Bureaucratic Changes
The Korean government will push for an amendment to an executive decree to allow foreign companies to receive cash support for alternative investments other than investments in the construction of new factories or the expansion of existing factories and the creation of jobs. General Motors (GM) and Renault are expected to receive the same cash support if they invest in converting their factories in Korea to electric vehicle factories.
According to sources in the automobile industry on July 9, the Korean government is revising some provisions of the Foreign Investment Promotion Act to allow foreign companies to receive cash support even for alternative investments in national strategic technologies such as electric vehicle technologies. Korea’s current foreign investment support program does not cover GM’s and Renault’s investment in electric vehicles in Korea.
The Korean Ministry of Trade, Industry and Energy (MOTIE) held a pre-legislative preview of a partial amendment to the Enforcement Decree of the Foreign Investment Promotion Act on June 9. The Korean government aims to revise the decree in the second half of 2023.
If the decree is revised, GM and Renault will be able to receive cash support from the Foreign Investment Promotion Act if they make alternative investments such as converting their factories to those for electric vehicle plants. Simply converting an internal combustion engine-based car production line to an electric vehicle line would be regarded as an investment eligible for the cash support.
The current decree stipulates that cash support is available only for the construction of new factories or the expansion of existing factories and the creation of jobs. In order to receive the cash support, foreign carmakers have to close existing internal combustion engine plants for several years in order to proceed with electric vehicle investments, which has been criticized as a factor that discourages their headquarters from investing in Korea.
The Korean government added regional headquarters of global companies to the list of items that can be designated as foreign investment zones. Once designated as a foreign investment zone, companies can lease factory and office sites at lower prices.
The time of cash support payments has been changed, moving them from the day cash support is decided to the day a cash support contract is signed. The Korean government took into account that it takes a long time for global companies to execute their investments. It also eliminated cumbersome procedures so that Korean branches of foreign companies can reinvest without having to transfer retained earnings to their home countries first.