The government is pushing to establish a Strategic Export Finance Fund to support large-scale exports in strategic industries such as defense and nuclear power this year. The aim is to create a fund that can provide guarantees and loans requested by foreign governments purchasing Korean-made weapons.
The government initially set a goal of completing legislation in May and launching the fund in Aug., but it has yet to pass the National Assembly. The opposition is opposing a clause that says "beneficiary corporations should shoulder part of the fund's resources," calling it "effectively a quasi-tax."
◇ Unified on the need for the fund… ruling and opposition parties differ on the "contribution" clause
On the 24th, according to the government and the National Assembly, three bills to support strategic export finance have been introduced. The bill by Han Jeong-ae of the Democratic Party of Korea is effectively the government's bill, and lawmaker An Do-geol proposed a similar one. In the latter half of the Assembly, Park Su-young of the People Power Party joined, making it a three-way contest. All three bills set up two accounts. One would support loans and guarantees to foreign procurers to help large-scale export contracts by domestic conglomerates, and the other would support small and midsize partner corporations below them through equity and investment.
The need for the fund arose when Korea's defense industry signed a large-scale weapons export contract with Poland in 2022. Poland demanded "buyer's credit" as a condition of the contract. It wanted Korea's policy finance institutions to provide loans and guarantees for the export payments that the procuring country would make. The problem was that the scale was difficult to accommodate within existing institutional limits, constraining additional export support.
There is no disagreement between the ruling and opposition parties that a separate financial instrument is needed. But they are split on recouping part of the support benefits as a "contribution."
The bills by Han Jeong-ae and An Do-geol require supported corporations to pay up to 1% of the executed amount as a shared-growth contribution. For example, if Korean corporation A exports weapons overseas and the Korean government provides a guaranteed loan to the foreign country importing those weapons, corporation A must pay up to 1% of the guaranteed loan as a contribution. Small and midsize corporations receiving equity or investment from the partner corporations account are not subject to payment.
If support is provided for "export industry cooperation" such as defense offsets, the cap rises to 5%. Offsets are when, in weapons exports, the procuring country demands investment, technology transfer, or purchases of domestic goods separate from the contract—recently exemplified by the competition to supply submarines to Canada.
Park Su-young's bill removes the shared-growth contribution clause altogether. The logic is that collecting separate money from beneficiary corporations in return for the government taking on risk is effectively a quasi-tax.
◇ Finance Ministry: "We should collect contributions commensurate with the special benefit"… MOTI: "The burden on corporations is heavy"
The Finance Ministry explains that in both buyer's credit and offsets, the government has effectively been assuming the risks and expense that corporations would otherwise bear. Normally, corporations obtain loans and guarantees directly and pay interest and guarantee fees, but for buyer's credit the foreign procurer is the counterparty, so the procuring country's government bears the cost. For offsets as well, the government resolves the investment and technology transfer obligations demanded by the procuring country on behalf of corporations.
A Finance Ministry official said, "It amounts to granting significant special benefits to specific corporations, so the idea is to recoup part of that as a contribution." According to the Finance Committee's review report, the planned rates are actually 0.5% for buyer's credit and 3–5% for offsets.
However, the Ministry of Trade, Industry and Resources has expressed concern that the contribution would burden corporations. Considering that the expected profit margin on large EPC (engineering, procurement and construction) projects is typically around 3%, it would be excessive, it said. It also noted that in nuclear power exports, the mere fact of paying the contribution could escalate into a trade issue. If public institutions such as KHNP pay the contribution, it would reveal them as "government-supported corporations," allowing competitors to raise the issue of foreign subsidies. KHNP and others submitted an opinion to the National Assembly that they should be exempt from payment.
In response, a Finance Ministry official said, "MOTI did offer such an opinion, but the government has now finalized its position in line with the government bill." The bills are expected to be taken up in earnest in the latter half of the current Assembly.