.

An exemption would allow European companies to maintain their operations in the bloc, avoiding a loss of revenue and green jobs, said a person with direct knowledge of the discussions. “We want Washington to apply the rules generously. It’s our best-case scenario. »

But U.S. trade experts are divided on what steps the Biden administration can take to address concerns from Europe, as well as Japan and South Korea, about the impact on their industries, without going back to Congress to modify the text of the legislation.

The US Treasury’s consultation with industry on how to implement the law could provide loopholes for trading partners. For example, the definition of “final assembly” could mean that cars could be imported to be completed in the United States and thus benefit from tax breaks.

US Treasury Secretary Janet Yellen told the FT earlier this month that her officials were meeting with “different parties” as they worked to draft regulations that would outline how companies could qualify for tax credits. .

The United States and the EU agreed last week to create an IRA working group, which the White House said would discuss in part “opportunities and concerns of EU producers.”

Macron argued in a prime-time television interview last week that Europe was naïve in sticking to its free trade policy.

“We need a ‘Buy European Act’ like the Americans, we have to book [state subsidies] for our European manufacturers,” he said. “You have China protecting its industry, the United States protecting its industry, and Europe being an open house.”

But German Finance Minister Christian Lindner told the FT that Europe’s response to the IRA should not be to create its own subsidy scheme. He, however, called for further talks between the EU and the US to discuss its effects.

“It’s definitely a challenge for us,” he said. “But we need to strengthen our own competitiveness in response. We will not prevent European companies from disinvesting and moving to the United States with harsh words and competing for subsidies, but by creating really excellent conditions for investing in Europe.

Reporting by Javier Espinoza and Andy Bounds in Brussels, Guy Chazan in Berlin, Leila Abboud in Paris and Aime Williams in Washington

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