Value Chain Improvement Strategy to Be Announced in June
The South Korean government is working on incentive measures for reshoring companies. The Ministry of Trade, Industry and Energy is expected to include the measures in the government’s global value chain improvement strategy scheduled to be announced next month.
The measures are expected to include more financial assistance, subsidies and tax incentives. Although the government is already providing reshoring companies with subsidies related to employment, land purchase and facility investment, the sizes of the subsidies are likely to increase in the near future.
In addition, the government is expected to bear a certain portion of factory relocation costs. At present, the government’s burden in reshoring companies’ land purchase or rental is 9 percent to 40 percent with an upper limit of 500 million won per company and the government is providing subsidies equivalent to 6 percent to 22 percent of reshoring companies’ capital expenditures.
Some experts point out that the measures need to include deregulation in terms of factory construction and expansion in the capital city and surrounding areas. According to the Seoul Metropolitan Area Readjustment Planning Act, the government sets a certain area in Seoul, Incheon and Gyeonggi every three years and permits factory construction and expansion with a total floor area of 500 square meters or more within the area. In view of public opposition, the government is currently refusing to change the regulations.
The government is also working on incentive measures for production base diversification so that manufacturers’ dependence on China can be reduced. Countries such as Japan have taken the same measures since the outbreak of COVID-19, providing the same incentives for reshoring companies and those relocating their manufacturing facilities to Southeast Asia.