US Moves to Establish Electric Vehicle Tax Credit Guidelines... Will South Korea's Position Be Reflected?

[Asia Economy New York=Special Correspondent Joselgina] The Joe Biden U.S. administration has taken steps to establish detailed guidelines regarding the Inflation Reduction Act (IRA), which sparked controversy over discriminatory subsidies for Korean electric vehicles. A senior U.S. official stated that Korea's concerns are being taken seriously and that expanded discussions are underway.

According to the Wall Street Journal (WSJ) on the 27th (local time), the U.S. Treasury Department plans to draft guidelines related to the electric vehicle tax credit benefits included in the Inflation Reduction Act by the end of the year.

The legislation includes provisions to offer electric vehicle buyers tax credits of up to $7,500. However, by limiting eligibility to consumers purchasing electric vehicles that are finally assembled in North America, electric vehicles manufactured by Korean companies such as Hyundai and Kia and exported to the U.S. are excluded from the benefits. The Korea Automobile Manufacturers Association estimates that this will disrupt exports of approximately 100,000 electric vehicles annually.

The Korean government has already conveyed its concerns to the U.S. administration. The government views such discrimination as likely violating the principles of national treatment and most-favored-nation treatment under the Korea-U.S. Free Trade Agreement (FTA) and the World Trade Organization (WTO).

Not only Korea but also U.S. and other countries' automakers are requesting relaxation of the eligibility requirements for the tax credit benefits, which consider battery and battery material mineral sourcing. They also point out the need for specific guidelines regarding the exclusion of benefits if batteries or key minerals are procured from foreign entities of concern.

Accordingly, there is growing interest in how much the opinions of Korea and other countries will be reflected. A Treasury Department official explained, "We are collaborating with related departments such as the Department of Energy and the Environmental Protection Agency (EPA), and are working on how to define the Free Trade Agreement (FTA) in relation to tax issues."

Earlier, during U.S. Vice President Kamala Harris's visit to Japan, the issue was discussed in a meeting with Prime Minister Han Duck-soo. A senior U.S. official said at a briefing that "the Vice President did not go there specifically to discuss electric vehicle issues," but added, "Korea has publicly raised concerns about the legislation, and Vice President Harris explained our perspective on the Inflation Reduction Act."

He explained, "We are taking Korea's concerns seriously," and "We are listening broadly to Korea's concerns, and Vice President Harris clearly promised to work with the government to address this issue during the law's implementation process." He also confirmed that expanded discussions are ongoing.

However, he drew a line by saying he would not predict what the outcome will be. Industry insiders express concerns that despite these intergovernmental discussions, actual progress may be difficult.