The UK is urging the European Union not to harm British companies as European leaders debate whether to match measures in the US Inflation Reduction Act with massive green subsidies of their own.
(Bloomberg) — The UK is urging the European Union not to harm British companies as European leaders debate whether to match measures in the US Inflation Reduction Act with massive green subsidies of their own.
Prime Minister Rishi Sunak’s administration has concerns that while the US law risks cutting market access for British companies, any EU retaliation risks magnifying the damage. The EU is concerned that the US law unfairly subsidizes American companies and is debating its response.
Why Europe Is Fuming Over America’s Green Subsidies: QuickTake
British ministers and diplomats have privately warned their EU counterparts that devising counter-proposals for their own clean power subsidies would be unfair on British firms and could breach international rules, according to people familiar with the discussions. They said it risks fomenting a global trade war. The EU has similar concerns about the US act.
The behind-the-scenes maneuvers illustrate the weakened hand British diplomats have in the wake of Brexit, caught between the might of the US and EU economies. Whereas in the past, the UK would have been part of any EU retaliation, it now risks the double whammy of being harmed by the US law and any European response to it.
The UK Department for International Trade did not immediately respond to a request for comment.
At the root of the transatlantic trade dispute is President Joe Biden’s $369 billion plan for subsidies and tax breaks to boost green industries and cut greenhouse-gas emissions. European leaders have warned that the incentives, climate programs and environmental mandates will lure investment that would otherwise flow to Europe.
‘Dangerous’
Britain has joined the EU in publicly opposing the US legislation, with UK Business Secretary Grant Shapps last week criticizing it as “dangerous” by risking a push toward protectionism.
But after it voted to leave the EU in 2016, the UK finds itself with little leverage and not much of a plan to insulate itself from the fallout, according to British officials working on the country’s response. While making representations to the US, the UK has also expressed concerns to the EU about the bloc’s plans, the people familiar said.
Specifically, the UK has said it is concerned about subsidies the EU is likely to provide its green industries in its Net Zero Industry Act, and a plan for “anti-relocation investment aid” that would prevent firms based in Europe from leaving the bloc, which it says is anti-competitive. As the UK seeks to grow its own green industries such as electric vehicle production to help achieve its net zero target by 2050, it is worried the EU measures could harm investment in British businesses.
European Commission President Ursula von der Leyen has proposed a new fund to support Europe’s green transition, and French President Emmanuel Macron called for an EU package amounting to 2% of its economic output to rival the US plans. French and German economy ministers have also said Europe must match the US scale of subsidies.
Read More: Germany and France Push for Huge Spending to Compete With US
The UK is seeking a collaborative approach with the EU to counter the US IRA, an official said, while conceding that with Britain now outside of the bloc it found itself stuck between the two sides.
Private Lobbying
One challenge for the UK is time. The bloc’s leaders are set to meet in Brussels on Feb. 9-10 to discuss a response, with some pushing for a “made in Europe” approach to help bolster domestic companies. Some capitals and officials would likely be receptive to engaging with London while others would be less inclined to do so.
While in Davos last week, UK Trade Secretary Kemi Badenoch met with her EU and US counterparts, Valdis Dombrovskis and Katherine Tai, where she shared Britain’s concerns over a global subsidies race. She urged Dombrovskis to work with the UK to respond to the Inflation Reduction Act, according to a person familiar.
So far, the UK has focused on privately lobbying the Biden administration to make amendments to the law, rather than devising its own subsidies. That’s driven, in part, because many UK ministers are ideologically opposed to protectionism and strongly believe in a free market, the person said. British officials also fret that China may benefit if supply chains for batteries are disrupted by competing protectionist measures by Western powers.
The UK is hopeful the US will make changes to allow British firms involved in US supply chains, and those with a footprint in the country, to benefit from the same tax credits, the officials said. Britain has agreed to work with Japan on its response, according to a person familiar, and the UK and US have agreed that if the US does make any amendments, the UK would be included in benefiting from them.
–With assistance from Rachel Morison and Alberto Nardelli.
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