Concerns grow over Korean firms' soaring investments in US due to IRA

Hyundai Motor Alabama Plant in U.S. / Courtesy of Hyundai Motor Group

Government urged to cut corporate taxes, bolster supply chain

By Kim Hyun-bin

Experts are calling for increased government support to help boost domestic investment, especially in the electric vehicle (EV) and battery sectors, to secure global supply chains that could better counter the U.S. Inflation Reduction Act (IRA), according to industry officials, Friday.

The Korea Economic Research Institute (KERI), an affiliate of the Federation of Korean Industries (FKI), released the report, titled “Review of the effectiveness of the U.S. IRA and countermeasures,” to better address the issue.

“Major countries around the world are making efforts to secure global supply chains and nurture their strategic industries, and the IRA will have a serious impact on domestic manufacturers of EVs and batteries,” KERI said.

With the implementation of the IRA, manufacturing facilities related to EVs and batteries will receive a maximum tax credit of 30 percent when operating production lines in North America, and facilities there that produce parts related to batteries, solar power and wind power will receive 10 percent tax credits. This also includes a subsidy of up to $7,500 per vehicle sold only when manufacturers source their final assembly in North America.

The report analyzed that the U.S. is seeking not only to reshore its domestic companies but also to attract major world industrial production facilities to the U.S.

"Due to enactment of the Overseas Business Reinstatement Act in 2014, only 114 companies returned their businesses back to Korea,” the report stated. “However, the number of companies relocating their businesses to the U.S. or other major countries is expected to increase.”

In order to bring companies back to Korea, the report said it is necessary to revise the Overseas Business Return Act to expand the target of reshoring. In addition, the report stated that it is necessary to diversify the supply chains for key battery minerals such as lithium, nickel and cobalt, which are highly dependent on China, in order to receive the EV tax credit stipulated by the IRA.

The IRA states that EVs can qualify for the tax benefit for their purchasers only if they use batteries that contain at least a certain percentage of minerals mined or processed in the U.S. or in countries that have signed free trade agreements (FTAs) with the U.S.

"In order for domestic companies to secure global supply chains and respond to high-tech competition, they need a level of support at least similar to that of major foreign countries,” a KERI official said. "Support and deregulation are urgently needed, such as lowering the corporate tax and raising the tax credit for R&D and facility investment."