THE KOREA ECONOMIC DAILY, GLOBAL EDITION

South Korea on Monday expressed concerns about the guidelines of the US Chips and Science Act, saying that some of the conditions the US government has attached to its chip subsidies and incentives are tough pills for chipmakers to swallow.

Korea’s Ministry of Trade, Industry and Energy said most conditions included in the Biden administration’s subsidy plans are “wide-ranging” and “unusual” for investments in the US by foreign companies.

“The (Korean) government and the (semiconductor) industry are concerned about the conditions attached to the act. Given the high investment costs, investing in the United States is becoming less appealing,” Minister Lee Chang-yang told reporters at the government complex in Sejong City.

Home to the world’s two largest memory chipmakers – Samsung Electronics Co. and SK Hynix Inc. – Korea is feeling the heat, caught between its ally, the US, and its largest trading partner China, in an escalating fight over semiconductor supremacy.

In its bid to keep China’s growing clout in the semiconductor industry in check and strengthen US companies’ competitiveness, the US Commerce Department last week unveiled guidelines of the $53 billion CHIPS Act.

Under the guidelines, recipients cannot make new, high-tech investments in China or other “countries of concern” for at least a decade if they are to receive US subsidies.

Companies receiving more than $150 million in grants are required to share with the US government a portion of their profits that exceed the applicant’s projections by an agreed-upon threshold, up to 75% of their direct funding award.

Applicants seeking more than $150 million in direct funding also must submit a childcare plan for workers at their US factories.

In the screening process, the US government will demand access to the applicants’ account books, a list of their staple products and the names of key clients as well as their chipmaking technology – all of which are often business secrets.

“Such conditions have increased uncertainty for Korean chipmakers and are feared to infringe upon Korean companies’ business rights,” Minister Lee said.

EXCESSIVE CURBS ON CHINA OPERATIONS ‘UNACCEPTABLE’

He said the Korean government will engage in negotiations with the US government to ease the burden for Samsung, SK Hynix and semiconductor-related Korean firms.

“Korean companies may decide to invest or not to invest in the US. They can strategically move up or delay their investments depending on conditions for chip subsidies and incentives,” he said.

The minister said there is a fair chance that the size of excess profits to be shared with the US government will be adjusted to a reasonable level during the process of concluding agreements between the Commerce Department and individual companies.

Regarding the guardrail provisions of the CHIPS Act expected to be announced by the end of March, Lee said excessive conditions that would hurt Korean chipmakers’ normal business operations in China are “hardly acceptable.”

“Korean companies account for a significant portion of the global semiconductor market. Supply chain disruptions would burden not just the US but also the entire chip market across the globe. We are talking to the US government over the matter,” he said.

In its efforts to wean Korean chipmakers off Chinese dependence, a senior US government official said last month it may put a cap on technology levels that Samsung and SK Hynix could grow to in China.

In China, Samsung operates a NAND flash memory chip plant in Xian and a chip packaging facility in Suzhou. SK Hynix runs a DRAM chip plant in Wuxi, a NAND plant in Dalian and a packaging factory in Chongqing.

Samsung’s Xian plant accounts for nearly 40% of the company’s entire NAND production globally while SK Hynix’s Wuxi plant produces about 48% of its global DRAM output.

PASSAGE OF KOREAN CHIPS ACT STALLED AT PARLIAMENT

Apart from negotiations with the US, Minster Lee said the Korean government will strengthen the domestic semiconductor ecosystem while expanding support for its chipmakers.

He also said he will “firmly” urge ruling and opposition lawmakers to pass the so-called Korean Chips Act as early as possible.

In January, the Finance Ministry submitted to the National Assembly a revised bill to raise tax breaks for facility investments by big companies, including chipmakers, to as much as 25%.

However, the passage of the bill is deadlocked over political wrangling in Parliament, which is controlled by the main opposition Democratic Party of Korea.

Write to So-Hyeon Kim at alpha@hankyung.com

In-Soo Nam edited this article.