electric vehicle battery

EU and South Korea warn US EV tax credit could break WTO rules

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The European Union and South Korea have expressed concerns that the electric vehicle tax credit included in the US Inflation Reduction Act would discriminate against foreign producers.

Under the Inflation Reduction Act that was recently approved by the US Senate, households could receive up to $7,500 (£6,140) in tax credits to buy an electric car or $4,000 (£3,275) for a used one.

To qualify for the tax credit, the bill would require that the electric vehicles (EV) contain a battery built in North America with minerals mined or recycled on the continent.

Although the condition is part of President Joe Biden's push towards increasing the US's battery production capabilities and reducing dependence on overseas supply chains, the European Union and South Korea have expressed concerns over the proposal. They have argued it would discriminate against European producers and break World Trade Organization rules.

"The European Union is deeply concerned by this new, potential, trans-Atlantic trade barrier," European Commission spokeswoman Miriam Garcia Ferrer said. "We think that it's discriminatory, that it's discriminating against foreign producers in relation to US producers. Of course, this would mean that it would be incompatible with the WTO."

The commission agreed that tax credits are "an important incentive to drive the demand for electric vehicles" and ultimately to help reduce greenhouse gas emissions, but stressed the need to ensure that the measures introduced "are fair". 

The proposed legislation also includes provisions aimed at preventing the use of battery components or critical minerals derived from China. The Asian superpower currently dominates the production of key components such as lithium, while the Democratic Republic of Congo is the world's leading producer of cobalt.

South Korea has also criticised the decision, with the country's trade ministry stating that it has asked US trade authorities to ease battery components and final vehicle assembly requirements.

The ministry had previously met with representatives of domestic battery makers, including LG Energy Solution, Samsung SDI and SK; as well as automaker Hyundai Motor Co, who stated that the legislation would put them at a competitive disadvantage and "dramatically slow the transition to sustainable mobility in this market." 

"Korea is deeply concerned that the recent US Senate's EV tax incentive bill includes provisions for providing tax incentives discriminating between North American-made and imported EVs and batteries," the Korea Automobile Manufacturers Association (KAMA) said in a statement.

The organisation added South Korea has been offering subsidies for EVs made in the United States.

The ban on tax credits for vehicles assembled outside of North America would take effect as soon as President Joe Biden signs the legislation, which would allocate $369bn (£302bn) to reducing greenhouse gas emissions and investing in renewable energy sources. The US government expects these measures will reduce America’s planet-heating emissions by about 40 per cent by 2030, compared with 2005 levels.

When signed into law, the Act will become the largest investment the US has ever made to tackle climate change and reduce the country’s carbon emissions. 

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