EU Rails at ‘Discriminatory’ Tax Breaks for US-Made Electric Cars

The European Union and the United States are having an ongoing dispute over electric vehicle batters that the EU says would discriminate against manufacturers in the 27-nation bloc and break World Trade Organization rules. 

The Inflation Reduction Act (IRA) was passed by Congress in August. It includes tax breaks for electric car buyers up to $7,500, but only as long as the vehicle runs on a battery built in North America with minerals mined or recycled in North America. 

The EU believes the measure has the potential to create a trans-Atlantic trade barrier discriminating against foreign producers. 

The tax credit was included in the climate and health care policy law as a way of incentivizing domestic battery and electric vehicle production.

But manufacturers in Europe and South Korea, which sell millions of vehicles in the U.S., have threatened to lodge legal complaints with the World Trade Organization.

The European Commission said last month that parts of the law can help to fight climate change by accelerating the transition away from fossil fuels to renewable, green energies. The EU’s executive branch has also expressed concerns over the potentially discriminatory nature of the electric vehicle tax credit provision. 

After talks between the EU’s trade ministers and the U.S. representative Katherine Tai, EU officials said European cars should get the same exemptions as those from Canada and Mexico. 

The Czech trade minister Jozef Sikela, whose country holds the EU’s rotating presidency, said the bloc must be realistic and see what can be negotiated. He branded the current U.S. measures as “unacceptable.” 

A task force was established between Brussels and Washington in order to find a solution. The first meeting is set for this week. The Task Force will address concerns raised by the EU. Both sides agreed on the importance of close coordination to support sustainable and resilient supply chains across the Atlantic. 

EU trade commissioner Valdis Dombrovskis said the fix will not be easy, but that it must be fixed. 

“We will give negotiations a chance before engaging in further considerations,” Dombrovskis said. 

The U.S. credits have raised particular hackles in Europe’s manufacturing powerhouse Germany, which is concerned over its massive car industry. 

Chancellor Olaf Scholz warned earlier this month that US climate protection plans that would shield domestic companies from foreign competition could trigger “a huge tariff war”.