“Stabbed in the back”: S. Korea bemoans Inflation Reduction Act snub

Posted on : 2022-09-05 16:22 KST Modified on : 2022-09-05 16:22 KST
After joining Chip 4 and the IPEF and essentially abandoning China, some in Korea feel the latest moves by the US are tantamount to betrayal
US President Joe Biden (EPA/Yonhap)
US President Joe Biden (EPA/Yonhap)

“South Korea may consider the [Inflation Reduction Act] like being stabbed in the back,” Bloomberg quoted a former South Korean official as saying on Friday.

Bloomberg described Korea’s shock over the US’ enactment of the Inflation Reduction Act as a feeling of “betrayal.”

As the wire service pointed out, South Korean President Yoon Suk-yeol has been an enthusiastic partner in the US’ drive to reorganize supply chains since his inauguration this past May.

The Yoon administration has taken the bold step of joining the Chip 4 deliberative body on semiconductor supply chains and the Indo-Pacific Economic Framework (IPEF), causing friction in Korea’s relationship with China, only to suffer a major humiliation.

The official who likened Korea’s consternation to “being stabbed in the back” was Cheon Seong-whun, former director of the Korea Institute for National Unification.

“After putting in that much amount of investments, the South Korean administration, as well as its public, expected the same amount of economic benefits back from the US in the form of market accessibility,” Cheon told Bloomberg in an interview.

The situation created by the US Inflation Reduction Act is likely to raise the threat of “America risk” in Korean society, which has already been buffeted by the “China risk” exemplified by the conflict over the Terminal High Altitude Area Defense missile defense system, also known simply as THAAD.

But the current situation can be described as fundamentally different in nature from consternation over THAAD. Korean companies suffered severe damages from China’s ban on cultural imports during the THAAD crisis in 2016-2017, but they’d been expecting that to some extent and were able to respond.

This current conflict, however, is the result of Korea taking part in good faith in the Biden administration’s program of reorganizing supply chains around countries that share similar values. Since Korea has been “stabbed in the back,” as Cheon put it, the shock is even greater.

The bigger problem is that the US’ firm resolution in its strategic competition with China makes concessions unlikely. While Congress was debating the bill, the Korean government asked that the act be delayed until 2025, when the Hyundai Motor Company completes its factory in Georgia, but that request was denied.

The US’ response hasn’t differed much since then. Seoul has repeatedly brought the issue up during a joint delegation’s visit to the US (Aug. 29-31) and National Security Office Director Kim Sung-han’s meeting with his American and Japanese counterparts (Sept. 1), but the US has dodged a direct response.

After Kim raised the issue, US national security advisor Jake Sullivan encouraged everyone to give the Inflation Reduction Act a close perusal after returning home but also noted that the bill goes beyond electric vehicles and provides a strategic vision for reorganizing supply chains between liberal countries. His comments imply that since the bill contains a strategic vision for responding to China, it can’t be changed on Korea’s behalf.

Seoul plans to continue reaching out to the US on the issue when Trade Minister Ahn Duk-geun attends a ministerial meeting of the IPEF on Thursday and Friday this week and when Trade, Industry and Energy Minister Lee Chang-yang attends the UN General Assembly on Sept. 18-20. The government is also exploring the option of initiating conflict resolution procedures over a norms violation under the World Trade Organization or the Korea-US Free Trade Agreement, but that’s not likely to have much of an impact.

A hopeful possibility is that the US may give Korea some breathing space when it specifies the mineral and part requirements for electric vehicle batteries. Unlike the requirement for assembly in North America, which has already taken effect, the mineral and parts requirements will take effect next year, and the specific guidelines have yet to be drafted.

The law specifies that a tax credit of US$3,750 will be provided for vehicles that source 40% of their battery-critical minerals from the US or countries with which the US has a free trade agreement in place and another tax credit of US$3,750 for vehicles that source 50% of their battery parts from North America.

Even in the US, those requirements are regarded as excessively strict. The US Alliance for Automotive Innovation said in a statement on Aug. 5 that more than 70% of the 72 models of electric vehicle that are currently available for purchase in the US would not be eligible for tax credits under the law.

By Gil Yun-hyung, staff reporter; Lee Bon-young, Washington correspondent

Please direct questions or comments to [english@hani.co.kr]

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