Korea's arms deal with Poland hanging by a thread

Industry

Published: 13 Dec. 2023, 19:10 Updated: 13 Dec. 2023, 19:45

Korea's arms deal with Poland hanging by a thread

Newly appointed Polish Prime Minister Donald Tusk, pictured right, talks with Polish MP Janusz Kowalski of Sovereign Poland during a parliamentary session break in Warsaw on Tuesday. [REUTERS/YONHAP]

Korean companies' multibillion dollar arms deals with Poland are hanging by a thread as the new Polish administration calls for a review of contracts signed by the country's previous interim government.

Donald Tusk, the former president of the European Council, was elected Poland’s next prime minister on Monday. Right after the vote, Tusk promised that the opposition coalition government would “fix everything together” and laid out differentiated strategies that contrasted those of the interim government.

“We are cautiously following the developments in Poland. But we believe that it is unlikely that a party of the already-signed agreement will flip-flop,” a Hanwha Aerospace spokesperson said in response to the situation.

A spokesperson for Hyundai Rotem said that the company is “still in discussion with Poland for the second round of contracts [for K2 battle tanks].”

Talks of Korea’s arms deals with Poland began in earnest last February following Russia's invasion of Ukraine. Poland doubled its national defense budget for 2023 with the goal of modernizing its military and weapons amid regional tensions with Russia and its ally Belarus.

A K9 howitzer, delivered in the first batch of arms from Korea under contracts signed in recent months, fires during a military drill at a military range in Wierzbiny near Orzysz, Poland, in March. [REUTERS/YONHAP]

The country signed a deal to purchase 1,000 K2 battle tanks and 672 K9 howitzers, Chunmoo multi-launch rocket systems (MLRS) and FA-50 light fighters from Korea. Talks of a second agreement began last December, by which time 10 K2 battle tanks and 24 K9 howitzers had already arrived in Poland. The Korean government, spurred by the discussions, has shown strong support for the defense industry's exports since then.

Hanwha Aerospace announced on Dec. 4 that it had signed a second defense contract worth 3.45 trillion won ($2.62 billion) with the Polish Armaments Agency for the supply of K9 self-propelled howitzers as part of the larger framework agreement.

Hyundai Rotem, as part of the package, agreed to build 180 K2 tanks for the Polish military by December 2027. It was expected to sign contracts for the remaining 820.

The two companies' shares dropped as concerns over the continued viability of their contracts spread. Hanwha Aerospace fell 2.87 percent to 125,000 won, and Hyundai Rotem dropped 3.72 percent to 25,850 won on Wednesday.

President Yoon Suk Yeol pledged to help the high-tech strategic defense industry become Korea's ″new future growth engine″ in a visit to Hanwha Aerospace in Gyeonggi on Thursday. [NEWS1]

“The defense industry is a strategic sector underpinning our security economy,” President Yoon said during a defense export strategy meeting at Hanwha Aerospace on Thursday, adding that “the government, in particular, must lead the way.”

Poland's measures to strengthen its national defenses are likely to continue, regardless of changes to its government, as its diplomatic situation persists. But the country may move to diversify its arms imports, which could impact its plans to bulk-import weapons from Korea.

Szymon Hołownia, the speaker of Poland’s lower house, said in a radio interview on Sunday that the ruling party “should have limited itself to administering the state and not spending public money” after its Oct. 15 election loss, according to Reuters. He added that “agreements signed by the interim Law and Justice (PiS) government may be invalidated.” Holownia is the leader of Poland 2050, one of three opposition parties that make up the country's coalition government.

Władysław Kosiniak-Kamysz, who is expected to head the Ministry of National Defense in the upcoming administration, said in a media interview on Saturday that deals signed after Oct. 15 would be subject to “analysis and evaluation.” Kosiniak-Kamysz has long advocated that the Polish government invest in the country's domestic arms industry rather than in imports.

In response to Kosiniak-Kamysz’s remarks, Polish Defense Minister Mariusz Błaszczak said on X, formerly Twitter, “the review of the Korean contracts referred to by the Third Way is an announcement of their annulment.” He added that the opposition coalition will “make the populist claim that they will replace Korean weapons with equipment from the Polish arms industry but will end up with nothing.”

Of course, an incoming administration's review of the previous government's policies is a natural and part of any transfer of power. The fact that Korea's weapons are globally competitive also remains.

But should Poland's new government invalidate deals made after the Oct. 15 parliamentary elections, Korean defense companies such as Hanwha Aerospace and Hyundai Rotem will inevitably suffer adverse effects.

The state-run Export-Import Bank of Korea (Eximbank) provided the Polish government, which lacked the necessary funds to bulk-purchase K2 tanks and K9 howitzers, with 12 trillion won in the form of loans and guarantees. The Korean government was in talks to provide the country with further financial support — Eximbank having hit its upper limit with last year's deals — and even discussed issuing a syndicated loan financed by Korea's five major commercial banks.

“We will take caution in addressing the issue of defense industry exports [to Poland] from a comprehensive standpoint, including in diplomatic relations,” said Choi Kyung-ho, a spokesperson for Seoul’s Defense Acquisition Program Administration. “[Officials from] the related ministries and industry are paying close attention to the situation in Poland,” he added.

BY PARK EUN-JEE, JEONG JIN-WOO, KIM JU-YEON [kim.juyeon2@joongang.co.kr]