Inflation Reduction Act’s Clean Vehicle Provisions: Analysis of Potential International Trade Law Violations

Abstract

The United States’ Inflation Reduction Act (IRA) introduces new eligibility requirements for existing USD 7,500 tax-credit provided to electric vehicles. The new requirements condition the credit upon North American final assembly and North American-sourced materials and components. As tensions flare between the US and China, these new local content requirements reflect the US’s effort to establish a supply chain for electric vehicles that circumvents China. The blow, however, is felt elsewhere, namely by South Korean auto makers whose electric vehicle models are no longer eligible for the significant tax-credit necessary to compete in the American market. As South Korea considers submitting a complaint to relevant international bodies, this paper dissects the IRA’s relevant provisions and analyzes the applicability of international trade law rules of the WTO and the Korea-US Free Trade Agreement to the new local.