EU seeks trade deal with US to unlock EV benefits

The European Union is seeking to clinch the outlines of an accord with the US as soon as next week that would give the bloc access to some benefits included in President Joe Biden’s massive green investment plan. 

The two sides will try to reach an in-principle agreement next week, when European Commission President Ursula von der Leyen meets Biden in Washington, on issues including access to critical raw materials, labor and sustainability, according to an EU official familiar with the plans, who spoke on the condition of anonymity.

The purpose of the deal would be to grant the EU equivalent status as an American free-trade partner, which would help make European-made electric vehicles eligible for tax credits available under last year’s Inflation Reduction Act. While the US has free-trade agreements with 20 countries, including neighbors Canada and Mexico, past negotiations with the EU have never produced one.

The new agreement could be as simple as a one-page statement saying that discussions seem to be heading toward a deal, the person said, adding that what’s important is that it be legally binding and doesn’t put the EU a disadvantage compared with other countries that have free-trade agreements. The deal could then be fleshed out in the days and weeks after, the official said.

The US climate package includes about $500 billion in new spending and tax breaks over a decade to promote US manufacturing and services and gives certain exceptions for countries that have FTAs with the US.

The law also seems to lessen America’s dependence on China, its key geopolitical rival, for supplies of key inputs, such as minerals needed for a green energy transition.

The law’s focus on spurring American industry angered trade partners from Asia and Europe who saw it cutting them out of the US market, particularly for automobiles. It includes a lucrative $7,500 consumer tax credit for EVs that meet certain requirements.

US Treasury Secretary Janet Yellen has said that the administration has been looking at a critical minerals deal as a way to get the EU into compliance with the final rules of the new law, which are due around the end of this month. She said last week that such deals would likely not need the approval of Congress. 

The US has “indicated openness to find ways how to treat us as a free trade agreement-equivalent partner,” the EU’s trade chief, Valdis Dombrovskis, told reporters last month. He said such a deal would help redress “discriminatory aspects” of the IRA. Dombrovskis said at the time that March would be “an important milestone” in getting a deal on the IRA.