Unresolved issues ahead of EU-US summit in Washington

If it goes as President of the European Council Charles Michel and European Commission President Ursula von der Leyen would like, the EU-US summit in Washington DC will provide evidence of a unique transatlantic harmony. Some EU diplomats have praised an "unprecedented high level of cooperation," particularly in foreign policy and security.

The two parties agree on helping Ukraine defend itself against Russia and supporting Israel in its fight against Hamas' terror. They also want to curb China's increasing yearning for power, keep Iran and North Korea in check and reach out to the Global South.

"President Biden looks forward to welcoming President Charles Michel of the European Council and President Ursula von der Leyen of the European Commission to the White House," a White House press statement dated September 28 read.

"They will advance US- EU efforts to accelerate the global clean energy economy based on secure, resilient supply chains and will continue cooperation in critical and emerging technologies, including digital infrastructure and artificial intelligence."

Concerning transatlantic trade, the statement was a little more sober: "They will also review joint activities to strengthen economic resilience and to address related challenges." 

Tariffs on steel and aluminum

In Brussels, lawmakers pointed out that there were still some sticking points about trade talks: "There are differences and EU interests that need to be defended." 

The EU has made progress in its relations with the US under US President Joe Biden compared to the time of Donald Trump's administration. While Trump imposed tariffs on steel and aluminum from the EU, Biden has at least suspended them, avoiding a long-lasting dispute at the World Trade Organization. However, negotiations to remove them completely were not concluded before the summit in Washington.

The head of the European Parliament's Trade Committee, Bernd Lange, told DW that the assumption was that the tariffs would remain suspended at least until the end of 2024, i.e. until after the US election in November 2024.

"A two-year truce on steel and aluminum tariffs expires on October 31. Now it's a matter of finding a permanent solution here. It has yet to be settled," Lange said in Strasbourg. The "truce" was negotiated at the first EU-US summit with Joe Biden in June 2021. 

US Inflation Reduction Act

Further controversy surrounds the 2022 US Inflation Reduction Act, by which the Biden administration wants to curb inflation by investing in domestic energy production and promoting clean energy. Around $370 billion (about €350 billion) will be used to subsidize mainly US companies to accelerate the green energy transition.

Though the act's impact on European companies has not been as negative as had been feared a year ago, some EU firms have decided to build new facilities to produce hydrogen, electric vehicles and other "green" products in Texas rather than Bavaria for example.

"The problem is that subsidies are only for products made in the US. That excludes European products. There is pressure to relocate," said Lange.

 

However, the US government has created a number of exceptions that allow European manufacturers to sell electric vehicles, for example on the US market, and thus also to receive subsidies. If an electric car is leased, the rule that it has to be made in the US applies less stringently.

A study by economists at the Brussels-based think tank Bruegel concluded that the fears in the EU were probably exaggerated. It also pointed out that the EU also used subsidies to attract companies.

The German giant Thyssenkrupp has received a €2 billion subsidy from the German government to construct a hydrogen-powered plant to produce green steel at its Duisburg site in western Germany. The EU's usually strict regulations on state aid were somewhat relaxed after the US Inflation Reduction Act came into effect and could be eased further in the future. 

Lack of strategy, say critics

Critics have pointed out that there is no overarching EU strategy to counter the US subsidy package. Plans for a European Sovereignty Fund were dropped earlier this year because it was deemed too expensive. Instead, almost 40% of the existing post-COVID recovery plan for Europe was set aside for green investments, some €250 million. The EU is also trying to attract or keep investors by promoting research and technology with new legislation regarding advanced semiconductors, artificial intelligence, and data processing. 

There could be a political breakthrough in negotiations on a "joint procurement club" for rare earths and minerals in Washington. The US already has a deal with Australia, which is developing its critical minerals industry. The EU could soon enjoy similar preferential treatment. However, the US and the EU remain at odds regarding the bloc's new regulations targeting large digital platforms and its artificial intelligence legislation. The US is pursuing a more liberal approach.

TTIP unlikely to be revived

Trade negotiations will no doubt continue after the Washington summit. What happens after the November 2024 elections in the US is less clear. Asked whether there is a long-term strategy should Trump return to the White House, lawmakers in Brussels respond with a shrug of the shoulders: "We also don't know who will be president of the United States after the elections."

Holger Görg from the Kiel Institute for the World Economy in northern Germany told DW that it was important that the world's largest two trading blocs draw up a comprehensive trade agreement.

"In the wake of global crises (pandemic, wars) and growing geopolitical tensions, it seems rather prudent to expand trade relations with friendly nations. The US is already one of the EU's most important trading partners, and they share similar values," he said. 

"With the implementation of the Inflation Reduction Act (IRA), the mood between the two has cooled a bit recently, so starting negotiations on a free trade agreement would be a good means of removing these misgivings."

A previous attempt at a Transatlantic Trade and Investment Partnership (TTIP) was scuttled by Trump. EU lawmaker Bernd Lange, who took part in the TTIP negotiations for years, doubts that there will be a second attempt, even if Biden wins next year's elections.

"The TTIP would make sense, but at the moment, a deal in which the US makes commitments to third parties will not be concluded. That would not get past Congress," Lange said. He said the Democrats and the Republicans in both houses would reject it. 

This article was translated from German.