South Korea has faced growing tensions with the US over high-tech trade.

Seoul’s trade minister has warned that the Biden administration’s sudden end to subsidies for South Korean electric vehicles could undermine confidence in the United States, as trade tensions between the partners escalate.

Seoul is furious that EVs made by South Korea’s Hyundai will be excluded from generous consumer tax credits included in the Inflation Reduction Act, the U.S. Climate, Tax and Expenditure Act.

The furore reflects the influence of Washington’s efforts to boost domestic production in high-tech sectors on US allies as competition with China intensifies.

In an interview with the Financial Times, he recalled Joe Biden’s visit to South Korea when US President and Hyundai Chairman Chung Yoo-sun announced a $5.5 billion investment to build the company’s first dedicated EV plant and battery manufacturing plant. In the US

“President Biden himself said, ‘Thank you very much, Chairman Chung, I will not allow it’ – this was the correct statement and it was widely distributed in Korea,” said Ahn, a professor of international trade law who took over the office shortly before Biden’s visit.

“Then when this new law is implemented and signed by President Biden and [it became clear that] The company was being discriminated against, which had emotional and political consequences.

South Korea’s Trade Minister Ahn Duk-geun says ‘we don’t want to make the problem worse by taking similar retaliatory measures’ © South Korea’s Trade Ministry

The Inflation Reduction Act signed by Biden last month provides a tax credit of up to $7,500 for EVs assembled in the US, Canada and Mexico. But Hyundai’s Georgia plant isn’t scheduled to begin production until 2025 — making it ineligible for the subsidy until then.

“This was a big problem for Hyundai Motor Company, which decided to make a big investment based on the current arrangement,” said Ahn. [US] Congress and senators were fully aware of the details of the IRA.”

Ahn stressed that U.S. officials are aware of Hyundai’s predicament and are working positively with their Korean counterparts to “minimize the damage.”

“We do not want to aggravate the problem by taking similar retaliatory measures,” said Ahn, who reiterated South Korea’s position, which opened up the opportunity to take action in the World Trade Organization.

But you never know, we are just as flexible when the going gets tough.

Ahn acknowledged disagreements between Seoul and Washington over U.S. restrictions on manufacturing capacity at semiconductor facilities in China.

“Our semiconductor industry is very concerned about what the U.S. government is doing these days,” Ahn said, referring to the recent Chips Act, which bars recipients of U.S. federal funding from developing or upgrading their advanced chip capacity in China for 10 years. .

“Of course, we share the U.S. government’s high level of concern about semiconductor products because the risk is there. [that they could be] It was used for military purposes,” Ahn said.

“At the very lowest end there are semiconductor products that have nothing to do with such purposes, and we thought that these were for general commercial purposes,” he said.

The problem is the gray area where the U.S. government has previously tried to access general trading areas and the Korean government sometimes disagrees over demarcation.

Like many export-oriented countries, South Korea is caught up in the intensifying rivalry between Washington and Beijing.

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

He cited Beijing’s policy of “arbitrary interference in businesses” as well as “dual circulation” import policies as the main reasons for foreign companies to reduce their exposure to China.

He added that in ten years, the “structure of trade” between South Korea and China will change, the value chain will go down and the exchange of sensitive technologies will be more controlled.

“Perhaps the volume of trade will increase,” said Ah. But it may increase trade in low-cost products, but decrease trade in high-tech products.” He said Korea is seeking to expand its ties with the United States and the European Union to reduce its trade dependence on China.

While South Korea and China are interested in forming a trilateral free trade agreement with Japan, these efforts are being hampered by opposition from Tokyo, which is trying to resolve political differences with Seoul over Japan’s historic invasion of the Korean Peninsula.

He added that Japanese opposition has complicated South Korea’s joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, an Asia-Pacific trade deal that excludes the US and China.

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

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