A matter of economic alliance

The government, politicians, and business communities have become one voice in protest of the U.S. Inflation Reduction Act (IRA) for being discriminative against Korean electric vehicle (EV) sales in the United States. The National Assembly passed a resolution urging an equal tax credit to Korean EVs based on the bilateral Free Trade Agreement (FTA), with 254 lawmakers of 261 in attendance voting for the resolution. The new IRA signed by U.S. President Joe Biden last month exempts up to a $7,500 tax credit on EVs assembled outside America.

The Federation of Korean Industries (FKI) sent a letter to the U.S. president and five government offices, including the State Department and Commerce Department, as well as Congress to call for the exemption of Korean EVs from the provision excluding foreign EVs from tax grants. The letter under the name of FKI Chairman Huh Chang-soo raised deep concerns about apparent damage to Korean companies from the “discriminative” IRA provision. It pointed out that the restriction could hamper the global EV market in a fledgling stage and raise purchase costs for U.S. consumers. Trade, Industry and Energy Minister Lee Chang-yang met with the U.S. ambassador to Seoul to urge Washington pay attention to the issue.

There has been talk of raising a complaint through the FTA and World Trade Organization. Prime Minister Han Duck-soo and Trade Minister Lee recognized that the U.S. action contradicts the bilateral FTA that mandate equal treatment to companies in both countries. But given the need for a bipartite negotiation first, Seoul cannot easily start a trade dispute settlement procedure. Taking the issue to the WTO also cannot help as the body has long lost its arbitration capacity.

It is not easy to persuade Congress to amend the act just for Korea ahead of the mid-term elections in November. Yet Seoul can seek a flexible application of the act through a revision to the enforcement decree. Since EVs are eligible for tax grants when they are assembled in America, the U.S. could concede that Hyundai and Kia EVs would be eligible for the tax benefit if some segments of their assembly procedure are conducted in America until the completion in 2025 of their EV plant in the U.S.

Korea agreed to join the U.S.-led Indo-Pacific Economic Framework (IPEF). But such discord cannot help IPEF procedures. Fortunately, the U.S. agreed to discuss the issue at the National Security Council. As President Yoon Suk-yeol urged, the government must do its utmost to stand up for the interests of Korean companies.

The issue does not simply involve a certain company. Instead, it is a matter of economic alliance, as suggested in the Korea-U.S. summit in May. The conflict must not undermine that principle.