[Invest&Law] "Trump's Reversal of Economic and Trade Policies: Korean Companies May File ISDS Claims Against U.S."

End of IRA Tax Credits and Subsidies
Potential Violations of Fair and Equitable Treatment
and Expropriation and Compensation Provisions
Guaranteed by the Korea-U.S. FTA
Experts: “Possible for Automotive, Battery, and Semiconductor Sectors”
Trump Administration May View Claims as Defiance
“Difficult Unless Companies Are Willing to Leave the U.S. Market”

Following the re-election of U.S. President Donald Trump, a rapid shift in the U.S. investment environment has occurred as the economic and trade policies of the previous Biden administration have been reversed. In this context, some analysts suggest that Korean companies could file Investor-State Dispute Settlement (ISDS) claims against the U.S. government based on the Korea-U.S. Free Trade Agreement (FTA). The concern is that the Trump administration’s rollback or elimination (clawback) of various benefits previously promoted by the former administration could become an issue. However, due to the political and diplomatic burdens, as well as the difficulty of proving damages, it remains uncertain whether such claims will actually be filed.

Trump Reduces and Cuts Previous Administration’s Benefits

In March, President Trump indicated the possibility of abolishing subsidies, calling the CHIPS Act “a waste of money.” In June, U.S. Secretary of Commerce Howard Lutnick also commented that the subsidies were excessively generous. In July, the One Big Beautiful Bill Act (OBBBA) passed the U.S. Congress, resulting in the early termination and reduction of tax credits and subsidies based on the Inflation Reduction Act (IRA). The tax credit program, which provided up to $7,500 for electric vehicle buyers, ended last month-seven years earlier than originally planned. Tax credit benefits for commercial electric vehicles used for leasing and rentals, which had been available through Korea-U.S. negotiations, were also eliminated. For the renewable energy sector, tax credits for power generation, such as solar and wind, were originally scheduled to end in 2032 but will now end in 2027. Subsidy payments are now limited to companies that produce and supply electricity by 2027.

“Hyundai Motor, LG Energy Solution, Samsung Electronics May Be Eligible”

Experts point out that the unilateral reduction or elimination of previously promised incentives through various bills could potentially violate the principles of fair and equitable treatment (Article 11.5), expropriation and compensation provisions (Article 11.6), and national treatment (Article 2.2) guaranteed by the Korea-U.S. FTA. A professor at a university in the Seoul metropolitan area who teaches international trade commented, “In theory, companies such as Hyundai Motor Group or LG Energy Solution and SK On in the automotive and battery sectors, Samsung Electronics and SK Hynix in the semiconductor sector, POSCO and Lotte Chemical in the steel and materials sector, and the U.S. subsidiaries of major Korean financial holding companies in the financial and service sectors could potentially file ISDS claims.”

In fact, when Spain reduced renewable energy subsidies during the 2008 financial crisis, about 40 ISDS cases were filed, and Spain lost in cases such as Eiser v. Spain. However, there are significant concerns that Korean companies bringing the U.S. government to international arbitration may face more disadvantages than benefits. Filing an ISDS claim against the U.S. government is seen as a process that carries considerable risks, potentially having a negative impact on overall business operations in the future.

Political and Diplomatic Burdens Are Key Factors

Kim Daejong, professor at Sejong University’s School of Business, explained, “ISDS is a last resort,” and although it may be legally possible, the political and diplomatic burdens would be significant. An international trade attorney at a major law firm noted, “Even if various U.S. industrial, tax, and subsidy policies appear discriminatory on the surface, most are based on exceptions for national security, public interest, taxation, or subsidies, so it is unlikely that ISDS claims would actually be successful.” Another international arbitration lawyer added, “Given the nature of the Trump administration, filing an ISDS claim could be seen as an act of defiance.” Another expert on international investment disputes commented, “There must be very specific damages and grounds to prove harm and pursue an ISDS case. In general, it is difficult to win an ISDS case just because the law has changed. Considering the characteristics of the Trump administration, unless a Korean company is willing to withdraw from the U.S. market entirely, it would be difficult to proceed with such a claim.”

Legal Times Reporter Kim Jisoo

※This article is based on content supplied by Law Times.