EU, South Korea warn that US EV plans may break WTO rules

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New tax credits for domestically-produced EVs in the US could break WTO rules and act as barriers to trade, the EU and South Korea have warned.

The EU and South Korea have both expressed concern that new rules surrounding tax credits for electric vehicles (EVs) in the US could break World Trade Organization (WTO) rules by putting importers at a disadvantage.

As part of the US government's Inflation Reduction Act, which has been passed by both houses of Congress and is awaiting the signature of president Joe Biden, buyers of certain EVs will be able to claim tax credits worth up to $7,500 to encourage adoption of this technology. 

To qualify for this, the car's battery must be assembled in North America using minerals mined or recycled on the continent. However, the EU and South Korea have both suggested this would amount to an unfair subsidy under WTO rules.

European Commission spokeswoman Miriam Garcia Ferrer said the bloc is "deeply concerned" by the prospect of a new barrier to transatlantic trade. She added: "We think 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." 
Similar sentiments were expressed by the South Korean trade ministry and industry groups, as the country is home to several major EV battery manufacturers, including LG Energy Solution, Samsung SDI and SK, as well as automakers.

A spokesperson for Hyundai, which imports many of its US-sold vehicles, said the company is "disappointed that the current legislation severely limits EV access and options for Americans and may dramatically slow the transition to sustainable mobility in this market."

The Inflation Reduction Act is one of the Biden administration's flagship legislative priorities, and authorizes up to $700 billion of spending. As well as setting out plans to tackle high inflation in the US, it includes efforts to reduce carbon emissions, address energy security, lower prescription drug prices and introduce tax reforms.

Ms Ferrer said that while the European Commission agrees that tools such as tax credits provide "an important incentive" to boost demand for electric vehicles and reduce greenhouse gas emissions, it is vital to ensure that these measures are fair.

"We continue to urge the United States to remove these discriminatory elements from the bill and ensure that it is fully compliant with the WTO," she continued.