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| Democratic Party of Korea Chairman Lee Jae-myung, center, speaks during a meeting at the National Assembly in Seoul, Friday. Korea Times photo by Oh Dae-keun |
By Park Jae-hyuk
The main opposition Democratic Party of Korea (DPK) recently indicated its intention to propose legislation similar to the U.S. Inflation Reduction Act (IRA), raising concerns that such a move would end up triggering conflicts with major trading partners, such as the U.S, Japan and the EU.
"If Korea enacts a law similar to the U.S. IRA, it could be considered a violation of the WTO agreement on subsidies, although it remains uncertain whether the U.S., EU and Japan would point out the matter," said Cheong In-kyo, professor of international trade at Inha University.
Last Friday, DPK Chairman Lee Jae-myung said in a meeting at the National Assembly that his party will prepare for the enactment of the Korean version of the IRA, a law signed by U.S. President Joe Biden which denies tax incentives for the purchases of electric vehicles assembled outside of North America.
"Instead of having a rosy outlook and avoiding the reality, the administration should reconsider its trade strategies from scratch," the lawmaker said. "The Korean version of the IRA will be a law that promotes investments and consumption in renewable energy and green industries and that supports the construction of relevant infrastructure."
His remarks came a day after Rep. Kim Sung-whan, the DPK's policy board head, said that the party will legislate the Korean version of the IRA as soon as possible to nurture domestic industries related to renewable energy and the Green New Deal.
"At this moment, a new trade protectionism prevails around the world to cope with climate change and increase jobs in each country," Kim said.
Late last year, Rep. Sim Sang-jung of the minor opposition Justice Party urged the government and the ruling People Power Party to enact a law similar to the U.S. IRA, in order to prevent the outflow of manufacturing jobs.
The Ministry of Trade, Industry and Energy has remained cautious about the opposition lawmakers' attempts to legislate the Korean version of the IRA, given that they have yet to specify the details of their bills.
The government, however, is said to be reluctant to take retaliatory measures against the protectionist policies of the U.S. and the European Union, considering the size of the Korean market and the country's dependence on exports.
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| U.S. President Joe Biden, surrounded by Democratic lawmakers, signs the Inflation Reduction Act in the State Dining Room of the White House in Washington, D.C., in this August 2022 file photo. EPA-Yonhap |
Korea has maintained a stance that the international community should follow the WTO rules and free trade agreements (FTAs), refraining from implementing discriminatory trade policies. Attempts to enact the Korean version of the IRA are therefore feared to weaken the government's bargaining power against other countries.
The Ministry of Environment also took a cautious approach when it announced revisions to rules on subsidies for the purchases of EVs.
The ministry accepted a request from Korean importers of foreign EVs and the EU to continue offering subsidies for the purchases of eco-friendly cars made by automakers who have outsourced service centers here. It decided not to cut subsidies for the purchases of EVs made by foreign carmakers that train mechanics at their outsourced service centers.
The new rules are considered unfavorable to Korean importers of Chinese electric buses. But they are still able to avoid subsidy cuts if they use batteries with higher energy densities because the government does not require their production or components to be derived from Korea.
"The new subsidy rules are in favor of Korean carmakers, but the measures did not go against international standards, such as FTAs," Daelim University Division of Automotive Engineering professor Kim Pil-soo said.
Some international trade experts pointed out that the DPK's use of the term, "the Korean version of the IRA," could be misleading, because it sounds more like a protectionist policy, rather than a suite of supportive policies for eco-friendly industries.
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