By Heekyong Yang and Hyunjoo Jin
SEJONG, South Korea, May 19 (Reuters) – Talks between Samsung Electronics and its South Korean union are set to continue until late on Tuesday, a mediator said, as the government and business groups pile on pressure to avert a damaging lengthy strike.
The two sides are seeking to hash out a deal on bonus payments before nearly 48,000 workers walk off the job for 18 days on Thursday.
A strike of that magnitude and length has the potential to inflict significant damage on South Korea’s economy as Samsung accounts for almost a quarter of the country’s exports. Samsung is also the world’s largest memory chip maker and production disruptions could dent global supply at a time when the boom in artificial intelligence has caused shortages.
Park Su-keun, chair of the National Labor Relations Commission, which is mediating the talks, said that while both sides had made concessions, they remained stuck on two key issues but declined to elaborate.
“Samsung Electronics management and the union are going to be in mediation by the commission until 10 p.m.,” Park told reporters. Tuesday’s talks were earlier scheduled to conclude at 7 p.m. (1000 GMT).
Samsung declined to comment. A union representative said the union was making every effort to come up with a plan to satisfy its members.
UNION UNDER MUCH PRESSURE NOT TO STRIKE
While the threat of the strike has put South Korea on edge, investors have been heartened after the government threatened over the weekend to step in and order emergency arbitration. That would prevent the strike from going ahead for 30 days while the government mediates talks.
Shares in Samsung ended 2% lower on Tuesday, paring losses after the news of narrowing differences. The stock is down 1.3% for the past week.
“The reality is that all of our citizens are worried about this, considering the ripple effects that a Samsung strike could bring,” industry minister Kim Jung-kwan told parliament on Tuesday.
South Korean business groups have also urged the union not to proceed with the strike.
THE POTENTIAL FALLOUT
The strike could in a worst-case scenario shave 0.5 percentage points off a forecast 2.0% expansion for the South Korean economy this year, according to an official from the country’s central bank, who declined to be named.
This assumes that around 30 trillion won ($19.9 billion) of chip production could be lost as well as a likely additional “few weeks” of disruption before production lines are operating normally again.
KB analyst Jeff Kim has estimated that an 18-day strike could disrupt global supplies of DRAM memory by 3% to 4% and NAND memory by 2% to 3%, which would likely fuel further price increases.
For many investors, rather than the potential strike itself, the biggest issue is whether Samsung caves to the union’s demand to have bigger bonuses written into contracts, resulting in permanent increases in labour costs.
“The point is how they negotiate the formalising of pay increases,” said Lee Seung-yub, a portfolio manager at Seoul-based hedge fund Quad Investment Management.
The union has demanded Samsung abolish a cap on bonuses that stands at 50% of annual salaries, allocate 15% of annual operating profit to bonuses and formalise this in contracts.
Samsung has proposed that memory chip workers receive one-off bonuses this year that would top those of SK Hynix employees, while the bonus cap would stay in place.
SAMSUNG’S WIDENING PAY GAP WITH HYNIX
The dispute is the biggest clash between Samsung and its labour union since Samsung Electronics Chairman Jay Y. Lee pledged in 2020 to put the firm’s past union-busting activities behind it.
Samsung remains one of the most sought-after workplaces in Korea, but employees are furious about the pay gap with smaller rival SK Hynix, which took the lead in supplying high-bandwidth memory for AI chip units to Nvidia.
SK Hynix overhauled its pay structure last year. Samsung’s union says SK Hynix workers last year received bonuses more than three times higher than those of Samsung workers, resulting in an exodus of Samsung employees to SK Hynix and a surge in union membership.
A court on Monday partially granted Samsung’s request for an injunction, ruling that essential staffing levels at some production facilities must be maintained during any industrial action. Samsung has notified the union that this will require 7,087 workers to report for work even if the strike goes ahead.
($1 = 1,505.9000 won)
(Reporting by Hyunjoo Jin and Heekyong Yang; Additional reporting by Joyce Lee, Cynthia Kim, Jack Kim and Heejin Kim; Editing by Muralikumar Anantharaman, Brenda Goh and Edwina Gibbs)
