May 19. 2024. 2:16

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Inflation Reduction Act: Growing no-TTIP regrets in Brussels, Berlin


After EU-US free trade agreement negotiations came to a standstill in 2017, Brussels and Berlin are showing signs of regret over the diplomatic failure, which in their view, could have prevented current tensions over the Inflation Reduction Act (IRA).

The US IRA requires 40% of the critical raw materials necessary for electric vehicle batteries or 50% of battery components to be made in the US or by a country with which the US signed an FTA.

“There is a sense that the EU would be in a better place if a US-EU Free-Trade Agreement (FTA) had been achieved, as we would probably be sitting together with Mexico and Canada on the right side of IRA”, Michel Petite, a Clifford Chance lawyer and the Commission’s former legal affairs chief (2001-2007), told EURACTIV.

Thus, manufacturers from Canada and Mexico are, as members of the North American free trade zone USMCA, eligible for tax credits granted under the IRA, which are otherwise reserved for EVs “made in the USA”.

There is a high chance that a US-EU free trade agreement would have fallen within the scope of the US IRA, Petite contended – and greatly mitigated risks onto the EU industry, which now threatens to move production capacities to the US.

The Transatlantic Trade and Investment Partnership (TTIP) was a set of international negotiations between the EU and the US. The final aim was to agree on a free trade agreement between both jurisdictions to enhance market access and streamline regulatory cooperation.

According to estimates by the Leibniz Institute for Economic Research at the University of Munich, TTIP could have raised EU and US GDP per capita by 0.5-4%.

TTIP negotiations were paused after Donald Trump won the presidential election in 2016 and officially considered “obsolete” by EU countries in 2019 after Trump’s withdrawal from the Paris Climate Accord.

By the end, negotiations had been locked in disputes over subsidies to Boeing and Airbus, digital taxation, and agriculture. Popular resistance within EU countries had also made any agreement unlikely even before Trump’s election, with over three million European citizens signing a petition against TTIP approval.

Anti-TTIP petition signed by 3 million people

More than 3 million citizens have signed a petition against the planned free trade agreements with the United States and Canada, TTIP and CETA. EURACTIV Germany reports.

Growing regrets in Berlin, too

Regrets over the failure of the Free-Trade Negotiations were expressed in the European quarters and within the German government coalition, with the liberal FDP party pushing for a revival of transatlantic talks.

The US subsidies “would not negatively affect us today as a free trade partner of the USA if German chlorine chicken scaremongers had not deliberately derailed the EU-US free trade agreement negotiations years ago,” MEP Moritz Körner (Renew Europe), who is a member of the FDP’s leadership, wrote in an op-ed in German Welt.

In November 2022, under pressure from the FDP, the German governing coalition agreed to push for a renewed attempt at a comprehensive EU-US trade deal, but experts see little chance of this happening.

Critics, however, have reiterated their opposition to Trade and Investment Agreements, claiming such deals would open the door to free-reign market liberalisation.

Similarly to TTIP, criticism was voiced when the German Bundestag ratified the EU-Canada CETA agreement because investment protection standards and the creation of an Investor-State Dispute Settlement (ISDS) mechanism posed risks to an efficient ecological transition, Cornelia Maarfield from Climate Action Network Europe told EURACTIV in December.

Difficulties ahead for German push to revitalise EU-US trade relations

The German government has proposed restarting EU-US free-trade agreement negotiations. However, it is unlikely a deal will be reached, as businesses and the European Commission set more hope on a step-by-step approach to remove trade barriers.

Canada lobbied to be eligible for “Buy American” clauses

At first, Canadian and Mexican companies, too, were left out of the scope of the IRA under US ‘local content’ requirements, explains Emily Benson from the Center for Strategic & International Studies (CSIS) in Washington, D.C.

This only changed throughout the legislative process after great efforts from the Canadians in the US to change course.

“Canada did a fantastic job of getting out and making sure that the tax credit was expanded to include Canada and Mexico as a North American economic bloc,” she told EURACTIV.

“They were up there, they were constantly educating lawmakers, and they prevailed,” she said, adding that it would be a “little disingenuous” to claim surprise over the inclusion of “local content” rules within the tax credits for electric vehicles (EVs).

“The US pursuit of content requirements is not new,” she said, adding that “we’ve had our own Buy America strategy since at least FDR”. Franklin D. Roosevelt (FDR) was the 32nd President of the United States between 1933 and 1945.

French and German economy ministers Bruno Le Maire and Robert Habeck travelled to Washington last week, still aiming for an exemption for European carmakers from “Buy American” clauses, but the expert sees little room for manoeuvre.

“The law came out of Congress, and it’s fairly specific,” Benson said.

“There is some authority for the Treasury Department to broaden the scope, but they cannot do what the European Union want short of a new legislative package, and that’s not politically viable right now,” she added.

EU leaders back green subsidy drive but leave details to Brussels

EU leaders backed the European Commission’s green industrial plan in response to the US Inflation Reduction Act at a summit on Thursday (9 February) but left the details to the EU executive, which is expected to table new proposals next month.