Martial Arts: "Battery Material - Urgent Need to Prepare Measures Including Adjustment of China's Shareholding Ratio"

Report on Interpretation Guidelines for MI IRA Overseas Concerned Organizations (FEOC)
Follow-up Measures Needed as Uncertainty Is Resolved

As the United States announced a draft interpretation and implementation guideline for ‘Foreign Entity of Concern’ (FEOC) that are ineligible for electric vehicle tax credits under the Inflation Reduction Act (IRA), advice has emerged urging swift preparation of follow-up measures such as adjusting joint venture ratios with China, as the uncertainty that had weighed on the battery industry due to the lack of interpretation guidelines has been resolved.

Battery 3 Companies

On the 4th, the Korea International Trade Association’s Institute for International Trade and Commerce stated in its report titled ‘Key Contents and Implications of FEOC Interpretation Guidelines’ that "the announcement of the draft guidelines has alleviated uncertainties for our companies conducting or planning large-scale domestic and overseas investments." The U.S. Inflation Reduction Act (IRA) prohibits the use of battery parts and critical minerals from FEOCs starting in 2024 and 2025 respectively, but the lack of established criteria and detailed provisions for FEOC had caused confusion in the battery industry.

With the newly announced guidelines setting the FEOC regulatory standard at the same level as semiconductors (ownership of 25% or more), the burden on our companies, which inevitably have a high dependence on Chinese materials, has increased. Unlike U.S. semiconductor regulations (such as the National Defense Authorization Act and the CHIPS Act), which aim to prevent technology transfer and leakage for national security reasons, battery-related laws (the Infrastructure Investment and Jobs Act and the Inflation Reduction Act) focus on ▲job creation through investment expansion and climate change response, and ▲the practical reality of high dependence on Chinese battery materials and parts. Considering these factors, there had been opinions that the standards would be more lenient than those for semiconductors, but it has now been confirmed that the same standards as semiconductors have been adopted.

The KITA interpreted that the U.S. strengthening exclusion of China from the battery supply chain likely reflects domestic political considerations of the Biden administration ahead of the 2024 presidential election.

Since it is difficult to improve dependence on Chinese battery materials in the short term, it is necessary to expedite measures such as replacing procurement sources and adjusting joint venture equity ratios depending on the degree of government involvement (ownership ratio, board composition, etc.) of cooperating Chinese companies.

Cho Sung-dae, Director of the Trade Support Center at the Korea International Trade Association, said, “While the FEOC interpretation guidelines increase the burden on the battery industry, the uncertainty has been resolved for now, so follow-up measures must be prepared,” adding, “Since not all Chinese battery companies fall under FEOC, it is important to carefully examine the detailed contents of this draft interpretation guideline and seek response strategies.”

He continued, “Voices calling for stronger China containment are growing in the U.S. ahead of next year’s presidential election,” and added, “During the stakeholder consultation period on the draft interpretation guidelines, we should closely monitor the possibility that hardline political factions and U.S. stakeholders’ positions toward China will be reflected, and if there are parts where the practical limitations of the battery supply chain are not considered, we must also convey our opinions to minimize damage.”

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