Brussels readies 'buy European' drive in response to US subsidies

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Germany's economy minister has suggested the EU could enact its own scheme of subsidies to counter the US' Inflation Reduction Act.

A German government minister has signaled the EU may be prepared to escalate a potential trade war with the US by backing its own domestic manufacturers in response to new green subsidies from Washington.

The dispute stems from provisions in the Joe Biden administration's Inflation Reduction Act that offer grants to US consumers for items such as domestically-produced electric vehicles and other environmentally-friendly technologies.

Brussels has reacted angrily to the measures, claiming that they unfairly discriminate against European imports, which could result in investment in such technology moving from the EU to the US.

Germany's economy minister Robert Habeck has now given an indication as to how the bloc may respond if changes are not made, suggesting the EU could enact its own measures to protect local manufacturers.

Politico reports he is working closely with colleagues in Brussels and Paris to develop measures, which could include providing subsidies to European manufacturers if they use domestically-made products or technologies.

He also suggested the EU could implement a "Buy European" clause for public procurement contracts in order to encourage domestic manufacturing and ensure taxpayers' money goes to help those in the bloc.

Such clauses are typically regarded as protectionist and are not permitted under standard World Trade Organization (WTO) rules. However, Mr Habeck suggested there are potential workarounds for this that would allow any measures to remain compliant with WTO rules.

One potential avenue would be to take advantage of a WTO exemption clause that allows certain deviations from the rules, provided they are in the interest of preserving the environment.

Mr Habeck added that there may only be weeks left for the EU to act before the IRA comes into force and it is too late for Brussels to act.

"There are a lot of ingredients in the market, and they are now being quickly put together into a response plan, into a future industrial plan for Europe," he said at an industrial conference in Berlin.