The European Union expressed concern Thursday that a new tax credit plan to encourage Americans to buy electric vehicles would discriminate against European manufacturers and violate World Trade Organization rules.
Under the new inflation reduction law, about to be passed by Congress in Washington, a tax credit of up to $7,500 would be granted to reduce the cost of an electric vehicle. To earn the credit, the electric vehicle must have a battery made in North America from minerals mined or recycled on the continent.
“The European Union is deeply concerned about this potential new transatlantic trade barrier,” said European Commission spokeswoman Miriam García Ferrer. “We think it’s discriminatory, that it discriminates against foreign manufacturers relative to American manufacturers.”
“Of course, this means that it would be inconsistent with the WTO,” he added. The commission is the executive branch of the EU and one of its responsibilities is to conduct trade with the rest of the world on behalf of the bloc’s 27 member countries.
The commission agrees that the tax credits are “an important incentive to increase demand for electric vehicles” and ultimately help reduce greenhouse gas emissions. “But we must guarantee that the measures that are taken are fair,” the spokeswoman said.
The US requirement seeks to encourage domestic manufacturing and mining, create a robust North American supply chain, and reduce the industry’s reliance on potentially disruptive overseas supply chains.
China is the one that currently dominates the production of lithium and other minerals needed to make the batteries used by electric vehicles. The world’s leading producer of cobalt, another component of batteries, is the Democratic Republic of the Congo.
But what worries the commission is the internal content and assembly requirements of the tax credit scheme, which only favors, it says, certain mineral-rich countries to the detriment of EU products exported to the United States.
EU subsidies, the commission said, favor manufacturers both domestic and foreign.