By Simon Lewis and David Brunnstrom
WASHINGTON (Reuters) – The United States should extend electric vehicle tax credit benefits to Vietnam if it wants to encourage a landmark investment from the country in U.S.-based manufacturing, the head of the main U.S. business lobby for Southeast Asia said.
Rules included in the U.S. Inflation Reduction Act (IRA) aimed at reducing U.S. dependence on Chinese EV battery supply chains currently only benefit countries that have free trade agreements with Washington – a list that excludes Vietnam.
Vietnamese automaker VinFast last week began construction on a $4 billion plant to produce EVs in North Carolina for the U.S. market, but could struggle to compete without the tax break, said Ted Osius, a former U.S. ambassador to Vietnam who heads the U.S.-ASEAN Business Council, a lobby group.
VinFast responded to President Joe Biden’s call for electric vehicles to be manufactured in the United States, Osius told Reuters in an interview on Thursday, “Now they will have some asks. They will want to be part of the EV supply chain and they won’t want to be discriminated against in favor of other EV producers.”
There was “no clear path” for Vietnam to get the tax benefits at present, but the fact VinFast was moving ahead with construction shows “a certain amount of confidence that this is going to be worked out – and I share that confidence,” Osius said.
Whether Biden’s administration can work out a solution for the Vietnamese automaker could be a test of how far the benefits of the IRA can be extended.
The IRA awards a $7,500 tax credit on EVs bought in the United States provided that a percentage of critical minerals that go into making the batteries are sourced from the United States or a free trade partner.
The United States signed a deal in March with Japan on critical minerals that ensures Japanese cars will benefit from the tax credit. Now, both the EU and Britain are looking for the same.
Biden said last week he could meet Vietnam’s leader at the G20 summit in New Delhi in September, where the two are expected to agree steps to deepen a relationship that has blossomed in recent years amid rising U.S. tension with China.
Osius said Washington should extend the tax benefit to signatories to the Indo-Pacific Economic Framework (IPEF), a trade imitative that involves 14 countries, including Vietnam and nearby Indonesia, which has vast reserves of the minerals found in batteries.
The Biden administration launched IPEF as part of efforts to step up economic engagement with Asia after former President Donald Trump pulled out of a pan-Pacific trade pact, but it lacks the market-access provisions ASEAN states want.