Mu-hyup: "US IRA Electric Vehicle Subsidies May Violate WTO and FTA"

Submitting Opinions to the U.S. Treasury Department After Industry Coordination

[Image source=UPI Yonhap News]

[Asia Economy Reporter Moon Chaeseok] An analysis has emerged suggesting that the preferential measures for using domestically produced materials and components under the U.S. Inflation Reduction Act (IRA) may violate the World Trade Organization (WTO) national treatment principle and the prohibition provisions of the Korea-U.S. Free Trade Agreement (FTA) implementation requirements.

On the 27th, the Korea International Trade Association’s Institute for International Trade and Commerce published a report titled "The U.S.'s New Supply Chain Restructuring Strategy and IRA Electric Vehicle Subsidy Regulations: Unconventional Trade."

The report stated, "Preferential measures conditioned on the use of domestically produced materials and components have repeatedly been confirmed as contrary to trade norms within the WTO," adding, "There have been 14 WTO dispute cases recognizing that requirements to use domestic components constitute discrimination against imports (violating the national treatment principle)."

The IRA’s electric vehicle subsidy regulation provides a tax credit of up to $7,500 only for electric vehicles that are finally assembled 'in North America.'

The report analyzed, "The IRA electric vehicle subsidy regulation is highly likely to be considered an import substitution subsidy prohibited under the WTO Subsidies Agreement," and "Since it distorts investment decisions through artificial measures by the host government, it may also violate the Korea-U.S. FTA’s prohibition on implementation requirements."

The WTO Subsidies Agreement defines subsidies conditioned on the use of domestic products instead of imported goods as prohibited subsidies. The Korea-U.S. FTA explicitly states that no party may require investors from the other party to purchase or use goods produced within its territory or give preference to such goods in relation to the establishment or operation of investments within its territory.

The report emphasized, "Negative impacts on our companies due to the implementation of the IRA are inevitable," but also stressed, "Since U.S. companies also face difficulties in meeting the requirements, it is necessary to seek countermeasures in response to the IRA’s implementation."

With the IRA’s implementation, tax credit benefits for purchasing our electric vehicles will immediately disappear. Issues pointed out include the low reserves of critical minerals used in electric vehicle batteries in the U.S. and the low self-sufficiency rate of U.S. battery components. According to the report, the U.S. holds only 3.4% of the world’s lithium, 0.9% of cobalt, and 0.3% of nickel reserves. Regarding production capacity, cathode materials account for 10% of the world’s capacity, anode materials 0%, electrolytes 2%, and separators 6%, all at minimal levels.

Due to requirements for sourcing battery materials and components from North America or FTA partner countries, vehicle price caps, and buyer income requirements, tax credit benefits for purchasing U.S.-made electric vehicles may also be limited.

However, the report forecasts that combined with incentives announced by the U.S. government and the interests of companies aiming to dominate the U.S. electric vehicle and battery markets, the U.S. battery industry base will be significantly expanded in a short period.

The Korea International Trade Association plans to submit an association opinion letter on the IRA’s implementation to the U.S. Department of the Treasury after coordinating with domestic industries such as Hyundai Motor Company, which is conducting local investments in the U.S.

Cho Sanghyun, head of the Korea International Trade Association’s Institute for International Trade and Commerce, suggested, "In the long term, to ensure that Korea is included in the U.S. supply chain construction, the government should strengthen efforts to actively utilize international cooperation platforms such as the Indo-Pacific Economic Framework (IPEF) and the Minerals Security Partnership (MSP)."

This content was produced with the assistance of AI translation services.