[Insight & Opinion] The Korean-Style Production Promotion Tax System Can No Longer Be Delayed

EU Follows U.S. in Launching "Battery Booster" Program
Urgent Need for Policies to Prevent Outflow of Domestic Production and Talent

The environment surrounding the global battery industry is changing rapidly. Industrial support policies, which previously focused on research and development (R&D) or capital expenditures (CAPEX), are now shifting toward production-centered policies that directly reward actual manufacturing performance.

The technological gap is narrowing quickly, and oversupply from China is becoming structural. In this context, securing resilient domestic production conditions has emerged as a key challenge for both companies and countries.

This shift was triggered by the United States' Inflation Reduction Act (IRA). The U.S. accelerated the establishment of its domestic battery industry ecosystem by introducing the Advanced Manufacturing Production Credit (AMPC), which is linked to the production volume of battery cells and modules.

Incentives directly tied to production output have changed the investment decisions of global companies, resulting in a rapid shift of capital and manufacturing to the United States. Now, this trend is spreading to the European Union (EU).

The European Commission included a "Battery Booster Program" in its Automotive Action Plan announced in May this year and officially unveiled the related program on December 16. The program will provide 1.8 billion euros over the next two years to support interest-free loans for production facilities and initial production costs for battery cell manufacturing sites in Europe.

What is more noteworthy is that the Commission's May document explicitly mentioned the consideration of "direct production support" for battery manufacturers. Although it has not yet been fully developed due to the need for coordination among member states, it is significant that the production competitiveness issue has been elevated to an official agenda item in EU industrial policy in response to concerns raised by companies and business organizations.

Until now, the EU has protected its internal market through environmental regulations such as the Carbon Border Adjustment Mechanism (CBAM) and the Battery Regulation. However, acknowledging that regulations alone cannot fend off China's low-price offensive, the EU is now adjusting its policy direction to a more pragmatic approach that combines regulatory measures with production support. In addition, through the Industrial Acceleration Act (IAA), the EU plans to further specify its "Made in EU" strategy by strengthening domestic production requirements.

These changes present both opportunities and risks for us. For battery companies with production bases in Europe, this could offer new opportunities. However, for small and medium-sized enterprises that have been manufacturing materials and components domestically for export, this may create pressure to relocate investment and effectively act as a new trade barrier. This could lead to reduced domestic investment, job losses, and ultimately, the weakening of the industrial base.

In this context, the Korean-style production promotion tax system currently under government review could serve as an important policy alternative. The Ministry of Economy and Finance's official announcement of plans to introduce a "domestic production promotion tax system" through a presidential work report is a timely response. Providing tax credits in proportion to a company's domestic production volume is a policy that the industry has long demanded.

The issue is not the direction, but the speed and practical design of the system. If there is hesitation during the system design and legislative process, production lines will move to where subsidies are available. Once factories and skilled workers leave the country, they rarely return.

If only Korea continues to rely on existing industrial support methods while the United States and EU are injecting massive funds into their own industries, it is essentially the same as withdrawing from the competition. We must fundamentally redesign the institutional environment so that domestic production becomes the most rational choice for companies. This is the essence that the Korean-style production promotion tax system should pursue. Decisive action from the government and bipartisan legislative support from the National Assembly are urgently needed to respond to the era of economic security. The window of opportunity will not remain open for long.

Park Taesung, Executive Vice President of the Korea Battery Industry Association