While it has been almost a year since South Korean Government announced its comprehensive measures to support ‘U-Turn’ companies, industries are asking for additional relaxation of regulations. Industries state that the range of how U-Turn companies are recognized needs to be expanded to ‘outsourcing’ companies in order for them to attract major companies and that the required percentage of how much business sites in foreign soils needs to be reduced needs to be lower than the current required percentage.
South Korean Government believes that it needs to closely reexamine the effects of its comprehensive measures before it can make any decision on the requests from industries. It put forth an opinion that it needs to confirm whether there are companies that want to return back to South Korea if it eases regulations. It also plans to execute current measures that could not be executed due to a delay within the National Assembly regarding passing of bills.
◊Korea Economic Research Institute requests for extensive relaxation of regulations
U-Turn companies are companies that transfer their production facilities to foreign countries and coming back to South Korea. After the global financial crisis in 2008, the U.S., Japan, and EU started carrying out ‘reshoring’ policy that provides U-Turn companies with tax benefits and relaxation of regulations. As a result, companies that moved their production facilities to China and South-East Asian countries that have low personnel expense have started to return back to their own countries.
South Korea also established ‘U-Turn Act’ in June of 2013. U-Turn Act includes comprehensive ways of support on tax, one’s position, and manpower and provisions regarding liquidation and reduction of business places in foreign countries. South Korean Government enforced U-Turn Act in December of 2013 and it established additional support measures such as preferential treatment to South Korean companies that assign foreign personnel. In November of last year, Ministry of Trade, Industry and Energy and relevant departments introduced ‘comprehensive measures to support U-Turn companies that include major companies as part of subjects under the new comprehensive measures.
Korea Economic Research Institute (KERI) has requested an extensive system and policy change while it has been almost a year since South Korean Government announced its comprehensive measures. It states that the range of how U-Turn companies are recognized must be expanded even more and that there needs to be more tax benefits in order to focus government policies on attracting major companies with influence. Some of KERI’s requests includes recognition of outsourcing companies as U-Turn companies, extension of a period of subsidy for employment from 2 years to 3 years, reduction of the required percentage of how much business sites in foreign countries needs to be reduced from 25% to 10%, subsidy for U-Turn companies in metropolitan areas, and more support to secure foreign labor force.
KERI emphasizes that the range needs to be expanded to ‘outsourcing companies’ in order to attract more companies to South Korea. As of now, South Korean Government sees companies as U-Turn companies once they reduce the size of production facilities located in foreign countries and return to South Korea and construct or extend their production facilities. Basically, South Korean Government only sees ‘insourcing’ companies that have their own production facilities as U-Turn companies.
According to KERI, the U.S. and Japan also see outsourcing companies as U-Turn companies. For example, the U.S. Government has considered Apple as U-Turn company when Apple started producing the supply that used to be outsourced to Foxconn within the U.S. KERI wants to raise the level of effects of policies by expanding the range on how U-Turn companies are recognized.
KERI also states that the required percentage of how much business sites in foreign countries needs to be reduced, which is currently at 25%, must be much lower. In order to attract major companies with influence as U-Turn companies, it suggests that the percentage needs to be reduced from 25% to 10%. Because major companies have large-scale production facilities, it believes such reduction in ratio will bring a positive effect.
KERI also wants the duration of subsidy for employment to increase from 2 years to 3 years. It states that subsidy for facility and one’s position must also be provided to U-Turn companies that are state-of-the-art manufacturing companies and high value intelligent service providers in metropolitan areas.
◊South Korean Government to look into requests from KERI
South Korean Government is planning to look into requests from KERI only if they seem to carry possible benefits. However, it wants to approach the requests considering possible effects of relaxation of regulation rather than just easing regulations without any valid reason.
Regarding KERI’s request on how U-Turn companies are recognized, South Korean Government wants to carry out careful reviews because it believes that the range suggested by KERI is too wide as it also includes companies that provide outsourcing from overseas.
“KERI’s request also recognizes companies that provide outsourcing from overseas as U-Turn companies and this means that every companies that exchange supplies are considered as U-Turn companies.” said a representative for Ministry of Trade, Industry and Energy (MOTIE). “We also provide similar support to those companies that used to be or are currently in South Korea if they construct or extend their production facilities. Rather than focusing on U-Turn companies alone, we also need to look at other systems as well.”
It also wants careful consideration on reducing the ratio from 25% to 10%. South Korean Government already reduced the ratio once from 50% to 25% back in August. It believes that it will lose consistency if it lowers the ratio again too soon. It also believes that it is unclear whether major companies will return back to South Korea even if it lowers the ratio to 10%.
“Many U-Turn companies are already returning back to our country.” said a representative for MOTIE. “25% is not burdensome for companies that are returning after reducing the size of their businesses sites.”
Regarding subsidy for employment, there needs to be discussions with relevant departments such as Ministry of Employment and Labor. Subsidy for employment is usually paid for a year and it is paid for two years only for U-Turn companies. To increase the duration from two years to three years, there needs to be additional discussions with Ministry of Employment and Labor.
South Korean Government wants to consider the fact that its comprehensive measures for U-Turn companies that were announced in November of last year are still not implemented wholly. Revised bill that combines 9 partial revised legislative bills for supporting foreign companies that are looking to return back to South Korea and has been issued since last year is waiting a screening from the National Assembly’s Legislation and Judiciary Committee.
“Once the revised plan is passed through the National Assembly, we need to first enforce entire measures that were announced last year.” said a representative for MOTIE. “We will be able to discuss the direction of additional revisions afterwards.”
Staff Reporter Byun, Sanggeun | sgbyun@etnews.com & Staff Reporter Park, Sora | srpark@etnews.com