German Chancellor raises hopes of EU-US subsidy accord

German Chancellor Olaf Schoz raised hopes of a possible compromise over contentious clean technology subsidies ahead of an EU-US meeting in Washington on Friday, reported dpa.

Scholz said there "is good chance" of an agreement on accession conditions to supports from the United State's Inflation Reduction Act (IRA).

This would ensure that goods produced in Germany, or elsewhere in Europe "will not be viewed more skeptically" than goods produced in Canada, he said, referencing a contentious free trade provision.

European Commission President Ursula von der Leyen is meeting United States President Joe Biden to discuss the Ukraine war and secure new supplies of critical raw materials for the European Union.

Von der Leyen is also pursuing a breakthrough over EU access to subsidy provisions in the IRA.

The massive package of subsidies and tax breaks for clean technology in the US provoked EU concerns that European industries might decamp to take advantage, taking valuable skills, jobs and tax revenue with them.

US-EU talks to find solutions have been taking place since October 2022. Von der Leyen's commission is set next week to unveil its own response to the IRA, with some observers fearing a subsidies war.

One bone of contention for the EU is tax relief in the US for electric vehicles. The US Treasury however has leeway when it comes to which vehicles are eligible which may interest European industry.

A problem is the requirement that a certain percentage - increasing in the coming years - of the critical minerals for the car batteries of electric vehicles - must come from the US or be recycled in North America in order to get part of the tax break.

It is also possible that the minerals for car batteries may come from a country with which the US has a free trade agreement like Canada or Mexico. The EU has no such free trade agreement with the US.

One possibility now is to conclude a smaller arrangement with Brussels in the area of critical minerals as a compromise.

This is because the term free trade agreement is not defined in the IRA. As a result, electric vehicles manufactured in Europe could be eligible for tax credits.

Legal challenges remain due to doubts about whether such mini-agreements for individual sectors actually pass as classic free trade agreements.

A White House statement said Washington hopes after the meeting with von der Leyen to "able to start negotiations on critical minerals" and talks around transparency in subsidy support.

The joint meeting will also address support for Ukraine, which is under attack from Russia, and "challenges" from China, a senior US administration official said.

The US government official added they expect the EU and US could take additional steps to increase pressure on Russia - including by "targeting third country actors around the world who support Russia's war."