EU leaders meeting in Brussels on Thursday will focus on a trade dispute with key ally the United States that threatens to spark a subsidy race between the economic superpowers.
European Commission chief Ursula von der Leyen sent a letter ahead of the summit urging leaders to back the plan to compete with billions of dollars in new US subsidies and tax cuts for carmakers.
Brussels views the “Buy American” status for buyers of electric vehicles made mainly in the United States as discriminatory against European carmakers.
There are also concerns that Washington’s plan will drain investment from the EU to the United States and violate World Trade Organization (WTO) rules.
But, with US President Joe Biden refusing to change course beyond a few promised “tweaks”, the commission is now looking to match US action by loosening its own state aid rules and increasing public investment in clean energy.
Van der Leyen said e-vehicle subsidies included in the broader US Inflation Reduction Act (IRA) “risk leveling the playing field and discriminating against European companies”.
The EU emphasizes its close cooperation with the United States — especially supporting Ukraine and fighting climate change.
But it worries that Washington is gaining a trade advantage over the energy crisis, economic headwinds it is still recovering from the coronavirus pandemic.
– Against ‘Trade War’ –
German Chancellor Olaf Scholz, whose country is the EU’s leading car exporter, said on Wednesday that Europe was united in the dispute, but that it should be resolved through negotiations “rather than a major conflict”.
Commission Vice President Margrethe Vestager told the European Parliament that the US move was “counter-productive in terms of climate and sustainability … it is in breach of international trade rules”.
He said: “We already have a war in Europe. The last thing we need is a trade war.”
Van der Leyen’s spokesman tried to calm the rhetoric, insisting the commission was avoiding reference to “anything related to a subsidy race or a trade war”.
He and other officials stressed that they were continuing negotiations with the US administration through a special task force and preferred that route before resorting to the WTO.
European Council President Charles Michel said the EU summit was “at the heart of our concern” to review the situation in Europe and the consequences of Russia’s war in Ukraine.
The meeting was less divisive than initially feared after EU member Hungary this week waived its veto of 18 billion euros ($19 billion) in financial aid to cash-strapped Kyiv.
In return, the other countries of the bloc agreed to reduce the amount of EU funding frozen due to Hungary’s democratic backsliding to 6.3 billion euros, from the 7.5 billion euros initially recommended by the Commission.
Another 5.8 billion euros from the post-Covid recovery fund was conditionally approved for disbursement next year — if Budapest shows progress in restoring the EU’s rule of law.