Berlin warms to France’s ‘Buy Europe’ plans as global trade rules unravel – POLITICO

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BERLIN – Threatened by a new US subsidy package that could hit EU industry, Germany is rolling back long-standing objections to schemes such as France’s Buy Europe Act, which sets out provisions for buying local goods.

Berlin’s growing sympathy for the French approach is a clear sign that Germany fears a thaw in its traditional trade order as Washington follows China’s lead with massive state support for industry. As one of the EU’s more commercially liberal countries, Germany generally opposed France’s proposals for an interventionist industrial strategy, believing that such measures would violate free trade taboos.

The calculations are now changing 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 American Inflation Reduction Act, which provides $369 billion worth of subsidies and tax breaks to US green businesses, will be high on the agenda for both meetings. EU countries fear the US law will drive investment away from Europe and worry about discriminatory provisions encouraging consumers to “Buy American” when it comes to buying electric cars.

With time running out for peace talks with the US amid hopes of little agreement, German officials are now talking not only about diverting billions in state subsidies to key green technologies such as batteries, wind power or hydrogen, but also about creating controversial demands. it would favor European production, at least to some extent.

German Economy Minister Robert Habeck said on Thursday that the EU must respond “strongly” to the US law, which he told Germany’s Handelsblatt newspaper would mean faster approval of state aid decisions by the European Commission, more subsidies and also “buying local products”. is held. “

The last point is crucial because it leads to the “Buy Europe Act” called for by French President Emmanuel Macron and which would favor the use of European components in key industries, as the US law offers for American products. . However, other trading partners are likely to be at a disadvantage.

While such local content provisions could help the EU prevent key industries from going abroad and keep the bloc in the race to produce next-generation green technologies, including electric cars, they are viewed as contemptible in the international trading system.

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

“The issue of local content is very complex because it is, by definition, against the core of the World Trade Organization (WTO) rules of non-discrimination against foreign companies,” said Elvire Fabry, senior fellow at the Jacques Delors Institute. .

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

Speaking at an economic summit in Berlin on Wednesday, Habeck acknowledged that the EU’s actions should stay in line with multilateral trade rules “if possible”, but said it was not enough as it faces unfair trade practices from the US and China. just “criticism and complaint”.

Habeck said that local content requirements have not been “familiar” for the EU for a long time, and stressed that Europe has already taken such a path in the field of microchip production.

He suggested that the EU could be entitled to an exemption under global trade rules, as long as it could prove that it was not about creating “national” advantages, but rather that there was a “strategic need for sovereignty also in the field of energy policy”.