"Semiconductors, Cars, and Batteries in 'Total Crisis'... Political Negotiations and Domestic Supply Chain Strengthening Must Proceed Simultaneously (Comprehensive)"

Yang Hyang-ja, Chair of the People Power Party Semiconductor Special Committee, Emphasizes at the Federation of Korean Industries Meeting on the 28th
"We Must Buy Time to Strengthen Domestic Self-Reliance"

Yang Hyang-ja, Chairperson of the Special Committee on Strengthening Semiconductor Industry Competitiveness of the People Power Party, delivering the keynote speech on the morning of the 28th at the 'US Supply Chain Restructuring Strategy and Korea's Response Seminar' hosted by the Federation of Korean Industries at the FKI Hall in Yeouido, Seoul. (Photo by FKI)

[Asia Economy Reporters Kim Pyeonghwa and Moon Chaeseok] As the United States pursues strengthening supply chains based on its own nationalism, concerns are rising about crises in Korea's advanced industries such as semiconductors, electric vehicles, and batteries. There are calls for the establishment of a government-level control tower.

Yang Hyang-ja, Chairperson of the People Power Party's Special Committee for Strengthening Semiconductor Industry Competitiveness, emphasized this during her keynote speech at the "US Supply Chain Restructuring Strategy and Korea's Response Seminar" hosted by the Federation of Korean Industries at the FKI Building in Yeouido, Seoul, on the morning of the 28th.

Chairperson Yang pointed out that the US is pursuing reshaping supply chains through strategies such as the Chips and Science Act (CSA) and the Inflation Reduction Act (IRA), aiming for internalization and hegemony in advanced industries. While the semiconductor sector is regulating China, the ultimate goal is to surpass Korea, the global leader in memory semiconductors. She also noted that since the IRA could be highlighted as President Joe Biden's greatest achievement in the upcoming November midterm elections, improvements might not be easy.

Yang also criticized overlapping support policies for fabless small and medium enterprises by key ministries such as the Ministry of Trade, Industry and Energy, the Ministry of SMEs and Startups, and the Ministry of Science and ICT, emphasizing the need to shift the industry structure from memory semiconductor-centered to more profitable non-memory semiconductors. For these reasons, she stressed that proactive national-level responses are essential. She urged the government to establish a science, technology, and industry control tower and called on the National Assembly to form a special committee on advanced industries. In particular, she said the passage of the Semiconductor Industry Competitiveness Enhancement Act (K-Chips Act) in the National Assembly is indispensable.

Furthermore, she suggested that the government consider expanding the corporate tax credit rate for large companies included in the K-Chips Act from '6% to 20%' up to '25%'.

Kwon Tae-shin, Vice Chairman of the Federation of Korean Industries, also stated in his opening remarks that "supply chain strategy has established itself as an important national industrial strategy," and explained that "our companies face a difficult situation where geopolitical factors and international circumstances must be considered in supply chain management."

"External Negotiations and Domestic Industrial Strengthening Must Be Achieved Simultaneously"

At the seminar, Chairperson Yang and experts unanimously agreed that external political negotiations with the US and strengthening domestic industrial capabilities must be pursued simultaneously. They urged swift negotiations on sectors like memory semiconductors, where detailed US regulations on China have not yet been presented, and called for groundbreaking policy support to strengthen domestic automobile and auto parts supply chains and overseas resource acquisition capabilities.

According to the global semiconductor company valuations presented by Chairperson Yang in September, Samsung Electronics was estimated at 331 trillion won, trailing behind the US's Nvidia (495 trillion won) and Taiwan's TSMC (584 trillion won). In the electric vehicle battery sector, LG Energy Solution, the world's second-largest company (113 trillion won), is closely followed by BYD (101 trillion won) in third place. A more serious issue is that Korea lacks a suitable card to overcome US hegemonic politics, which cannot be resolved by financial means alone.

Participants at the seminar conveyed the message that strengthening the fundamentals of the domestic industry, regardless of company size, is urgent in the long term, and that political negotiations with the US must be handled well to buy time. Chairperson Yang explained, "The best negotiation card is 'hegemonic technology,' and Korea's hegemonic technology is only memory semiconductors." She added, "'The National Advanced Strategic Industry Act Amendment' has been submitted to the Industry Committee, and the 'Tax Incentive Limitation Act Amendment' is still pending, but we are urging their swift passage in the National Assembly." Regarding the IRA, she advised, "We must respond in cooperation with the European Union, Japan, and others to parts of the IRA that violate the 'National Treatment' (NT clause) prohibiting discrimination between Korean and US companies/products under the Free Trade Agreement (FTA) and World Trade Organization (WTO) rules, as well as the 'Most Favored Nation' (MFN clause) towards Korea."

Experts urged that political efforts are needed to buy time until domestic industrial response capabilities are enhanced. Yeon Won-ho, head of the Economic Security Team at the Korea Institute for International Economic Policy, said, "Since US regulations on memory semiconductors related to China are not yet specifically defined, we must quickly engage in negotiations with the US to minimize the impact on our companies' China operations." He added, "(The IRA) is a political issue, so political solutions between the two governments should be sought rather than legal dispute resolution, and efforts to improve negotiation capabilities with the US and China must be strengthened to prevent recurrence."

30,000 Unit Export and Production Disruptions Due to IRA... "Minimize Domestic Impact"

To receive US electric vehicle subsidies under the IRA, certain levels of minerals such as electric vehicle batteries must be extracted or processed in the US or countries with which the US has an FTA (subsidy of $3,750), and a certain percentage of battery components must be sourced from North America (subsidy of $3,750). Jo Cheol, Senior Research Fellow at the Korea Institute for Industrial Economics and Trade, projected that if 50% of current US export volumes are converted to electric vehicles under the IRA, about 300,000 domestic vehicle exports and production could be disrupted.

Senior Research Fellow Jo urged, "In the short term, we must negotiate with the US to recognize electric vehicles assembled in FTA countries as eligible for subsidies, requiring joint responses with Germany, Japan, and others." He also emphasized, "We should expedite the operation of production plants in the US, diversify export routes, and expand domestic sales to minimize the reduction in domestic production caused by increased electric vehicle production in the US."

Ultimately, calls were made for 'resource independence.' Kim Dong-hwan, Director of the International Strategic Resources Institute, explained that due to the US's 'Clean Vehicle Tax Credit' regulations, critical minerals such as lithium and cobalt must be sourced at least 40% from the US or US FTA countries by next year, and 80% by 2027 to qualify for tax credits. He noted that Korea's private companies and public institutions (such as the Korea Mineral Resources Corporation) have effectively lost their overseas resource development capabilities.

Director Kim emphasized, "The government should establish a national resource security control tower and lead the construction of a long-term raw material supply chain by building a 'National Resource Security Integrated Information System' to systematically manage resource security information."

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