EU seeks to ease US tariff, green subsidy threats

THE European Union will seek this week to ward off the return of Trump-era metals tariffs and to lessen the negative impact of the US Inflation Reduction Act (IRA) and its subsidies for electric vehicles.

US President Joe Biden will host European Commission chief Ursula von der Leyen and European Council head Charles Michel on Friday (Oct 20) for a one-day summit designed to show transatlantic unity towards Ukraine and economic topics.

Chief among the latter will be a proposed joint statement on steps to tackle global overcapacity of steel and aluminium and to promote sustainable production.

Washington has asked Brussels to move against Chinese steel producers in particular, in return for avoiding the re-imposition of Trump-era tariffs on EU steel and aluminium, with an end-October deadline to reach an agreement.

A number of EU countries, which would have to agree to any deal, stressed in meetings last week that measures must comply with WTO rules. Such rules preclude imposing tariffs on third countries such as China, as the US advocates, before an investigation to identify excessive subsidies or dumping.

The two sides are also trying to reconcile the EU’s carbon border tariff system with a US approach to promote a greening of its economy through subsidies.

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Those subsidies, largely in the IRA, have irked EU countries because they contain local content requirements. For example, US consumers are eligible for tax breaks of up to US$7,500 if they buy an electric vehicle, but only if its final assembly was in North America.

Half of the tax break is reliant on the extraction or processing of critical minerals taking place in a country with which the US has a free trade agreement.

The EU is hoping that the summit will also yield an agreement on critical minerals – cobalt, graphite, lithium, manganese and nickel – that would benefit EU suppliers. EU exports to the US of these minerals or products principally containing them totalled 3.5 billion euros (S$5 billion) in 2022, according to Eurostat data.