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S. korea, EU frowns at the U.S. electric vehicle tax credit plan

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The European Union and South Korea have raised concerns about proposed US tax credits for purchases of electric vehicles, saying they may discriminate against foreign-made vehicles and breach World Trade Organization, or WTO, rules.

Under the $430 billion climate and energy bill passed by the US Senate on Sunday, Congress would lift the cap on the existing $7,500 tax credit for electric-vehicle purchasers but impose restrictions, including barring vehicles not assembled in North America from receiving the credit.

The ban on tax credits for vehicles assembled outside of North America would take effect as soon as US President Joe Biden signs the legislation.

“We think it’s discriminatory, that it is discriminating against foreign producers in relation to US producers,” said European Commission spokeswoman Miriam Garcia Ferrer. “Of course this would mean that it would be incompatible with the WTO.”

Garcia Ferrer told a news briefing that the EU agreed with Washington that tax credits are an important incentive to drive demand for EVs and promote the transition to sustainable transport and a reduction in greenhouse gas emissions.

“But we need to ensure that the measures introduced are fair and …nondiscriminatory,” she said. “So 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.”

South Korea also said on Thursday that it has expressed concerns to the US that the bill could potentially violate WTO rules and a bilateral free-trade deal. South Korea’s trade ministry said in a statement that it has asked US trade authorities to ease battery component and final vehicle assembly requirements.

South Korea’s auto industry group on Friday said it had sent a letter to the US House of Representatives, requesting that the US includes EVs and battery components manufactured or assembled in South Korea as eligible for US tax benefits, citing the US-Korea Free Trade Agreement.

A group of major automakers said recently that most EV models would be ineligible for tax credits because of requirements for battery parts and critical minerals to be sourced from North America.

The EV tax break is part of the Inflation Reduction Act, which was expected to be passed by the House of Representatives on Friday and then sent to Biden for his signature.

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