EU Responds to US Inflation Reduction Act with "Reform of National Subsidy System"

Scheduled for Discussion at the US-EU Trade and Technology Council Meeting on the 5th

Ursula von der Leyen, President of the European Commission [Photo by Reuters]

[Asia Economy Reporter Jeong Hyunjin] The European Union (EU) has decided to reform its state aid system and consider strengthening financial support for the transition to green technology in response to the possibility of a significant reduction in investment in Europe due to the impact of the United States' Inflation Reduction Act (IRA).

According to Bloomberg and other sources on the 4th (local time), Ursula von der Leyen, President of the European Commission, said in a speech at the European University in Bruges, Belgium, "The new proactive industrial policies introduced by our competitors require a structural response."

She added, "The US Inflation Reduction Act makes us reconsider how to improve the state aid system and adapt it to the new global environment," and "While doing our homework in Europe, we will need to work with the US to mitigate competitive disadvantages."

President von der Leyen stated, "The EU must reform the state aid system to facilitate public investment in response to the Inflation Reduction Act and reconsider the need for additional financial support for the transition to green technology," adding, "We must work together with the US to address the most concerning aspects of the Inflation Reduction Act."

The 27 member states within the EU are concerned that the US Inflation Reduction Act could lure companies from Europe to the US by requiring companies to use American-made products or produce in the US to receive subsidies or tax benefits, potentially disadvantaging European companies.

Von der Leyen said, "The Inflation Reduction Act carries risks of causing unfair competition, closing markets, and dismantling critical supply chains," emphasizing the need for the EU to take action to restore balance to the playing field and improve the national financial support system.

Von der Leyen’s remarks came a day before the US-EU Trade and Technology Council meeting on the 5th, where the Inflation Reduction Act will be a main agenda item. Attendees include US Secretary of State Antony Blinken, US Secretary of Commerce Gina Raimondo, US Trade Representative Katherine Tai, EU Executive Vice-President for Trade Valdis Dombrovskis, and EU Executive Vice-President Margrethe Vestager.

Earlier, on the 1st, US President Joe Biden met with French President Emmanuel Macron and for the first time hinted at the possibility of partially modifying the Inflation Reduction Act. He said, "When passing a $360 billion (approximately 469 trillion KRW) bill related to climate change, defects that require adjustments arise," and added, "There are minor adjustments that would fundamentally make it easier for European countries to participate."