EU raises ‘strong concerns' over controversial EV tax credit proposal

WASHINGTON — The European Union has joined Canada and Mexico in raising "strong concerns" over the proposed electric vehicle tax credits in the Democrats' Build Back Better Act being discussed in the U.S. Senate.

In a letter sent Friday, Valdis Dombrovskis of the European Commission urged Senate lawmakers to remove "all elements" of the EV tax credit proposal that he says would discriminate against EVs imported from the EU as well as EU companies and the American workers those companies employ.

"We agree that tax credits can constitute important incentives to drive demand for electric vehicles. Many EU member states also make use of such incentives," Dombrovskis, the commission's executive vice president, wrote in the letter. "However, we also believe that these tax incentives should be fair and avoid discriminating between car manufacturers."

At issue is a proposal championed by Michigan Sen. Debbie Stabenow and Rep. Dan Kildee that would boost consumer tax credits to as much as $12,500 for EVs assembled in a factory represented by a labor union with U.S.-produced batteries. After five years, only EVs assembled in the U.S. would be eligible for the proposal's $7,500 base credit.

In the letter, Dombrovskis argues that by "linking the tax credit to U.S. assembly, U.S. 'local content' and workers' unionization," it would reduce consumer options, discriminate against EU cars and components, conflict with core rules of the World Trade Organization, risk disrupting supply chains and harm American workers at EU car companies' U.S. assembly plants.

The EV tax credit proposal is included the Democrats' nearly $2 trillion climate and social spending bill passed by the U.S. House of Representatives last month.

The proposal is backed by President Joe Biden but faces a potential roadblock as the Senate takes up the massive bill. Sen. Joe Manchin — a Democrat from coal-producing West Virginia and a key swing vote — called the proposal's $4,500 additional tax credit for union-made EVs "wrong" and "not American."

Toyota, American Honda, Volkswagen Group of America and other non-Detroit 3 automakers have fiercely opposed the proposed EV tax credits. Autos Drive America, which represents the U.S. operations of international automakers, and the American International Automobile Dealers Association also have lobbied against it.

Canada and Mexico previously have warned U.S. lawmakers and the Biden administration that the proposed EV tax credits could violate trade agreements and harm the North American auto industry.

Dombrovskis also cautioned lawmakers the proposal, as is, could disrupt the U.S.-EU trade relationship and "result in unjustified discrimination against EU car and car component manufacturers, whether imported or manufactured in the U.S."

"We have nothing to gain on either side of the Atlantic from jeopardizing this beneficial relationship by discriminating against each other's products and investors," he wrote. "Measures like the ones currently being considered would also go against our recent efforts to rebuild this relationship by solving our problems of the past and avoiding new points of tension."