February 7, 2023

Biden’s supervisor yields a little to European pressure in the trade clash

The law and the new electric vehicle tax credit have escalated trade tensions between the United States and other leading auto-producing countries such as France, Germany, South Korea and Japan. European leaders, in particular, They openly raised concerns With President Joe Biden saying that the tax break and other IRA provisions that support clean energy for the United States could be the death knell for European industry as investment is diverted to the United States. Congressional legislators She was unapologeticsaying they created the law to boost American jobs and produce electric cars.

A spokesperson for the White House National Security Council indicated that they do not expect the recent communications to the Treasury Department to lead to a conclusion.

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

treasury issued a preliminary list Their cars qualify for the credit on Thursday, and expect that to grow in the coming days as they hear from more manufacturers. It could still be shorter than the list of cars The Energy Department previously said are eligible for credit.

However, Congress also created a Separate tax credit for clean commercial vehicles It is not as strict as that for new consumer car sales, which can provide some opportunities for manufacturers abroad through dealerships that lease cars to consumers.

The Treasury Department has also published answers to a list Frequently Asked Questions About the new tax credit to help manufacturers and consumers sort out the complexities. Neither the European Union nor Autos Drive America, a group that represents foreign brand manufacturers, immediately responded to a request for comment on Thursday.

senator. Joe Manchin (DW.V.), who played a key role in crafting the final version of the tax breaks Biden signed into law, criticized the Treasury Department’s move and urged officials to temporarily halt implementation. He said the Treasury’s interpretation “bows to the wishes of companies looking for loopholes and is manifestly inconsistent with the intent of the law.”

Why do countries care: The Inflation Reduction Act, which Biden signed into law Aug. 16, immediately required electric vehicle assembly in North America to qualify for a $7,500 consumer tax credit.

Previously, electric vehicles assembled outside North America could qualify for the credit, though each automaker was limited to 200,000 vehicles before reaching the limit.

The new assembly requirement in North America has canceled many previously eligible overseas-made electric cars, angering the European Union, Japan and South Korea and raising the possibility of a legal challenge at the World Trade Organization.

The European Union, which includes major automakers such as Volkswagen, BMW and Mercedes-Benz, was concerned that the EV tax credit would pull investment away from Europe in favor of the United States. However, South Korea has the opposite concern.

Its largest automaker, Hyundai, has already announced plans to build a $5.5 billion electric vehicle facility in Georgia, which won’t be operational until 2025.

The South Korean automaker has asked the Treasury for a grace period so it can continue importing cars eligible for the credit until the Georgia facility begins production. However, the Treasury white paper does not address this issue, potentially leaving the automaker out in the cold. A Hyundai spokesperson said the company is still reviewing the latest Treasury data.

Important provisions for the battery: Thursday’s directives provide more hope for foreign producers of electric vehicle batteries. The IRA introduced separate requirements effective January 1 for other critical metals and battery components that Congress intended to stimulate more production in the United States. The additional ruling, which takes effect in 2024, would prevent cars with materials and parts from China from being eligible for the tax credit.

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

The United States 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.

The Treasury noted that the term “free trade agreement” was not defined in an IRA or other law, enabling the department to come up with its own definition. This could expand the pool of countries eligible for the tax credit, including the European Union that does not have a formal trade deal with the United States.

The Treasury said it would outline a list of criteria for what counts as a free trade agreement with the United States in a notice of proposed rules it plans to issue in March.

The Treasury and IRS also expect the Secretary to suggest that the Secretary may designate additional FTAs ​​for future critical mineral requirements purposes, and will evaluate any newly negotiated agreements for proposed inclusion during the rulemaking hold period or for inclusion after the completion of rulemaking.”

To qualify for another part of the tax credit, at least 50 percent of a vehicle’s battery components must be manufactured or assembled in North America, beginning in 2023. That requirement increases to 100 percent by 2029.

The IRA provided no leeway for components manufactured or assembled in FTA countries, as it did for critical mineral content requirements.

Commercial Vehicle Tax Credits: Taxpayers who buy electric or other clean vehicles for their business operations can also apply for a separate tax credit that has less stringent standards than those for cars sold directly to consumers.

This could provide a large market for foreign manufacturers who want to work with dealers to rent electric vehicles in the United States. However, companies need to take care that the lease does not contain clauses that would cause the IRS to reclassify it as a sale, the Treasury said.