Top EU Trade Official Says EU Determined to Diversify Green Technology Imports

European Commission Executive Vice President Valdis Dombrovskis, in Washington to talk to the U.S. trade representative about critical minerals and steel and aluminum trade, told a think tank audience April 12 that he hopes that the group can arrive at "deliverables" on trade facilitation and conformity assessment by the next meeting in May.

Dombrovskis, who was speaking at the American Enterprise Institute, said the U.S. should not be discriminating against European-built cars as it tries to accelerate a green transition. He noted that European subsidies for electric vehicles cover American-made Teslas. He said instead, the U.S. and the EU should be "turbocharging the green transition" with "shared supply chains and trans-Atlantic efficiencies."

Dombrovskis is seeking to have critical minerals for EV batteries that are recycled, processed or mined in Europe qualify toward friendshoring thresholds in the Inflation Reduction Act's EV subsidies. He said that he and USTR Katherine Tai are "working on a targeted critical minerals agreement." He said: "For us, it's simply a case of good economic sense. It is also a necessary step for the U.S. to show its seriousness" about removing what he called unnecessary trade barriers. The U.S. already has inked a deal with Japan that allows its critical minerals to count toward the threshold, and Dombrovskis said that's "a useful precedent to build on. So hopefully, this can be completed in a reasonably short time."

As Dombrovskis talked with a moderator, he said that facilitating trade in critical minerals between the U.S. and the EU also is important for the bloc's goal of "de-risking." He noted how the Russian invasion of Ukraine laid bare Europe's dependence on Russia for natural gas and oil. He noted that the EU is buying 80% less natural gas from Russia than it did before the war -- at the cost of sky-high energy inflation.

"But by doing so, we should not develop new dependencies," he said, and the green economy requires inputs and raw materials that Europe is not strong in. "China is the dominant supplier in quite a few of those raw materials, components," he said. The EU wants to reduce its dependency on China with a "diversified and resilient supply chain."

Europe has proposed a general green trade initiative under the TTC, but before that fully gets underway, the EU is seeking to remove tariff rate quotas on its steel and aluminum exports to the U.S. through a "global arrangement on steel and aluminum." That arrangement aims to both close the two markets to metals produced through uneconomic overcapacity and to privilege metals produced with less carbon intensity.

"From the EU side, we have set out clear proposals. We want to rebalance trade in those sectors and overcome existing disputes, and we want to make sure that our climate change policies are WTO [World Trade Organization] compatible," he said.

He said the agreement will also have to "align and respect our different approaches on greening our economies."

The EU has passed a law that will impose a tax on imports in certain sectors -- including steel and aluminum -- starting in 2026, if the imported products do not match EU climate ambitions. The U.S. is not a significant exporter to the EU in that area, but the EU intends to eventually extend its carbon border adjustment mechanism, or CBAM, to chemicals, which the U.S. does supply.

When the EU announced the bill's final shape, the legislator taking the lead on it said that only a carbon price would help exporters avoid the tax (see 2212130056). Dombrovskis said that was not the case, in response to a question from International Trade Today. He said the CBAM "will take into account individual emissions in a concrete-producing facility," so if a company made investments to decarbonize, that would lower its exposure to the CBAM. If the company also paid a domestic carbon tax, that would be deducted from the CBAM, too.

A World Bank employee asked Dombrovskis if the EU has reckoned with the fact that its push to diversify the source of solar panels may make it costlier to go green, because China is the low-cost supplier of that product. "Indeed, it may well be that diversification and resilience of supply chains is not going to be entirely cost free," he replied. "But it's a price worth paying, for ensuring that we can be safe ... and we don't depend on one player, changing its mind, and for example, suddenly cutting supply."