South Korea and the US are stepping up efforts to resolve a dispute over electric-vehicle subsidies, as they seek closer cooperation on Asia-Pacific supply chains, Seoul’s top trade negotiator said.

The two sides will begin talks Friday as part of an engagement channel agreed earlier this month in Washington, Korean Trade Minister Ahn Duk-geun said Wednesday in an interview. 

He expressed hope for a breakthrough in discussions and played down any possible linkage between the EV issue and other areas of cooperation such as chip-making alliances and the US-led Indo-Pacific Economic Framework for Prosperity. 

IPEF is a key part of the Biden administration’s efforts to realign high-tech supply chains in its favor to counter Chinese influence.

Ties between Korea and the US came under strain last month when the Biden administration signed its “Inflation Reduction Act,” which rules out tax breaks for electric vehicles assembled abroad.

“Nowadays the biggest concern is how to maintain and strengthen the trust between Korea and the US,” he said. “This kind of thing can happen, but probably the more important thing is how to address the situation and both governments can rectify the problem.”

Korean Trade Minister Ahn Duk-geun

Korea is home to two of the world’s biggest automakers, Hyundai Motor Co. and Kia Corp., which have yet to build any EV plants in the US. Battery makers such as LG Energy Solution Ltd. are also concerned the act pressures them to phase out dependence on China for key materials such as nickel.

Ahn is preparing a raft of proposals for the US. Trading partners have at times worked out kinks by creatively interpreting clauses if revisions are near impossible.

“The problem is the legal provision in the law which is, realistically speaking, difficult to amend because it was just enacted,” he said. “We will try to find out all the feasible options including the guidance or implementing of the systems, as well as amending the final law.”

The IRA requires electric vehicles have a certain amount of critical battery minerals and components from the US and its free trade partners and none from China from 2025. Hyundai won’t be making EVs in the US until 2025.

Korea sees electric vehicles, rechargeable batteries and semiconductors as key growth drivers of its economy and considers its high-tech supply networks with the US to be essential.

The spat has added a wrinkle to a key trade relationship for American business interests in the Asia-Pacific region. Korea is among more than a dozen nations taking part in IPEF, a nascent alliance focused partly on supply chains that China has dubbed as “doomed to fail.”

The US initiative chimes with a growing perception among Korean policymakers that China is now a rival more than a benefactor. Ahn acknowledged that Korea-China relations have turned more competitive than complementary, echoing comments last month by Bank of Korea Governor Rhee Chang-yong.

“The tension between the US and China continues to grow, and we also have lots of concerns about the situation in Taiwan,” he said. He added that he hoped Korea can help mitigate any danger inflicted on supply chains by “unnecessary confrontations” such as a potential conflict between China and Taiwan.

Still, Korea will continue to have “quite a significant trade relationship” with China since most of their trade isn’t affected by the rivalry between Beijing and Washington, he said.

“On one hand, we’re doing IPEF and also we have lots of other bilateral relationships with China,” he said, adding Korea and China will soon announce a “trade cooperation channel” apart from their free trade negotiations, as they look to build more stability into their ties.

Ahn said he doesn’t necessarily see IPEF as an “anti-China bloc,” saying members are trying to make the framework open and inclusive and that China could join at a later stage. 

Nevertheless, Korea is working to ensure that no high-tech devices that could raise security concerns for the US will be shared with China, he said. 

“Because of the decoupling situation, like it or not, a lot of companies will have to leave China, but they cannot leave completely the Asian market,” he said, expressing hope that Seoul could become more of an “Asian investment hub.” 

“We hope that some of those companies can come to Korea and here we try to provide a safer and more stable business platform.”