Law feared hurting S. Korean carmakers

The United States' Inflation Reduction Act can deal a massive blow to South Korean automakers, said experts, urging the government to step up efforts to negotiate with Washington.

"The IRA will affect seriously the competitiveness of South Korean-made electric vehicles," said Moon Jong-chol, a research fellow at the Korea Institute for Industrial Economics and Trade.

Since US President Joe Biden signed the IRA into law in August, people in South Korea have repeatedly expressed concern over the IRA, which excludes EVs assembled outside North America from receiving tax credits of up to $7,500. To receive tax credits, the car's battery must also meet a minimum threshold of parts sourced from the US or countries with which it has a free-trade pact.

Moon said the primary goal of the IRA is to promote domestic production and employment, and prevent the entry of China's affordable EVs into the US market.

He said the Biden administration was trying to demonstrate to US voters that it was doing its best to protect US industries and workers before the country's midterm elections.

South Korean EVs use components and minerals from China and the cars are made outside the US without employing any US workers.

"I don't think the US will make any meaningful changes by taking (South Korea's) feedback seriously," Moon said.

In a written opinion submitted to the US on Friday, the Seoul government said the IRA will hurt foreign EV companies and may violate international trade regimes such as the World Trade Organization and the two countries' bilateral free trade agreement, according to a statement by the South Korean Ministry of Trade, Industry and Energy.

Call for grace period

South Korea is asking the US for a three-year grace period for its carmakers to keep receiving tax credits in the US.

Hyundai, a leading South Korean automaker, has joined other non-US companies to propose a similar request and urge the US to ease its EV rules as it will hurt foreign investors.

In October, Jose Munoz, global president and chief operating officer of Hyundai Motor, told Reuters that the IRA is unfair and none of the South Korean automakers' EVs will qualify for the credit.

Lee Hang-koo, a senior analyst at Korea Automotive Technology Institute, said the implementation of the IRA will likely reduce the price competitiveness of South Korean automakers, including Hyundai, which together with its affiliate Kia, became the second biggest EV seller in the US.

"Since South Korea relies heavily on China for core minerals for EVs, it is difficult for automakers to find suppliers to replace China in a short time," said Lee, adding that changing the supply source to other countries such as Canada, Australia and Chile may increase the cost.

He urged the government to offer more support for South Korean carmakers in their aggressive lobbying efforts.

Eighty-four percent of lithium hydroxide, a critical mineral for batteries, was imported to South Korea from China in the first seven months of this year, Korea JoongAng Daily reported, citing data from the Korea International Trade Association.

Moon said bringing the case to the WTO will "have almost no impact" as it will take too much time and it is highly likely that the WTO's decision will be ignored by the US government.

"The only and immediate measure is to have a direct and constant negotiation with the US government to make the effect of the act more acceptable than the initial conditions," said Moon.