The U.S. and European Union are discussing a possible deal on minerals and critical raw materials to allow the EU to claim benefits in President Joe Biden's sweeping new green investment plan, Bloomberg reported, citing sources.
The Inflation Reduction Act, which provides about $500 billion in new spending and tax breaks over a decade to boost manufacturing and services in the U.S., offers certain exemptions for countries that have free trade agreements with the U.S. A deal on key materials used in electric cars and batteries could allow the EU to access some of these benefits, sources said.
The law's emphasis on stimulating U.S. industry has angered Asian and European trading partners because it has pushed them out of the U.S. market, especially the auto market. The U.S. Treasury Department made it clear late last year that some benefits could accrue to countries that have trade agreements with Washington that the EU does not yet have. Treasury Secretary Janet Yellen said the problem could be solved with new deals related to minerals.
The new U.S. legislation offers consumers a tax credit of up to $7,500 for electric cars assembled in North America, as long as the raw materials for their batteries are mined or refined in the United States or in countries with which there is a free trade agreement of at least 40 percent. This means that some U.S. partners, such as Canada and Mexico, can comply with the law, while other foreign car manufacturers cannot.
Discussions between the EU and the U.S. are at an early stage.
Any agreement on minerals and raw materials, which generally aims to reduce reliance on supplies from China, could also include other countries, including potentially Indonesia and Argentina, sources said. The Biden administration is also considering whether the U.S.-led Indo-Pacific Economic Structure, which includes Japan and South Korea, should be considered an agreement that would allow participating countries to benefit from the new law.
The U.S. will probably want to focus only on the extraction and processing of essential minerals used in vehicles, while the EU wants any agreement to include recycled materials as well.
Some EU leaders argue that the Inflation Reduction Act unfairly subsidizes U.S. companies and does not comply with World Trade Organization rules. Earlier this month, Belgian Prime Minister Alexander De Croo accused the U.S. of trying to lure the green industry across the Atlantic.