Germany’s Scholz Urges EU to Move Past Subsidy Spat With US

(Bloomberg) -- German Chancellor Olaf Scholz called for closer cooperation between the US and the European Union, urging the transatlantic allies to resolve differences over green subsidies pushed by President Joe Biden’s administration.

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“We must not allow ourselves to be divided in the transatlantic relationship,” Scholz said Wednesday in a speech to lawmakers in Berlin. “On the contrary, we should work much more closely together and strengthen joint trade with the USA.”

The new US law would subsidize North American companies, including electric vehicle producers, spurring tension with the EU. France has accused Washington of pursuing a “Chinese-style” industrial policy that discriminates against non-US companies and has said it may take the US to the World Trade Organization over the law.

French President Emmanuel Macron has long pushed for a so-called Buy European Act, which would reserve public tender offers and subsidies for manufacturers on the continent.

Germany is targeting a more measured policy. Scholz’s administration wants the EU to respond to the subsidy push by streamlining how existing funds are distributed and increasing incentives at the national level, pushing back against more aggressive bloc-wide measures, people familiar with the country’s position have said.

The new German plan could irk countries pushing for a more rigorous EU-wide response since not all member states have the financial resources to support domestic companies.

In the aftermath of Russia’s war in Ukraine, Scholz said Europe’s ties to the US are more important than ever and should be strengthened.

“We Europeans share many common values and interests with our most important global partner, the United States,” he said ahead of an EU summit on Thursday. “This year in particular has shown once again how indispensable the transatlantic alliance is. This does not rule out differences on individual issues.”

European Commission President Ursula von der Leyen echoed Scholz’s sentiment on the need to smooth over relations with the US in a speech to European Parliament on Wednesday, saying now isn’t the time for a trade war. She also announced in a post on Twitter that she’ll launch a new state-aid framework in January to help accelerate the green transition.

Von der Leyen wrote in a letter to leaders Wednesday that elements of the new US law “risk un-leveling the playing field and discriminating against European companies, for example through tax credits and production subsidies.”

“It is clear that not every Member State has the fiscal space for state aid, and we need complementary European financing, including through revenues from ETS” — the Emissions Trading System, the EU’s emission permits market — “to move all together in the same direction,” von der Leyen wrote. As additional funds in the mid-term, the commission will propose a sovereignty fund in the summer to support clean-tech industry.

Scholz is pushing for the revival of free-trade talks between the EU and Washington with the goal of sealing an industrial tariff agreement or at least a reduced tariff-free economic area for those technologies that aid the green transformation, according to the people.

The German government hopes this would make it easier for the US to grant Europe similar exemptions from the Inflation Reduction Act as it did for Canada and Mexico as those exemptions are linked to their free-trade accord. Earlier this month, Biden said he saw room for tweaks in the law to “make it easier for European countries to participate,” without elaborating further.

“US investments in climate protection are an impressive contribution to the transformation of the US economy,” Scholz told lawmakers. “But they must not prevent fair competition.”

--With assistance from Iain Rogers, Richard Bravo, Jorge Valero and John Follain.

(Updates with more von der Leyen remarks in 10th, 11th paragraphs)

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