Korean Policy Pours Money into Chinese EVs

Korea's EV purchase subsidy is paid to consumers. Assemblywoman Lee Eon-ju explained, "Korea has been providing purchase subsidies for electric vehicles for a very long time. But purchase subsidies are given to consumers."

Under this structure, Chinese-made electric vehicles can receive production subsidies in their home country and then also receive purchase subsidies in Korea. In contrast, domestically produced electric vehicles are at a disadvantage in terms of price competitiveness due to this double subsidy structure. The Korean government does not differentiate between recipients of subsidies in accordance with its free trade stance.

China and the United States provide direct production support to their domestic EV industries. China gives direct subsidies to companies, and the US applies a production tax credit (AMPC) method through the Inflation Reduction Act (IRA). Assemblywoman Lee Eon-ju stated, "China gives direct subsidies, and the US uses a tax credit method called AMPC."

However, Korea still largely operates its policy with consumer-targeted purchase subsidies, showing a significant difference from major countries in terms of industrial support methods.

Assemblywoman Lee Eon-ju strongly criticized Korea's policy for being stuck in a past free trade stance. She pointed out, "To put it a bit harshly, we are constantly acting like suckers."

Major countries have already shifted to strategic trade policies centered on their own nations. The criticism is that Korea is weakening its industrial competitiveness by failing to respond to changes in the global supply chain environment.

"Eco-friendly means giving to everyone, right? Isn't Tesla eco-friendly, and Kia's electric cars are eco-friendly too? This is the argument."

However, Assemblywoman Lee Eon-ju emphasized that major countries are already implementing protectionist policies. She questioned, "Then what about those countries? The US and China don't comply, so why should only we comply?" She pointed out that adhering to WTO rules is merely a principle without practical benefit.

Ultimately, this leads to criticism that Korea is unnecessarily bound by past norms and fails to adapt to changes in the international situation.

There are almost no companies that can receive substantial support."

Production tax credits have low efficacy for early-stage deficit companies before they generate profits. Initial investment support is more effective for industries that require technology investment.

The government's tax reform proposal was decided amidst disagreements between the Ministry of Trade, Industry and Energy and the Ministry of Economy and Finance. Assemblywoman Lee Eon-ju explained that while the Ministry of Industry presented its opinions, the Ministry of Economy and Finance had the actual decision-making power for the tax reform proposal.

This leads to problems in policy design that do not sufficiently consider the industrial ecosystem. It is pointed out that a lack of coordination between ministries reduces the effectiveness of industrial support policies.

The semiconductor industry is a capital-intensive industry that requires massive initial investment. Assemblywoman Lee Eon-ju emphasized, "The semiconductor industry is a large-scale facility industry, so it requires enormous initial investment. In such cases, it is appropriate to receive investment tax credits. Production tax credits are not very meaningful."

Therefore, due to the nature of the semiconductor industry, investment tax credits are more suitable than production tax credits. The current production tax credits are criticized as merely symbolic policies that have limited effectiveness in truly strengthening industrial competitiveness.

The semiconductor sector already possesses a high level of technology, so the effect of production tax credits is limited, and support measures for attracting initial investment should be prioritized.

The introduction of EV production tax credits would lead to increased production, which in turn would positively impact domestic EV sales. Assemblywoman Lee Eon-ju argued, "If EV production tax credits are provided, production volume will increase. Since subsidies would ultimately be concentrated on domestic EVs, more domestic EVs would be sold."

This expansion of production acts as a survival condition for the battery and related parts industries. She asserted that dual support through purchase subsidies and production tax credits is essential for securing the price competitiveness of domestic EVs and maintaining the ecosystem.

It is difficult to eliminate subsidies all at once, so a gradual phase-out should be discussed. She said, "It will probably be difficult to eliminate all purchase subsidies immediately. Because what has been done cannot be stopped abruptly, it may need to be gradually reduced and then eliminated."

She emphasized that the rapid pace of encroachment on the domestic EV industry makes the immediate introduction of production tax credits urgent.

This shift is expected to strengthen the domestic production base and prevent foreign companies from encroaching on the domestic market.

The expansion of EV production must precede the localization of robot parts. Assemblywoman Lee Eon-ju explained, "For core robot parts to be developed and localized, there must first be an ecosystem and manufacturing base, not just for robots, but for electric vehicles, so that it can be used when robots later emerge."

She emphasized the importance of the EV industry by explaining the technological principle that automotive parts can be converted into robot parts. She argued for the importance of building a phased ecosystem that progresses from electric vehicles to autonomous vehicles and then to AI robots.

Assemblywoman Lee Eon-ju stated, "Our legislators, including myself, and about a dozen others, have once again sponsored a bill. To include electric vehicles."

During the parliamentary discussion, there are plans to merge and revise the government proposal and the bill sponsored by legislators. This demonstrates a commitment to supplementing the government's shortcomings and fostering the EV industry as a national strategic industry.

Assemblywoman Lee Eon-ju said, "Currently, consumers are already receiving subsidies when buying cars, right? If there's 3 million won per car being given, eliminate that budget, pull it out separately, and say 'Tesla wasn't made in Korea, so don't give it subsidies.' But SsangYong, 'this was made by us.' Then give 5 million won per car, instead of the 3 million won subsidy."

She argues that existing subsidy funds should be utilized to directly support the domestic production base, without additional budget input. This is expected to increase budget efficiency and directly support domestic industries.

Even in an era where physical AI and robots run factories, data leadership and a production base are key. Assemblywoman Lee Eon-ju warned, "Ultimately, even if this AI era comes where it dominates this ecosystem, if we cannot dominate this ecosystem, I believe it will just lead to becoming a technological colony."

Without a production base, domestic industries could be relegated to mere consumer markets. This means losing technological sovereignty and becoming dependent on foreign powers in the AI era.

She emphasized the interconnectedness of the industrial ecosystem, from electric vehicles to batteries and parts, arguing that without a manufacturing base, the future AI industry would also be vulnerable. She expressed concern that a country without factories would have limitations in utilizing AI technology.

Assemblywoman Lee Eon-ju emphasized that a nation without technological sovereignty struggles to survive. She stated, "Aren't we a country that has nowhere to lean on without technological sovereignty?"

In this new era of imperialism, with intensifying competition for resources like in the Arctic Ocean, securing technological sovereignty is even more crucial. Increased domestic EV production can lead to a ripple effect in the battery, parts, autonomous driving, and AI robot industries.

Therefore, she argues that there is a compelling reason to block imports of Chinese-made electric vehicles and promote domestic production. This is presented as an essential strategy for strengthening national competitiveness.

If EV production tax credits are introduced, foreign companies like Tesla would also consider domestic production, creating opportunities for R&D collaboration and supply chain formation. It is argued that if domestic companies like Hyundai Motor also receive production tax credit benefits, the use of domestic parts should be mandated.

In response to criticism that consumer choice cannot be forced, Assemblywoman Lee Eon-ju stated that verification through actual implementation is necessary.

Assemblywoman Lee Eon-ju pointed out that the Republic of Korea has never attempted a strategic trade policy under its free trade stance. She emphasized, "The Republic of Korea has never had such a strategic trade policy before."

The introduction of production tax credits could be Korea's first step towards a strategic trade policy. This is also expected to encourage domestic parts manufacturers who had left overseas to return, by sending a message that the manufacturing ecosystem is alive domestically.

Such a policy shift holds significant meaning, not just as economic support, but also as a redefinition of the nation's industrial direction.