Will 'Export Finance,' an Obstacle to Defense Industry Exports, See a Breakthrough Led by the Opposition?

Representative Kim Byung-wook, Representative Yang Gi-dae, and others propose solutions through the amendment of the Mercury Act
Attention on whether government investments will follow after amendments within the year

"Advanced countries such as the United States, France, and Germany require financial support when exporting weapons. (Our country) has recently increased defense product exports, so a system related to that part (financial support) is urgently needed."

Seongsoo Lee, President of Hanwha Group, attended a seminar of the Democratic Party of Korea's parliamentary group 'Global Corporate Competitiveness Enhancement Group' on the 5th of last month and requested policy financial support to fulfill Hanwha's 20 trillion won-scale defense export contract with Poland.

Hanwha signed a defense export contract with Poland last year and is currently executing the first contract worth 6 trillion won. However, financial support for the second batch worth 16 trillion won is impossible due to the capital limits of the Korea Export-Import Bank (KEXIM), the export finance institution. Under current law, large corporations are only allowed to receive guarantees and loans within 50% of KEXIM's equity capital, which limits additional financial support when export amounts are large, such as in construction and defense industries.

Democratic Party lawmaker Kim Byung-wook is speaking at a meeting held on the 7th by the Democratic Party's Global Corporate Competitiveness Enhancement Group at the National Assembly, under the theme "SK's Advanced Industry Global Competitiveness and Implications of Responsible Management." Photo by Yonhap News.

In response, Assemblyman Byungwook Kim, who leads the group, proposed an amendment to the Korea Export-Import Bank Act (hereinafter KEXIM Act) on the 23rd of last month. The amendment adds an exception to the KEXIM Act for contracts where foreign governments are the purchasing parties. This recognizes that Poland's defense export is a government contract, allowing guarantees and loans exceptionally. Assemblyman Kim stated, "It is necessary to practically increase the limit of export financial support so that large corporations do not suffer due to regulatory limits when exporting."

There is also a plan to increase the chronic export financial support limit of KEXIM itself. Assemblyman Gidae Yang of the Democratic Party proposed an amendment to the KEXIM Act on the 16th of last month to expand KEXIM's statutory capital limit to 35 trillion won. Although this amendment was originally prepared to resolve the statutory capital issue, which has been stalled for 10 years and is unrelated to Hanwha Group's Poland defense export issue, it is considered a fundamental solution. Assemblyman Yang also stated during the national audit, "Support for defense exports should find a breakthrough through expanding KEXIM's statutory capital limit."

The government also shares this consensus. Deputy Prime Minister and Minister of Economy and Finance Kyung-ho Choo previously stated at the Planning and Finance Committee's national audit, "I earnestly request that a legal foundation be created first to allow the statutory capital to be raised through the amendment of the KEXIM Act."

However, Assemblyman Yang's amendment increases KEXIM's wallet size, but actual capital requires government budget support. Regarding this, Assemblyman Kim said, "It would be good if both bills (Kim Byungwook's and Yang Gidae's) are processed, but the key issue is whether the Ministry of Strategy and Finance has the capacity to allocate the budget," adding, "I will check this through inquiries during the Budget Committee, etc."

The Democratic Party has shown a critical stance toward large corporations so far. However, recently it has become more progressive. This group has held seminars consecutively with large corporations such as Samsung, Hyundai Motor, and LG to seek legislative and policy support measures at the National Assembly level for strengthening global competitiveness. On the 7th, they invited SK and listened to voices asking to "eliminate anti-business sentiment." A Democratic Party official said, "Although the bill was proposed late, if the bill processing is delayed, it is expected to be discussed during the budget bill processing."