Opinion: Why Ottawa should be watching as Mr. Macron goes to Washington

The French and U.S. flags adorn the Eisenhower Executive Office Building next to the White House for the state visit of French President Emmanuel Macron in Washington on Nov. 29.LUDOVIC MARIN/AFP/Getty Images

The City of Light is looking somewhat less brilliant this holiday season as Parisian streets and monuments lower the wattage on Christmas bulbs and switch them off earlier than usual to conserve energy and set an example for French consumers.

Historically a net exporter of electricity to its European neighbours, France has become a net importer of power this year as a record number of its nuclear reactors simultaneously undergo shutdowns for maintenance. The timing could not be worse, with European energy prices skyrocketing since Russia’s invasion of Ukraine. The French government, which caps electricity rates for consumers, is hence shelling out tens of billions of euros this year and next to subsidize power imports.

This is just one of the gripes French President Emmanuel Macron intends to raise with U.S. President Joe Biden as he arrives in Washington for a state visit, his second since an invite from Donald Trump in 2018. Europe, Mr. Macron argues, is bearing the economic brunt of the war in Ukraine and he wants Mr. Biden to ease up on U.S. policies he says are making matters worse for U.S. allies across the pond.

“The United States produces natural gas at a low cost, and they sell it to us at a high cost,” Mr. Macron complained earlier this month. “What’s more, they have introduced massive state subsidies for certain sectors that have completely removed our projects from the market.”

The latter comment was a reference to the U.S. Inflation Reduction Act (IRA), and its US$386-billion worth of direct green energy subsidies and tax credits, which European leaders say will undermine their efforts to build an electric-vehicle and battery industry on their continent.

U.S. liquefied natural gas exports to France have surged this year as producers that had been shipping LNG to Asia switch to Europe to take advantage of higher prices there. But while that has led to massive U.S. corporate profits, European businesses are being crushed by higher energy costs.

Mr. Macron thinks Mr. Biden should do something about it. Otherwise, he worries, it will become harder to maintain a united front in Europe against Russian President Vladimir Putin’s aggression as the continent is pushed into a recession and its competitiveness declines.

While it is unlikely Mr. Biden can do much to directly lower European natural gas prices, Mr. Macron wants the U.S. to consider compensatory measures that would soften the blow for European businesses. At the very least, his government argues that the United States should not be making European companies and consumers pay the price for its economic war on both Russia and China.

Mr. Macron’s first reaction to the IRA, which is partly aimed at decoupling the U.S. economy from China, was to suggest that the European Union might challenge its provisions before the World Trade Organization. He also suggested that the EU could adopt its own version of the U.S. Buy American Act, raising the prospect of a transatlantic trade war.

In a briefing with journalists in advance of the Washington trip, a senior French official conceded that the U.S. Congress is unlikely to roll back subsidies included in the IRA. But “we can imagine the U.S. administration granting exemptions for a certain number of European industries, perhaps similar to the model that it has already granted for Mexico and Canada.”

Canada and Mexico successfully negotiated amendments to an earlier version of the U.S. legislation that had proposed tax credits only for electric vehicles assembled at U.S. plants or with U.S. batteries. The final version of the bill that passed the U.S. Congress in August extends a US$7,500 tax credit to EVs assembled anywhere in North America. It also introduced new incentives meant to encourage the development of a North American supply chain for critical minerals and battery components and extended preferential treatment to suppliers in all 20 countries with which the United States has free-trade agreements.

Those provisions left Europe in the lurch. Negotiations on a U.S.-EU free trade agreement, modelled on the Canada-European Union Comprehensive Economic and Trade Agreement (CETA), stalled after Mr. Trump came to office. The Biden administration has shown little interest in reviving them. But it has hinted at extending IRA concessions for European companies.

“While we understand that some trading partners have concerns with how the [electric vehicle] tax credit provisions in the IRA will operate in practice with respect to their producers, we are committed to continuing to work with them to better understand and do what we can to address their concerns,” a U.S. National Security Council spokesperson told Politico.

Any extension of IRA tax credits to European EVs and batteries would have big implications for Canada. Which is why Ottawa should be watching closely as Mr. Macron goes to Washington.

https://www.tausiinsider.com/opinion-why-ottawa-should-be-watching-as-mr-macron-goes-to-washington/?feed_id=331864&_unique_id=6458ad809e3c2