{"id":2208422,"date":"2025-02-18T15:54:17","date_gmt":"2025-02-18T06:54:17","guid":{"rendered":"https:\/\/koreapro.org\/?p=2208422"},"modified":"2025-02-19T15:57:18","modified_gmt":"2025-02-19T06:57:18","slug":"south-korea-passes-k-chips-act-but-semiconductor-policy-still-in-limbo","status":"publish","type":"post","link":"https:\/\/koreapro.org\/2025\/02\/south-korea-passes-k-chips-act-but-semiconductor-policy-still-in-limbo\/","title":{"rendered":"South Korea passes K-Chips Act but semiconductor policy still in limbo"},"content":{"rendered":"
South Korea\u2019s semiconductor policy took a step forward with the <\/span>passage<\/span><\/a> of the K-Chips Act Tuesday in the National Assembly\u2019s Strategy and Finance Committee, advancing critical tax incentives and R&D support for the industry. However, the broader <\/span>Semiconductor Special Act<\/span><\/a>, which included a contentious exemption to the <\/span>52-hour workweek rule<\/span><\/a> for semiconductor workers, remains stalled.<\/span><\/p>\n This mixed outcome highlights the persistent challenges in South Korea\u2019s industrial policy and the difficulty in separating economic strategy from political conflict. While the passage of new tax incentives will provide short-term relief, lingering regulatory uncertainties could still undermine long-term competitiveness.<\/span><\/p>\n TAX INCENTIVES ADVANCE BUT REGULATORY HURDLES REMAIN<\/b><\/p>\n The K-Chips Act, a revision of the tax code, raises investment tax credits for semiconductor firms by five percentage points, with large and mid-sized companies seeing a boost from 15% to 20% and smaller firms from 25% to 30%. Additionally, R&D tax credits have been extended until 2031, ensuring long-term financial incentives for innovation.<\/span><\/p>\n These measures provide South Korea\u2019s semiconductor industry with a competitive edge, particularly as the U.S., Taiwan and China aggressively expand their own subsidy programs. The incentives make South Korea a more attractive destination for chip manufacturing, helping firms like Samsung Electronics and SK Hynix maintain their leadership in the global market.<\/span><\/p>\n However, the failure of the broader Semiconductor Special Act underscores ongoing regulatory inflexibility. The work-hour exemption, which was meant to address the industry’s need for flexible production cycles, was rejected over concerns that it could undermine labor protections.\u00a0<\/span><\/p>\n This leaves South Korea\u2019s semiconductor sector at a disadvantage compared to its global peers, where similar restrictions do not apply.<\/span><\/p>\n Main opposition Democratic Party leader Lee Jae-myung and other lawmakers stand in front of the National Assembly gates, Dec. 7, 2024 | Image: Democratic Party of Korea<\/a><\/em><\/p><\/div>\n GLOBAL COMPETITION AND INVESTOR CONFIDENCE<\/b><\/p>\n While the passage of the K-Chips Act is a welcome development, foreign and domestic investors remain cautious. The inability to pass a comprehensive semiconductor bill raises concerns about South Korea\u2019s policy predictability, particularly in contrast to countries with more streamlined industrial strategies.<\/span><\/p>\n For instance, the U.S. <\/span>CHIPS and Science Act<\/span><\/a> provides $52.7 billion in subsidies and tax credits to boost domestic semiconductor manufacturing. Taiwan\u2019s <\/span>National Key Fields Industrial Innovation Act<\/span><\/a> offers corporate tax deductions of up to 25% for semiconductor R&D, ensuring consistent government backing as a national security priority.<\/span><\/p>\n Meanwhile, China\u2019s centrally coordinated approach under the <\/span>Made in China 2025<\/span><\/a> initiative has funneled over $100 billion through state-backed funds to accelerate self-sufficiency, with recent tax breaks extending through 2030.<\/span><\/p>\n In contrast, South Korea\u2019s semiconductor policy is now split into separate battles \u2014 tax incentives on one hand and labor policy on the other. The failure to pass the work-hour exemption adds uncertainty for businesses that require rapid production scale-ups, particularly in times of supply chain disruptions.<\/span><\/p>\n SHIFTING GLOBAL INVESTMENT LANDSCAPE<\/b><\/p>\n The semiconductor industry is not just a business sector but a geopolitical battleground. South Korea has benefitted from its position as a trusted supplier to the U.S. and its allies, but delays in passing key regulatory reforms could weaken its strategic position.<\/span><\/p>\n Japan, for instance, is rapidly expanding its semiconductor sector with the backing of Taiwan\u2019s TSMC\u2019s new fab in <\/span>Kumamoto<\/span><\/a> and a government subsidy package aimed at making Japan a key player in chip manufacturing.<\/span><\/p>\n The European Union is offering increasingly attractive incentives under its <\/span>EU Chips Act<\/span><\/a>, aiming to double its global semiconductor market share by 2030. Meanwhile, the U.S. is considering <\/span>tariffs<\/span><\/a> on South Korean chip exports as the Trump administration recalibrates Washington\u2019s trade policies.<\/span><\/p>\n Ruling People Power Party floor leader Kwon Seong-dong speaks in the National Assembly, Feb. 11, 2025 | Image: People Power Party<\/a><\/p><\/div>\n THE POLITICAL CALENDAR AND WINDOW FOR ACTION<\/b><\/p>\n The failure of the broader semiconductor bill is not necessarily permanent. However, the political timeline complicates the path forward. With Acting President Choi Sang-mok leading the government on an interim basis, legislative momentum will likely remain weak until South Korea\u2019s political situation stabilizes.<\/span><\/p>\n If the Constitutional Court upholds President Yoon Suk-yeol\u2019s impeachment, South Korea will hold a snap presidential election within 60 days, delaying any further legislative movement on semiconductor policy.<\/span><\/p>\n Should main opposition Democratic Party (DP) leader Lee Jae-myung or another DP candidate win the presidency, the bill may be revived, but internal party divisions over labor policy could still slow its progress.<\/span><\/p>\n