BERLIN — The EU is urgently making plans to support its core industries, fearing further US subsidies could destroy European businesses in the future, German Economy Minister Robert Habeck said.
The minister said he was working “closely” with officials in Brussels and allies in Paris to develop measures which could include requiring European manufacturers to use local products or technologies so that they qualify for EU state subsidies.
This would represent a controversial measure that would go against the traditional rules of free trade. But such radical intervention is increasingly seen as necessary in Berlin, Paris and Brussels to avert a massive exodus of high-value investment from Europe to the United States following Joe’s tax reforms and subsidies. Biden as well as rising energy prices in Europe.
Habeck said there are only ‘weeks’ left before it’s too late to meet the challenge posed by Biden’s Cut Inflation Act, which paves the way for $369 billion in grants and tax breaks for US green businesses.
“There are a lot of ingredients on the market, and they are now rapidly coming together in a response plan, in a future industrial plan for Europe,” Habeck told an industrial conference in Berlin.
Crucially, Habeck said Europe may need to enforce so-called “local content” requirements – a concept that French President Emmanuel Macron has called “Buy European”.
These local content requirements oblige producers to use a certain amount of artisanal products, technologies or raw materials in order to receive market benefits such as subsidies. For example, they could define that a European wind turbine must be made with a certain percentage of steel and technologies from inside the EU. However, these provisions are considered protectionist as they discriminate against foreign producers.
Habeck stressed, however, that such EU measures must remain in line with World Trade Organization (WTO) rules: “I will not hide the fact that WTO-compatible ‘local content’ can also be part of [of the EU’s response to the Inflation Reduction Act]“, declared the Minister of Economy to the journalists.
He also stressed the need to be quick, saying the EU’s response to US reforms should include “more precise funding programs” and “faster decision-making”.
The Minister’s comments underline how Germany is leaning towards the French position of approving such “Buy European” measures when it comes to attracting new investment in green technologies such as batteries or l ‘hydrogen.
Traditional business rules generally prohibit such “buy local” requirements. The conventional idea is that states should not be allowed to grant advantages to their local companies that are not available to foreign producers, as this would encourage governments around the world to erect these so-called protectionist trade barriers. It would be a trend that could easily lead to a collapse of the global free trade order, risking widespread economic damage.
Still, Habeck hinted at potential solutions that could allow the EU to enforce such “local content” clauses without breaching global trade rules: one possibility to do so could be an opt-out clause. WTO which authorizes certain derogations from the rules, as long as they are for the sake of preserving the environment.
“If you’re building CO2-neutral technologies, it might make sense to ship them CO2-neutral or with as low a carbon footprint as possible,” he said, outlining how the requirement to source locally could be justified as environmentally friendly.
Another option would be the “national security” exemption, a highly controversial waiver of trade rules that former US President Donald Trump used to justify protective tariffs on steel and aluminum. Habeck also hinted at this possibility, saying that the EU might have to “realize that energy policy is also security policy”.
The minister also suggested a “Buy European” clause for public procurement, arguing that European taxpayers’ money “should be spent for the benefit of the European economy”.
Habeck said that “Europe needs to recognize – similar to what we have recognized with chip production – that a certain resilience, a certain strategic sovereignty of Europe, is also needed in the industrial production of energy products”. He pledged to develop such policies “in close collaboration” with EU partners like French Economy Minister Bruno Le Maire and EU Commissioner Thierry Breton.
This article has been updated with additional comments from Robert Habeck.