EU reiterates US Inflation Reduction Act is discriminatory

The European Union (EU) still believes President Joe Biden’s Inflation Reduction Act (IRA) discriminates against companies in the bloc, its top trade representative said Thursday, adding that they were currently focused on a negotiated solution.

On the other hand, Laurence Boone – France’s minister of state for Europe – in Davos described the Biden administration as a wake-up call to Europe. The statement comes as France has led the criticism of the IRA from the very beginning, with President Emmanuel Macron once describing the IRA as “super aggressive” toward European companies.

EU Trade Commissioner Valdis Dombrovskis, however, said the bloc was the EU was engaged in ongoing negotiations with US officials that had allayed only some of their concerns so far.

“Our concerns are the discriminatory measures in [the] US Inflation Reduction Act, which is discriminating against EU companies,” he said in an interview with the CNBC at the World Economic Forum in Davos, Switzerland.

“We think we should be addressing the climate change and green transition jointly, building transatlantic value chains, not breaking them apart.”

When asked about any risk of the dispute escalating into a trade war, Dombrovskis said, “Currently we are focusing on negotiated solutions, we are reaching out to US authorities at different levels.”

He said, “We have a dedicated EU-U.S. task force which continues its work. We have made some progress, some of our concerns are being addressed, but there are still concerns which need to be addressed.”

On what the EU’s response would be if it was not satisfied with the outcome of negotiations, Dombrovskis said now was “not about sabre rattling”.

He added the bloc was working on its broader economic policy response to competitiveness issues given the challenges of high energy prices and the war in Ukraine, as well as the IRA. “That is set to include a review of existing EU subsidies and funds and whether they are being used most effectively.”

Dombrovskis also said they were looking to adjust the EU’s strict state aid rules to allow member states to provide more support for companies aiding the green transition, as previously called for by European Commission President Ursula von der Leyen.

“But there of course we need to be carefully framing it to maintain a level playing field within the EU single market,” Dombrovskis said.

Earlier, Ireland’s Finance Minister Michael McGrath told CNBC that the EU wanted to avoid a “subsidies race” with the US, and that any changes to state aid rules must not benefit countries with the “means and resources” to provide greater support to companies than others.

Meanwhile, Spanish Prime Minister Pedro Sanchez said Monday the EU could learn lessons from the IRA. “We need to reform some internal aspects of our industrial policies such as state aid, reducing bureaucracy and trying to send a message for the industry worldwide that’s it is Europe, and of course Spain, that is a good place to locate,” he added.

Wake-up call for Europe

“This is a wake-up call to Europe that it needs to be a lot more radical and a lot more proactive in responding to this challenge,” Boone said.

The bloc needs a three-pronged response to the situation, she said — simplifying state aid, focusing on strategic sectors, and ensuring a Europe-wide response – as supply chains will be disrupted if state aid is not increased across member countries.

Similarly, Danish energy firm Orsted CEO Mads Nipper warned that Europe needed to “shift to a totally different gear” and remove barriers to accelerating the transition.

According to Nipper, once electricity is transformed into hydrogen or liquid fuels, it changes from a regional to a global market, making it essential for Europe to remain competitive in this area.

But Nipper is “really happy” that Europe’s response to the IRA was not to fight it. “We need something as simple, as forceful and as consequential as that,” he said.

European Commission President Ursula von der Leyen on Tuesday had announced a green deal industrial plan to “ease” the regulatory environment for sectors such as wind power, heat pumps, solar power, clean hydrogen and energy storage through a so-called Net Zero Industry Act. And she wants further EU policy action on rare earths to reduce the EU’s 98pc dependency on China.

Super aggressive towards European companies

During his visit to the US last year, Macron, in a closed-door meeting with US lawmakers at the Library of Congress, reportedly said the IRA was “super aggressive” toward European companies.

The remarks came as the European leaders have complained about the legislative package, signed by Biden in August, that offers massive subsidies for US-made products, which they say unfairly disadvantages non-American companies and would be a serious blow to their economies as Europe deals with the fallout from Russia’s February invasion of Ukraine.

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