WSJ "Allied Countries Angry Over US Inflation Reduction Act... Possible WTO Violation"

[Asia Economy New York=Special Correspondent Joselgina] The Wall Street Journal (WSJ) reported on the 4th (local time) that key allies in Asia and Europe have expressed anger over the United States' Inflation Reduction Act (IRA), which provides subsidies only for domestically produced electric vehicles. Concerns were also raised about potential violations of World Trade Organization (WTO) regulations.

WSJ highlighted that the electric vehicle origin tax credit provisions within the Inflation Reduction Act underscore the conflict between the Biden administration's efforts to support the U.S. automotive industry and its attempts to rally allies against China's expanding influence.

The Inflation Reduction Act, which offers up to $7,500 in tax credits to electric vehicle buyers, limits eligibility to North American-made vehicles. Additionally, it requires that over 40% of the critical minerals used in electric vehicle batteries be mined or processed in the U.S. or countries with which the U.S. has free trade agreements (FTA), and that more than 50% of battery components be sourced from North America. As a result, electric vehicles from the European Union (EU), Japan, and Korea were excluded from receiving subsidies, inevitably causing export disruptions.

In particular, major countries have raised issues that the Inflation Reduction Act not only discriminates against their domestic automakers but also violates WTO regulations. WSJ, citing experts, reported that the tax credit provisions in the Inflation Reduction Act appear to violate WTO rules and subsidy-related regulations that prohibit discrimination against imported goods from other countries compared to domestic or specific country imports.

The newspaper conveyed that Korea is the most vocal opponent. The Korean government views the subsidy discrimination as highly likely to violate the Korea-U.S. Free Trade Agreement (FTA) and the WTO principles of national treatment and most-favored-nation treatment, and has already expressed concerns multiple times. Earlier, during her visit to Korea on the 29th of last month, U.S. Vice President Kamala Harris met with President Yoon Suk-yeol and responded that President Joe Biden is well aware of Korea's concerns and that "measures will be carefully considered to address Korea's concerns during the law enforcement process."

Japanese Minister of Economy, Trade and Industry Yasutoshi Nishimura recently told reporters, "We are working together with friendly countries to strengthen supply chains," and criticized, "This law contradicts that strategy." Valdis Dombrovskis, European Commissioner for Trade, also recently raised concerns about this law with Katherine Tai, U.S. Trade Representative (USTR). Bruno Le Maire, French Minister of Finance, urged Europe to reconsider its electric vehicle subsidy system in response to the U.S. measures.

WSJ pointed out, "This law, created with almost no consultation with the United States' major trading partners, will disrupt President Biden's existing efforts to improve economic relations by sharing technology and jointly building supply chains with allies to compete with China's powerful manufacturing."