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Korea must ease discriminatory regulations to revitalize manufacturing

Published: 24 Apr. 2025, 00:01

Cheong Chul-gun

The author is a columnist of JoongAng Ilbo.

Hyundai Motor Group Executive Chair Euisun Chung made a telling remark at the completion ceremony of the company's new plant in Georgia last month. “We did not come here just to build a factory," he said. "We came to put down roots."

Hyundai’s $21 billion investment in the United States underscores a growing trend among Korean companies: shifting production abroad to circumvent trade barriers and reduce costs. With three major plants across Alabama and Georgia, Hyundai will soon be able to produce 1.2 million vehicles annually in the United States. The new Georgia facility is a smart factory, incorporating robotics, artificial intelligence and big data.

Hyundai Motor Group Chairman Chung Eui-sun speaks at the White House as U.S. President Donald Trump watches on on March 24. [SCREEN CAPTURE]

Hyundai also plans to build a low-carbon steel mill in Louisiana, taking advantage of cheap energy and favorable infrastructure. Posco is joining the venture, highlighting how Korean competitors are finding common ground abroad. These moves are strategic responses to U.S. tariffs and incentives — but they are also raising concerns at home.

Korea has become one of the largest foreign investors in the United States, with a cumulative investment of $160 billion. This has created over 830,000 jobs in America — more than the total number of industrial jobs in Ulsan; Changwon, South Gyeongsang; and Geoje, South Gyeongsang, combined. These U.S.-based positions offer average annual salaries exceeding $100,000, far above what similar jobs pay in Korea.

However, this outward shift has domestic consequences. Hyundai recently postponed a planned 1 trillion won ($703.5 million) investment in its Ulsan plant. The project would have introduced advanced aluminum casting technology, but the company is reconsidering in light of high U.S. tariffs and growing uncertainty.

A decline in domestic investment could hit jobs hard. Auto exports last year accounted for over 690,000 jobs, or 16.7 percent of all export-related employment — twice the figure of semiconductors. If exports decline due to protectionist policies elsewhere, Korean employment will inevitably suffer.

Ulsan, once the heart of Korean heavy industry, is already losing ground. Its population began to shrink in 2015, and many young engineers have left for research hubs near Seoul or abroad. The city’s gender imbalance in the workforce also deters young women, with men making up more than 90 percent of the workforce at major companies.

This trajectory, if unchanged, could lead to industrial hollowing out — not just in Ulsan, but across the country.

Much of Korea’s manufacturing strength was built by large corporations investing in research and development (R&D) and infrastructure. Yet, these same companies face a thicket of regulations and legal constraints at home.

Hyundai Motor vehicles for export wait at a dock in Ulsan. [HYUNDAI MOTOR]

In contrast to countries like the United States and China that provide tax breaks, subsidies and land for free to attract investment, Korea binds its biggest firms with strict rules. A striking example is the tax code. While small- and medium-sized enterprises (SME) benefit from extended tax credits, large corporations are excluded — even though they drive most capital investments.

Efforts to exempt industries like semiconductors from Korea’s rigid 52-hour workweek have been blocked in the National Assembly. A recent business survey found that over 75 percent of R&D departments reported declining performance since the workweek limit took effect.

The 21st National Assembly introduced more than 25,000 bills, many of them related to labor, environment and trade regulations. Korea’s legislative activity far exceeds that of other industrialized countries, creating legal instability that makes long-term planning difficult for businesses.

Although Korea remains among the top countries for R&D spending, its support is lopsided. Tax incentives for R&D heavily favor small firms, leaving large companies with less support. In Japan, this disparity is minimal; in the United States and Germany, it does not exist at all.

During the Moon Jae-in administration, government R&D budgets leaned toward SMEs. The number of SME-affiliated research labs more than doubled between 2010 and 2022. In contrast, large corporations received just 5 percent of the Ministry of Trade, Industry and Energy's R&D funds.

Meanwhile, China concentrated its support on large companies, and the result has been clear: Chinese firms now invest more than five times what Korean firms spend on R&D.

With a new president to be elected on June 3, the incoming administration must take decisive steps to prevent the hollowing out of Korea’s industrial base. Three reforms are essential.

First, outdated regulations targeting large corporations must be overhauled. Unique Korean policies, such as the designation system for conglomerates and “SME-only” sector restrictions must be reassessed. Regulations should not put Korean companies at a disadvantage compared to international competitors.

Second, tax and R&D incentives should be extended to all firms based on performance, not size. Large corporations should receive tax credits for investments and research, especially when they share technology with smaller firms. During the pandemic, Samsung helped boost mask production by sharing smart factory technology with SMEs — an example of productive cooperation.

This photo shows the logo of Taiwan Semiconductor Manufacturing Company (TSMC) during the Taiwan Innotech Expo at the World Trade Center in Taipei on Oct. 14, 2022. [AP/YONHAP]

Third, labor market reforms are necessary. Korea must shift away from seniority-based systems and empower younger workers with digital skills. Smart factories require a different kind of workforce — more flexible, more tech-savvy and less constrained by traditional hierarchies.

As TSMC founder Morris Chang once warned, if Korea fails to reform its industrial policy and regulatory environment, “by 2030, there will be nothing left.” The warning is stark, but the remedy is clear: Korea must create an ecosystem where manufacturing thrives — not only abroad, but also at home.

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.