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KEI Spotlight

Prospects for fixing the Inflation Reduction Act

January 27, 2023

This article was published on The Korea Times on January 11, 2023.

Since its passage in August, the Inflation Reduction Act (IRA) has been a significant source of tension between the United States and Korea. While designed to reduce U.S. emissions of greenhouse gases by nearly 40 percent by 2030, the tools the Act uses to promote the domestic sale of electric vehicles (EVs) to achieve those objectives have caused concern in Korea and among other U.S. trading partners.

Chief among these concerns are provisions in the Inflation Reduction Act that require EVs to be assembled in the United States, Canada or Mexico for U.S. buyers to be eligible for a $7,500 tax credit. Without production facilities in North America for electric vehicles, Hyundai and Kia currently produce EVs in Korea for export to the U.S. market. These vehicles are no longer eligible for the consumer tax credit for EVs.

There have recently been some positive developments in addressing the tax credit issue for foreign-built EVs in the United States, but also clear indications that achieving more significant adjustments to the Inflation Reduction Act’s EV provisions will be difficult.

In late December, the Treasury Department released its initial guidance proposals for implementing the EV provisions of the IRA. As part of those initial proposals, the Treasury Department signaled its intent to accept requests from the Korean government, industry and other U.S. partners that imported EVs sold to leasing companies be eligible for the tax credit under the commercial vehicle provisions of the Act.

To read the full article on The Korea Times, please click here.