Park Jae-hyuk is a seasoned journalist who has provided comprehensive coverage of South Korea's corporate dynamics, economic policies, industry challenges and the global positioning of Korean companies. Based on the articles he has written since joining The Korea Times in 2016, his investigative approach has helped readers understand corporate governance, economic trends and business strategies shaping South Korea’s economy.
Concerns grow over LG Chem, SK on, POSCO partnering with Chinese firms
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By Park Jae-hyuk
Joint ventures with Chinese companies could see loss of benefits under IRA
By Park Jae-hyuk
Legal experts in Korea have begun to sound the alarm regarding LG Chem, SK on and POSCO Group, warning them that their joint ventures, established here in Korea with Chinese firms, could be designated as foreign entities of concern under the U.S. Inflation Reduction Act (IRA).
If their warnings turn out to be true, the products of their joint ventures may lose ground in the U.S. market, as they will not be able to enjoy benefits from the country's subsidy rules.
Last Friday, law firm Kim & Chang said that joint ventures with Chinese companies are likely to be regarded as foreign entities of concern, as the U.S. Infrastructure Investment and Jobs Act defined the term as any foreign entities owned by, controlled by, or subject to the jurisdiction of North Korea, China, Russia and Iran.
“The U.S. will not allow its taxpayers' money to flow into China,” lawyer Shin Jung-hoon of the nation's largest law firm said during a conference on countermeasures against the IRA.
Lee & Ko, another major law firm in Korea, also said in a report this month that the U.S. Department of the Treasury's interpretation of a foreign entity of concern seems to follow the U.S. Department of Commerce's interpretation of the term under the CHIPS and Science Act.
“If a Chinese partner holds over 25 percent of a stake in a joint venture, the joint venture is regarded as a foreign entity of concern under the CHIPS Act, regardless of its location,” Lee & Ko said.
When the U.S. Department of the Treasury announced guidance on the IRA's electric vehicle (EV) tax credit late last month, it said that beginning in 2024, an eligible clean vehicle may not contain any battery components that are manufactured by a foreign entity of concern and beginning in 2025 an eligible clean vehicle may not contain any critical minerals that were extracted, processed, or recycled by a foreign entity of concern.
The department, however, has yet to give a definition of a foreign entity of concern under the IRA.
Amid the lingering uncertainties, Korean producers of EV batteries and battery materials have announced their plans to build factories here in collaboration with Chinese companies.
A bird's-eye view of the Saemangeum Industrial Complex in Gunsan, North Jeolla Province, where LG Chem and SK on plan to produce precursor materials in collaboration with each of their Chinese partners / Courtesy of Ministry of Land, Infrastructure and Transport
LG Chem, which plans to build a cathode materials factory with Huayou Cobalt in Gumi, North Gyeongsang Province, will reportedly sign a memorandum of understanding on Wednesday with the Chinese firm, in order to invest 1.2 trillion won ($920 million) in their joint production of precursor materials in the Saemangeum Industrial Complex in Gunsan, North Jeolla Province.
Last month, SK on and EcoPro Materials also joined hands with China's GEM to invest 1.2 trillion won in their joint production of precursor materials in the same industrial complex.
POSCO Group recently started the operation of the factory of POSCO HY Clean Metal, the steelmaker's joint venture with Huayou Cobalt, which was established to extract lithium and nickel from waste batteries.