Why are nearly 50,000 Samsung workers about to strike in South Korea?

Why is the protest a cause for concern?

With talks collapsing, about 48,000 employees of Samsung Electronics are planning to strike for 18 days from Thursday. This amounts to 38 percent of the company’s workforce, with the majority in the company’s chip division.

Samsung is the world’s largest producer of memory chips, which are used in electronic devices like laptops and computers, as well as in data centres.

The strike threatens to disrupt the production of these chips and the government fears this could affect South Korea’s economy. The tech giant’s revenues are equal to about 12.5 percent of the country’s GDP.

Bank of Korea, the country’s central bank, estimated this week that a general strike at Samsung Electronics could cut 0.5 percentage points off Korea’s economic growth this year. In a report, the bank estimated that losses from the strike would be about 30 trillion won ($20bn) and said it would take weeks to restore production in the company’s memory chip line, if it came to a complete halt.

On Sunday, Prime Minister Kim Min-seok also warned that if the strike went ahead, “the economic damage we would face would be unimaginable”.

On Monday, South Korea’s Yonhap news agency reported that a court had partially granted Samsung’s request for an injunction to block the strike. According to the report, the Suwon District Court said staffing levels for some essential production units should be maintained and also barred the union from taking over company facilities.

Gary Tan, a portfolio manager at Allspring Global Investments, told Reuters that the impact on supply chains should remain limited unless the strike is prolonged, however.

“The bigger effect is on market sentiment and longer-term memory industry pricing structure, reinforcing cost pressures,” said Tan, whose fund holds Samsung shares.

What is the government doing?

In South Korea, the government has the power to invoke an emergency arbitration order, which could stop the strike from taking place for about 30 days. However, that would require labour unions and companies to restart now-collapsed talks being mediated by the government’s National Labor Relations Commission.

The government can resort to such an order if it considers a strike would result in “significant injury to the national economy”.

If the commission considers that mediation has failed, the next step is an arbitration process under a separate panel that hears from both parties before making a binding decision.

Anyone refusing to comply with the ruling of the panel faces up to two years in prison or a 20 million won ($13,300) fine.

The last time the measure was invoked was in 2005, when Korean Air pilots walked off the job but agreed to a compromise pay rise after four days.

Yonhap reported on Wednesday that a spokesperson for the country’s labour ministry has said it is too early to invoke such an order.

“There is still time left for dialogue between labour and management,” Hong Kyung-ui, a ministry spokesperson, told journalists at the government complex in the central administrative city of Sejong when asked about the possibility of the order.

“It is still too early to specifically speak of that,” he added.