February 3, 2023

Britain joins international criticism of Joe Biden’s huge US package of green subsidies, warning that they are protectionist and will hit UK manufacturers of electric vehicles, batteries and other renewables.

Kemi Badenoch, the UK’s international trade secretary, has written to her US counterpart, Katherine Tai, to protest the structure of the Biden administration’s effort to green the economy.

The Inflation Reduction Act (IRA), passed by Congress in August, includes tax credits for green technologies to attract investment to the US and reduce carbon emissions.

The EU, South Korea and Canada are among those who argue that the law violates World Trade Organization rules by linking aid to US domestic production, but so far Britain has kept a low profile about the matter.

Badenoch claimed in her letter, seen by the Financial Times, that the US plan would “damage multiple economies around the world and affect global supply chains in batteries, electric vehicles and broader renewables.”

While she welcomed US efforts to tackle climate change, Badenoch warned that they should not come at the expense of free trade and that both sides must abide by the rules of the international trading system.

One particular annoyance is a provision to limit a $7,500 subsidy for electric vehicle purchases to vehicles largely made with parts from North America and assembled there.

The raw materials for batteries should come from countries with a free trade agreement with the US, with the exception of the EU and the UK.

However, President Biden has hinted that the provision could be interpreted as “allies” since Congress, when it wrote the law, had no intention of excluding them.

This month, the U.S. Treasury Department said it planned to release more information before the end of the year on “the expected direction” of the critical minerals and battery components of the IRA’s tax credit scheme, but would not release it until March. release full details.

Badenoch said in her letter that if special deals are on the table, Britain should get one: “The UK, as the closest ally of the US, expects and should be part of all the flexibility in implementing the IRA .”

“We are not sitting back,” said a Badenoch ally. “We talk to the US about this almost every day.” Badenoch said any protectionism would benefit “our most prominent competitors” – seen as referring to China.

Britain, with its strained public finances, is in a similar position to a number of EU countries that would be very reluctant to enter into a subsidy race with Washington.

Biden has promised “tweaks” in how the legislation will be implemented and has already delayed changes to electric vehicles from January to March.

A joint EU-US task force is identifying potential improvements that could be made without sending the law back to Congress. The US Treasury Department and the Internal Revenue Service are currently consulting with industry on how to implement the legislation.

US allies hope the gray areas in the bill’s language can be used by Treasury officials to mitigate the impact on foreign companies.

EU officials hope they can exploit a loophole that would prevent commercial vehicles from having to be assembled in the US to qualify for the $7,500 consumer tax credit. Vehicles leased by private individuals would, according to those in the know, qualify as commercial sales.

The EU has said it is working on overhauling its subsidy rules so that more money can be channeled to companies facing US competition.

Mike Hawes, chief executive of the UK’s Society of Motor Manufacturers and Traders group, said: “The UK and US motor industry have a long-standing and productive relationship, supporting jobs and vehicle production across the Atlantic. supporting fair trade between us should therefore be encouraged, rather than measures that try to protect individual markets.”

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