South Korea accuses US of discrimination over electric vehicle tax credit, plans legal action

The Inflation Reduction Act (IRA) has been the law of the land for less than two weeks, but it is already damaging relations between the United States and its allies.

On August 10, South Korea’s Ministry of Commerce, Industry and Energy (MOTIE) sent a letter to the U.S. Trade Representative, stating that certain sections of the IRA may have violated a federal trade agreement between Korea and the United States OK and World Trade Organization (WTO) rules.

However, the Biden administration chose to ignore South Korea’s concerns and signed into law the IRA on August 16, ending tax credits for electric vehicles (EVs) without final assembly in North America – one of the provisions that South Korea has listed as trespassing.

The 2019 Hyundai Kona electric vehicle is displayed at the New York Auto Show in Manhattan on March 28, 2018. (Brendan McDermid/Reuters)

In response, an official from the South Korean Ministry of Foreign Affairs (MOFA) declared“[The IRA] essentially stipulates that cars made in the United States will be discriminated against cars made abroad in terms of government subsidies.

The official further said that the IRA violated “international trade norms” and that South Korea planned to use “various channels to explain to the US government and US Congress why the relevant clause is discriminatory”.

If those measures don’t work, South Korea is considering two separate legal actions, possibly in cooperation with Japan and Germany.

South Korea takes action

Due to assembly outside of North America, 70% of electric vehicles lost their ability to qualify for a federal tax credit of up to $7,500 after President Joe Biden signed into law the IRA .

This had a direct impact on electric vehicles Hyundai and Kia (South Korea), Toyota (Japan) and Porsche (Germany).

According according to a MOFA official, the effect is that “the relative price of electric cars made in South Korea suddenly increased by 10 million won [approximately $7,429].”

The MOFA official further criticized the speed with which Congress passed the IRA, saying South Korea did not have time to “take action” even though the law may “violate trade norms. international”.

Epoch Times Photo
Porsche Mission E (Courtesy of Porsche)

In an attempt to address possible trade violations, An Sung-il, head of the Commerce Department’s new strategic office, landed in Washington on August 29. He is part of a South Korean delegation meeting with Congress seeking a “flexible implementation of the [IRA].”

The delegation also plans to meet with South Korean automakers and battery makers to organize a public-private partnership to review trade laws, which the Korea Automobile Manufacturers Association (KAMA) is calling for.

Indeed, after the passage of the IRA, KAMA issued a statement claiming that Korean automakers had invested more than $13 billion in the United States and subsidized imports of electric vehicles under the U.S.-Korea Free Trade Agreement. He urged the Korean government to seek redress.

However, congressional and corporate talks are not the only way for South Korea to resist the IRA.

Epoch Times Photo
2022 Kia Sorento hybrid (courtesy of Kia)

During a parliamentary session on August 25, Industry Minister Lee Chang-yang said there was a high probability that the IRA would violate bilateral free trade between the United States and South Korea. He added that it could also run counter to the World Trade Organization’s “most favored nation treatment principle”.

Lee did not specify how the IRA violated the principle of most-favoured-nation treatment, but said: “We are supposed to choose whether to file a complaint with the WTO or deal with the matter under the procedures of the FTA. We will carefully consider both options.

Lee further said that the IRA harms Germany and Japan economically, and that South Korea continues its cooperation with these countries.

Damaged business relationships

According to the most recent information from the U.S. Trade Representative, in 2020, South Korea was the seventh-largest supplier of merchandise imports to the United States. Additionally, the top import category was vehicles totaling $21 billion in 2020.

Likewise, in 2020 Japan was the fourth-largest supplier of US merchandise imports, with vehicles leading the category at $40 billion.

According to the US Trade Representative, Germany is one of the top five importers of the European Union. And the Collective Learning Center reported that in 2020, Germany was the world’s largest car exporter, exporting $15.1 billion to the United States.

CHINA-MANUFACTURING-AUTO
Chinese employees work on an automobile production line at a factory in Changchun, northeast China’s Jilin province, Nov. 1, 2017. (STR/AFP via Getty Images)

Not all vehicle imports above are electric vehicles. However, electric vehicles are still a lucrative part of the equation – in the third quarter of 2021, the United States spent $614 million on electric vehicles from South Korea, according to Statista, explaining South Korea’s distress over the IRA’s tax credit provisions.

In fact, the North American EV assembly requirement is not the only pressing issue for South Korean EVs.

As of January 2023, to qualify for an EV tax credit, a certain percentage of the battery components must come from North America or a country that has a free trade agreement with the United States. United.

South Korea imports 90% of its critical minerals come from China, which explicitly violates the IRA stipulation.

Katie Spence

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Katie covers energy and politics for The Epoch Times. Prior to beginning her journalism career, Katie proudly served in the Air Force as an Airborne Operations Technician on JSTARS. She received her degree in Analytical Philosophy and a minor in Cognitive Studies from the University of Colorado. Katie’s writing has appeared on CNSNews.com, The Maverick Observer, The Motley Fool, First Quarter Finance, The Cheat Sheet and Investing.com. Email her at [email protected]

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