Korean Trade Minister Calls For Cooperation With EU Against US Subsidy Bill

By János Allenbach-Ammann

(EurActiv) — The EU and South Korea should cooperate in their response to the US Inflation Reduction Act (IRA), EURACTIV, South Korean Trade Minister Dukgeun Ahn argued in an interview with EURACTIV but also warned the EU not to open “Pandora’s box” of protectionist industrial policy.

The US IRA includes large-scale subsidies for US-produced electric cars and batteries, thus discriminating against European and South Korean producers.

“We have a huge room for the EU and Korea to work together and to make the [IRA] system more compatible with the WTO, so as not to cause unnecessary trouble to strategically important parts of our industry,” Ahn said.

Both South Korea and the EU have a car industry that feels threatened by the US bill. While Ahn recognised that it might be very difficult to change the law might the short term, he argued that the situation could still be ameliorated.

“[The US] is kind of constrained by the discriminatory structure of the law,” he said, adding that the EU and South Korea could work with the US administration “to minimise the discriminatory impact of the IRA”.

“In case it becomes obvious that they cannot do anything or if they don’t show any willingness to work with us to find a proper solution, we will have to find another alternative.”

Pandora’s Box

While he argued for a common approach towards the US, he also identified a change of attitude in the EU.

“The EU has long been a very important gatekeeper for the world trading system based on the rule of law, […] but then there are numerous proposals that basically incorporate the similar kind of spirit of the IRA,” Ahn said.

“And in case the EU steps across that limit, we will have to deal with the opening of Pandora’s box.”

“Japan, Korea, China, every country will engage in this very difficult race to ignore global trading rules, which we spent the past few decades to build,” he said, warning of a “myopic” and “nationalist” approach to world trade.

Asked about South Korea’s very fast and successful economic development that was enabled by industrial policy, Ahn said that government interventions had mostly ceased after the country had joined the World Trade Organisation.

“The role of government to develop the industry sector was very important, but since the inception of the WTO system, the Korean government hardly engaged in direct industrial policies anymore.”

He argued that industrial policy would have to respect trade rules and that a reform of the WTO was necessary to enable this. However, he also admitted that reforming the WTO would be hard.

“It’s a serious challenge, it’s like COP 27,” he said, referencing the global climate diplomacy meetings that regularly fail in making the world reduce its greenhouse gas emissions.

Better access to Korean offshore wind market

The Korean trade minister was in Brussels in early December for the yearly meeting between the EU and South Korea to discuss implementation issues under their common free trade agreement and review other trade-related issues.

In this meeting, for example, the EU and South Korea agreed on principles for digital trade that could lay the ground for a future digital trade agreement.

The South Korean delegation also committed to work towards removing the domestic content requirements for their offshore wind farms that EU wind turbine producers perceive as discriminatory.

“Within a year, we will reform the measure,” Ahn told EURACTIV.

“CBAM fortress”

However, he also came to Brussels to express his concerns about the EU’s Carbon Border Adjustment Mechanism (CBAM), which aims to put a price on CO2 emissions of imported goods. The measure is currently being negotiated between the European Parliament and EU member states.

“We understand that this is a very important policy tool,” Ahn said, “but the way the CBAM is prepared raises a lot of concern for our industry.” Similar concerns have also been raised by a number of African leaders.

Ahn hoped that the EU could design the mechanism in a way that would not “cause too much trouble for the global system”, arguing that this would also help the EU to disseminate the CBAM mechanism across the world.

“I don’t think the whole purpose of the EU is to just launch a system inside the European Union and then build a CBAM fortress here.”

For Ahn, the introduction of CBAM should happen in closer concertation with the EU’s trading partners.

“If [the EU] mismanages the whole process, then, suddenly, you never know whether this event will be considered like a European IRA,” he warned.