Seeking a “Win-Win” Solution on the Inflation Reduction Act for Korea

South Korean concerns about the Biden administration’s Inflation Reduction Act (IRA) and its impact on Korean industry have been the topic of every bilateral meeting between the two government from the working to presidential level.  While the IRA, in promoting a clean energy transition provides important long-term benefits to certain Korean industries, Seoul’s concern has focused on the potential exposure of the Korean electric vehicle producers to tax provisions in the law.  

At the 12th Joongang Ilbo-CSIS Forum on December 1, 2022, Dr. Victor Cha moderated a keynote conversation with Jake Sullivan, Assistant to the President for National Security Affairs, in which the two discussed U.S. policy on the IRA as it relates to Korea.  The key takeaways from this conversation are: 
  • The Inflation Reduction Act is most ambitious piece of climate legislation in U.S. history to grow a clean energy transition to benefit of U.S. and allies, including Korea. 
  • The United States takes Korean concerns about the electric car provisions in the IRA seriously, and acknowledges that presidents consulted on the issue at Phnom Penh. 
  • Within the context of the law as it is written, there may be potential ways to ensure a win-win solution, the details of which must be worked out through the bilateral channel. 
  • The Biden administration is deeply and personally committed to finding a good solution for all parties, recognizing the importance of the issue for Korea.  

Transcript follows:
Victor Cha: I know your time is limited, so I wanted to ask you one more question on an issue that I’m sure you’ve already heard a lot about from your South Korean interlocutors, and that is the Inflation Reduction Act. As you know well, this is at the top of the minds of many of the folks here in Korea. I know that you’ve set up a bilateral channel with regard to this. Is there anything else that you can share in terms of how those discussions are going? What’s your timeline? And what’s the objective, actually, of those – of those discussions?

Jake Sullivan: Look, the objective is straightforward. The Inflation Reduction Act is the most ambitious piece of climate legislation in American history. It is a massive bet on a – on accelerating and growing a clean energy transition to the benefit of U.S. businesses and workers and to the benefit of business and workers of our allies and partners, including the ROK. We believe the IRA is going to stimulate and drive massive growth in industries on which ROK companies have a huge competitive advantage, and it will as a result benefit the Korean economy, Korean industry, Korean growth in a big way. We do not see this as a zero-sum game. We think the IRA is going to grow the pie for clean energy investments, not split it up. And there’s no doubt that ROK companies are going to play an important role in our efforts to expand and intensify the clean energy ecosystem and combat the climate crisis.
There is a particular issue with respect to the ROK’s concerns that have been, I think, very ably and clearly advocated by the ROK government to us about the electrical – the electric vehicle provisions in the IRA. We take those seriously. As you say, we have ongoing consultations on those. We believe that there are ways for us within the context of the law as it is written to ensure this is, in fact, a win-win and not a zero-sum game. How that exactly plays out in terms of the practicalities of investments and the incentives that are contained within the act I will leave to that bilateral channel as we work through the issues.
I will also say we are similarly working with other partners on concerns they have, including the European Union. And I believe at the end of the day we will be able to produce a clean energy ecosystem that leaves everyone better off, and that the massive investment of federal dollars the United States is making will go to benefit the United States but will also go to benefit ROK industry, European industry, and the industry of other free-market democracies who have stood with us and who want to see a global ecosystem that is helping solve the climate crisis and drive clean energy technology.
We’re committed to making that happen. We’re approaching this in good faith. This also was a subject that President Biden and President Yoon had the opportunity to consult on when they were in Phnom Penh, and we will continue at every level until we get to an outcome that works for all of us.
Victor Cha: Thanks, Jake. Could you – I know you can’t really speak to the substance of the negotiations, but are you confident that this is something that is going to reach, as you say, a win-win solution, you know, in the lame duck or early next year? Any sense of that?
Jake Sullivan: Look, I’m going to be honest with you that I am measuring my words carefully on this because I want to make sure that we have the opportunity to work through the specifics of how the IRA actually impacts industries – you know, the EV battery industry, auto industry, et cetera; specific companies, specific investments, and the like – and then work through what solutions look like.
Now, we believe that within the context of the law as written there are solutions to be had, but we will continue to figure out how to proceed on that. I will not make any predictions, you know, or sweeping promises. What I will say is that I have an underlying confidence in what this law has to offer and the ways in which we can effectively work together to ensure it is win-win. And I will leave it at that, recognizing that it’s not the kind of clear and straight answer you might be looking for, but I think that’s what’s best suited for the moment. And the reason that I’m being cautious in what I’m saying is because I am personally determined to figure out how to navigate through this effectively, recognizing the importance of this issue to both of our countries, and to finding a good solution.
Victor Cha
Senior Vice President for Asia and Korea Chair