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South Korea complains of growing friction with US over high-tech trade

The Biden administration’s abrupt withdrawal of subsidies for South Korean electric vehicles threatens to undermine confidence in the US, Seoul’s commerce secretary warned as trade tensions between the allies mount.

Seoul is outraged that EVs produced by Hyundai in South Korea will be barred from generous consumer tax credits included in the Inflation Reduction Act, a landmark U.S. climate, tax and spending bill.

The furor illustrates the impact on US allies of Washington’s efforts to boost domestic production in high-tech sectors, including EVs and semiconductors, as competition with China intensifies.

In an interview with the Financial Times, Ahn Duk-geun recalled Joe Biden’s visit to South Korea in May, when US President and Hyundai Chairman Chung Eui-sun announced a $5.5 billion investment to build the first special Build the company’s EV plant and battery plant. in the U.S.

“President Biden himself said, ‘Thank you very much, Chairman Chung, I will not disappoint you’ — that was the exact statement, and it was widely broadcast in Korea,” said Ahn, a professor of international trade law who will soon take office. for Biden’s visit.

“When this new law was enacted and signed by President Biden, and… [it became clear that] that company was discriminated against, this situation caused emotional and political consequences.”

Ahn Duk-geun, South Korean Trade Minister
South Korea’s Commerce Minister Ahn Duk-geun: ‘We don’t want to make the problem worse by taking similar retaliatory measures’ © South Korea Ministry of Commerce

The Inflation Reduction Act, signed by Biden last month, provides tax credits of up to $7,500 for EVs assembled in the US, Canada and Mexico. But the Hyundai plant in Georgia is not expected to start production until 2025, making it ineligible for the subsidies until then.

“That caused major problems for Hyundai Motor Company, which decided to make a huge investment based on the current arrangement,” said Ahn, suggesting that “not much [US] Congressmen and senators were fully aware of all the details of the IRA.”

Ahn stressed that US officials had acknowledged Hyundai’s predicament and were positively working with their Korean counterparts to try to “minimize the damage”.

“We don’t want to exacerbate the problem by taking similar retaliatory measures,” said Ahn, reiterating South Korea’s position that left open the possibility of taking action at the World Trade Organization.

“But you never know, if the situation gets really serious, we’re flexible too.”

Ahn also acknowledged disagreements between Seoul and Washington over US restrictions on the transfer of advanced manufacturing capabilities to semiconductor facilities in China.

“Our semiconductor industry is very concerned about what the US government is doing today,” Ahn said, referring to the recently passed Chips Act, which prohibits recipients of US federal funding from expanding or upgrading their advanced chip capability in China for 10 years. .

“Of course we share the US government’s concern about the top level of semiconductor products, because there is a danger [that they could be] used for military purposes,” Ahn said.

“On the very low end are semiconductor products that have nothing to do with that kind of purpose, and we thought these were for general commercial purposes,” he added.

“The problem lies in the gray area, where the US government is trying to get into what used to be more general commercial areas, and the Korean government sometimes disagrees on the demarcation.”

As with many export-oriented countries, South Korea is increasingly entangled in the intensification of competition between Washington and Beijing.

“Like the companies of many other countries, Korean companies are trying to reduce their dependence on the Chinese market,” Ahn said.

He cited Beijing’s “randomly meddled business” policy and its “dual circulation” import substitution policy as the main factors driving foreign companies to reduce their exposure to China.

He added that over the decade, the “trade structure” between South Korea and China “will be changed”, with the value chain moving down as the exchange of sensitive technologies becomes more controlled.

“Maybe the trading volume will increase,” Ahn said. “But maybe it will be an increase in trade in low-value products, while trade in high-value, technologically advanced products may be reduced.” He said Korea wanted to expand ties with the US and the EU as part of a drive to reduce its trade dependence on China.

Ahn said that while South Korea and China remained interested in the possibility of a trilateral free trade agreement with Japan, these efforts were hampered by Tokyo’s opposition over unresolved political tensions with Seoul over Japan’s historic occupation of the Korean Peninsula.

He added that the Japanese opposition had also hindered South Korea’s bid to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, an Asia-Pacific trade pact that does not include the US or China.

“It is a very important topic for us and we have already spoken to all CPTTP members except Japan, which is still very reluctant to talk to us unless we resolve these diplomatic issues,” Ahn said. “The official position of the Japanese government is still very stubborn.”

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