The new green industry bill (known as la loi industrie verte) in France can be seen as the French version ofthe United States’ Inflation Reduction Act (IRA). The bill introduces new subsidies for electric vehicles (EVs),necessitating an analysis of the possible impact of these subsidies on Korean industries.

The EV subsidies of the IRA are designed to relocate production and assembly of finished vehicles and keycomponents parts back to the United States or the countries with which the US has free trade agreements(FTAs) in place. The EV subsidies introduced by the new bill in France, on the other hand, base subsidizationon the carbon footprints of EV production and distribution. The new system of EV subsidies seeks to reducethe carbon footprint in six major areas of EV anufacturing: steel, aluminum, other materials, battery production,assembly, and transportation. This system effectively favors EVs produced in European countries,whose industries make more use of renewable energy and which are closer to France, at the cost of EVmakers in China and elsewhere in Asia, as the long distances involved in transportation essentially precludethem from subsidization, and constitute non-tariff barriers (NTBs). Serving environmental and industrial
objectives simultaneously, the new bill embodies an important paradigm shift in policymaking. Whereasthe earlier model of French industrial policymaking focused on penalizing economic actors for generatingemissions, the new EV subsidies are built to benefit manufacturers that produce relatively lower levels ofcarbon emissions than their competitors. This approach is ostensibly environmental, but also has a strongprotectionist undercurrent, and is clearly intended to shield domestic industries.

From a trade perspective, this shift in the focus of protectionist policymaking from intermediate goods suchas EV batteries to finished goods such as EVs threatens to see NTBs erected at every stage of the valuechain in which these finished goods are produced. More barriers to trade under protectionist statutes likethe IRA and France’s new green industry are likely to prompt the reintegration of markets and productionbases after decades of geographical separation. Korean businesses will therefore be forced to change theirbusiness model, from an export-led approach that favored production in Korea to a model in which theyincreasingly produce goods in target markets. This has the potential to hollow out Korean industries. Themanufacturing-driven Korean economy needs to adapt to new global reality radically different from theheyday of globalization, when major importing countries were neutral about foreign manufacturers.