Following the US, Europe Also Enacts Semiconductor Support Laws... Complex Calculations for Korean Industry

Possibility of Trade Disputes Among Major Countries Over Subsidy Support

Samsung Electronics Semiconductor Production Facility Pyeongtaek Campus [Image Source=Yonhap News]

[Asia Economy Reporters Sunmi Park, Pyeonghwa Kim] Following the United States, the European Union (EU) has agreed on a semiconductor support bill worth 43 billion euros (approximately 60 trillion KRW), gaining momentum for implementation. This development complicates the calculations for Korean companies that do not have semiconductor factories in Europe. Since Korean companies, already strong in memory semiconductors, have limited opportunities to benefit from Europe’s incentives aimed at nurturing the industry, there is a risk that if Europe raises its domestic semiconductor production to around 20%, part of the market could be lost.

On the 29th, the semiconductor industry viewed that even if the EU offers extraordinary incentives and regulatory relaxations to companies building semiconductor production plants and R&D facilities within Europe, the likelihood of Korean semiconductor companies expanding their infrastructure there is low. This is because they are already planning large-scale investments in the U.S., and the ‘K-Chips Act’ (National Advanced Strategic Industry Amendment and Tax Special Cases Act Amendment), which encourages domestic investment, is progressing, albeit slowly.

Moreover, even if new semiconductor production plants are established in Europe, the weak local value chain makes it difficult to improve efficiency, and high labor costs may result in more disadvantages than benefits for Korean companies. Yangjae Kim, a researcher at Daol Investment & Securities, said, “It will be difficult for Korean companies to see positive effects from the EU’s semiconductor support bill in the memory semiconductor sector where they have strengths,” adding, “Although European countries are appealing to Korean companies for investment with the semiconductor support bill in mind, the situation is not attractive enough to make decisions.”

Europe accounts for about 20% of global semiconductor demand but has only about 10% supply capacity, making it highly dependent on external sources. While Europe has strengths in semiconductor technology, manufacturing equipment, and some raw material supply, its production capacity lags behind major competitors. From this perspective, the semiconductor development atmosphere in Europe is seen positively as an opportunity to complement weaknesses in the Korean semiconductor industry or to strengthen cooperation.

Changhan Lee, Vice Chairman of the Korea Semiconductor Industry Association, stated, “If domestic companies localize production in Europe, domestic parts and materials companies can also expand their base,” but he added, “Since local labor costs are high and various production costs may arise, careful calculations will be necessary.” The recent partnership agreement between the Korean government and the EU to strengthen cooperation in semiconductors, high-performance computing (HPC), quantum technology, and cybersecurity is a representative example of seeking collaboration.

An industry insider explained, “For example, Europe has a developed automotive industry, so there is a significant opportunity in the advanced automotive semiconductor market driven by autonomous driving advancements,” adding, “Since there are already many automotive semiconductor companies with technological capabilities in Europe, cooperation to complement our companies’ weaknesses is a matter worth considering.”

However, there are concerns that increasing protectionism surrounding the semiconductor industry requires caution from Korean companies. As the atmosphere spreads that semiconductor sales require production facilities in the respective regions, Korean companies may be forced into overseas investments or face obstacles such as losing market share.

With major countries, including Europe, strengthening semiconductor support, there is also the possibility of future trade disputes over subsidy support. Hyukjae Lee, a professor in the Department of Electrical and Information Engineering at Seoul National University, predicted, “The more Europe increases semiconductor support, the more burdensome it may be for the domestic industry rather than beneficial.”