Europe Seeks Exemption From U.S. Rules on EV Tax Breaks

One provision that has drawn particular concern is a tax rebate of up to $7,500 for electric vehicles that are assembled in North America. As of 2023, at least 40% of the critical minerals used in electric-vehicle batteries must also be sourced in the U.S. or in countries that have free-trade agreements with the U.S., according to the new rules. That threshold is set to rise each year until it reaches 80%.

South Korea—home to

Hyundai Motor Co.

Ltd. and

Kia Corp.

—and Japan have also raised concerns about the U.S. legislation. South Korea is expected to submit a written opinion to the U.S. on the electric-vehicle tax credits this week.

Earlier this week, EU Trade Commissioner

Valdis Dombrovskis

said many of the green subsidies in the U.S. legislation appear to discriminate against the EU’s automotive, renewable-energy, battery and energy-intensive industries.

“It probably will not be easy to fix it, but fix it we must,” he said Monday, after raising the issue with U.S. Trade Rep.

Katherine Tai.

Other European officials have been more blunt in their criticism. French President

Emmanuel Macron

said recently that the EU should retaliate with its own measures to support electric vehicles produced within the bloc.

The European Commission, the bloc’s executive body, has previously said the legislation appears to violate World Trade Organization rules and risks undermining U.S. and EU climate ambitions. A spokeswoman said in September that the bloc would have to consider all options in response to the U.S. subsidies, including bringing a case to the WTO.

A spokesman for the U.S. Trade Representative declined to comment on the assertion that the legislation may not comply with WTO rules. He said conversations with the bloc have been productive and the task force should “help deepen the bilateral understanding of this legislation.”

Jozef Sikela, minister of industry and trade for the Czech Republic, which holds the EU’s rotating presidency, said Europe is seeking the same exemption from the legislation’s provisions on electric vehicles that Canada and Mexico were granted before the act was signed into law. Canadian officials and the North American auto industry successfully lobbied to have the electric-vehicle subsidies extended to cover vehicles assembled anywhere in North America, and not just in the U.S.

“This is our starting point in the negotiations, and we’ll see what we manage to negotiate in the end,” Mr. Sikela said.

EU officials said industry groups have warned of a loss of investment if the U.S. moves ahead with the legislation as planned. BusinessEurope, a lobby group, said in a letter to Mr. Dombrovskis and EU competition chief

Margrethe Vestager

last month that the legislation risked hampering U.S. imports of European electric vehicles and making it more expensive to fight climate change.

The Wall Street Journal reported in September that

Tesla Inc.

had decided to pause its plans to make battery cells in Germany because of the U.S. electric vehicle and battery manufacturing tax credits.

Luisa Santos, BusinessEurope’s deputy director general, said recently that she wasn’t aware of other companies making similar investment decisions, but that could happen in the future if the legislation remains unchanged.

The business group supports the U.S. government showing more ambition in addressing climate change, Ms. Santos said. “But not the way this is being pursued.”

—Timothy W. Martin contributed to this article.

Write to Kim Mackrael at [email protected]