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BERLIN – Threatened by a new U.S. aid package that could hamper EU industry, Germany is backing off on its longstanding objections to schemes such as France’s “Buy European Act,” which would regulate the purchase of goods locally.
Berlin’s growing sympathy for the French approach is a clear sign that Germany fears the traditional trade order is melting as Washington follows China’s lead with massive state aid to industry. As one of the EU’s more commercially liberal nations, Germany has generally opposed French proposals for interventionist industrial strategy, figuring that such measures would break free trade taboos.
However, the equation is now changing ahead of a gathering of EU trade ministers in Brussels on Friday and a meeting between German Chancellor Olaf Scholz and French Prime Minister Elisabeth Borne in Berlin.
of America The Inflation Reduction Act, which provides $369 billion in grants and tax breaks to American green businesses, will be high on the agenda for both meetings. EU countries fear the US legislation will suck investment out of Europe and are reeling from discriminatory provisions encouraging consumers to “buy American” when it comes to buying an electric vehicle.
In time for peace negotiations with the United States run out of amid little hope of an agreement, German officials are now openly talking about not only channel billions of government subsidies into important green technologies such as batteries, wind power or hydrogen, but also create controversial requirements that would at least to some extent privilege European production.
German Economy Minister Robert Habeck said on Thursday that the EU needed a “strong response” to the US law. Narrator The German daily Handelsblatt that this would involve faster approvals of state aid decisions by the European Commission, more subsidies and also “procurement of local products.”
The latter point is crucial as it leans against one “Buy European law” as French President Emmanuel Macron has called for, which would give preferences to the use of European components in crucial industries, similar to those offered by American law to American products. However, it is likely to antagonize other trading partners as they would be disadvantaged.
While such local content regulations could help the EU avoid an exodus of key industries and ensure the bloc remains in the race to produce next-generation green technologies, including electric vehicles, they are considered sacrilege in the international trading system.
“The issue of local content is very difficult because, by definition, it is very much against the core of the World Trade Organization (WTO) rules, which is not discrimination against foreign companies,” says Elvire Fabry, senior researcher at the Institut Jacques Delors. .
Fabry warned that the EU “risks crossing the Rubicon” and losing its credibility as a guardian of global trade rules, on which the EU depends much more than the US because of its high share of foreign trade.
Talking on one economy summit in Berlin on Wednesday, Habeck agreed that the EU’s actions should remain in line with multilateral trade rules “if possible”, but also warned that, faced with unfair trade practices by the US and China, it was not enough just to “criticize and complain . “
Habeck said local content requirements had long been “unfamiliar” to the EU, but stressed that Europe had already taken such a path within microchip production.
He suggested that such a measure could qualify for an exception under global trade rules, as long as the EU can prove that it is not about creating “national” advantages, but instead about “the strategic need for sovereignty, including on the energy policy territory.”