Flagship US green tech legislation breaches global trade agreements, risks a global “race to the bottom” on clean energy incentives and could lead to retaliation, Brussels has argued.
In its first official response to the Cut Inflation Act, EU documents seen by the Financial Times show that the $369 billion package of subsidies and tax credits for producers and American consumers violates World Trade Organization treaties that say countries like the United States cannot discriminate against imported goods. some products.
Officials in Brussels also believe the package, passed in August, could trigger retaliation from the EU and other US allies.
The European Commission comments sent to US Treasury indicate that five measures offering tax credits and subsidies “contain provisions with clearly discriminatory national content requirements, in violation of WTO rules”.
“If implemented in its current form, the law not only risks causing economic damage to the United States and its closest trading partners, leading to inefficiencies and market distortions, but could also trigger a race world to cut subsidies on key technologies and inputs for the green transition,” says the document, which is to be published Monday on the U.S. Treasury’s website. “Furthermore, it risks creating tensions that could lead to reciprocal or retaliatory measures.”
The response underscores fear in European capitals that the law will hamper investment in green tech across the EU and increase the risk of a transatlantic trade war at a time of geopolitical uncertainty.
A subsidy race has already begun, with Canada saying last week that it would introduce tax credits for green investments to prevent companies from being drawn to the United States. Japan and South Korea have also publicly complained about the IRA.
The EU wants to amend nine of the provisions of the legislation, which limit subsidies and tax credits to products made in the United States or companies operating there. Incentives affect manufacturing and investment in products such as solar panels, wind turbines and clean hydrogen.
The consumer tax breaks, which provide a $7,500 subsidy for the purchase of electric vehicles, are treated slightly differently, with Canadian and Mexican products also eligible.
The commission said the US should “give EU companies the same treatment as other US trading partners”.
While the EU hailed the Biden administration’s commitment to tackling climate change, it said “the green transition is not something to be achieved at the expense of others.” American companies would gain an advantage that would allow them to outcompete others, turning the fight against climate change “into a zero-sum game”.
He also warned that the retaliation “threatens the multilateral trading system at a time when its value is more important than ever to American and European businesses.”
While some EU member states, such as France, are already calling for retaliation, EU Trade Commissioner Valdis Dombrovskis has so far preferred negotiations.
A task force made up of senior US officials and the commission met for the first time last week. The EU’s response said it “hopes to find constructive and amicable solutions”.
“The task force is a clear, high-level commitment from the United States to address the serious concerns raised by the EU regarding the law,” he added.
The US Treasury is responsible for implementing the IRA, but it has not yet clarified how much can be changed without asking Congress to rewrite the sections. Analysts say Congress is unlikely to do so because the law was a delicate compromise that only passed the Senate thanks to the casting vote of Vice President Kamala Harris.
US sales representative Katherine Tai defended the subsidies in an interview with the FT last week, but said she hoped differences with the EU could be resolved.