The trade issue that threatens to start a race for subsidies between the two economic heavyweights will be the main topic of discussion for EU leaders gathering in Brussels on Thursday. Ursula von der Leyen, the director of the European Commission, pleaded with leaders in a letter written before the summit to support a strategy to counter billions of dollars in additional US subsidies and tax breaks for automakers.
The “Buy American” requirement for buyers of electric vehicles built mostly in the United States is seen as discriminatory by Brussels towards European automakers. It is also concerned that Washington’s proposal would cause a transfer of investment from the EU to the US and that it is against WTO regulations.
However, US President Joe Biden has refused to budge from his stated position beyond a few “tweaks,” therefore the commission is now attempting to catch up with the US by relaxing its own state aid regulations and increasing public investment in greener energy. The incentives for electric vehicles included in a larger US Inflation Reduction Act (IRA), according to Von der Leyen, “risk un-leveling the playing field and discriminating against European enterprises.”
The EU emphasizes its tight partnership with the US, particularly in assisting Ukraine and combating global warming. However, it is concerned that Washington is developing a trade edge over it at a time when it is experiencing an energy shortage, economic difficulties, and is still recuperating from the coronavirus outbreak.
opposed to a “trade war”
Germany’s Olaf Scholz, the EU’s top exporter of automobiles, said on Wednesday that while Europe was unified in its disagreement, it should be resolved “rather than a massive war” through dialogue.
The US action was “counter-productive in terms of climate and sustainability… it’s also a breach of international trade laws,” Commission Vice President Margrethe Vestager told the European Parliament.
Added her: “In Europe, there is already a war. A trade war on top of it is the last thing we need.” By clarifying that the panel was avoiding any talk of “a subsidy race, or on anything akin to a trade war,” Von der Leyen’s spokesperson attempted to cool the rhetoric.
She and other officials emphasized that discussions with the US government on the matter were ongoing through a special task group and that they wanted to take that path rather than use the WTO. The situation and effects of Russia’s conflict in Ukraine, which European Council President Charles Michel said was at “the core of our worries,” were also going to be discussed at the EU summit. After EU member Hungary this week abandoned its veto of 18 billion euros ($19 billion) in financial help to cash-strapped Kyiv, the gathering was expected to be less acrimonious than previously anticipated.
In return, the other members of the bloc consented to lowering the amount of EU funds that were first suggested by the commission to be frozen due to Hungary’s democratic retreat to 6.3 billion euros from the original recommendation of 7.5 billion euros. Budapest was given the green light to receive another 5.8 billion euros from a post-Covid recovery fund in 2019, but only if it made strides toward reestablishing EU rule of law.
