Europe shows united front against Biden’s Cut Inflation Act, says it threatens industry

EU member states are strongly opposed to President Joe Biden’s Cut Inflation Act, fearing it will harm their national businesses and economies.

The sweeping US legislation, which was approved by US lawmakers in August and includes a record $369 billion in spending on climate and energy policies, was discussed by the EU’s 27 finance ministers on Tuesday. It came after the European Commission, the EU’s executive arm, said there were “serious concerns” about the design of the financial incentives in the package.

“Every minister has agreed that this is a matter of concern at European level and we have to see what the best response is,” said an EU official, who followed the ministers’ discussions but preferred to remain anonymous due to the sensitivity of the issue. problem, told CNBC.

The same official added that “there is a political consensus (among the 27 ministers) that this plan threatens European industry”.

The EU has listed at least nine points in the US Inflation Reduction Act that could breach international trade rules. One of the biggest sticking points for Europeans is tax credits for electric cars made in North America. This could pose challenges for European automakers focusing on electric vehicles, such as volkswagen.

“This is what we are ultimately looking for: that the EU be, as a close ally of the United States, in a position more like that of Mexico and Canada,” said Valdis Dombrovskis, the head of the EU trade, during a press conference. conference on Tuesday.

South Korean officials have also raised similar concerns with Europe, given that the package of measures in the United States could also restrict hyundai and others to do business in America.

A second EU official, who also followed the ministers’ talks but preferred to remain anonymous due to the sensitive nature of the issue, said the conversations were ‘not very deep’ – underlining the unity between ministers at a wider level.

The same official said French Finance Minister Bruno Le Maire had told his counterparts that he was not asking for a strong negative decision against US friends of the EU, but rather a “warning signal” for its European counterparts who need to protect the interests of European companies.

Earlier Monday, Le Maire told CNBC, “We have to be very clear, very united and very strong from the start in explaining [to] our American partners [that] what is at stake behind this Inflation Reduction Act is the possibility of preserving a level playing field between the United States and Europe.”

“A level playing field is at the heart of the trade relationship between the two continents and we don’t want to see any sort of decision that could undermine that level playing field,” he said.

French officials have long argued for strategic independence – the idea that the EU must be more independent from China and the United States, for example, by supporting its own industry. Last month, French President Emmanuel Macron suggested the EU should also consider a “Buy European Act” to protect European automakers.

“We need a Buy European Act like the Americans, we need to reserve [our subsidies] for our European manufacturers,” Macron said in an interview with France 2, adding, “You have China protecting its industry, the United States protecting its industry, and Europe being an open house.”

A working group between EU and US officials, which first met on the subject last week, will now meet weekly to discuss how to address European concerns about the Inflation Reduction Act.

The idea is “to continue to promote a better understanding of the significant progress in the Lower Costs for Families Act, our shared climate goals and the opportunities and concerns for EU producers,” the House said. White in a press release.

Despite regular contact, US officials are busy with the midterm elections and the Cut Inflation Act has already been legislated, meaning any changes would have to come during the implementation phase.

Fredrik Erixon, director of the European Center for International Political Economy, told CNBC that “it is clear that the EU has legitimate concerns about the Cut Inflation Act and the direct and indirect discrimination it contains”.

“Many of the IRA policies that take an ‘America first’ attitude will harm EU competition and businesses, and particularly in sectors where the EU is competitive, including green industries and clean technologies. The EU could go to the WTO [World Trade Organization] to solve these problems, but it is much more interesting to solve them bilaterally,” he added.