Subsidies not available for Korean-made EVs in US
Domestic automakers are feared to suffer setbacks in their exports of electric vehicles (EVs) to America as U.S. President Joe Biden signed a landmark climate change and health care bill into law Tuesday. The problem lies in the Inflation Reduction Act which calls for expanding tax subsidies for EV buyers, but only for EVs assembled in North America.
The act makes it almost impossible for local EV makers to sell their products in the U.S. because no American consumer would buy them without tax subsidies amounting up to $7,500. Currently, Hyundai Motor and affiliate Kia Corp. are manufacturing electric cars here in Korea. If the U.S. act goes into effect, it will deal a severe blow to the two Korean companies which have no EV assembly lines in North America.
The U.S. authorities made public a list of electric vehicles available for subsidies which includes the Nissan LEAF together with the EV models of Ford and other American automakers. However, Hyundai's IONIQ5 and Kia's EV6 are not on the list. Hyundai is scheduled to begin to assemble its GV70 in the U.S. in November, while Kia is to produce EV9 models there starting in the latter half of next year. But their assembly schedule is not enough to compete with other EV makers in America.
That's why the local carmakers need to speed up their EV production and expand their assembly capacity in order not to lose their market share in the U.S. The trade unions of the companies should cooperate in assembling more EVs in America, while reducing local production here. According to the industry, Hyundai and Kia's combined EV share in the U.S. market fell to 7.6 percent last month from a record 10.3 percent in the second quarter of this year.
The Korean makers cannot help but feel a sense of crisis. More worrying is that the U.S. act has provisions that could bar EVs from receiving subsidies if they are equipped with batteries or battery components made of minerals produced in China. The act will allow the Biden administration to create its own EV and battery supply chains that are intended to exclude China from the U.S. market apparently as part of its strategic competition with the Asian giant.
It is regrettable to see the U.S. legislation putting Korean carmakers on an unequal footing. It seems unfair for the U.S. to discriminate against Korean-made EVs because they are not assembled there. The act could be seen violating an agreement concerning subsidies of the World Trade Organization (WTO). Besides, it is certainly not in line with the spirit of the Korea-U.S. Free Trade Agreement under which both countries should treat each other's products on equal terms.
The U.S. authorities should not forget that U.S.-made EVs currently enjoy the same subsides as Korean-made EVs here in accordance with the bilateral FTA. Therefore we urge the Biden administration to consider allowing Korean-made electric vehicles to continue to receive the benefits even after the implementation of the new act.
The Seoul government, for its part, should step up trade diplomacy in order to protect the country's business interests in the U.S., a traditionally strong security ally of Korea. The Yoon Suk-yeol administration also needs to raise the EV subsidy issue during negotiations with Washington. A better alliance should be based on mutual respect and an equal footing.