Seoul seeks independence from Tokyo imports

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Seoul seeks independence from Tokyo imports

In an attempt to mitigate potential damage from Japan’s export restrictions, the Korean government is supporting companies and stimulating investment in research and development to have the country’s core technologies become more independent from Tokyo.

Although temporary, the government is moving away from its firm stance of regulating conglomerates and offering streamlined administrative procedures, tax cuts and financial support to companies, some of which were requested from the business community in its meeting with President Moon Jae-in earlier this month.

Japan is threatening to remove Korea from its “white list” of countries entitled to faster exports processing on national security grounds, and ministries are preparing to limit the impact the measure could bring to local industries.

Starting with Finance Minister Hong Nam-ki’s meeting with Samsung Electronics Vice Chairman Kim Ki-nam earlier this month, the Moon administration has been in dialogue with local business leaders to find solutions to the trade conflict.

“Around 1,000 materials could be included in Japan changing its export restrictions, and we are analyzing what products will be impacted and how companies should respond,” Finance Minister Hong Nam-ki said in a meeting Thursday.

“Preliminary results will be ready within the next week.”

Although the export restriction is poised to damage local industries and companies in the short term, the latest challenge could be an opportunity for Korea to reduce its heavy reliance on Japanese imports.

As a part of its support measures, the government is officially providing exemptions to the 52-hour workweek for companies affected by the export restrictions. The regulation states that if met with a severe disaster, companies can request the Ministry of Employment and Labor to allow its employees work longer hours as needed. In this case, the export restriction would be considered as a severe disaster.

The measure would allow Samsung Electronics and SK Hynix to speed up their processes of finding replacements for the high-quality hydrogen fluoride that they have imported from Japan until now. Their employees will be free to work for more than 52 hours in securing and testing new materials for their semiconductors.

“When conducting R&D efforts for products, we have to spend around half a year for one project,” Samsung Electronics Vice Chairman Yoon Boo-keun said during a meeting at the Blue House on July 10, requesting officials to be more flexible in implementing the 52-hour workweek.

The government is also fast-tracking the approval process for new chemical materials while looking to increase next year’s budget to support the materials and parts manufacturing industries. It is also shortening the R&D approval timeline to fast-track product development for local chemical companies.

Korean chemical companies have previously commented that regulations prevented them from making their own materials, like etching gas, and made them rely heavily on Japan for supply.

Feasibility tests will be exempt for R&D initiatives into core technologies that need faster development. The tests, required for projects supplied with government funds, have prevented industries from launching large-scale projects as they take up to one year to be finalized.

Officials are also looking into providing tax benefits for companies investing in semiconductor manufacturing technology.

The government will also support local companies in investing in their facilities, which is scheduled to be announced later this week. Facility investments, 80 percent of which are made by large conglomerates, will be given tax benefits and more companies are expected to enjoy this benefit until next year.

Tax credit levels on facility investments will rise from 1 percent to 2 percent for large conglomerates and 3 percent to 5 percent for medium-sized enterprises. The credit would hike 3 percentage points to 10 percent for small enterprises.

“While maintaining the very basis and purpose of the current law and policies, we have decided to provide temporary measures to help local companies faced with this struggle,” the Finance Ministry said in a statement Friday.

Some experts say that the ministry’s use of the word “temporary” indicates that the current administration is still maintaining its labor union-friendly stance.

“As the government said the measures are ‘temporary,’ it is not likely that it has altered its policy to be more company-friendly,” said Kang Sung-jin, an economics professor at Korea University.

“But as the administration and companies have a common interest, the recent measures will help companies find solutions to the current crisis.”

Kang added that the government needs to form a company-friendly environment where enterprises with heavy reliance on Japan can increase their investments.

Meanwhile, the government is looking to challenge Japan regarding the recent restrictions. Korea is scheduled to raise the issue at the World Trade Organization (WTO) General Council meeting this week.

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