EU Seeks Trade Agreement With US To Unlock EV Benefits

The European Union (EU) hopes to reach an agreement with the United States as soon as next week, giving the bloc access to some of the benefits included in President Joe Biden's massive green investment plan.

According to an EU official familiar with the plans who spoke on the condition of anonymity, the two sides will try to reach an in-principle agreement next week when European Commission President Ursula von der Leyen meets Biden in Washington on issues such as access to critical raw materials, labour, and sustainability. The agreement would grant the EU equivalent status as an American free-trade partner, allowing European-made electric vehicles (EVs) to qualify for tax credits under last year's Inflation Reduction Act (IRA). While the US has FTAs with 20 countries, including neighbours Canada and Mexico, previous negotiations with the EU have never resulted in one. The new agreement could be as simple as a one-page statement stating that talks appear to be progressing towards a deal, the person said, adding that what matters is that it is legally binding and does not disadvantage the EU in comparison to other countries with FTAs. The deal could then be fleshed out in the coming days and weeks, according to the official.

The US climate package includes approximately $500 billion (RM2.24 trillion) in new spending and tax breaks over a ten-year period to promote US manufacturing and services, with certain exceptions for countries with which the US has FTAs. The law also appears to reduce America's reliance on China, its main geopolitical rival, for key inputs such as minerals required for a green energy transition. The law's emphasis on boosting American industry enraged trade partners from Asia and Europe, who saw it as a barrier to entry into the US market, particularly for automobiles. It includes a US$7,500 consumer tax credit for EVs that meet certain criteria.

The US has "indicated openness to finding ways to treat us as an FTA-equivalent partner," EU Trade Commissioner Valdis Dombrovskis told reporters last month. He claimed that such a deal would help the IRA's "discriminatory aspects" be addressed. Dombrovskis stated at the time that March would be a "significant milestone" in reaching an agreement on the IRA.