EU Commission is still analyzing
Scholz and Habeck expect an answer to US subsidies
2/8/2023, 8:12 p.m
How is the EU reacting to the US’ $370 billion subsidy package? “The answer cannot be to raise tariffs,” warn European automakers. Chancellor Scholz and his deputy Habeck expect that the EU countries will come to an agreement. But not immediately.
Chancellor Olaf Scholz and Vice-Chancellor Robert Habeck do not expect an EU agreement on a response to US subsidies for climate-friendly technologies until March. One day before the special EU summit, Scholz said in a government statement that the EU Commission had still not submitted an analysis of the effects of the so-called Inflation Reduction Act (IRA) on European industry.
EU governments fear competitive disadvantages because Washington not only wants to pay around $370 billion in subsidies. The purchase of e-cars should only be promoted if their batteries were manufactured in North America. The Chancellor stressed that Europe should not hide when it comes to the level of its own subsidies for green technologies.
He referred to 250 billion euros in the Corona reconstruction fund, which is available for the decarbonization of European industry. “So we will take a very close look at whether and where our programs still leave gaps and how these can then be closed. But this first requires a careful analysis, as the Commission has promised,” he said. “But an unrestrained subsidy race with the US would certainly be the wrong approach.”
USA probably ready for concessions
Federal Economics Minister Habeck said the EU Commission’s proposals pointed in the right direction. However, it will only be possible to specify them between the special summit and the EU summit in March. Both Habeck and France’s Economics Minister Bruno Le Maire said during a joint visit to Washington that they had received concessions from the American government. However, the EU Commission is responsible for negotiations with Washington. “The answer cannot be to raise tariffs,” European automakers have warned EU governments.
The response to the US subsidies is a matter of dispute between the 27 EU governments. Companies need more flexible financial instruments and faster decisions, said Scholz. European state aid law must be relaxed in the areas of climate-friendly technologies. In the federal government, however, a general relaxation of state aid law is rejected.
Some EU countries also reject opening clauses for national aid that are too broad. They fear falling behind financially strong countries like Germany. After a meeting with Scholz, Italian Prime Minister Giorgia Meloni insisted on fair competitive conditions last Friday. For its part, the federal government rejects the complete flexibility of the various EU funding pots demanded by Meloni. Then there is a threat that governments will no longer invest the money in future-oriented areas, according to government circles.
IRA implementation problems
The Chancellor also called for progress on EU trade policy. Climate protection goals cannot be achieved with deglobalization. The EU agreements with New Zealand and Chile should be brought into force quickly and the negotiations with Australia, India and Indonesia should be advanced quickly. “And we also want to further deepen economic relations with the USA,” said Scholz. Economics Minister Habeck explained that there was no interest in the USA in a comprehensive trade agreement with the EU. However, an agreement is desirable for green industrial goods in order to examine common standards and norms.
According to an analysis by the German Institute for Economic Research (DIW), the USA is having problems implementing its subsidy package, which aims to link aid to whether the products come from countries with which the USA has a free trade agreement. “So far, 76 percent of the critical raw materials come from countries without a free trade agreement with the USA,” said the DIW analysis. “And more than half of selected green technologies such as photovoltaics, wind turbines or lithium batteries come from non-free trade countries.” The DIW therefore rates the specifications as unrealistic that around 60 percent of all tax breaks should relate to so-called local content regulations for production in North America.