[Exclusive] Government and Ruling Party Agree on Semiconductor Special Act... Opens Path for 'Direct Subsidies'

Provisional Agreement on Special Act
To Include Comprehensive Provisions for Financial Support

The government and the ruling party have tentatively agreed to prepare a Semiconductor Special Act that includes grounds for supporting the semiconductor industry. After coordination, the ruling party and the government decided not to explicitly specify direct subsidy support, but to include a comprehensive provision allowing the government to provide financial support to assist the semiconductor industry. This creates room for the government to provide support of a direct subsidy nature through various forms of budget input.

According to the People Power Party and the Ministry of Economy and Finance on the 23rd, discussions on the Semiconductor Special Act, which aims to establish grounds for national financial investment in the semiconductor industry, have been settled. A senior ruling party official said, “In meetings coordinating the bill between government ministries and the ruling party, it was agreed not to explicitly specify direct subsidy support but to include a provision allowing financial support.” A senior government official also stated, “It was agreed to include a comprehensive financial support clause rather than direct subsidy support.”

The ruling party and government decided to include financial support in the special act as a discretionary provision stating ‘may provide support’ rather than an obligatory one. This allows the government to adjust the actual direction and scale of subsidy support according to circumstances. Another senior government official explained, “Currently, discussions are ongoing regarding the scale and direction of subsidy payments.” This means they are evaluating the effectiveness of direct subsidy payments to secure competitiveness in the semiconductor industry. It is seen as a step forward from the previous stance, as the government can now provide support whenever it deems direct subsidies necessary.

Agreement on National Financial Support for Industry in Special Act... Implementation of Direct Subsidy Support Under Discussion

There were significant differences between the ruling party and the government during discussions on the Semiconductor Special Act. The ruling party insisted that, since major countries such as the United States, China, and Japan are providing astronomical subsidies, a provision explicitly authorizing direct subsidy payments must be established. They argued that the government should provide direct financial support in cash to semiconductor companies during the construction of factories and other facilities. They claimed that explicit provisions in the special act are essential to authorize subsidy payments.

The Ministry of Economy and Finance viewed that, since the government is already providing tax benefits to semiconductor companies and large-scale support for infrastructure, the necessity for subsidies is not significant. The ministry also maintained that financial support is possible under the 'Special Measures Act on Strengthening and Protecting National Advanced Strategic Industry Competitiveness.' A ministry official said, “We believe that support such as subsidies is sufficiently possible under the current law that supports companies possessing national advanced strategic technologies, such as semiconductor companies.”

As the ruling party and government each took a step back, discussions began to progress. The ruling party did not insist on including a direct subsidy support provision, and the government left open the possibility of subsidy support through the special act, leading to a tentative agreement on the Semiconductor Special Act. However, discussions are still ongoing regarding whether to provide actual direct subsidies immediately.

Overseas, subsidy support for semiconductor companies is being competitively provided. The United States enacted the CHIPS Act in 2022 to encourage semiconductor companies to invest in domestic facilities. It provides a total of $52.7 billion (approximately 71.4 trillion KRW) over five years, including $39 billion in semiconductor production subsidies and $13.2 billion in research and development (R&D) support.

Last month, the U.S. Department of Commerce made the first subsidy payment case by deciding to provide $12.3 million (about 1.636 billion KRW) in subsidies to Polar Semiconductor under the CHIPS Act. On the 15th, it also finalized a plan to provide $750 million (about 1 trillion KRW) in subsidies to U.S. semiconductor company Wolfspeed. Japan provided subsidies exceeding 10 trillion KRW to Taiwan’s TSMC, the world’s largest foundry semiconductor manufacturer, as TSMC decided to build two factories in Kumamoto Prefecture, Japan. China also established a national fund worth about 6 trillion KRW in May to foster semiconductor companies with the goal of technological self-reliance.

The Korean government announced a comprehensive semiconductor ecosystem support plan worth 8.8 trillion KRW on the 16th. The main contents included financial support such as low-interest loans and funds, R&D support, and public contributions for infrastructure construction such as roads, water supply, and electricity. Although direct subsidy support was not included, the plan involved the government bearing a large portion of infrastructure costs for semiconductor industrial complexes. Within the Ministry of Economy and Finance, there is a position that a clear review is necessary on whether direct cash support during investment processes, such as factory construction by large companies like Samsung Electronics and SK Hynix, is essential to secure industrial competitiveness.