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German, French ministers lobby US over green subsidy plans

February 7, 2023

Robert Habeck and Bruno Le Maire are in the US for talks on the Biden administration's Inflation Reduction Act. The EU argues that some of the US' green subsidy plans are protectionist and could even risk a trade war.

Robert Habeck and Bruno Le Maire speak to reporters in Washington. February 7, 2023.
Habeck and Le Maire were trying to present a united front on planned US green subsidiesImage: Bernd von Jutrczenka/dpa/picture alliance

German Vice Chancellor and Economy Minister Robert Habeck was holding talks in Washington on Tuesday focused on the controversial US Inflation Reduction Act  (IRA), which foresees huge investments in green technologies.

The EU, however, believes the IRA unfairly puts its producers at a disadvantage. 

Habeck was joined by France's Finance Minister Bruno Le Maire, as the two largest EU economies sought to portray a united front in talks with US officials including Treasury Secretary Janet Yellen. 

Major public breakthroughs are not considered likely on the trip itself, not least because officially it is the EU that's responsible for any negotiations or agreements with the US.

Habeck even tried to stress that the issue was not yet urgent, that there was time to reach a satisfying consensus.

He pointed to the IRA still being in the implementation phase, and said "we therefore have a window of a few months to reach solutions."

Robert Habeck and Bruno Le Maire walking down a street in Washington, February 7, 2023.
Strictly speaking, the talks are the EU's responsibility, but two of the bloc's heaviest domestic hitters visited D.C. together to discuss the issueImage: Bernd von Jutrczenka/dpa/picture alliance

Why is Europe perturbed by the US plans? 

A large portion of the Inflation Reduction Act, somewhere in the region of $370 billion (roughly €350 billion at current exchange rates), is earmarked for spending and subsidies designed to support the green transition in the US. 

For instance, it includes government incentives for consumers to buy electric vehicles, but only if the vehicles and batteries were produced either in the US or a country with a trade deal with the US. 

EU and US efforts to set up a free trade deal, called the TTIP, sputtered to a halt last decade, primarily because of resistance in parts of Europe at the terms proposed. 

France's Le Maire on Tuesday said it was "never our intention to change American law," but called on the US to provide "full transparency" on the extent of its subsidy schemes. He and Habeck later said the US had made assurances in this direction.

As well as Yellen, Habeck and Le Maire also spoke with Trade Representative Katherine Tai and Commerce Secretary Gina Raimondo on Tuesday.

Habeck intimated in an interview with news outlet Reuters earlier on his two-day visit that he was confident of some concessions from the US. One possible idea he floated was to negotiate equal or similar treatment for certain EU-produced goods as for those made in Mexico and Canada, which do have a trade deal with the US. 

"In that case I would be satisfied," Habeck said. "There's no need to be fussy." 

Similarly, Le Maire had said some strategic EU industries should perhaps be eligible for consideration under the US scheme. 

"I'm thinking of electric cars, I'm thinking of electric batteries, I'm thinking of critical raw materials," Le Maire said. 

The US has also signaled a willingness to compromise on the issue, without going into specifics. 

EU nerves frayed over US subsidy scheme: DW's Teri Schultz

The China balancing act

While the US argues its measures are designed to spur domestic production and make a dent in China's stranglehold on many green technology markets, the EU counters that this will not be helped by raising trade barriers for European manufacturers as well. 

Habeck said the shared US and EU goal should be to reduce China's market dominance, but argued this would be best achieved with comparable — or, better still, coordinated — EU and US policies. 

Habeck warned against excessive  protectionism or "economic decoupling," as Russia's invasion of Ukraine, COVID and other issues in recent years have made several countries, not least Germany, look more seriously at their dependence on other countries for certain key products.

"We are of course monitoring that there is a danger of measures like these piling up on top of each other," Habeck told Reuters, seemingly in reference to possible Chinese countermeasures. Nevertheless, he said, the EU and US also could not afford to be naive and would have to take some steps to protect critical domestic industries. 

Given his dual role as minister for economic affairs and climate action, but also as deputy chancellor, Habeck was also scheduled to speak with US Secretary of State Antony Blinken on Tuesday. 

msh/rt (AFP, dpa, Reuters)

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