Unfair treatment of Korean electric vehicles

The exemption of South Korean electric vehicle (EV) models from $7,500 tax credit for American car buyers under the Inflation Reduction Act (IRA) has startled the Korean auto conglomerate, industry and government. The IRA has restricted federal tax credit to new EVs entirely assembled in the U.S. and batteries sourced from the U.S., immediately exempting five Hyundai Motor EV models available in America from the eligibility for the federal subsidy. Hyundai Motor has become No. 2 in EV sales in the U.S. with its market share of 9 percent after Tesla as of June. But the new rule will put the brake on the drive.

The Korea Automobile Manufacturers Association (KAMA) sent a letter to the U.S. Congress, asking for a revision to the act to include Korean EVs under the bilateral Free Trade Agreement (FTA). The KAMA highlighted the fact that South Korea had subsidized U.S. EV purchases with 43.7 billion won ($33 million) in the first half alone and that Korean carmakers had invested a whopping $13 billion in America over the last 30 years and hired more than 100,000 to contribute to the U.S. economy.

Korean battery makers are equally alarmed. Korean battery makers, including LG Energy Solutions, plan to establish battery factories in more than 10 locations in the U.S. until 2025 either alone or in joint-venture with U.S. automakers. But if they use any of Chinese parts or materials, they will be exempted from the tax credit.

Bickering political parties in Korea have come to agreement on the issue. The National Assembly Foreign Affairs and Unification Committee is considering adopting a bipartisan resolution urging the U.S. federal government to lift the tax discrimination against foreign EVs and batteries. In a meeting with U.S. Ambassador Philip Goldberg, House speaker Kim Jin-pyo delivered such concerns about disadvantage towards Korean EV makers from the new act.

If Korean demands are ignored, the issue could elevate to a trade conflict between the two countries. The clause goes against the bilateral FTA that has guaranteed equal treatment to Korean trade items as local ones through tariff exemptions. Hyundai Motor Group had pledged a $10 billion investment in the U.S. when U.S. President Joe Biden visited Seoul in May. Korea has also been asked to join the U.S.-led Indo-Pacific Economic Framework and the Chip 4 alliance.

Although national interest should come first, the American way of pocketing such advantages and yet discriminating others cannot be fair. Foreign Minister Park Jin said Seoul’s position on the issue has been delivered through various channels. The government must ask how the U.S. was repaying to Korea’s corporate investments and cooperation.