United front with EU and Japan against U.S. EV law gains stream

Industry

Published: 25 Aug. 2022, 18:22 Updated: 25 Aug. 2022, 19:14

United front with EU and Japan against U.S. EV law gains stream

Trade, Industry and Energy Minister Lee Chang-yang discuss joint responses against the new law in a meeting held at the Korean Chamber of Commerce and Industry in Jung District, central Seoul on Thursday. [YONHAP]

The Korean government and big manufacturers will work with the EU and Japan to address concerns about the U.S. Inflation Reduction Act (IRA), which extends tax credits to buyers of electric vehicles (EVs) assembled in the United States.

Trade, Industry and Energy Minister Lee Chang-yang discussed joint responses against the law in a meeting on Thursday with executives of Samsung Electronics, SK hynix, Hyundai Motor, Kia and battery makers, including LG Energy Solution.

Despite the meetings, consultations and public comments on the matter, Lee says that little can be done as it would be very difficult to get the new U.S. law changed or its implementation of it amended in any way. He also downplayed the possibility of taking the case to the World Trade Organization (WTO).

Korea will further consult with the United States and seek joint responses with countries that export EVs to the United States, EU member states, said the Ministry of Trade, Industry and Energy on Thursday.

"There is a need to actively come up with measures to deal with the new IRA as there are great concerns coming from countries, including Korea, Germany and Japan, that export EVs to the United States," Lee said during a meeting with business leaders.

Automobiles will be eligible for the $7,500 EV tax credit under the IRA only if automakers use batteries with a certain percentage of value sourced in the United States or countries with free trade agreements with the United States, and if the final assembly of the vehicle is done in the United States.

President Joe Biden signs the Democrats' landmark climate change and health care bill in the State Dining Room of the White House in Washington, Tuesday, Aug. 16, 2022. [AP]

The law will begin in phases, with the rule on assembly effective from Aug. 16 and the rule on batteries effective on Jan. 1, 2023.

"The IRA of 2022 was passed just two weeks after the contents of the bill were disclosed," Lee said. "U.S. politics, decoupling from China and the focus on developing U.S. industries seem to have affected the decision."

The ministry said it will push through consultations on the matter with the United States.

Deputy Minister for International Trade and Legal Affairs will visit the United States next week, while the Minister for Trade Ahn Duk-geun plans to pay a visit next month.

These officials are expected to contact and hold discussions with federal and local officials in areas where many Korean battery makers and automakers are operating.

From the business side, automakers are considering several options, including building factories in the United States.

Kia's EV6 [KIA]

Hyundai Motor was to begin manufacturing EVs in the United States in 2025. Yonhap reported that the company may accelerate its time table and break ground on the factory in 2023.

Battery makers will import critical minerals from a more diverse range of countries that are in FTAs with the United States, including Australia and Chile, and reduce their reliance on China.

The government will also seek joint responses with other European countries, such as Germany and Sweden, which are in similar situations to Korea, according to the ministry.

The Korea Automobile Manufacturers Association (KAMA) plans to deliver a joint statement with the European Automobile Manufacturers' Association (ACEA) to the United States around next month.

The government and businesses will also form a task force to swiftly deal with the matter, while other related ministries, such as the Ministry of Foreign Affairs and the Ministry of Economy and Finance, will also cooperate.

The government expects it may be difficult to expect immediate changes to be made to the law upon Korea's request, especially with the U.S. midterm election ahead.

"It may be difficult to immediately amend or alleviate the law due to the elections in the U.S.," said Deputy Trade Minister Jeong Dae-jin.

The ministry will also take a careful look at the possibility of the IRA violating trade agreements and discriminating against non-U.S. automakers.

Lee said Korea will "actively review whether to file a complaint with the WTO" on Monday, but the ministry made it clear that filing a complaint will be the last resort.

"Conversations should come first before going to the WTO and the FTA," said a spokesperson for the Ministry of Trade, Industry and Energy.

"If consultations do not work, other actions will be taken as the last resort."

BY CHUNG JONG-HOON, CHO JUNG-WOO [cho.jungwoo1@joongang.co.kr]