[Column] Petrochemical Companies Uninterested in the 'Gihwal Act'

Support Measures for Petrochemical Industry Take Shape
Companies Unite in Saying "Demand Is Low"
Bold Policy Changes Needed

"I don't think it holds much significance."

Choi Sang-mok, Deputy Prime Minister for Economy and Minister of Strategy and Finance, recently stated at the Ministerial Meeting on Strengthening Industrial Competitiveness, "For industries facing difficulties due to global oversupply such as petrochemicals, we will apply relaxed criteria under the Corporate Vitality Act (CVA) to proactively induce business restructuring." However, the response from petrochemical companies was cold. When asked by several stakeholders, similar answers of "there is no demand" were returned. Although the government has been deliberating on this plan for months, companies themselves expressed skepticism about its effectiveness.

The CVA, which is central to this measure, is a system where the government provides fast-track procedures, tax benefits, and financial support when companies voluntarily reduce facilities or pursue mergers and acquisitions (M&A). The government proactively relaxed the CVA criteria last September, but no petrochemical companies have applied for CVA benefits in the past three months. Companies point out that the government did not consider the characteristics of the petrochemical industry.

Petrochemicals are a complexly interconnected process industry. It is practically impossible to separate and sell only a specific production line. Selling an entire business unit or factory is the realistic option, but here lies another barrier: the Monopoly Regulation and Fair Trade Act (antitrust regulation). Even if a company wants to sell the entire business, if the market share violates antitrust standards, M&A discussions themselves become impossible.

The industry has continuously requested a temporary suspension of antitrust regulations. However, the government chose to activate the CVA, revealing the gap between the two sides. Concerns about potential backlash if M&A does not occur despite eased antitrust regulations are interpreted as the reason for this cautious choice. Among major domestic petrochemical companies, there are not many that can lead large-scale M&A, and if sold to foreign companies, the meaning of regulatory relaxation could be diminished.

The industry unanimously agrees that suspending antitrust regulations is a measure that can bring about substantial change beyond mere policy achievements. It opens the door to business restructuring that has not even been discussed so far and provides new options. If the government continues to demand voluntary restructuring from companies without properly creating an environment to support it, the government's measures will inevitably lose their effectiveness.

The government formed a task force (TF) last April to engage with the petrochemical industry and put effort into preparing measures. If the upcoming announced measures lack the substantial support companies have requested, all the time and effort will be wasted. It will be a fatal mistake that dampens the enthusiasm of companies appealing for the necessity of restructuring. The government must listen to the voices of companies and open a path to resolve the crisis they face through bold policy changes.