Interview: U.S. inflation reduction act against WTO rules, fair competition: S. Korean expert

Reuters
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The U.S. Inflation Reduction Act of 2022 is against the World Trade Organization (WTO) rules and fair competition, a South Korean expert has said.

The act, signed in August with a record 369 billion U.S. dollars for climate and energy provisions, offers massive subsidies in favor of U.S. producers in crucial sectors, tilting the playing field.

“Ban on subsidies that hinder free market economy and fair competition is a principle that the United States has insisted on,” Jeon Byeong-seo, director at the South Korean Institute of Chinese Economic and Financial Research, told Xinhua in a recent interview.

However, the United States “is fostering domestic industries based on large-scale subsidies,” which “runs counter to WTO rules and fair competition,” Jeon said.

He also said the U.S. green industries should be fueled by technology development as the industries, created by forced regulations and subsidies instead, will likely plunge as soon as the effect of subsidies fades.

“The U.S. politicized subsidies to protect its own industries may work in the short term, but will likely lead to production costs growth and overinvestment in the long run,” Jeon said.

The expert believes that the “America First” strategy has pushed the world into a national interest egoism, noting that the strategy is fundamentally rattling the free trade and multilateral order in the world.

He said major countries must shun egoism and protectionism for the stable development of the global economy because otherwise, there will eventually be a disastrous war among countries for resources, technology and markets.

Touching on the worsened economic growth outlooks, driven mainly by the U.S. Federal Reserve’s aggressive interest rate hikes, Jeon said they will shock South Korea’s completely open financial and real markets.

“In South Korea’s financial market, which has been open to foreigners since 1992, foreign ownership reaches 30 percent. The U.S. rate hike is a significant factor in the market’s decline as it causes capital outflow in both the bond and local stock markets,” Jeon said.

Jeon forecast that high interest rates would crimp consumption recovery in South Korea amid the continued slump in export and investment stemming from the global economic downturn.

South Korea’s Ministry of Economy and Finance cut its 2023 growth outlook to 1.6 percent earlier this month from the previous forecast of 2.5 percent unveiled in June.

Jeon expected the South Korean economy to grow, below its potential level though, in the first half of 2023 and gradually improve in the second half amid more favorable external conditions. 

Source : Xinhua