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  • By The Financial District

EU Frets At U.S. Subsidies In Inflation Reduction Act

It's been a busy week in US-European Union (EU) relations, with a state visit by French President Emmanuel Macron and the third meeting of the US-EU Trade and Technology Council (TTC).


Photo Insert: The IRA provides significant subsidies to US and international companies to produce electric vehicles (EVs) in the US, along with tax credits for US consumers purchasing EVs, if the EV were assembled in North America.



But a set of rules from President Joseph R. Biden Jr.'s Inflation Reduction Act (IRA) have been a thorn on everyone's side, Anjali Bhatt reported for the Peterson Institute for International Economics (PIIE).


The provision has rankled European leaders (and other allies like South Korea and Japan) since the bill was passed in August 2022. The IRA provides significant subsidies to US and international companies to produce electric vehicles (EVs) in the US, along with tax credits for US consumers purchasing EVs, if the EV were assembled in North America.



The EU decries the policy as discriminatory against companies attempting to export EVs to the US, claiming that IRA subsidies and credits violate World Trade Organization (WTO) rules. They are, in fact, likely to violate WTO rules, but adjudicating such a matter at the WTO is a long, bureaucratic process the EU would rather not pursue.


Instead of a fight at the WTO, European Commission president Ursula von der Leyen, in her first substantive response to the IRA, said that the EU should "adjust [its] own rules" on state aid and investment to be competitive in the global clean technology and EV markets.


All the news: Business man in suit and tie smiling and reading a newspaper near the financial district.

The US subsidies could cause clean energy investment to "leak" from the EU single market to the US, so EU must "simplify and adapt" its rules. But what happens next is very much up in the air. Biden mentioned during Macron's visit that "tweaks" could be made to the IRA to make it easier for EU companies to enter the US EV market but gave no specifics.


Major changes to the IRA would require going through Congress, which has signaled no appetite to amending the law. EU leaders are split on how to react to the laws and increase the EU's competitiveness.


Market & economy: Market economist in suit and tie reading reports and analysing charts in the office located in the financial district.

The EU's internal market commissioner, Thierry Breton, insists the EU should mirror the US policy and invest in and subsidize green technology—so much so, he dropped out of this week's TTC meeting because the amount of time dedicated to the EV tax rules in the IRA had been downgraded, no longer giving "sufficient space to issues of concern to many European industry ministers and businesses."



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