The Inflation Reduction Act (IRA) has been the law of the land for less than two weeks, but it’s already harming relations between the United States and its allies.
On Aug. 10, South Korea’s Ministry of Trade, Industry, and Energy sent a letter to the U.S. Trade Representative stating that certain sections in the IRA possibly violated a Korea–U.S. Federal Trade Agreement and World Trade Organization (WTO) rules.
However, the Biden administration chose to ignore South Korea’s concerns and signed the IRA into law on Aug. 16, ending tax credits for electric vehicles (EV) without final assembly in North America–one of the provisions South Korea listed as a trespass.
The 2019 Hyundai Kona Electric vehicle is displayed at the New York Auto Show in Manhattan on March 28, 2018. Brendan McDermid/Reuters
In response, a South Korean Ministry of Foreign Affairs (MOFA) official said, “[The IRA] basically sets out that cars manufactured in the U.S. will be discriminated from cars manufactured abroad in terms of government subsidies.”
The official also said the IRA violates “international trade norms” and South Korea plans to use “various channels to explain to the U.S. government and U.S. Congress why the relevant clause is discriminatory.”
If those measures don’t work, South Korea is exploring two separate legal actions, possibly cooperating with Japan and Germany.
South Korea Takes Steps
Due to being assembled outside North America, 70 percent of EVs lost the ability to qualify for an up to $7,500 federal tax credit after U.S. President Joe Biden signed the IRA into law.
That directly impacted Hyundai and Kia (South Korea), Toyota (Japan), and Porsche’s (Germany) EVs.
According to a MOFA official, the effect is that “the relative price for electric cars made in South Korea suddenly rose by 10 million won [approximately $7,429].”
The MOFA official also criticized how quickly Congress passed the IRA, saying South Korea didn’t have time to “take any measures,” even though the law may “be violating international trade norms.”
Porsche Mission E Courtesy of Porsche
In an attempt to address the possible trade violations, An Sung-il, head of the trade ministry’s new trade order strategic bureau, landed in Washington on Aug. 29. He’s part of a South Korean delegation that’s meeting with Congress in pursuit of a “flexible implementation of the [IRA].”
The delegation also plans to meet with South Korean auto manufacturers and battery firms to organize a public-private partnership to examine trade laws—something called for by the Korea Automobile Manufacturers Association (KAMA).
After the IRA’s passage, KAMA released a statement saying that Korean automakers had invested more than $13 billion in the United States and subsidized EV imports per the U.S.–Korea Free Trade Agreement. It urged the Korean government to seek redress.
However, congressional and corporate talks aren’t the only way South Korea plans to resist the IRA.
2022 Kia Sorento Hybrid Courtesy of Kia
At a parliamentary session on Aug. 25, Industry Minister Lee Chang-yang said there’s a high probability that the IRA violates the bilateral free trade agreement between the United States and South Korea. He noted that it might also run afoul of the World Trade Organization’s “Most-Favored-Nation Treatment Principle.”
Lee didn’t specify how the IRA violated the most-favored-nation treatment principle, but said: “We are supposed to choose whether to file a complaint with the WTO or deal with the issue under the FTA procedures. We will review the two options thoroughly.”
Lee also said the IRA economically damages Germany and Japan, and South Korea is pursuing cooperation with these countries.
Damaged Trade Relations
According to the most recent information from the U.S. Trade Representative, in 2020, South Korea was the seventh most prominent supplier of goods imported by the United States. The top import category was vehicles, totaling $21 billion in 2020.
Similarly, in 2020, Japan was the fourth-largest supplier of goods imported by the United States, with vehicles coming in as the top category with $40 billion.
According to the U.S. Trade Representative, Germany is one of the top five importers of the European Union. And the Center for Collective Learning reported that in 2020, Germany was the leading exporter of cars in the world, exporting $15.1 billion to the United States.
Chinese employees working on a production line of automobiles at a factory in Changchun, Jilin Province, China, on Nov. 1, 2017. STR/AFP via Getty Images
Not all of those vehicle imports are EVs. However, EVs are still a lucrative part of the equation—in the third quarter of 2021, the United States spent $614 million on EVs from South Korea, according to Statista—explaining South Korea’s distress over the IRA tax credit provisions.
Pointedly, EV’s North American assembly requirement isn’t the only pressing problem for South Korea’s EVs.
Starting January 2023, to qualify for an EV tax credit, a certain percentage of the battery components must come from North America or a country with a free trade agreement with the United States.
South Korea imports 90 percent of its critical minerals from China—explicitly violating the IRA stipulation.
Katie Spence
Freelance reporter
Katie Spence is a freelance reporter for The Epoch Times who covers energy, climate, and Colorado politics. She has also covered medical industry censorship and government collusion.
Ms. Spence has more than 10 years of experience in media and has worked for outlets including The Motley Fool and The Maverick Observer.
She can be reached at: [email protected]
