Gov't announces 5 trillion won supply chain stabilization fund

A commission on supply chain stabilization headed by Finance Minister Choi Sang-mok will oversee the scheme.

Finance Minister Choi Sang-mok, left, shakes hands with participants of the inaugural meeting of the government commission on stabilizing supply chains at a Seoul government office on Thursday. [YONHAP]

The government will create a 5 trillion won ($3.6 billion) fund within this year intended to stabilize the country's supply chains and reduce disruptions from geopolitical tensions.

The fund will be used to offer low-interest loans and tax credits, which will be preferentially provided to companies that played a major role in stabilizing supply chains, such as finding an alternative country for imports to reduce reliance on one specific country, or fortifying their domestic manufacturing capacity.

The announcement was made during the inaugural meeting of a government commission on supply chain stabilization on Thursday.

"The commission is expected to serve as the helmsman of an aircraft carrier that makes its way through big waves of global supply chain risk," said Finance Minister Choi Sang-mok, who heads the panel.

In order to stabilize the supply of key products, the commission said it will add 100 more items to the list of 200 that require special monitoring due to a high dependence on importing from a specific country stemming from difficulties in domestic procurement.

The list of products will be re-examined every year.

For select core products in semiconductors and secondary batteries, the commission will strive to diversify importing countries and increase Korea's self-procurement capacity, the commission said.

In preparation for an emergency, the panel said it will expand the stockpiling of certain products to prevent a shortage.

The government will also fortify the domestic ecosystem of supply chains to reduce import dependency.

It will expand tax credits for domestic companies that procure resources such as minerals or agricultural products from foreign countries, as well as imports of them.

Domestic production of urea or graphite, which are vulnerable to the import climate, will be examined as well.

The government is also mulling offering tax incentives to companies that conduct research on technology aimed at reducing dependence on imported supplies.

Such fortification of Korea's supply chain management comes as the government tries to avert any supply disruption caused by increasing geopolitical tensions that mainly involve the United States and China as well as the Russia-Ukraine war.

The trade-reliant country underwent repeated urea shortages over the last few years, with the most severe case coming in 2021 as China regulated exports to Korea of the compound essential in diesel vehicles.

Korea depends on the neighboring country for more than 90 percent of urea and graphite imports.

Last year, Beijing imposed sanctions on the export of key minerals such as graphite and gallium as the United States continued to tighten controls on China's access to advanced chip-making technology.

BY JIN EUN-SOO [jin.eunsoo@joongang.co.kr]