Deal on US subsidies for European EVs stranded (again)

Officials failed to reach on agreement on EV subsidies for cars exported from the EU to the US. The recent negotiations were considered a last chance before presidential elections might turn the tables. However, negotiations will continue.

The EU and the US have held talks for some time to reach a bilateral agreement over EV subsidies. The incentives under President Biden’s Inflation Reduction Act are only valid for foreign countries with whom the country has a free-trade agreement, which is not the case for Europe. The EU doesn’t fence off incentives for imports, though some member states took similar initiatives, like France linking the bonuses to the CO2 footprint, which includes transport.

Erased paragraph

At the meeting at the Trade and Technology Council (TTC), negotiators from both parties left the table without a conclusive deal. This forum is a recurring dialogue but the last before the Americans vote for a new president, and as such regarded a last chance to have reached an agreement before the outlook might change drastically. Succes would seem much slimmer if Trump wins the elections, as his stance is more protectionist. He has also vowed to undo Biden’s subsidy scheme.

The steepest hurdle for an agreement is the demand from the US to reach a binding agreement, which is a headache for the EU to get approved among the 27 member states because of its time-consuming nature. According to media reports, a paragraph containing a preliminary agreement was erased.

Executive vice-president for the European Commission Valdis Dombrovski said that it was still feasible for a deal to be reached by the end of the year.

There’s a loophole

The IRA ruling demands that 40% of the critical materials in batteries for subsidized EVs must be processed in the US (or a trade ally), at an increasing rate up to 80% in 2027. The EU is asking for an exception. The problem is that many European-made EVs rely on Chinese-made batteries, with the People’s Republic denounced as a Foreign Entity of Concern (FEOC) by the Biden Administration or an actor posing an economic threat to the nation. Europe’s mineral industry is small-scale.

The raw materials partnership also depends on labour rights, with the US demanding that the risk of forced labour be detected with a subsequent product ban in the case of disrespect. The EU has passed its own laws on forced labour, but further legal issues need resolving.

Notably, under the current IRA ruling, a loophole allows for subsidising foreign-made EVs. These are eligible for the total amount of 7,500 dollars rebate if owned by a leasing company and used for commercial purposes. Debate is ongoing, as cars registered under leasing don’t necessarily need to apply to commercial use in the strictest of senses. This backdoor could see passenger cars from European and Asian manufacturers applying.

However, it will be a temporary measure, while the full list of eligible vehicles hasn’t been made public yet.