Biden manager bows slightly to European pressure in trade dispute – POLITICO

Biden manager bows slightly to European pressure in trade dispute - POLITICO

The law and the new electric vehicle tax credit have increased trade tensions between the United States and other leading auto-producing countries, such as France, Germany, South Korea and Japan. Especially European leaders have publicly expressed their concerns with President Joe Biden that the tax credit and other IRA provisions subsidizing clean energy in the US could be the death knell for European industry as investment is shifted to the United States. Legislators of Congress have been shamelesssaying they created the law to boost US jobs and electric vehicle production.

A spokesman for the White House National Security Council indicated they did not expect the latest statement from the Treasury Department to stop the case.

“We are committed to continuing to understand the concerns of our partners, including through the US-EU Task Force on the Inflation Reduction Act, chaired by senior White House and European Commission officials, and through bilateral channels with our other partners , including the ROK and Japan. These are regular talks and we expect talks to continue,” said the NSC spokesperson.

Treasury released a tentative list which vehicles are eligible for the credit on Thursday, and expect it to grow in the coming days as they hear from more manufacturers. That may still be shorter than the list of cars the energy department said earlier are eligible for the credit.

However, Congress also created one separate tax credit for clean company cars which is not as strict as that for sales of new consumer cars and could provide opportunities for foreign manufacturers through dealers who lease cars to consumers.

Treasury also published answers to a list of “Frequently Asked Questions” about the new tax credit to help manufacturers and consumers solve the complexity. Neither the EU nor Autos Drive America, a group representing foreign brand manufacturers, immediately responded to a request for comment on Thursday.

sen. Joe Manchin (DW.V.), who played a key role in drafting the final version of the tax credits that Biden signed into law, criticized the Treasury Department’s move and urged officials to pause implementation. The Treasury Department’s interpretation “delves into the wishes of the companies seeking loopholes and is clearly inconsistent with the intent of the law,” he said.

Why countries are concerned: The Inflation Reduction Act, which Biden signed into law on Aug. 16, immediately required electric vehicles to be assembled in North America to qualify for the $7,500 consumer tax credit.

Previously, EVs assembled outside of North America could qualify for the credit, though each automaker was capped at 200,000 vehicles before reaching the maximum.

The new North American assembly requirement eliminated many foreign-made electric vehicles that were previously qualified, angering the EU, Japan and South Korea and raising the prospect of a legal challenge to the World Trade Organization.

The EU, home to major automakers such as Volkswagen, BMW and Mercedes-Benz, is concerned that the EV tax credit will siphon investment from Europe in favor of the United States. However, South Korea has an opposite concern.

The largest auto company, Hyundai, has already announced plans to build a $5.5 billion electric vehicle facility in Georgia that will not become operational until 2025.

The South Korean automaker has asked the Treasury Department for a grace period so it can continue importing cars that qualify for the credit until its Georgia plant begins production. However, the Treasury white paper does not address that issue, potentially leaving the automaker out in the cold. A spokesman for Hyundai said the company is still reviewing the latest statements from the Treasury Department.

Important Battery Terms: The guidelines released on Thursday offer more hope for foreign producers of batteries for electric vehicles. The IRA introduced separate requirements for critical minerals and other battery components on Jan. 1 that Congress intended to encourage more production in the United States. An additional provision due to take effect in 2024 would also prevent cars with materials and parts from China from qualifying for the tax credit.

To qualify for a portion of the tax credit, 40 percent of the value of the critical minerals in the battery must be mined or processed in the United States or another country with which the United States has a free trade agreement. That level rises to 80 percent by 2027. The critical minerals can also be recycled in North America to qualify.

The US currently has formal free trade agreements with 20 countries, including Canada, Mexico, South Korea and other countries in Asia, Latin America, Africa and the Middle East.

Treasury noted that the term “free trade agreement” is not defined in the IRA or any other statute, leaving the Department to come up with its own definition. This could potentially broaden the range of countries eligible for the tax credit, including the European Union which has no formal trade agreement with the US.

The Treasury Department said it would draw up a list of criteria for what qualifies as a free trade agreement with the United States in a notice of proposed regulations it plans to issue in March.

Treasury and the IRS “also expect to propose that the Secretary may identify additional free trade agreements in view of the critical minerals requirement going forward and will review any newly negotiated agreements for proposed inclusion during regulatory completion or inclusion after regulatory completion.” .”

Beginning in 2023, at least 50 percent of the vehicle’s battery components must be manufactured or assembled in North America to qualify for the other portion of the tax credit. That requirement rises to 100 percent by 2029.

IRA provided no leeway for components manufactured or assembled in free trade agreement countries, as it did for the critical mineral content requirement.

Company car tax reductions: Taxpayers who purchase electric or other clean vehicles for business purposes can also apply for a separate tax credit that has less stringent requirements than those for cars sold directly to consumers.

That could potentially create a sizable market for foreign manufacturers looking to partner with dealers to lease electric vehicles in the United States. However, companies should make sure the lease doesn’t contain any terms that could prompt the IRS to reclassify it as a sale, Treasury said.

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