"South Korea's Reshoring Performance Lags Behind US and EU... Benefits and Scope Need Expansion"

Last year, the US reshoring index expanded while South Korea's offshore production dependence deepened
"To increase reshoring companies, ▲comprehensive and decisive one-shot support for strategic industries ▲reduction of corporate tax and import raw material tariffs ▲elimination of discontinuity and uncertainty in new systems are needed"

[Asia Economy Reporter Ki-min Lee] It has been pointed out that Korea's reshoring (return of overseas manufacturing to the home country) performance is insignificant compared to major countries such as the United States and Europe, so benefits and the scope of eligible targets should be expanded.

The Federation of Korean Industries (FKI) announced on the 22nd that, based on an analysis of domestic and international data related to reshoring, Korea's reshoring performance is lower than that of the United States or the European Union (EU).

First, according to the results measured by the U.S. consulting firm AT Kearney using the ratio of Asia offshore imports to total manufacturing output, the U.S. reshoring index showed negative values continuously from 2011 but grew at the largest scale last year. The U.S. reshoring index was -32 in 2018 but expanded to 98 last year. The reshoring index measured by the U.S. Coalition of Production Associations (CPA), focusing on global offshore imports, also rose from -18 in 2018 to 59 last year. The reshoring performance by sector was greatest in computers and electronic products, wood, furniture products, electrical products and parts, and basic metals, in that order.

According to the reshoring index measured by the American consulting firm AT Kearney based on the proportion of Asia offshore imports relative to total manufacturing output, the United States experienced the largest growth last year. On the other hand, when the Federation of Korean Industries measured Korea's reshoring index using the AT Kearney method, the dependence on offshore growth is increasingly intensifying.

The reshoring index for the United States, measured by the Consumer Producers Association (CPA), also increased last year. The reshoring index was highest in the computer and electronics sector.

On the other hand, the reshoring index of Korea, measured by FKI using the same method as AT Kearney, showed that dependence on offshore production has been deepening since 2013. While U.S. companies are reshoring from Asian countries or shifting to near-shoring near their own countries, Korean companies remain concentrated in the Asian region.

According to research data from an EU Commission-affiliated institution, 253 companies in the EU reshored between 2014 and 2018. Among them, 99 companies with disclosed employment information created 12,840 jobs. During the same period, 52 Korean companies that had expanded overseas reshored, creating a total of 975 jobs.

There are also calls for the Korean government to expand benefits and the scope of eligible companies to bring back companies that have expanded overseas.

Korea has been implementing the “Act on Support for Domestic Return of Overseas Expanded Companies (U-turn Companies Act)” since 2013, but it provides short-term support in the form of subsidies funded by taxes, and the scope of U-turn is limited to relocating overseas factories to Korea. Because of this, only 74 companies have returned since the enactment of the U-turn Companies Act.

In contrast, the characteristics of U.S. reshoring policies include ▲comprehensive and decisive one-shot support for strategic industries ▲corporate tax and import raw material tariff reductions to support long-term domestic production cost reduction ▲elimination of discontinuity and uncertainty of new systems.

The EU also announced a “New Industrial Strategy” in March, focusing on reducing external dependence on core technologies, core materials, infrastructure, and security. Additionally, the EU Commission will apply the “FDI Investment Pre-screening Regulation,” the first EU-wide measure to prevent the overseas sale of strategic assets and protect domestic industries, starting this October. Accordingly, EU member countries are expected to actively pursue reshoring policies in the future.

Kim Bong-man, head of the FKI International Cooperation Office, suggested, “Along with bold support to realize U-turns like in the U.S., it is necessary to ▲prepare a favorable 'environmental creation plan' for corporate operations related to labor costs and corporate taxes beyond the short-term support under the U-turn Companies Act ▲expand the 'scope of U-turn' to recognize domestic substitution of imported intermediate goods as U-turn, like in the U.S. and EU ▲provide practical 'system benefits' to more companies.”

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