US gives concessions to EU clean carmakers in ‘Buy American’ act

The European Commission said on Thursday it “welcomes” US guidelines that allow European carmakers to benefit from Washington’s subsidy spree for clean vehicles.

With its Inflation Reduction Act (IRA), passed over the summer and coming into force on 1 January 2023, Washington plans to lavish $367 billion (€344b) in state aid to boost US manufacturing and incentives for consumers to buy American products including cars, batteries and renewable energies.

Europe has denounced parts of the bill as discriminatory, fuelling concerns that the allies could enter into a trade war and demanded to be given the same access to the American market as Canada and Mexico during negotiations held in a newly-created Task Force.

The new guidance issued by the US Treasury on Thursday “reflects the constructive engagement as part of the EU-US Inflation Reduction Act Task Force at senior official level” and represents a win-win for both sides, as it strengthens EU-US cooperation in our shared goal of fighting climate change and bolsters transatlantic supply chains”, the Commission said in a statement.

“US taxpayers will be able to take advantage of highly efficient EU-made electric vehicles and components, while EU companies that provide their customers through leases with cutting-edge clean vehicles can benefit from the incentives under the IRA,” it added.

But the EU’s executive also stressed that it continues to seek “similar, non-discriminatory treatment of EU clean vehicle producers under the Clean Vehicle Credits of the Inflation Reduction Act” and that “this scheme remains of concern to the EU, as it contains discriminatory provisions which de facto exclude EU companies from benefiting.”

It reiterated its position that some of the provisions in the bill violate international trade law and said that further discussions are needed as part of the task force to resolve outstanding European concerns.

The EU is struggling to find a response to the IRA and leaders of the 27 countries tasked the Commission earlier this month following a summit in Brussels to come up with measures to protect EU manufacturers and prevent delocalisations.

One of the main fears is that European companies, struggling with much higher energy prices than their US counterparts, could lose competitiveness, choose to freeze investments or relocate stateside to benefit from local state aid and lower energy costs.

Commission chief Ursula von der Leyen has outlined several proposals including adjusting state aid rules for the coming years “to ensure a simpler, faster and even more predictable state aid framework” with the aim of accelerating the energy transition as well as the creation of a so-called European Sovereignty Fund.

This new instrument, however, has met resistance from some member states who are wary of raising more common debt on markets.