EU INDUSTRIES: CLEAN ENERGY TAX CREDITS UNFAIR

UNCLAS BRUSSELS 000562

SIPDIS

STATE PLEASE PASS TO USTR FOR C. WILSON, D. WEINER AND L.
YANG

E.O. 12958: N/A
TAGS: ENRG ETRD EFIN EUN
SUBJECT: EU INDUSTRIES: CLEAN ENERGY TAX CREDITS UNFAIR


1. A representative from International Paper (IP) reported
todaythat the European paper manufacturer's association plans
to file a formal complaint with Commission officials over
U.S. clean energy incentives. The Confederation of European
Paper Industries (CEPI) has taken issue with tax credits IP
has received for using renewable fuels at its U.S.
facilities. (Note: The rep explained that the credit derives
from the Safe, Accountable, Flexible, Efficient
Transportation Equity Act (SAFETEA) and extended by the
Emergency Economic Stabilization Act of 2008 through 2009.
End note.) CEPI,which the IP rep said is dominated by the
companies Stora/Enso (Sweden/Finland) and UPM (Finland),
claims that IP's U.S. tax credit constitutes an unfair trade
advantage.


2. The IP rep noted that American paper manufacturers do not
compete directly in the European market: "nobody is shipping
A4 (sized-paper) to Europe," and added that there is little
if any competition in third markets. Further, he said that
CEPI's position contradicts the EU's policy to promote the
use of renewable energy sources. IP, which is a member of
CEPI, recommended the association to take a "glass half-full"
approach and use the U.S. tax credit to lobby for similar
incentives for European industries. CEPI declined, and he
expects letters to be filed with this week with Commission
President Barroso, Trade Commissioner Ashton, and Competition
Commissioner Kroes. (Note: It is unclear whether CEPI will
complain that the credits violate WTO obligations or whether
it would request a normal trade defense instrument
investigation of subsidies, which might lead to the
imposition of countervailing duties to offset the subsidies.
We will forward CEPI letter once we receive a copy.)


3. According to the rep, IP has received "significant" tax
credits for generating power at 15 of its U.S. mills with a
fuel known as "black liquor," wood pulp mixed with small
amounts of diesel. IP sells the excess power back to the
grid. He added that the additional revenues from the tax
credit and excess electricity have helped IP which has seen a
recent drop in sales.


4. Comment: Although the EU has mandated that all member
states must draw 20 percent of their power from renewable
sources by 2020, there are few significant EU-wide incentives
to promote their development and deployment. Thus, as U.S.
firms begin to tap into the over $100 billion worth of green
technology incentives in the recent stimulus packages, we
should expect to see more complaints from European
industries. Indeed, the Commission is currently
investigating alleged subsidies provided through tax credits
to the U.S. biodiesel industry, and has imposed provision
duties offsetting subsidies provisionally calculated. A
final decision is due in July 2009. In addition, the
Commission was recently conducting an investigation of
alleged subsidies provided to the U.S. sodium metal industry
through the provision of inexpensive renewable hydroelectric
power. This case will likely settle without a decision, but
the Commission had recommended imposing duties to offset the
allegedly inexpensive electricity. Given that the Commission
likes to be seen as the global leader on climate change,these
cases in the aggregate put it an awkward position,
particularly as we seek to intensify transatlantic efforts to
promote green technologies.

Murray
.