BRUSELS, Aug 12 — The European Union and South Korea raised concerns about proposed US tax credits for purchases of electric vehicles, saying they may adversely affect foreign-made vehicles and breach World Trade Organization (WTO) rules.

Under the US$430 billion (RM1.9 trillion) climate and energy bill passed by the US Senate on Sunday, Congress would lift the cap on the existing US$7,500 tax credit for electric vehicle purchasers but impose restrictions, including barring vehicles not assembled in North America from receiving the credit.

The ban on tax credits for vehicles assembled outside of North America would take effect as soon as President Joe Biden signs the legislation.

The proposed legislation also includes provisions aimed at preventing use of battery components or critical minerals derived from China.

"We think it's discriminatory, that it is discriminating against foreign producers in relation to US producers," said European Commission spokesperson Miriam Garcia Ferrer. "Of course this would mean that it would be incompatible with the WTO."

Garcia Ferrer told a news briefing the EU agreed with Washington that tax credits are an important incentive to drive demand for EVs and promote the transition to sustainable transport and a reduction in greenhouse gas emissions.

"But we need to ensure that the measures introduced are fair and ... non-discriminatory," she said. "So we continue to urge the United States to remove these discriminatory elements from the bill and ensure that it is fully compliant with the WTO."

South Korea also said on Thursday that it has expressed concerns to the United States that the bill could potentially violate WTO rules and a bilateral free trade deal. South Korea's trade ministry said in a statement that it has asked US trade authorities to ease battery component and final vehicle assembly requirements.

South Korea's trade ministry held a meeting with automaker Hyundai Motor Co 005380.KS and battery makers LG Energy Solution, Samsung SDI and SK. The companies asked Seoul to support them so that the bill would not put them at a competitive disadvantage in the US market, according to the statement.

Hyundai said it is "disappointed that the current legislation severely limits EV access and options for Americans and may dramatically slow the transition to sustainable mobility in this market."

Hyundai, which imports its flagship electric vehicles from Korea, has recently announced US investments of US$10 billion including EV manufacturing in Alabama and Georgia.

A group of major automakers said last week that most EV models would be ineligible for tax credits because of requirements for battery parts and critical minerals to be sourced from North America.

The EV tax break is part of the Inflation Reduction Act, which is likely to be passed by the House of Representatives on Friday and then sent to Biden for his signature. — Reuters