"Korea Reshoring: Turning Off the Lights to Study"

Expert: "Bold Tax Benefits Are Needed"

[Asia Economy Reporter Dongwoo Lee] There is a growing call for bold tax incentives to boost the competitiveness of system semiconductors, which the Moon Jae-in administration designated as one of the three new growth industries. In particular, in light of the COVID-19 pandemic, the United States' strong reshoring policy aimed at semiconductor self-sufficiency and China's accelerated semiconductor development have led to the opinion that creating a "business-friendly environment" will be an essential condition for advancing as a digital powerhouse.

According to the industry on the 15th, if the United States, China, and Japan intensify their competition to attract global semiconductor companies domestically, Samsung Electronics and SK Hynix, which are based in Korea, are expected to suffer direct impacts. This is because as nationalism around core industries grows, uncertainty about the existing global supply chain increases. For example, Samsung Electronics could lose major fabless (design) customers such as Qualcomm and Nvidia to reshoring companies in those countries.

Experts agreed on actively promoting reshoring policies for materials and parts companies currently overseas to support the development of the domestic semiconductor industry. However, they pointed out that high corporate tax rates and labor market rigidity, such as the 52-hour workweek system, are major factors hindering industry growth. Oh Jung-geun, president of the Korea Financial ICT Convergence Society, said, "Last year, the U.S. created over 50,000 jobs through reshoring by more than 800 companies," adding, "Our government should also actively pursue reshoring policies by improving the high wage levels and rigid labor environment in the labor market."

In fact, Samsung Electronics and SK Hynix also identified the domestic corporate tax top rate of 27.5% and the 52-hour workweek as key factors discouraging reshoring. An industry insider said, "There is about a 6.5% difference between the highest corporate tax rates in Korea and the U.S.," explaining, "For example, if a net profit of 1 trillion won is generated domestically, corporate tax would be 50 billion won higher than in the U.S."

The U.S. lowered its corporate tax rate from 28% to 21% under the Trump administration. It is also reportedly discussing tax credit benefits for U.S. companies relocating production bases from China to the U.S. or allied countries. Japan, which is strengthening semiconductor nationalism policies, has a corporate tax rate of 23.4%, lower than Korea's. The UK (19%) and Germany (15.8%) have rates in the 10% range.

Ahn Ki-hyun, executive director of the Korea Semiconductor Industry Association, criticized, "The reshoring policy mentioned by our government is like telling someone to turn off the lights and study," adding, "Meanwhile, neighbors (the U.S., China, Japan, etc.) are even providing late-night snacks to encourage studying." He stressed the urgent need for policies that companies can actually feel.

According to the Ministry of Economy and Finance, overseas direct investment outflows from Korea last year amounted to $61.85 billion (approximately 75.98 trillion won), a 21.0% increase from the previous year ($51.1 billion).

Cho Kyung-yeop, head of the Economic Research Office at the Korea Economic Research Institute, analyzed, "The biggest reason Korean companies want to relocate production plants overseas is that the domestic investment environment is becoming increasingly rigid, and the reason for this rigidity is excessive government regulation."

This content was produced with the assistance of AI translation services.