"EU to Reach Agreement with US on Electric Vehicle Subsidies as Early as Next Week"

Anonymous EU Official: "Discussion Agreement Is Approaching"

The European Union (EU) and the United States are expected to unveil a draft agreement as early as next week to resolve the conflict triggered by the U.S. Inflation Reduction Act (IRA) electric vehicle subsidy issue.

On the 3rd (local time), Bloomberg reported that both sides plan to attempt to reach a principle agreement during Ursula von der Leyen's visit to the U.S. next week. An anonymous EU official said that key issues such as critical raw materials, labor, and sustainability could be included in the agreement, and discussions between the two sides seem to be approaching a consensus.

[Image source=Reuters Yonhap News]

The EU aims to obtain a status equivalent to countries that have signed a Free Trade Agreement (FTA) with the U.S. through this agreement. To receive the maximum electric vehicle tax credit of $7,500 (approximately 9.75 million KRW) under the IRA, 40% of the battery raw materials must be U.S.-sourced. This ratio will increase to 80% by 2027.

However, there is an exception clause that treats critical raw materials produced or processed in countries with an FTA with the U.S. as equivalent to U.S.-sourced materials. Countries with FTAs have been expected to face relatively fewer issues due to this.

The EU, while actively trading with the U.S., has not signed an FTA. Therefore, the EU has pursued a separate agreement with the U.S. in the raw materials sector to receive the same exceptions as FTA countries.

Volkswagen Pure Electric Sedan Camouflaged Model 'ID.7'
[Photo by Volkswagen]

An EU official predicted that the initial outcome might be a simple one-page statement. He emphasized that the important point is to reach a legally binding agreement ensuring that "the EU does not suffer disadvantages compared to other countries that have signed FTAs with the U.S." He added that once a principle agreement is reached, the detailed contents will be elaborated over the following days or weeks.

The IRA is a law announced last summer aimed at reducing U.S. dependence on China and promoting manufacturing and services within the U.S. The scale of U.S. government spending and tax benefits under the IRA is estimated to reach $500 billion (650 trillion KRW) over the next ten years.