[IRA Reassessment] ③ Urgent Need for Raw Material Supply Chain Control Tower... "Considering Pressure Through Alliance Litigation"

Global Focus on Securing Battery Raw Material Supply Chains
Need for Organizations to Establish Concrete Plans and Enforce Implementation

Editor's NoteThe United States has initiated the final procedures to establish detailed guidelines related to the tax credits under the Inflation Reduction Act (IRA), set to take effect next year. The IRA limits tax credits for electric vehicle (EV) buyers to those vehicles that are finally assembled in North America. Additionally, the minerals used as EV parts and raw materials must meet certain thresholds for mining and processing in the U.S. or countries with which the U.S. has free trade agreements (FTA). Korean automotive and battery companies face the urgent challenge of swiftly changing their supply chains, which have so far depended on China. There are concerns that exclusion from tax incentives could lead to a loss of price competitiveness, becoming a negative factor. On the other hand, some expect the IRA to serve as a stepping stone for preemptive investment to capture market share. This article examines what domestic companies hope to see in the IRA’s detailed provisions and explores strategies to gain an advantage in the North American market.

President Yoon Suk-yeol is speaking at the 10th Emergency Economic and Livelihood Meeting held on the morning of the 7th at the Yongsan Presidential Office building in Seoul. On this day, President Yoon said, "It seems necessary to have various comprehensive measures to stabilize the supply chain in order to supply critical minerals in a timely manner." Photo by Presidential Office Press Photographers Group

[Asia Economy Reporter Choi Seoyoon] As the world races to secure battery raw material supply chains, there are calls for a control tower that can establish concrete plans and enforce their implementation to ensure stable procurement of key minerals by domestic companies.

Experts agree that it is difficult for companies alone to respond to government-led issues such as the U.S. Inflation Reduction Act (IRA) and the European Union’s Raw Materials Act (RMA).

◆ Difficult for companies to handle IRA response alone = On the 7th, Kim Donghwan, Director of the International Strategic Resources Institute, said, “Resource development takes from 5 to 20 years to become profitable, so companies cannot sustain losses for that long, and even large corporate owners find it difficult to make such decisions. Therefore, it is essential that the state, government, or public sector take the lead in developing minerals directly and ensure stable supply to domestic companies.”

He emphasized that issues such as mineral procurement status and legal and environmental challenges by country are beyond the capacity of companies. In fact, Korean battery companies have no clear way to respond to the IRA other than signing agreements to purchase minerals from countries with which the U.S. has FTAs.

Recently, the Ministry of Trade, Industry and Energy established a public-private alliance with three domestic battery companies to secure key minerals, but even within the battery industry, there are remarks like “there is not much to do.” A representative from Battery Company A lamented, “Other than easing administrative procedures such as import-export permits and financial support, I doubt there will be any sharp measures.”

Experts point out that the government must proactively prepare a realistic roadmap. Director Kim said, “An organization solely managing the ‘raw material supply chain’ should be placed under the Prime Minister’s office to prepare a resource development roadmap, and smelters should be built in mining countries to supply results to our companies.” He added, “Especially for strategic minerals such as rare earths and lithium, which are the foundation of electric vehicles, and critical minerals, supply chains must be established, and the government should prepare with a long-term perspective of 50 to 100 years, not just 1 to 2 years.”

There are also calls to properly build the overall battery industry ecosystem, not just to resolve the IRA. Professor Park Cheolwan of the Smart Automobile Department at Seojeong University suggested, “A control tower should be above ministries to exert driving force. It requires direct presidential oversight or bipartisan council support.” He added, “It is not only important to resolve the IRA, but the biggest crisis is that domestic companies continue to be pushed out by China regardless. There must be a headquarters that comprehensively understands the situation to build the battery ecosystem, including basic research, materials, and workforce.”

◆ Maintaining solidarity with local U.S. opposition groups to the IRA is important = Meanwhile, the government is considering filing a complaint with the World Trade Organization (WTO) in case the IRA leads to trade disputes. A domestic law firm has been selected for this purpose. However, the consensus is that the possibility of resolving the issue through WTO litigation is low. Professor Park explained, “Since the number of Korean cars purchased in the U.S. exceeds the number of American cars imported into Korea, we would be at a disadvantage. They might also pick on other issues beyond automobiles.”

Professor Lee Hogun of Daeduk College’s Automotive Department said, “Since Japan, Europe, and five other regions share the same stance, filing a WTO complaint could increase our leverage. However, it might be more advantageous to point out violations using the FTAs that only Korea has signed, allowing us to survive favorably.” The FTA clauses prohibit imposing origin-related disadvantages (production or logistics purchase) on FTA partner countries, which directly contradicts the IRA’s requirement for production within the U.S.

Professor Lee added, “Public opinion on the IRA in the U.S. is divided. Organizations like the American Automotive Service Association, which worry about job losses at Hyundai’s local plants, and opposition voices concerned that the IRA could shrink allied economies and freeze the overall economy exist. Therefore, it is important to maintain solidarity with these groups, jointly pressure the government, and clearly review WTO or FTA litigation options.”

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