"Big Corporations as 'Cold Rice' in National R&D, No More Reverse Discrimination"… Cheong Advisory Panel Report

Share of Large Corporations in National R&D Expenditure Drops from 2.2% in 2017 to 1.8% in 2019
Tax Support Also Only 2% of Total Investment... G5 Average at 19%

[Sejong=Asia Economy Reporter Kwon Haeyoung] Amid the global supply chain restructuring movement, a report commissioned by the Presidential Advisory Council on National Economy has raised the argument that the South Korean government should significantly increase support for large corporations in national research and development (R&D) projects and promote support across all industries rather than focusing on specific sectors. In particular, it pointed out that large corporations, which account for nearly 80% of private R&D, should not be 'discriminated against' in reverse, especially as countries worldwide are actively reviving industrial policies.

On the 3rd, the Korea Economic Research Institute emphasized in its report titled "Impact Analysis and Countermeasures for Supply Chain Stability Discussions in the Era of US-China Strategic Competition," submitted at the request of the Presidential Advisory Council on National Economy, that a more aggressive R&D policy is necessary to stay ahead in competition with major countries for securing industrial competitiveness.

Looking at the proportion of expenditures by research entities in national R&D projects, large corporations decreased from 2.2% in 2017 to 1.8% in 2019. Although the total R&D budget increased from 19.5 trillion won to 20.5 trillion won during the same period, the expenditure by large corporations actually decreased from 419.2 billion won to 373.5 billion won.

Support for large corporations through R&D tax incentives is also insufficient. Last year, the tax credits and exemptions received by domestic large corporations through R&D investments accounted for only 2% of the total investment amount. In contrast, the top five countries (G5) ? the United States, the United Kingdom, Germany, Japan, and France ? supported their domestic large corporations with an average of 19% of their R&D investment.

The report stated, "Since 2013, R&D tax support for large corporations has been consistently reduced and remains at a very low level compared to major advanced countries," and recommended, "Reverse discrimination against large corporations, which account for 76.7% of private R&D, should be reconsidered from the perspective of strengthening national competitiveness."

The report also included the argument that the method of industrial support should shift from a 'positive' approach, which selects specific industries and technologies for support, to a 'negative' approach that supports all industries. In July, the government decided to provide tax credits of 30-40% for investments by large and medium-sized enterprises related to national core strategic technology R&D. However, the industry expressed concerns that the overly detailed classification of technologies might make it difficult to receive support.

Government support for specific industries can be considered subsidies prohibited under World Trade Organization (WTO) agreements, raising the risk of trade disputes. The report pointed out, "Especially under the positive system, there is a high possibility of specifying beneficiaries, which could become the subject of subsidy-related trade disputes," and questioned, "In an era where technological convergence is rapidly progressing, it is doubtful whether a positive system that supports specific technologies is desirable."

The United States is pushing for the passage of the 'CHIPS Act,' a semiconductor industry support bill, amid the global supply chain restructuring process, but it has so far implemented industrial policies that can have ripple effects across all industries, such as new technology development and revitalization of manufacturing. For example, the 'Framework for Revitalizing American Manufacturing' announced in 2009 analyzed costs at each manufacturing stage and included measures to reduce them.

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