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European Commission President Ursula von der Leyen
European Commission President Ursula von der Leyen Image: Philipp von Ditfurth/dpa/picture alliance

EU chief says bloc must act over US subsidies plan

December 4, 2022

European Commission President Ursula von der Leyen said the bloc should work with Washington amid a dispute surrounding massive subsidies and tax breaks for US-made products.


European Commission President Ursula von der Leyen said on Sunday that the bloc must take action to rebalance the market amid concern over a new US green energy subsidy package.

The $430 billion (€408 billion) US plan, dubbed the Inflation Reduction Act (IRA), aims to tackle climate change, lower the costs of medication for the elderly and reduce energy prices, among other things.

But it also offers massive subsidies and generous tax breaks for purchasing US-made products.

Only countries that have signed a free trade deal with the United States, like Canada and Mexico, can benefit from the subsidies.

This has triggered concerns in the EU that it may disadvantage European firms — from car companies to makers of green technology.

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What did von der Leyen say?

The EU must "take action to rebalance the playing field where the IRA or other measures create distortions," von der Leyen said in a speech in the Belgian city of Bruges.

She said the EU should work with Washington "to address some of the most concerning aspects of the law."

Still, von der Leyen said Brussels must also "adjust" its own rules to facilitate public investment in the environmental transition and "re-assess the need for further European funding of the transition."

Earlier on Sunday, the head of the European Parliament's Trade Committee, Bernd Lange, said the bloc should file a complaint with the World Trade Organization (WTO) over the IRA, which was passed by the US Congress in August. 

"I don't think that much will change in substance, because the law has already been passed," Lange was quoted as saying by Funke media group.

What is the EU's argument?

EU leaders say that €200 billion out of the total package is tied to provisions for domestic US manufacturing that potentially violate WTO rules.

The 27-member bloc says it cannot compete with the US tax breaks, as it is tied by EU state aid.

French President Emmanuel Macron, who was in Washington for a state visit this week, described the subsidies as "super aggressive" and warned that they could "divide the West."

Macron and US President Joe Biden, however, pledged to work not to let the subsidies spark an even larger trans-Atlantic trade dispute, even though Democratic lawmakers said they have no plans to make changes to the IRA.

In Germany, while Economy Minister Robert Habeck called for a "robust" response by Brussels to the new US subsidies, Finance Minister Christian Lindner warned against engaging in a trade war with the US.

Pointing out that the German economy is closely linked to the US market, Lindner said Berlin should "rely on economic diplomacy" to protect its commercial interests.

The German government said this week it was keen to forge an EU-US treaty to eliminate industrial tariffs, which it said would avoid a bidding war on subsidies and protective tariffs.

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Will the EU step up support for its domestic industry?

US and EU officials are due to address the issue at a meeting next week.

Lange, the Trade Committee chair, believes nothing substantial will come out of these talks. He said the EU should therefore step up its support for European industry.

Meanwhile, the EU commissioner for the internal market, Thierry Breton, told the newspaper Journal du Dimanche that the US act would create a "competitive imbalance," disadvantaging EU firms.

He called for the creation of a "European sovereignty fund" to support industrial projects in the bloc.

fb, sri/ar, sms (AFP, Reuters)

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