IRA, Semiconductor Issues
As the heads of the four major Korean conglomerates, including Samsung Electronics Chairman Lee Jae-yong, will accompany President Yoon Suk-yeol’s state visit to the United States, much attention is being paid to whether they will be able to get what they want in negotiations with the U.S. government on some delicate issues. As the four Korean business groups are deeply involved in subsidy policies related to the U.S. CHIPS Act and the Inflation Reduction Act (IRA), which are on the top of a list of U.S. supply chain reorganization issues, the heads of the four groups will conduct informal activities with US political figures, according to sources in the Korean business world.
According to the Federation of Korean Industries and other sources, a total of 122 members of a Korean economic mission including Chairman Lee Jae-yong will discuss economic cooperation with U.S. government and business officials during a visit that will begin on April 24.
Lee’s top priority is to address the issue of subsidies under the CHIPS Act. The United States has included a toxin clause in the act. The toxin clause requires companies investing in semiconductors in the United States to submit sensitive trade secrets such as yields and materials used in exchange for the subsidies.
SK Chairman Chey Tae-won is expected to look at SK Innovation’s supply cooperation agreements related to the IRA rather than the CHIPS Act as SK Hynix recently revealed its intention to apply for the subsidies. In late November 2022, SK On signed a memorandum of understanding (MOU) with Hyundai Motor Group to cooperate in supplying batteries for electric vehicles in North America with the goal of beginning to deliver them in 2025. In particular, SK On will reportedly seek to diversify its current China-oriented supply chain and strengthen cooperation with automakers to receive IRA subsidies.
Hyundai Motor Group Chairman Chung Eui-sun is expected to focus on securing U.S. cooperation for the early construction of an electric vehicle (EV) plant in Georgia. Rival Volkswagen of Germany was initially excluded from the IRA EV subsidy program but was selected again within three days after meeting battery requirements. Hyundai Motor Group has no choice but to accelerate its move.
LG Group Chairman Koo Kwang-mo is expected to focus on EV batteries and key materials. LG Chem and LG Energy Solution are expected to benefit from the IRA subsidy program. However, LG is concerned over the exclusion of battery components sourced from foreign entities of concern from next year and key minerals from them from 2025. Many of the key minerals for batteries are controlled by China. But many of the foreign entities of concern are virtually Chinese companies.