Europe and United States stumble over incentive agreement for EVs

According to news site Politico negotiations between Brussels and Washington on the protectionist Inflation Reduction Act, blocking EU-made EVs from incentives in the United States, are stuck in a rut. Both parties disagree on the legal framework of the deal.

Ever since Joe Biden passed the Inflation Reduction Act, favouring only American-made BEVs with batteries from their free-trade agreement for tax perks, the European Union has reached out to agree upon a special ruling for its domestically manufactured car models. Japan has such an agreement with the US.

Legal framework

Biden’s administration, which predominantly seeks to block cheap Chinese imports under the IRA ruling, wasn’t deaf from the call from Brussels. But negotiations are now in an “impasse” according to Politico. Apparently, there’s no disagreement on the nature of the deal, but the legal framework is undercutting the positive outcome.

To avoid a slow ratification from its 27 member states the European Union seeks to conclude a flexible deal, basically focused on critical materials used in electric cars from the EU – which are primarily sourced in China. Like with its other partner in the North-American region – and Japan – the USA demands a “binding trade commitment” to file under a free trade agreement legally.

Well into summer

This would need approval from all EU member states, a time-consuming procedure leading to a competitive disadvantage for the European car makers. Today, as for battery-powered cars, only the Volkswagen ID.4, built in Chattanooga, USA, is eligible for Biden’s tax incentives.

According to sources at the EU, the negotiations will now continue well into summer, which is holding bilateral negotiations with Biden’s administration and member states. “We are trying to do this as fast as possible’, said one of the Eu’s trop trade civil servants Sabine Weyand to Politico. However, behind the scenes, doubts start arising about the necessity of a deal.

World’s largest car exporter

Bidens Inflation Reduction Act passed in the summer of last year (but details were finalised only in April), favours electrified cars which are locally built with locally sourced materials according to a gradually increasing percentage. The law didn’t miss target, as several companies started realigning their investment plans, favouring American locations.

The only reaction from Europe so far was loosening its tight grip on member states’ support for industry strategies. The negotiations primarily aim at safeguarding overseas car sales in the wake of electrification. Currently, Europe is the largest car exporter in the world.