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Gov't urged to offer more tax incentives, ease rules
By Park Jae-hyuk
Most Korean companies that have invested in overseas plants are reluctant to return "home" due to the unfriendly business environment here that forces them to shoulder higher costs, data showed Tuesday.
The trend is in stark contrast to other countries that have successfully attracted home-grown firms' relocation with various benefits and incentives.
According to an Export-Import Bank of Korea (Eximbank) survey of 216 Korean firms that borrowed money from the state-run bank to invest in their businesses abroad, 78.7 percent of respondents answered they had no plans to make investments in Korea.
The survey, which was conducted from August to September, also showed 76.9 percent of Korean firms outside of the country prefer the environment overseas for investing in new manufacturing facilities.
They cited market diversification as the biggest reason for their overseas investments.
Flexible labor markets with lower costs and simplified regulations were other reasons mentioned.
In response to a question about government measures to attract investment at home, 48.7 percent of respondents said tax benefits were needed.
This implied that Korea's relatively higher corporate, inheritance and gift taxes are the biggest barriers to their return.
Financial support, deregulation, a flexible labor market and adjustments to the minimum wage were also among measures they wanted from the government.
"The survey revealed that the rapid minimum wage hike, implementation of the 52-hour workweek and various regulations stop Korean companies abroad from returning home," Rep. Park Myung-jae of the main opposition Liberty Korea Party, who asked Eximbank to conduct the survey, said.
"It is urgent for the government to get Korean firms with plants abroad to invest at home by implementing a major shift to business friendly policies, such as deregulatory reform and unprecedented corporate tax reductions as the United States did."
The government has raised the corporate tax rate over the past few years, unlike other members of the Organization for Economic Cooperation and Development (OECD) that have continued to cut their rates.
According to a Ministry of Economy and Finance report given to lawmakers ahead of its National Assembly audit, the corporate tax rate was raised to 27.5 percent in 2019 from 24.2 percent in 2017, far above the average corporate tax rate of OECD members at 23.5 percent.
The ministry data showed the U.S. lowered its corporate tax rate to 25.9 percent in 2018 from 38.9 percent a year earlier.
Japan dropped its corporate tax rate to 29.7 percent in 2018 from 30 percent in 2016 and 39.5 percent in 2012.
The United Kingdom's corporate tax rate this year is 19 percent, as the country has carried out gradual cuts since 2010 when the rate was 28 percent.
Finance Minister Hong Nam-ki told the Assembly audit, Oct. 4, that the higher corporate tax rate was irrelevant to private enterprises' reluctance to make investments here.
He also reaffirmed the government has no plan to adjust the current rate.
Instead of a corporate tax cut, the government has offered several tax benefits and subsidies to returning firms since December 2013.
As of February 2018, however, the so-called "Supporting U-turn Law" made only 44 firms decide to return home.
Furthermore, most of them were companies engaged in the electronics, jewelry and shoemaking industries, which do not create higher added value.
"Several research papers have proven that domestic firms considered the government measures unattractive," the Korea Institute for International Economic Policy said in a report.
"They mentioned high labor costs, difficulty in hiring skilled workers and trouble in closing production facilities abroad as major hurdles to transferring their business operations back to Korea."
Eximbank has also lent money to returning firms at lower interest rates since December 2013, in line with the "U-turn Law."
According to Rep. Park, however, no firms took advantage of this in 2019 so far.
Meanwhile, the U.S., Japan, Taiwan and countries in Europe have successfully attracted their companies to return home.
According to the Reshoring Initiative, a nonprofit U.S. organization dedicated to assisting companies to bring manufacturing jobs back to the U.S., the number of companies that returned between 2014 and 2018 was an average 482 annually.
The organization's data showed the number of returned firms skyrocketed to 886 in 2018 from 95 in 2010.
In a recent written interview with the Federation of Korean Industries, Reshoring Initiative President Harry Moser said, "Wage hikes and intellectual property issues in China and consumer preferences for made-in-the-U.S.A. played major roles. Plus, a substantial impact was created by corporate tax cuts offered by the U.S. government."
He suggested Korea document all returning cases so that a trend becomes apparent and credible; publicize problems in offshoring; ensure there are sufficient skilled manufacturing workers; and educate companies about using total costs instead of prices when deciding on sourcing and plant siting.
Japan, Taiwan and Germany also got their manufacturers to produce at home by reducing corporate taxes.
As for France, it gave various benefits to made-in-France products to induce manufacturers return.
"Korea too should come up with customized support for the high-tech and fashion industries to make their products inside the country," Park Se-hwa, a Korea Trade-Investment Promotion Agency official in Paris, said in a recent report.
"Given that made-in-Korea products have been in the spotlight across the world, the government should foster domestically produced goods by issuing certifications or hosting exhibitions for domestic products."
