More Concrete Plan Needed

A view of GM Korea’s Bupyeong plant.
A view of GM Korea’s Bupyeong plant.

 

GM Korea has postponed a request to designate its Bupyeong plant and Changwon plant as foreign investment zones. Related provincial governments asked the company to add up more details on its investment plan because they think it is incomplete. Accordingly, GM Korea will supplement the plan and submit the application again.

According to GM Korea and government and provincial government sources on March 12, officials at the foreign investment zone sector in the Incheon Metropolitan City and the South Gyeongsang provincial government turned down GM Korea’s application for foreign investment zone designation on the same day. This came after GM International President Barry Engle met with the Ministry of Trade, Industry and Energy (MOTIE) on March 7 and showed his intention to apply for designation of foreign investment zones, saying, “We will submit an official investment plan in South Korea soon.” The company had the working-level talks with relevant provincial government officials but the provincial governments thought that the plan is not concrete enough.

However, market watchers say that GM Korea will postpone its request to designate its factory sites as foreign investment zones. To become foreign investment zones that would eligible for corporate tax benefits for seven years, companies should invest over US$30 million (32.03 billion won) for manufacturing and US$2 million (2.14 billion won) in research and investment (R&D) and meet other requirements including establishment of new facilities. When provincial governments publish a review report, the foreign investment committee at the MOTIE will deliberate on it. GM Korea has said that it will produce two new models at its plants in South Korea and make a new investment worth US$2.8 billion (2.99 trillion won) in total. But, even producing new cars in South Korean plants is not confirmed yet. In short, it is impossible to come up with a specific investment plant before deciding whether to produce new models in South Korea.

Some also say GM Korea will not be able to benefit much from designation of foreign investment zones. GM Korea already recorded an operating loss for four years so it hasn’t paid corporate taxes. Even after the company succeeds in posting a surplus in a few years, it will be exempted from paying corporate taxes considering losses so far. When GM Korea’s plants are designated as foreign investment zones, they will be exempted from paying corporate taxes on only gains from new investments. It means that the benefit will limited to only two car models to be manufactured in South Korea in the future and from 2020 when these models start mass production.

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