(Bloomberg) -- European Union complaints with the US’s stimulus package have deepened, threatening disputes at the World Trade Organization between the two allies, according to people familiar with the matter.

The EU’s problem with President Joe Biden’s Inflation Reduction Act goes beyond subsidies for electric cars and includes unfair support for the green economy in areas such as electricity from renewable resources, sustainable aviation fuel and hydrogen, the people said. 

The European Commission, the EU’s executive arm, highlighted its issues with the American law to the bloc’s 27 member states earlier this month, said the people who asked not to be identified because the discussions were private.

The commission had initially flagged the production of electric cars, which it discussed with Washington over the past weeks. The bloc’s criticism comes as the two partners seek to strengthen their cooperation on trade and economic issues since Biden took power.

Despite Biden coming in with a warmer approach to transatlantic relations than his predecessor Donald Trump, trade tensions remain unresolved including a dispute over steel tariffs, and disagreements persist over tech regulation and how to deal with China.

The most prominent concern with the IRA is clean vehicle tax credits, “but these are not the only ones,” said Miriam Garcia Ferrer, a commission spokesperson. “There are a number of subsidy schemes in the Inflation Reduction Act, which include discriminatory and unnecessary local content, production or assembly requirements.”

WTO Appeal

The commission, which negotiates trade issues on behalf of EU states, is in talks with Washington to address these concerns. It’s also discussing options with South Korea and Japan, including the possibility of bringing the case to the WTO. 

Thierry Breton, EU commissioner for the internal market, told a meeting of industry and economic ministers Thursday that companies have been asking him to react to the IRA for several weeks, telling him that the Americans “are putting so much money on the table” that “my investment will go there as I no longer have any interest in doing it in Europe.” 

Breton said a response was needed either at the WTO or involving the need for “a level playing-field, the capacity to do something similar in response.”

‘Betrayal’

South Korea has already said it views the US rules that favor American-made electric vehicles and batteries as a “betrayal” and that it will “actively” consider filing a complaint with the WTO. Biden signed the act into law last month.

“The EU is highly concerned about this unnecessary and damaging new trade barrier, and will take the necessary steps to defend its interests,” Garcia Ferrer said. 

The EU response would depend on action decided by Japan and Korea and on how the US administration would implement the subsidy schemes. Some officials considered that the US may correct some of the disruptive elements or offer some remedies. 

Member states have not yet discussed the next steps at length, one of the people said. A hasty decision is not on the cards, as the commission is still completing a thorough assessment of the IRA and the bloc is wary of a move that could affect mid-term US elections.

The latest trade dispute came after joint efforts to overcome the tit-for-tat tariff war during Trump’s former administration and renewed cooperation to support Ukraine against Russia’s invasion. The commission and the Biden administration set up a Trade and Technology Council last year to seek areas of cooperation on supply chain and regulatory matters.

While there are no calls from member states to suspend the TTC meeting planned for late this year, some capitals would want to use it as a leverage to address the European concerns in relation to the “green” subsidies, the person said.

 

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