Bruges According to Ursula von der Leyen, the dispute over the massive US subsidy program for green technologies requires an industrial policy offensive by the Europeans. On Sunday, the head of the EU Commission advocated relaxing European state aid law in order to enable more government investment in the energy transition – and also to issue new community bonds for this purpose.
Von der Leyen rejected the demand to react to the protectionist climate policy of the USA with a complaint before the World Trade Organization WTO, also in order not to endanger cooperation in the Ukraine war.
The EU will respond to the US billions in subsidies “in an appropriate and well-calibrated manner,” she said. “But does this mean that in the midst of an actual war we will engage in a costly trade war with the United States? That is not in our interest,” the CDU politician clarified in a speech at the College of Europe in Bruges.
>> Read here: Is there a trade war between the US and the EU?
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The EU is faced with an “intensifying global race for clean technologies”. To do this, the Europeans would have to “do their homework” and at the same time continue talks with the Americans about how regulations from US President Joe Biden’s climate package, the Inflation Reduction Act, or IRA for short, which are obviously contrary to trade law, can be relaxed.
The IRA is a roughly $369 billion investment plan to build a new industrial ecosystem in strategic clean energy sectors. The US initiative “should get us thinking about how we can improve our state aid framework and adapt it to a new global environment,” von der Leyen said.
New EU bonds for “sovereignty fund”
In recent years, the EU has repeatedly used exemptions for future technologies to enable subsidies, for example for technologies such as electric car batteries and microprocessors.
To this end, it has launched so-called Important Projects of Common European Interest (IPCEI), i.e. important projects of common European interest. These serve to “bring groundbreaking technologies from the laboratory to their first industrial application”, as explained by von der Leyen.
In the new global competition for clean technologies, however, this approach is no longer sufficient, warned the head of the commission. It is necessary to take the “entire value chain” into account, “up to and including the mass production of the strategically most important green tech products”.
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The problem is that the EU state aid directives have so far also served to guarantee a level playing field between member states. Relaxing them could ultimately lead to a breakup of the single market.
If rich EU countries like Germany could open the floodgates for state aid in the future, while highly indebted governments like Italy would have to pay high interest rates on their state loans, the economic contradictions in Europe would continue to increase and at some point there would be calls for the reintroduction of import duties.
That’s why von der Leyen proposed setting up a “sovereignty fund” – de facto a new program for common EU bonds that could be used to finance climate-friendly industrial projects across Europe. “The new self-confident industrial policy of our competitors requires a structural response,” von der Leyen warned. Common European spending is needed for a common European industrial policy.
Proposal with great explosive power
The head of the Commission and her advisors are aware that their proposal has great political explosive force. Germany’s Finance Minister Christian Lindner (FDP) has repeatedly made it clear that he would not support any decision that would result in a new edition of the Next Generation EU corona reconstruction fund, which is fed from community debt.
There is also little sympathy for new EU bonds in Austria, the Netherlands and Denmark. But from the point of view of the Commission leadership, it is necessary to shake up political taboos so that Europe does not fall behind globally.
At the same time, von der Leyen argued that the USA and the EU could only master the challenges of the energy transition together. She pointed out that China controls the supply chain for the raw materials that are essential for green technologies. These include lithium and rare earths.
The head of the commission suggested founding a “club for critical materials” with the USA. Working with partners and allies in sourcing, production and processing gives the EU the opportunity to break the Chinese monopoly.
The EU and US government want to discuss such concepts at the meeting of the transatlantic trade and technology council, the TTC, this Monday. On the European side, the Vice Presidents of the EU Commission, Margrethe Vestager and Valdis Dombrovskis, are expected. The American delegation will be led by US Trade Representative Katherine Tai, Secretary of State Antony Blinken and Secretary of Commerce Gina Raimondo.
The most controversial topic, the billions in subsidies for electric cars made in the USA, is to be dealt with in 45 minutes – at a “working lunch”, as the schedule says. The details are to be further negotiated in a task force set up specifically for this purpose.
“Measures at the expense of Europe”
Time is of the essence: In less than four weeks, the US government plans to introduce tax breaks for buyers of electric cars. However, these only apply if the vehicles were assembled in North America and a certain proportion of the battery parts come from the USA. EU manufacturers fear disadvantages in the American market. Brussels is therefore pushing for an exception rule.
Last week, French President Emmanuel Macron personally tried to persuade US President Biden to back down. In Washington, Macron condemned the anti-inflation package as a “decision that will fragment the West”.
Foreign automakers fear discrimination in the US.
(Photo: AP)
Biden signaled a compromise and promised that the measures should “not come at the expense of Europe”. However, the US President did not hold out the prospect of a turnaround, but only promised “optimizations”.
The EU Commission does not expect the US to rewrite its law. According to the Brussels authorities, the implementation regulations could possibly be changed in the interests of the Europeans. Like South Korea and Japan, the EU is hoping for an exception rule or at least a postponement.
However, it is difficult to imagine that European companies will ultimately be granted the same advantages as American, Canadian and Mexican companies. Because the US Treasury Department, which implements the law, does not have much leeway. The subsidy passages are formulated quite clearly, any change would have to go through Congress again.
Don’t be afraid of conflict with the EU
Representatives from states with strong car manufacturers have therefore introduced an “Affordable Electric Vehicles for America Act”, a bill that would give foreign manufacturers a grace period.
But this initiative has no chance of a majority. “We will not undermine our landmark law,” Democratic Sen. Ron Wyden said Friday. Rep. Debbie Stabenow, also a Democrat, invited foreign automakers to “come over here and build more plants.” There are many politicians from both parties on Capitol Hill who do not shy away from a trade conflict with the EU.
In Washington, plans for a digital tax against American big tech companies were met with outrage. The European trade surplus for cars, especially German ones, is also viewed critically.
The US government is still trying to maintain good relations with the Europeans. During internal talks, America’s trade representative Tai advised the EU to set up its own subsidy programs. Von der Leyen has now opted for exactly this approach – and against a complaint before the WTO.
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