Berlin warms to French 'Buy European' plans as global trade rules erode

Berlin warms to French ‘Buy European’ plans as global trade rules erode

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BERLIN — Threatened by a new package of U.S. subsidies that could hammer European industry, Germany is backtracking on its longstanding objections to programs such as France’s “Buy European Act” that would lay down provisions on buying goods locally.

Berlin’s growing sympathy for the French approach is a clear sign that Germany fears the traditional trading order is collapsing, as Washington follows China’s lead with massive state support for the EU. ‘industry. As one of the most trade liberal nations in the EU, Germany has generally opposed French proposals for an interventionist industrial strategy, believing that such moves would break free trade taboos.

The calculus is changing, however, ahead of a meeting of EU trade ministers in Brussels on Friday and a meeting between German Chancellor Olaf Scholz and French Prime Minister Elisabeth Borne in Berlin.

The US Inflation Reduction Act, which provides $369 billion in grants and tax breaks to US green businesses, will be high on the agenda at both meetings. EU countries fear that US law will suck investment out of Europe and are outraged at discriminatory provisions that encourage consumers to “buy American” when it comes to buying an electric vehicle.

As time for peace talks with the United States runs out with little hope of a deal, German officials are now talking not just about channeling billions in state subsidies into key green technologies like batteries , wind energy or hydrogen, but also to create controversial requirements which would privilege, at least to some extent, European production.

German Economy Minister Robert Habeck said on Thursday that the EU needed a “strong response” to the US law, telling German daily Handelsblatt that this would mean faster approvals of government aid decisions. State by the European Commission, more subsidies and also “the purchase of local products”. “

This last point is crucial, as it points towards a “Buy European Act” called for by French President Emmanuel Macron, which would give preferences to the use of European components in crucial industries, similar to those that American law offers to products. Americans. . However, it is likely to upset other trading partners as they would be at a disadvantage.

While such local content provisions could help the EU avoid an exodus of key industries and ensure the bloc remains in the race to produce next-generation green technologies, including electric vehicles, they are considered as a sacrilege in the international trading system.

German Economy Minister Robert Habeck and Chancellor Olf Scholz, pictured November 23, 2022 | Tobias Schwarz/AFP via Getty Images

“The issue of local content is very delicate, because it is by definition very contrary to the heart of the rules of the World Trade Organization (WTO), which is not to discriminate against foreign companies”, said Elvire Fabry, senior researcher at the Jacques Delors Institute. .

Fabry warned that the EU “risks crossing the Rubicon” and losing its credibility as the guardian of global trade rules, on which the EU depends far more than the US due to its high share of foreign trade.

Speaking at an economic summit in Berlin on Wednesday, Habeck acknowledged that EU actions should remain in line with multilateral trade rules “if possible”, but also warned that in the face of unfair US trade practices and China, it was not enough to just “criticize and complain.”

Habeck said local content requirements have long been “unknown” to the EU, but pointed out that Europe has already gone down such a path in microchip production.

He suggested that such a measure could qualify for an exemption under global trade rules as long as the EU can prove that it is not about creating “domestic” advantages, but rather the “strategic need of sovereignty, also in the field of energy policy”.

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