UPDATE 6-Samsung, labor union to resume talks on Wednesday as they edge to avert strike

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.

Samsung Electronics and its ​South Korean labor union will resume talks on Wednesday, the National Labor Relations Commission ‌said, ​as they edge toward an agreement to avert a damaging and lengthy strike. "The management and union have not reached common ground on one issue," Park Su-keun, chair of the commission, told reporters when asked why more than 15 hours of talks on Tuesday had failed to produce an agreement.

He added that it was "the most important issue," without elaborating. Amid pressure from the South Korean government and ‌industry, 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.

Samsung and the union plan to resume talks at ‌10 a.m. local time (0100 GMT) on Wednesday and it is likely that they will end by the morning as the union needs to allow its members to vote on any tentative agreement with Samsung, Park added. Tuesday's talks were initially scheduled to ‌conclude at 7 p.m. The commission said they eventually ended at 12:30 a.m. on Wednesday after nearly 15 hours.

Samsung did not immediately respond to a request for comment. The union leader Choi Seung-ho said he plans to stay overnight at the venue to participate in Wednesday's talks. UNION UNDER MUCH PRESSURE NOT TO STRIKE

While the threat of the strike has put South Korea on edge, investors were encouraged after the government threatened at 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)