Korean exports, stuck because of trade issues…Direct/indirect impact inevitable
Korean exports, stuck because of trade issues...
Direct/indirect impact inevitable
U.S. excludes Korean automobiles from subsidy
term impact from European Chips Act
Ruling on illegal subsidies to Korean steel also
to have impact
Global trade issues have
made Korean exports remain stuck. Although this is not new, the problem is that
trade protectionism is intensifying with time. On the third week of April
(April 16-22), a series of news were delivered, including that 1) the U.S. had excluded
Korean automobile companies from being subject to EV subsidy payments as per
the Inflation Reduction Act; that 2) the European Chips Act’s three party agreement had been reached; and
that 3) U.S. Department of Commerce had made a preliminary ruling on imposing
countervailing tariffs on Korea-made steel.
●Hyundai Motors and Kia Motors excluded from receiving
On April 17, in accordance with the detailed
guidelines of the Inflation Reduction Act, the U.S. government announced the models
regarding the 16 EVs (including 22 lower models) subject to a payment of up to
USD 7,500 in subsidies. Previously, if an automobile met the condition of being
assembled in North America, it would be eligible for subsidies, but this year,
there are stricter battery-related conditions that must be met, which has
resulted in less EV models that can receive benefits.
The EVs announced on this day by the U.S. Department
of Treasury as eligible for subsidy payment include Tesla Model 3 and Model Y;
Chevrolet Bolt and Equinox; and Ford E-Transit and Mustang, etc. Only vehicles
of U.S. manufacturers were on the list. The electric vehicles of South Korea’s
Hyundai Motors and Kia Motors were not included on the list because they did
not meet the requirements. In the case of GV70 of Hyundai Motors, which is
being assembled in the Alabama Factory, it received subsidies before
announcement of the detailed conditions, but was excluded in the recent case.
Nissan, which was qualified for subsidies due to
operation of factories in North America, was excluded from the recent list, as
well as some U.S.-made EVs that could not meet stricter battery conditions,
resulting in a general reduction of the number of models that would benefit,
from the previous number that exceeded 40. The IRA stipulates in legal
provisions that subsidies of up to USD 7,500 would be paid in the form of tax
credits to EVs ultimately assembled in North America.
Notably, according to the detailed guidelines
announced at the end of March, even in the case of EVs that were finally
assembled in North America, in the case of this year, 1) when using 50% of
battery parts with ones manufactured and assembled in North America, USD 3,750
would be paid as subsidies, while 2) when using 40% of critical minerals with
those mined and processed in the U.S. or FTA partners, USD 3,750 would be paid.
However, the impact could be minimized in the case of commercial sales such as
leasing, which is subject to tax credits regardless of conditions, as well as
through price cuts. Actually, the share of sales of Hyundai Motors and Kia Motors’
environmentally-friendly commercial vehicles within the U.S. rose from 5% in
the first quarter of last year, to 28% in the first quarter of this year.
●Impact on automobile exports inevitable
Immediately after the news were delivered that Hyundai
Motors and Kia Motors were excluded from the list of targets for U.S.
subsidies, Korea’s Ministry of Trade, Industry and Energy issued a message that
these measures were not completely disadvantageous to Korea. “The companies
manufacturing finished cars that were announced on the list of those eligible
for tax credits to EVs as per the IRA were only U.S. companies,” it stated. “This
is because Hyundai Motors, Nissan, Volkswagen, Volvo, Audi, BMW and others that
were recipients of tax credits previously were excluded this time.”
However, the key is not held by Korea’s Ministry of
Trade, Industry and Energy, but by U.S. consumers. “Which car would you choose ？
a subsidized one or a non-subsidized one?” The foreign press revealed answers
to this question.
Bloomberg Professional Services recently introduced the
example of Andrew Scott (age 37), a lawyer working in Chicago, reporting that
U.S. consumers are changing their minds about automobile purchasing. Scott
considered purchasing a new car, and had in mind Hyundai Motors’ EV, Ioniq 5
SUV. However, he changed his mind, and is almost definitely going to purchase a
plug-in hybrid, because of the fact that the aforementioned Hyundai model was
excluded from the list of those eligible for subsidy payment of up to USD
Mentioning Ioniq 5, Scott said, “If it is not on the
list [of models qualifying for subsidies], I will not buy it…Buying a car that
gives subsidies changes my purchasing power, and enables me to buy a more
Bloomberg warned that EV manufacturers including
Hyundai Motors excluded from the list of EVs subject to subsidy payments by the
Biden Administration will be greatly impacted. Bloomberg reported that there
was nothing surprising about the fact that Hyundai Motors’ EV model was
disregarded, and that more consumers like Scott would change their plans for purchasing
new cars pursuant to this measure to pay out subsidies.
●Settlement of European Chips Act… Mid to long term
effect on Korea
On April 18, the European Commission announced that
the “three party agreement” of the European Chips Act had been settled. This
three party agreement was a political agreement among the three parties of the
European Council and European Parliament regarding the European Chips Act first
proposed in February of last year by the European Commission.
The European Chips Act contains the plan to promote
the regional semiconductor industry through subsidies and investment totaling
EUR 43 billion. By 2030, EU’s market share in global semiconductor production
is aimed to increase from the previous 9% to 20%.
First, they will pursue the Chips for Europe
Initiative by injecting EUR 3.3 billion for strengthening technological
competence and stimulate innovation in the area of semiconductors. Next, they
will provide a basis for payment of subsidies for production facilities
(integrated production facilities and open-type foundries) that can contribute
to stabilizing the EU regional semiconductor supply chain. Finally, a system
will be adopted for monitoring and crisis response in regard to the EU
semiconductor supply chain.
Although we must check the contents of the finalized
Act that are posted in the official gazette upon European Council and European
Parliament approval, currently, there are no production facilities of Korean
semiconductor companies such as Samsung Electronics in the EU, and according to
industry analysis there will not be a direct immediate impact on Korean
However, from a long term perspective, if the
semiconductor manufacturing competence of the EU were to be strengthened, the
export market of Korean semiconductors would only shrink, which would intensify
“Whether it be the U.S. or Europe, the key is to
ultimately provide subsidies in order to nurture semiconductor companies and
expand intra-regional production…There aren’t many companies in Europe that can
make semiconductors. This would eventually mean that they are beckoning
companies like TSMC or Samsung Electronics to come to Europe,” remarked an
expert in the industry.
The European Chips Act follows the U.S. Chips Act, and
its ultimate purpose is to expand its domestic/regional semiconductor supply
chain through subsidies.
The U.S. has budgeted a total of USD 52.7 billion for
5 years through the Chips Act which took effect last year, in order to
encourage U.S. investment in semiconductor companies, such as semiconductor
production subsidies (USD 39 billion) and R&D support (USD 13.2 billion). From
March 31, the U.S. Department of Commerce has been receiving applications from
companies that wish to build a high-tech semiconductor factory, while for the
remaining post-processing facilities such as packaging, etc., applications can
be made until June 26.
On the other hand, previously on March 16, the
European Commission announced the first draft of the Critical Raw Materials Act
(“CRMA”). The aim was to improve the weakness of the regional supply chain for
critical raw materials necessary for carbon neutrality, digital conversion, and
strategic industries such as space and defense.
By 2030, they plan to expand the intra-regional
production capacity of mining to 10%, refining to 40%, and recycling to 15%
over EU’s annual volume of demand for critical raw materials. At the same time,
they plan to diversify the supply source, so that the dependence of imports of
critical raw materials from an extra-regional country does not exceed 65%.
However, in this draft, the European Commission
emphasizes repeatedly that the sustainability conditions be adhered to upon
production of raw materials, such as environment and labor conditions. In the
future legislation process, the possibility of adopting intra-regional
industrial protection measures aimed at social and environmental impact would
have to be heeded.
This rule is expected to have the greatest impact on
companies that use 5 out of the 16 types of critical raw materials such as
lithium and nickel, and which manufacture EV battery cells and materials/parts
that have a high share of exports to the EU.
●“Korea’s low industrial electricity fees are
subsidies for steel”
Korea’s Ministry of Trade, Industry and Energy said
that the U.S. Department of Commerce had made a preliminary ruling on
countervailing tariffs, stating that “the Korean government was actually giving
subsidies to the steel industry through low industrial electricity fees.”
According to the Ministry of Trade, Industry and Energy,
the U.S. Department of Commerce announced the results of a preliminary ruling
at the end of February, and that countervailing tariffs of 0.5% would be
imposed on Hyundai Steel’s thick plates.
Countervailing tariffs are levied on products with
lowered prices that are imported and could have a negative effect on the
domestic industry, as their prices drop through the receipt of subsidies from
the exporting country. Each year, the U.S. Department of Commerce considers
countervailing tariffs on Korea-made steel products through annual evaluations.
To date, countervailing tariffs have been imposed for steel-related
products, but this is the first time that a statement has been made on
industrial electricity fees.
However, this recent announcement is still a
preliminary one. It will take a couple of months for the final ruling. “Although
it is a ruling of the preliminary stage, we plan to continue communicating with
the industry and respond to minimize damage to Korean companies.”
(Provided by Korea Trade News)