Yellen lays down the law, says IRA itself nonnegotiable

Korean Minister of Economy and Finance Choo Kyung-ho and U.S. Treasury Secretary Janet Yellen meet in Washington on Oct. 13. [MINISTRY OF ECONOMY AND FINANCE]

All the DC lobbying has come to naught, with the U.S. treasury secretary telling reporters that the law is the law and that the Inflation Reduction Act (IRA) must be implemented as written.

"The legislation is what it is," Janet Yellen said Monday, according to a Bloomberg report.

Her line-in-the-sand declaration is just the latest example of the Korean administration being caught on the back foot and playing catch-up as global events unfold. The Democratic Party is noting that it was ill prepared for the current economic crisis, despite plenty of warning signs, and is pointing out that the EV issue was similarly mishandled.

Under the terms of the IRA, buyers EVs are eligible for a $7,500 tax credit only if the vehicles are assembled in the United States. The batteries in the cars must meet strict content-sourcing requirements, the most onerous being that no Chinese-made components can be used from 2024 and that the vehicles must be free of Chinese critical minerals from 2025.

Korea sees this as a near existential issue. One of the most promising products being made by a key industry will be all but blocked from the world's largest economy. Korean companies have no EV manufacturing capacity in the United States, and the batteries installed in their vehicles are highly dependent on Chinese inputs.

Pressure has been applied both very publicly and with earnest behind the scenes. Korean officials and business people have been emphasizing the good relations between the two countries and describing the act as discriminatory.

"I’ve heard a lot about the concerns of the Koreans and Europeans about those rules, and we’ll certainly take them into account,” Yellen said.

While the law is clear, with firm dates and brightline targets, implementing regulations could still offer some hope.

In the United States, the legislative branch writes the laws and the executive implements. The president cannot change the text of legislation, but the regulations that are used to guide enforcement are written by the bureaucracy and offer possible leeway, while the executive branch does have certain powers that can be exercised unilaterally.

“We’re early on in the process for writing rules,” Yellen said. “I gave my assurance that we would listen to their concerns and see what was in the range of the feasible as we implement the rules.”

Korea continues to say that it will push for accommodation from the United States, though it hasn't said where opportunities exist in the law for negotiation.

“The Korean government will continue to work on the issue,” a government official at the Ministry of Trade, Industry and Energy said in reply to Yellen’s comments.

The government said it is currently working closely with president’s economic and security secretary as it did with the U.S. semiconductor export restrictions. Korean companies received a 1-year waiver from the chips rules, which would have made manufacturing in China difficult.

While the IRA issue was not raised during Yellen’s first visit to Korea as U.S. Treasury Secretary in July, Korean Finance Minister Choo Kyung-ho requested cooperation in solving during a brief meeting with Yellen after the G-20 meeting in Washington earlier this month.

Hyundai Motor is building its first EV-dedicated factory in the United States in the state of Georgia, but the plant will not be operational until 2025. Groundbreaking was scheduled for Tuesday.

The company is already claiming a loss of business in the United States due to the new law.

“I can’t agree that we were late to respond and that it was a diplomatic disaster,” Minister of Trade, Industry and Energy Lee Chang-yang told lawmakers last week.

“It’s not an easy problem as the U.S. administration and the legislative body are separated,” Lee said. “But we are doing our best.”

Hyundai Motor on Monday said it is currently looking into setting up a joint venture battery company in the United States so the cars qualify for subsidy.

“We've been discussing various ways to respond to the tax rule, including building a joint venture battery component venture in the United States,” said Seo Gang-hyun, head of the planning and finance division at Hyundai Motor during a conference on Monday.

Seo noted that the U.S. is an important market for the Korean automaker.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]