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Seoul Declares Job "Crisis" in Shipbuilding Regions

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By MarEx 2018-05-29 16:48:00

The government of South Korea is designating five shipbuilding regions as "industry crisis special areas," the latest in a series of interventions in the nation's hard-hit shipyard sector. These zones include parts of Geoje, Jinhae, Mokpo, Tongyeong and Ulsan.

In a statement released Tuesday, Finance Minister Kim Dong-yeon said that the government will provide tax exemptions for up to five years for companies that start new operations in the designated regions. For the tens of thousands of workers displaced by the downturn, the government will provide job training and workforce development services. 

"Support will be made on product enhancement efforts for shipbuilding and auto industries in the designated regions," Kim said. "The government will also help such regions expand their tourism and leisure infrastructure."

Seoul recently approved an extra $2.5 billion package to fund workforce initiatives, including support for workers in Gunsan, where Hyundai Heavy Industries closed a shipyard last year. The measures include wage and tax subsidies for new hires at small companies, including a five-year personal income tax exemption for new hires under the age of 35. South Korean President Moon Jae-in is focusing his administration's efforts on assisting displaced workers and on reducing the youth unemployment rate, which currently stands at nearly 12 percent.

South Korea is also providing shipyards and shipowners with direct support in the form of state-backed financing for newbuilds. Despite overcapacity, Seoul intends to underwrite 200 new ships, including 60 container vessels. While popular at home, Korea's support for its domestic shipbuilding industry has caused consternation for Japanese shipyards, which say that the intervention is anticompetitive and may be a violation of WTO rules on free trade.

AP Moller-Maersk CEO Søren Skou has also warned about the risk of state subsidies and overbuilding. "I don't think any government needs to throw money at container shipping, building ships that are not needed . . . for companies who [are] not profitable and who do not have a profitable business model," he said at a conference in April.