There is movement in the planned agreement between the EU and the USA on critical raw materials for electric car batteries.
The EU Commission has now adopted its negotiating directives for the agreement, largely clearing the field for the start of negotiations with the USA.
After the Commission, the European Council must now adopt the negotiating directives, which would then authorise the Commission to negotiate an agreement containing provisions on a number of issues – including trade facilitation so that critical raw materials extracted or processed in the EU can be used in electric vehicles eligible for US tax breaks under the Inflation Reduction Act (IRA).
The background to the current search for a solution is a dispute over US subsidies for green technologies introduced at the turn of the year by the US government’s Inflation Reduction Act.
The EU quickly criticised that the law would lead to a migration of green technology companies to the USA and countered with its own subsidy relaxations. Efforts to reach an agreement with the USA began in the spring.
Here is the chronicle: In mid-March, US President Joe Biden and EU Commission President Ursula von der Leyen first announced their intention to negotiate an agreement on critical minerals for the batteries of electric cars. Shortly afterwards, the US government presented a concept paper for this.
In May, it was reported that negotiations between the US and the EU on the planned raw materials partnership were taking longer than expected and could drag on into the summer.
As the US daily Politico reported, citing people in the know, there was disagreement at the time over the formal shape of the agreement.
While the US is said to insist on a binding pact, the EU is pushing for a more flexible agreement that does not require the time-consuming approval of its 27 member states, the report said.
In May, the EU is even said to have discussed in private whether the agreement is still worthwhile at all.
In the communication now officially issued by the EU Commission on the negotiating directives drawn up within the EU, it now sounds like this: “Concluding an EU-US CMA will ensure that as an ally, the EU is granted a status equivalent to US free trade agreement partners pursuant to the US Inflation Reduction Act. EU firms will then be able to compete on a level playing field with US and third country competitors on the US market, such as Chile, the Republic of Korea, and Japan.”
So there is concrete talk of an equivalent to a free trade agreement that is “on a par” with it.
The EU does not outline the negotiating directives itself – understandably. The next step is for the Council to examine the proposal and adopt a decision.
The Commission “will then be able to engage in formal negotiations with the US with a view to swiftly concluding the agreement”, it says.
“Negotiating a Critical Minerals Agreement with the US is key to ensuring that the EU, as a US ally receives an FTA-like treatment under the IRA. It will ensure that the EU mining and chemical companies have fair and frictionless access to the US market and are able to supply both EU and US electric vehicle producers,” said Executive Vice-President Valdis Dombrovskis, responsible for trade.
This will ensure that EU mining and chemical companies have fair and smooth access to the US market and can supply electric vehicle manufacturers in both the EU and the US.
“We need rapid progress on this targeted agreement so that EU companies are treated the same way as US companies under the IRA. It will also strengthen our cooperation on developing clean technologies as part of the green transition, and expand access to sources of critical minerals that are sustainable, trusted and free of labour abuses.”
In 2022 alone, the EU exported €8.3 billion worth of critical raw materials, which are important for this industry.
And: according to an article in the German publication Handelsblatt published in March, one-third of all electric cars imported into the USA in 2022 came from Germany alone. If US customers could only get tax benefits from domestic manufacturers, sales would plummet.
The requirements for the US tax credit so far stipulate that an eligible vehicle must be assembled in North America (with a loophole for foreign manufacturers via leasing companies), and the amount of the subsidy also depends on the origin of the battery or battery materials.
For electric cars to be eligible, in a first step, 40 per cent of the critical minerals of the battery used must come from the US or a country with which the US has a free trade agreement.