Amidst the intensifying US-China hegemony competition, the US recently passed the Semiconductor and Science Act, a comprehensive science and technology strategy. With the US urging Korea to join the semiconductor alliance, led by Taiwan and Japan, the government stands at a crossroads, making a crucial decision for the future of the Korean semiconductor industry. With exports to the U.S. approaching 70% in the semiconductor sector, some worry that siding with the U.S. could have a negative impact on the domestic industry, while others believe that the U.S. will likely provide a stable supply of core technologies and advanced equipment, as well as windfall benefits.

■ Chip 4 Alliance: Benefits Focused on US Companies It has been argued that the US-led Chip 4 alliance is likely to have a negative impact on domestic semiconductor companies, regardless of Korea's participation.

NH Investment & Securities, in an industry commentary released on the 9th, predicted that "benefits from Chip4 will likely be concentrated among US companies such as Micron and Intel." The Chip4 Alliance is a consultative body formed to strengthen US manufacturing capabilities and stabilize the supply chain, and is expected to lead to increased production and technological capabilities for domestic competitors Intel and Micron.

Furthermore, China, which has reacted sharply to the Chip4 alliance, may impose sanctions on South Korea, which could negatively impact exports to China. South Korea relies on China for 74.8% of its memory exports.
Meanwhile, NH Investment & Securities predicted that the US government intends to reduce its reliance on Taiwan's TSMC in the foundry business, which would also benefit Samsung Electronics. Furthermore, it predicted that increased investment by Korean companies in the US would also benefit domestic semiconductor equipment manufacturers.

Do Hyun-woo, an analyst at NH Investment & Securities, said, “If Korea participates in Chip 4, the positive aspect is that Korean companies will benefit from the US’ reduced dependence on Taiwan and Japan,” adding, “It is also positive that it will be possible to secure a stable supply of essential technologies for semiconductor manufacturing, such as semiconductor equipment, materials, and EDA tools.”

Meanwhile, our government has conveyed to the United States its intention to participate in the preliminary meeting of the Chip 4 Alliance. As the issue is expected to be raised at the Korea-China foreign ministers' meeting to be held on the 9th, attention is being paid to what solution the government authorities will seek in response to China's sharp reaction.

■ US Passes Semiconductor and Science Act; Domestic Response Strategy Required
The Semiconductor and Science Act, which was finally passed on the 29th after a year-long adjustment process, will provide federal financial support totaling $280 billion (approximately 365 trillion won in Korean currency) to artificial intelligence and related cutting-edge industries, including semiconductors.

The bill is divided into three divisions, with Division A containing the CHIPS Act of 2022. Key provisions include: $39 billion in direct subsidies for the construction of semiconductor manufacturing facilities; $11 billion in advanced semiconductor research and development, including the National Semiconductor Technology Center and the Advanced Back-end Processing Program; and a 25% tax credit for facility and equipment investment.

This includes the Semiconductor Promotion Act, which provides a $52.7 billion (approximately 69 trillion won) budget for semiconductor support and a 25% tax credit for semiconductor facility and equipment investment worth $24 billion (approximately 31 trillion won) over 10 years. The U.S. Department of Commerce predicted that the combined direct subsidies from the Semiconductor Support Act would be able to overcome a unit price competitiveness gap of approximately 40% compared to advanced process companies located in Asia.

In his article, “Policy Implications of U.S. Semiconductors and Science Law,” Kyunghee Kwon, an associate research fellow at the Korea Institute for Industrial Economics and Trade, explained, “It is evaluated as a national comprehensive science and technology strategy legislation that brings together opinions from all walks of life, including government, industry, academia, and research, with the ultimate goal of resolving the pending issues and mid- to long-term challenges facing the U.S. and securing an edge in technological competitiveness over strategic competitors such as China.”

Research Fellow Kyung Boo asserted the need for establishing a national strategy, suggesting the following: △ Advancing domestic science and technology and advanced industry strategies; △ Establishing an external industrial technology strategy to respond to the new Cold War era; and △ Expanding the quantity and improving the quality of semiconductor industry support policies; △ Preempting strategic demand for post-Taiwanization in the U.S. and Europe; and △ Developing a system semiconductor growth strategy that takes future demand markets into account.

Domestic legislative progress accelerates with the introduction of the K-Chips Act.
The industry welcomed the proposal on the 4th by Representative Yang Hyang-ja, Chairwoman of the Special Committee on Strengthening the Competitiveness of the Semiconductor Industry, of two bills aimed at strengthening the competitiveness of the semiconductor industry.

Representative Yang proposed a partial amendment to the Special Act on Strengthening and Protecting the Competitiveness of National Advanced Strategic Industries.uo; and proposed a package of two bills, including the ‘Partial Amendment to the Tax Special Measures Restriction Act’.

The bill includes the following: △Expanding support for strategic industry specialized complexes, △Expanding human resource supply, △Expanding tax support, and △Shortening the permit processing period by 15 days.

The Korea Semiconductor Industry Association welcomed this move. On the 5th, the association released a statement for the semiconductor industry, stating, "At a time when the international semiconductor hegemony war is intensifying and global competition for stabilizing the semiconductor supply chain is intensifying, this bill will be a significant force in overcoming the current crisis."

Representative Yang Hyang-ja, who introduced the bill, said, “If a legislative and administrative system is created that can transcend political parties and ministries and focus on the semiconductor industry, the world’s best K-Chips Act will be possible,” and asked for everyone’s support to quickly pass the bill and establish a special standing committee of the National Assembly to foster future cutting-edge industries.