The US Inflation Reduction Act passed into law in August has been called discriminatory by China, South Korea and the European Union.

All these major economies claim the new law puts imports at a disadvantage in the US market because it provides tax breaks for EVs and critical EV battery components manufactured in North America. While there are no signals that the trade dispute with China will be resolved any time soon, the US and the EU could come to an agreement eventually. 

Reuters reports that officials from both sides are expected to reach an agreement that would grant EU companies, including electric car makers, the same status as US firms in the US market.

The European Union argues that it allows government tax breaks or subsidies for purchases of US EVs like Tesla, while EVs from EU carmakers are not treated the same in the United States. The US requires that the vehicle, or critical parts of it, are made in North America, while the EU does not impose similar conditions.

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"Last month the Tesla Model Y was the most sold car in Germany. That would not have been possible without the un-discriminatory EU subsidy, while EU electric cars do not get a similar subsidy in the US, which is discrimination that we want to address."

Valdis Dombrovskis, European Commission Vice President responsible for trade

Dombrovskis also noted "there is a willingness to engage on the US side on this," ahead of meetings with US Trade Representative Katherine Tai, Commerce Secretary Gina Raimondo and Treasury Secretary Janet Yellen. Asked if the issue could be resolved, Katherine Tai said she expected the EU and US would reach agreement. "On the strength of the EU-US relationship, I have every confidence we will work through this," she told reporters after a meeting with Dombrovskis.

After initial meetings, the Office of the US Trade Representative said that Tai and Dombrovskis had agreed to speed up talks on global steel issues and electric vehicles. The two officials discussed the US Inflation Reduction Act and concerns about EVs, asking their teams to increase engagement on the US law's impact on EVs. 

The EU is hoping that changes to the status of EU companies could be made through implementation regulations to the US law, rather than having to send the whole Inflation Reduction Act back to Congress for amendments.

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