Seoul says US tax credit bill risks violation of FTA, WTO

South Korea has conveyed concerns to the US about its legislative move to remove tax credits from electric vehicles produced outside of North America, which it said risks violating the free trade agreement (FTA) and World Trade Organization (WTO) rules, a senior government official said on Thursday.

The US Senate passed a $430 billion Inflation Reduction Act (IRA) on Sunday, which includes provisions to raise the bar for tax credits for EV buyers, a move aimed at countering China’s growing influence in the global economy.

Following the Senate passage of the bill, South Korean Trade Minister Ahn Duk-geun on Thursday met with the country’s top three EV battery manufacturers: LG Energy Solution Ltd., SK On Co. and Samsung SDI Co.

At the closed-door meeting, he said the South Korean government has expressed concerns to Washington that the proposed legislation could breach both the FTA between the two countries and the WTO rules of lowering trade barriers.

“We also asked the US trade administration to relax eligibility for the tax credits,” he said after the meeting.

Under the proposed bill, Washington will gradually eliminate tax breaks from vehicles, whose battery materials and components are sourced from China as well.

The IRA also includes provisions to combat climate change and to extend healthcare coverage. It is highly likely to pass through the US House of Representatives. The ruling Democratic Party controls half of the lower House.

Korean battery producers could benefit from the new legislation, which may prompt EV makers’ shift away from CATL, the world’s largest battery producer, industry watchers said.  

However, the bill is expected to take a heavy toll on domestic automakers, particularly cars produced at home.

To gird for the toughening US policy moves against foreign-made cars, South Korean carmakers and EV battery suppliers are expanding production facilities in the US.

In May, the Hyundai Motor Group, parent of both Hyundai Motor and Kia Corp., unveiled a $10.5 billion plan to invest in the US. The investment package includes building its first dedicated full EV plant and battery manufacturing facilities in the US state of Georgia by 2025.

SK Group is aggressive in investing in the US as well. Last month, the country’s No. 2 conglomerate unveiled a fresh $22 billion investment plan in the US manufacturing sector.

The group's spending plan excludes the 3 billion won earmarked for an EV battery plant to be built in the US state of Georgia to supply to the Hyundai plant there.

Additionally, SK On is building two EV battery factories in Tennessee and in Kentucky for $7 billion, jointly with Ford Motor Co.

Another SK Group unit SK Signet Inc. plans to launch an EV charger plant in the US, which would be its first overseas charger manufacturing facility.  

Write to So-Hyeon Kim at alpha@hankyung.com
Yeonhee Kim edited this article