[Asia Economy New York=Special Correspondent Joselgina] An analysis has emerged suggesting that the origin regulations for electric vehicles contained in the Inflation Reduction Act (IRA) may be applied flexibly after the U.S. midterm elections this November.
The Korea Trade-Investment Promotion Agency (KOTRA) Washington Trade Center stated in an economic and trade report released on the 3rd (local time) that there are signs of some retreat in the Biden administration's push for domestic preference policies. The trade center reported, "Local experts, based on their personal opinions, foresee that considering the current reality of the U.S. electric vehicle supply chain, the full implementation of the origin regulations within the Inflation Reduction Act may be postponed." Similar to the precedent set by 'Buy America,' exemptions by sector or specific countries could be possible.
Buy America refers to provisions in infrastructure laws that mandate the use of American-made products in infrastructure projects funded by federal government budgets. However, recently, temporary exemptions have been confirmed repeatedly due to practical procurement issues.
According to the report, the U.S. Department of Transportation is pushing for temporary exemptions to the Buy America provisions concerning construction materials. The Federal Highway Administration also announced plans for temporary exemptions to these regulations at the end of August to expedite the construction of electric vehicle charging infrastructure. The National Telecommunications and Information Administration announced exemption plans for Buy America provisions in the construction of wide-area communication networks.
The trade center pointed out that these measures stem from the practical difficulty of complying with infrastructure law provisions and that the Inflation Reduction Act faces the same issues. This explains why, despite political acclaim following the disclosure of the IRA contents, related industries have expressed reluctance.
The Inflation Reduction Act, which provides up to $7,500 in tax credits to electric vehicle buyers, limits eligibility to North American-made vehicles and specifically regulates the proportion of critical minerals used for batteries. However, U.S. automakers have requested relaxation, stating that it is difficult to meet the tax credit eligibility requirements that consider the origin of batteries and battery material minerals.
The Korean automotive industry has also been directly impacted. Electric vehicles manufactured by Korean companies such as Hyundai Motor and Kia, which are exported and sold in the U.S., are all excluded from support, and it is estimated that exports of about 100,000 electric vehicles annually will be disrupted. The Korean government has repeatedly expressed concerns, viewing such discrimination as potentially 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).
The trade center noted, "The conditions for North American assembly, battery, and critical mineral origin for electric vehicles impose a huge burden on most automakers." It added, "The Alliance for Automotive Innovation estimates that it will take automakers at least several years to meet the current tax credit requirements for vehicles and emphasized that the U.S. government should provide clear and flexible policy implementation guidelines early to minimize industry confusion."
The U.S. Treasury Department plans to announce detailed origin regulations for battery parts and critical minerals used in batteries by the end of the year. Attention is focused on how much the opinions of Korea and other countries will be reflected accordingly.
The trade center recommended, "It is important to actively respond to the public comment procedures of the Treasury Department and other related agencies in the future, convey our position, and foster a favorable public opinion." It also added that cooperation with state governments and legislators in regions where Korean companies have investments or plan to invest is necessary.
Recently, local media reports highlighting the problems of the Inflation Reduction Act have been increasing. Donald Kirk, an East Asia specialist journalist, wrote in a column for the congressional media outlet The Hill on the same day, "For many Koreans, the Inflation Reduction Act was more important than repeated condemnations toward North Korea," conveying the atmosphere surrounding U.S. Vice President Kamala Harris's recent visits to Korea and Japan.
Earlier, The Wall Street Journal (WSJ) also analyzed the issues of the Inflation Reduction Act in an article titled "President Joe Biden Faces Korean Backlash Over Electric Vehicle Subsidies." The outlet pointed out that although European Union (EU) and Japanese cars were also excluded from subsidies, Korean backlash was particularly strong, diagnosing that this coincides with ongoing efforts to strengthen the Korea-U.S. alliance since the inauguration of the Yoon Seok-yeol administration.
Despite the Yoon administration's active cooperation with various Biden administration policies, including deciding to participate in Chip4 (Korea, U.S., Japan, Taiwan) despite China's overt opposition, and successive announcements of U.S. investments by Korean companies including Hyundai Motor Group, an adequate response has not been received.
The New York Times (NYT) also noted, "In Korea, there is a feeling that Hyundai Motor Group, which announced large-scale investments during President Biden's visit, has been betrayed." It cited experts who evaluated that the exclusion of Korean electric vehicles from subsidies under the Inflation Reduction Act is one of the issues causing tension between the two countries.
Vice President Harris, during her visit to Korea on the 29th of last month, met with President Yoon Seok-yeol and acknowledged that President Biden is well aware of Korean concerns, responding, "We will carefully ensure that ways to address Korean concerns are prepared during the law enforcement process."
However, there are also opinions that it is difficult to simply compare the situations of the Infrastructure Law and the Inflation Reduction Act. In the case of the Inflation Reduction Act, the North American final assembly standard is clearly stipulated by law, making legislative amendment essential.
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