Indefinite Semiconductor Special Committee Season 2... Golden Time is Passing (Comprehensive)

K-Chips Act Introduced Late but Drifting Amidst Ruling and Opposition Power Struggle

[Asia Economy Reporters Sunmi Park and Chaeseok Moon] There is a growing crisis theory that the ‘K-Chips Act,’ an ambitious initiative by the Yoon Suk-yeol administration to foster South Korea’s semiconductor industry, may miss its ‘last golden time’ due to political complacency and partisan conflicts. Despite the urgent need for legislation amid a global hegemony war over technological supremacy, the backward behavior of the political sphere is holding back progress. With the U.S. Chips Act and the European Union’s Chips Act already enacted, Korean semiconductor companies are concerned about a decline in competitiveness.

◆A flashy start but... an ‘insufficient’ strategy for a semiconductor superpower= The Yoon Suk-yeol administration announced a ‘Semiconductor Superpower Achievement Strategy’ to boost South Korea’s representative competitive industry, the semiconductor sector, and subsequently introduced supplementary measures. However, due to the power struggle between ruling and opposition parties, semiconductor legislation?where speed is crucial?has failed to accelerate in implementation. A prime example is the ‘K-Chips Act,’ which bundles the partial amendment bills of the Special Act on Strengthening and Protecting National Advanced Strategic Industries and the Restriction of Special Taxation Act, proposed by the Semiconductor Industry Competitiveness Enhancement Special Committee (Semiconductor Special Committee).

Led by Representative Hyang-ja Yang (People Power Party, Chair of the Semiconductor Special Committee), the committee concluded its first season of activities on June 4 by proposing the K-Chips Act. After five meetings since its launch on June 28, the committee completed the bill and expedited its proposal.

Given the importance of semiconductor competitiveness among countries amid the ‘Chip 4’ alliance, it was urgent to ease regulations and supplement various government supports to at least keep pace with the support measures of the U.S. and Europe. Notably, this bill was bipartisan, incorporating contents that the previous Democratic Party special committee could not include, which gave it significance. Therefore, there was an expectation that Season 2 would be elevated to a National Assembly-level special committee to continue discussions after Season 1 ended.

However, the atmosphere has completely changed. Even three weeks after the special committee’s activities ended, there has been no discussion about forming Season 2. A semiconductor industry insider explained, “Although budget discussions are necessary for the implementation of the K-Chips Act, everything seems to be at a standstill.” Currently, many local government heads are stepping up to create semiconductor clusters and specialized semiconductor complexes in line with corporate semiconductor investment trends, but limited resources make resolving this impossible.

Political opposition is mounting, making it difficult for the proposed bill to pass the National Assembly. According to the National Assembly, the Industrial, Trade, Small and Medium Venture Resources and Enterprises Committee’s Industrial, Trade and Energy Patent Subcommittee, which oversees the K-Chips Act, will meet on the 5th of next month. However, for the K-Chips Act agenda to be included, the opposition party’s floor leader (Representative Han-jung Kim of the Democratic Party) must reach an agreement with the ruling party’s floor leader (Representative Cheol-gyu Lee of the People Power Party) and obtain the consent of the committee chair (Representative Kwan-seok Yoon of the Democratic Party). If the opposition blocks it, even discussion could be restricted.

It is also notable that the Ministry of Economy and Finance, which must balance ‘regulatory reform’ with protecting the ‘national treasury,’ has expressed reluctance rather than ‘active support.’ While preparing next year’s budget, the government set the management fiscal balance deficit limit to within 3.0% of the gross domestic product (GDP), signaling a ‘belt-tightening’ stance.

Biden Signing the Semiconductor Industry Promotion Act
[Photo by Yonhap News]

◆Companies say “Semiconductors = Timing,” anxiously waiting= Among the K-Chips Act provisions, semiconductor companies most anticipated tax benefits, workforce development, and easing of facility permits and regulations. Especially, not only large corporations but also mid-sized and small companies had high expectations for tax benefits.

The partial amendment bill to the Restriction of Special Taxation Act bundled in the K-Chips Act aims to increase the semiconductor facility investment tax credit rate up to 30%.

The bill extends the semiconductor facility investment tax credit deadline to 2030 and expands the current 6?16% tax credit rates to ▲20% for large corporations ▲25% for mid-sized companies ▲30% for small companies. This means that Samsung Electronics and SK Hynix, which have the greatest semiconductor investment capacity, could receive a dramatically increased tax credit from the current approximately 6% to 20%.

The semiconductor industry notes that it is difficult for fiscal authorities to easily approve doubling the tax credit rate from the current 6?16% to 20?30%. Compared to the U.S. (25%), the credit rate is insufficient, and more radical tax support is needed to empower companies to expand facility investments.

A semiconductor large corporation official said, “It is important that the government shows a strong will to quickly follow the trend of major countries like the U.S. increasing semiconductor tax support. The K-Chips Act centers on tax credits, and if that part is delayed, mid- to long-term investments such as workforce development and easing facility permits may not have significant effects. Now is the time for corporate investment and government support to create synergy.” A semiconductor materials, parts, and equipment (SoBuJang) official also said, “The government has shown a clear willingness to support, but execution is the problem. For SoBuJang companies, it is obvious that highly skilled talent will flow to large corporations, so a tangible card like tax benefits is necessary.”

Amid gloomy forecasts that memory semiconductors, South Korea’s core export product, will grow by only ‘0% range’ next year, there are growing concerns that if the government’s semiconductor deregulation and tax support do not accelerate, corporate semiconductor investment expenditures will decline.

Samsung Electronics stated in last month’s conference call that it would flexibly review short-term semiconductor facility investment plans according to market conditions, and in fact, its facility investment in the first half of this year was KRW 21.7341 trillion, down 13.5% from KRW 25.1149 trillion last year. SK Hynix has put on hold plans to expand its new semiconductor plant in Cheongju.

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