EU’s relationship with US ‘on life support’ as trade talks resume

Joe Biden and Emmanuel Macron share long handshake

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New and extended tax credits worth about $375billion are intended to help the US clean energy industry, as well as buyers of qualifying electric vehicles made in North America. Democrats included the credits in the expansive climate law as a way to encourage domestic battery and electric vehicle production. But manufacturers in Europe and South Korea, who sell millions of vehicles in the US, have threatened to lodge legal complaints with the World Trade Organisation.

EU and US officials will meet today just outside Washington DC for the Tech and Trade Council where they are also expected to address the issue.

French President Emmanuel Macron who travelled to the US last week said: “The choices that have been made [by the US] … are choices that will fragment the West.”

The climate law and major legislation boosting semiconductors were not properly coordinated with Europe and created “the absence of a level playing field,” he said.

Appearing with US President Joe Biden at the White House Thursday, Mr Macron was more upbeat. He said the US and France would “resynchronise” their clean energy efforts to ensure there’s no “domino effect” that undermines projects in Europe.

Relations between the two blocs are on “life support”, according to Politico.

The Europeans likely would have a strong case if the dispute went to the World Trade Organisation, said Alan Wolff, former WTO deputy director-general.

WTO rules say that countries can’t simply hand out money for the purchase of domestically made products that face competition from abroad. “That’s where they went wrong,” said Wolff, now visiting fellow at the Peterson Institute for International Economics in Washington.

“These are prohibited subsidies as far as I can see, and I haven’t met anybody who reads it differently than I do.”

Mr Macron did not threaten to go to the WTO during his White House visit, but even if the Europeans took their case to the Geneva-based organisation, it might not accomplish anything. The WTO’s appeals process has not been functioning since late 2019 when the US — to protest what it considered unfair treatment by the WTO — blocked the appointment of new judges to replace those whose terms had expired.

While the Europeans could bring a case, if they won the first round, the United States could appeal and the dispute “would just sit there because there’s no appellate level,’’ Wolff explained.

The Biden administration could try to slow down some of the clean energy provisions to ease the European objections, but it’s unclear if that would be a long-term solution, Wolff said, adding that he was speaking “as a trade lawyer” while Biden “is looking at it as a president who wants smooth relations with his closest allies.″

There is no indication that the administration plans to make such an adjustment.

Congressional Democrats have said they have no intention of reconsidering the climate law, which passed after more than a year of negotiations without any Republican support.

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“Congress passed a law to rev up the American electric automobile industry, create good-paying American jobs and tackle climate change at the same time. I have no intention of reopening it,” Senate Finance Committee Chairman Ron Wyden, D-Ore, one of the law’s main architects, said Thursday.

“Congress values America’s partnership with the EU, but that cannot mean undermining one of the signature elements of our landmark bill,” Wyden added in a statement.

“And remember, European nations have spent decades subsidising their own prized domestic industries, from aerospace to clean energy, and passing regulations and taxes targeted solely at US tech firms in an effort to jumpstart their own digital companies. It’s a bit rich for EU politicians to be scandalised now.”

In an interview, Wyden essentially dared Macron and other EU leaders to take the dispute to the WTO. “We put a special focus on creating jobs in America. There isn’t anything in trade laws that says you can’t put a focus on creating jobs in America,” he said.

Other Democrats, including Michigan Senator Debbie Stabenow, have also said they do not intend to reopen the climate law.

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