Detailed regulations for foreign concern groups related to IRA subsidies confirmed
Benefits are excluded if minerals are procured through a corporation in China.
Overseas joint ventures are also regulated… Mitigation evaluation rather than semiconductor law
The U.S. government has finalized the detailed regulations of the IRA (Inflation Reduction Act), which prohibits electric vehicles using key minerals procured from all companies in China from receiving subsidies from the U.S. government from 2025.
However, in the case of overseas joint ventures, subsidies can be received if the Chinese company’s stake does not exceed 25%. The worst-case scenario of having overseas joint ventures with Chinese companies blocked seems to have been avoided.
On the 1st (local time), the U.S. Treasury and Department of Energy announced detailed regulations for ‘groups of foreign concern’ (FEOC) that are excluded from IRA eco-friendly car benefits.
According to the amendment, battery parts manufactured and assembled by FEOC cannot be used in electric vehicles from 2024, and procurement of core minerals extracted, processed, and recycled by FEOC is prohibited from 2025.
Currently, the U.S. government provides a tax credit of up to $7,500 when purchasing a new electric vehicle finally assembled in the U.S. under IRA, but starting in 2024, the benefit will no longer be provided to the purchase of vehicles that violate FEOC regulations.
The Department of Energy defined FEOC targets as entities that are “owned, controlled, or directed” by or under the jurisdiction of the governments of China, Russia, North Korea, and Iran, so-called “countries of concern.”
In fact, the intention is to prevent electric vehicle subsidies from flowing to China, but not only Chinese state-owned companies, but also private companies in China and overseas corporations are all excluded.
In the case of overseas joint ventures, which are of great interest to the industry, it is defined as “owned, controlled, and directed” if the company subject to FEOC holds board seats, voting rights, or more than 25% of the shares.
According to this, joint ventures between Korean and Chinese companies can also receive subsidies as long as the Chinese side does not exceed 25% of the shares.
This is the same level as the U.S. Department of Commerce’s Semiconductor Act, which restricts joint ventures with companies with a Chinese stake of more than 25%.
However, according to the industry, unlike the Semiconductor Act, which limits shares of more than 25% in all Chinese companies, this time it is limited to 25% of companies owned, controlled, or under the direction of the Chinese Communist Party.
This is interpreted to mean that in the case of private companies not controlled by the Chinese government, there is no problem receiving subsidies even if the stake in the joint venture exceeds 25%.
FEOC compliance for battery parts is determined at the time of manufacturing and assembly, and compliance for core minerals is determined by reviewing all stages of extraction, processing, and recycling.
The explanation is that it is also a violation of regulations for a FEOC corporation to process minerals extracted by a corporation that does not fall under the FEOC.
The revised regulations will be subject to public comment for 30 days and will take effect immediately upon publication in the Federal Register.
In the case of the industry, it appears that the worst-case scenario of not recognizing the joint venture with China itself has been avoided. Based on the Semiconductor Act, there have been consistent observations that the 25% share limit for joint ventures will be applied this time as well.
In the case of joint ventures, there are many cases where the investment is split 50:50, so some shock is expected to be inevitable. If the Chinese company involved in the joint venture is uncooperative, domestic companies may have to buy back their shares at great cost.
However, since Chinese companies will also suffer severe losses if they do not adjust their shares, it is expected that Chinese companies will also actively work on adjusting their shares.
[워싱턴·서울=뉴시스]
Source: Donga
Mark Jones is a world traveler and journalist for News Rebeat. With a curious mind and a love of adventure, Mark brings a unique perspective to the latest global events and provides in-depth and thought-provoking coverage of the world at large.