November 30, 2024

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Industry Minister Lee Chang-yang (right) speaks during a meeting with business leaders to take countermeasures against the US move to take a protective trade stance over some industrial sectors, such as semiconductors and electric vehicles, in Seoul on Thursday. (Yonhap)

SEJONG -- The South Korean government is to seek a joint response with the EU to deal with the US Inflation Reduction Act that slashes subsidies to electric vehicles not made on American soil, rather than seeking a dispute settlement within the bilateral trade agreement framework the two forged years ago.

Seoul will continue to argue that the US law goes against the Korea-US Free Trade Agreement, but a joint response scenario with other countries seems more feasible to press Washington than filing the case straight to the World Trade Organization, Industry Minister Lee Chang-yang said, adding he would visit the US next month.

Calling the complaint “a last resort,” Chung Dae-jin, deputy trade minister, said the government will initiate consultations next month with the US and EU nations who also face damages.

According to the Ministry of Trade, Industry and Energy on Thursday, the move comes amid a situation where the US is set to prevent global chipmakers -- who are offered incentives and tax benefits in the US market -- from newly investing in the Chinese market for the next decade.

For the automobiles sector, the US is moving to offer a variety of benefits to only carmakers that produce EVs at factories in the North American market.

The US has also specified that the EVs should be powered by batteries produced in North America to satisfy the requirement of state subsidies.

These regulations are based on the Inflation Reduction Act and the Chips Act, both of which have passed through the US Congress.

The Industry Ministry held an emergency meeting with business leaders from the three industrial segments in Seoul on the day, saying the Korean government would not spare any effort to map out measures in close collaboration with the private sector.

Participants included executives from Samsung Electronics, SK hynix, Hyundai Motor, LG Energy Solution, Samsung SDI, SK On and business lobbies for semiconductors, automobiles and batteries.

The ministry said it would continue to hold talks with the US Department of Commerce in a bid to garner exemptions from the list of chipmakers that would be banned from investing in China and some other markets for 10 years, in return for enjoying the coming incentives between 2022 and 2026 and tax deductions of 25 percent in the US.

The ministry said it “would bolster partnerships, which have already been fostered with the Commerce Department, if necessary, and actively utilize communication channels on bilateral supply chains” in an effort to minimize damages on the local semiconductor industry.

In the automobiles sector, the Industry Ministry forecasts that electric vehicles shipped to the US from Korea, Japan, Germany and Sweden will be excluded from the list of subsidy targets, as the US specified that it would apply the subsidy requirement of EVs, finally assembled in the US, starting from later this year.

Further, the EVs should meet the requirement of using batteries produced in the US.

Korea, which exported 32,000 EVs in 2021, may possibly take a joint action with the European Union, saying that few global EV producers could satisfy the strict requirements.

By Kim Yon-se(kys@heraldcorp.com)