EU seeks to avoid trade war

France, Germany call on US to amend inflation act to ensure fair competition

France and Germany have urged the United States to avoid a full-blown transatlantic trade war by amending Washington's Inflation Reduction Act, to ensure European economies are not the victims of unfair competition.

Germany's Economy Minister, Robert Habeck, and France's Finance Minister, Bruno Le Maire, said in a joint paper sent to the US that the billions of dollars of government subsidies and tax credits contained within the Inflation Reduction Act — for US enterprises working in green technologies — deliver an unfair advantage.

The act, which calls for subsidies and tax breaks to also be extended to Mexican and Canadian companies because of a free-trade deal between the nations, should also allow for benefits to extend to European enterprises, the ministers said.

Habeck and Le Maire added that the exclusion of non-US companies from the subsidies likely breaches World Trade Organization rules.

"It is in our mutual interest to swiftly find common ground here and to avoid disruptions to the level playing field between close partners," they wrote.

Several other nations have also criticized the legislation, including the Republic of Korea, Japan, and the United Kingdom.

The European Union is especially concerned about tax breaks offered through the act that are only payable to US companies if they use North American components in their green technologies.

Bernd Westphal, a spokesman on economic policy for Germany's governing Social Democrats, told the Financial Times newspaper Europe should not be excluded from the preferential treatment.

"American companies operating in Europe currently have access to a whole host of EU funds and programs, such as electric car subsidies, business development funds, access to research and technology, and all the other benefits you get from the EU single market," he said. "So, it would be good if we seek a rapprochement on this basis."

In the meantime, the EU is drafting legislation that would offer support to its enterprises working in the green technology sector similar to the support Washington is now offering its homegrown companies, including fast-tracked state aid, targeted tax credits, and subsidies.

Le Maire and Habeck are planning to follow up on their written paper with a trip to the US in January, when they hope to put Europe's case in greater detail.

"Our common ambition is clear: to have the EU gain undisputable leadership on green industry," the Reuters news agency quoted Le Maire as saying with regard to the EU's proposed legislation.

"Our proposals with Minister Habeck are a robust, concrete, and ambitious toolkit to make the EU the leading continent for green industries."

The Inflation Reduction Act purports to have the goal of curbing US inflation and reducing national debt by investing in domestic energy production and clean power and was signed into law by US President Joe Biden in August.