Korea2005 INVESTMENT CLIMATE STATEMENT -- KOREA
In the aftermath of the 1997-98 Asian financial crisis,
Korea made rapid progress in reforming its financial
institutions and capital markets. The Korean government has
also taken steps to tighten competition policy and enacted
measures to enhance foreign investment incentives, and to
allow non-Koreans to own land and real property. In the
aftermath of those "crisis" times, the Korean government
sold its interest in a number of large, high-profile
companies to foreign investors, and many officials and
Koreans in general began to see more foreign investment as
something positive, even necessary, for Korea. These
changes have combined to help the Korean economy become more
attractive to outside investors and for it to begin to shed
its long-standing reputation as a difficult environment for
foreign capital. Foreign direct investment in Korea
accelerated in 2004 to roughly USD 13 billion, twice the
prior year's total. Of that figure, roughly half came in
the form of cross-border mergers and acquisitions.
Despite these improvements and attitude changes,
however, the environment for foreign direct investment (FDI)
in Korea is still hampered by significant flaws. Mergers
and acquisitions in particular are hindered by insufficient
transparency in corporate governance and mixed signals --
including from some senior government policy makers --
concerning just how much foreign investment is good for the
country. The still-dominant position of Korea's "chaebol"
conglomerates in the domestic economy also continues to
represent a significant problem for many foreign competitors
seeking to invest in the Republic of Korea. The Korean
government has initiated a program of corporate
restructuring which aims to make the business activities of
Korean companies, including the chaebol, more transparent
and more accountable to shareholders, but this is still a
work in progress. Reform measures, combined with market
realities, have encouraged some chaebols to sell off some of
their constituent companies and have weakened chaebol
dominance in the economy at large. For all practical
purposes, 12 of Korea's top 30 chaebols prior to 1998 have
ceased to exist as coherent entities.
Although Korea boasts a hard-working, educated and
highly productive workforce, foreign investors cite
volatility in labor-management relations and Korea's
inflexible labor laws as another set of key problems that
hamper direct investment. Korea loses proportionally more
workdays to strikes than any other OECD country. Although
the rate of unionization is not especially high, unions,
kept down during decades of authoritarian rule, are now more
forceful and often make high wage and benefit demands.
Korea's rigid labor laws make it difficult to dismiss
workers and therefore hard to hire new staff. A lack of
pension mobility in the private sector is also a problem, as
is a weak social safety net for unemployed workers. Korean
management, meanwhile, often takes a confrontational
approach.
Another key concern of foreign investors is intellectual
property rights protection. The situation is most serious
in the entertainment industry, and Korea's shortcomings in
protection of sound recordings and films earned it a
"Priority Watch List" designation from the United States
Trade Representative in January 2004. Problems also
continue involving trademark and patent violations of
manufactured goods.
Korea's President Roh Moo-hyun, who entered office in
2003, hopes to make Korea a financial and logistics "hub" to
promote long-lasting regional peace and strengthen Korea's
economic competitiveness, particularly within the Northeast
Asian region. The Korean government has created special
economic zones near the ports of Busan, Gwangyang and the
Incheon International Airport. The Korean government has
also enhanced regional cooperation with its neighbors in
hopes that multinational corporations might set up regional
headquarters in Korea.
The United States has the largest single-country share
of foreign direct investment (FDI) in Korea, totaling USD
32.3 billion or about 31.1 percent of Korea's total stock of
FDI since the 1960s. The EU (25 countries) has invested USD
30.7 billion (29.5 percent of the total) followed by Japan
with USD 15.5 billion (14.9 percent). Overall, FDI
increased 97.4 percent year on year in 2004, to USD 12.8
billion on a filing basis, the fastest pace of inward direct
investment seen since 1999, in the immediate aftermath of
the 1997-98 financial crisis. Citigroup's acquisition of
KorAm Bank for USD 2.7 billion was the largest single
investment in 2004. The financial, telecom and other
service sectors are expected to absorb the most FDI in Korea
in the near future, largely through mergers and acquisitions
(M&A), in line with global trends.
Foreign portfolio investment into Korean has recently
risen sharply, in part due to government liberalization
measures. Aggregate foreign investment ceilings at the
Korean Stock Exchange (KSE) were abolished in 1998, and
by the end of 2004 foreign shareholders owned 41.9 percent
of KSE stocks, and 20 percent of the tech-heavy KOSDAQ.
Openness To Foreign Investment
The Korean government's attitude toward foreign direct
investment is generally positive and most policy-makers
realize the value of FDI, especially since the 1997-98 Asian
Financial Crisis. Reforms, most evident in the financial
sector, and other positive changes have advanced the idea
that foreign investment is positive for the country. As a
result, Korea has become more attractive to outside
investors and has begun to shed its long-standing reputation
as a difficult environment for foreign capital. Despite
these improvements and attitude changes, however, FDI in
Korea is still hampered by underdeveloped corporate
governance, insufficient regulatory transparency, lingering
economic domination by the country's remaining conglomerates
"chaebol," an inflexible labor system, and a need for better
protection of intellectual property rights.
A sluggish domestic economy in 2003 and 2004 has also
dampened somewhat the Korean public's positive attitude
toward foreign investment. Public pronouncements on the
part of some policy makers reacting to an increase in the
market share of FDI in the financial sector and other parts
of the economy have also had a negative effect. Reacting to
the growing percentage of foreign participation in the
banking sector and in foreign portfolio investment in the
Korean stock exchange in 2004, some activists on the fringes
of the labor union movement formed an organization
(SpecWatch Korea) to "monitor" such investments. Political
figures are sensitive to this possible antagonistic change
in public opinion against "too much" foreign investment.
Korea's Foreign Investment Promotion Act (FIPA) went
into effect in late 1998. The FIPA (and related
regulations) categorizes business activities as either open,
conditionally or partly restricted, or closed to foreign
investment. The FIPA considerably reduced the number of
restricted sectors, although restrictions remain on 29
industrial sectors, two of which are entirely closed to
foreign investment. The Korean government reviews
restricted sectors from time to time for possible further
openings. According to the Ministry of Commerce, Industry,
and Energy (MOCIE), the number of industrial sectors open to
foreign investors is well above the OECD average.
FIPA highlights included:
-- Simplified procedures, including those for FDI
notification and registration;
-- Expanded tax incentives for high-technology FDI;
-- Reduced rental fees and lengthened lease durations for
government land (including local government land);
-- Increased central government support for local FDI
incentives;
-- Establishment of a one-stop Investment Promotion Center
(IPC) within the Korea Trade Promotion Corporation to assist
foreign investors in dealing with the bureaucracy (since
renamed "Invest Korea"); and
-- Establishment of an Ombudsman office within the IPC to
assist foreign investors.
Following is a list of Restricted Sectors for Foreign
Investment (as of March 14, 2004) (Figures in parentheses
denote the Korean Industrial Classification Code):
--Completely closed:
Radio broadcasting (87211)
Television broadcasting (87212)
--Restricted sectors (partly closed):
Growing of cereal crops and other food crops (01110)
Farming of beef cattle (01212)
Inshore fishing (05112)
Coastal fishing (05113)
Publishing of newspapers (22121)
Publishing of magazines and periodicals (22122)
Processing of nuclear fuel (23300)
Electric power generation (40110)
Transmission of electricity (40121)
Other transmission/distribution of electricity (40122)
Wholesale of meat (51312)
Coastal water passenger transport (61121)
Coastal water freight transport (61122)
Scheduled air transport (62100)
Non-scheduled air transport (62200)
Leased line services (64211)
Wired telephone and other telecommunications (64219)
Mobile telephone services (64221)
Cellular telephone services (64229)
Other telecommunications (64299)
Domestic commercial banking (65121)
Investment trust companies (65931)
Cable networks (87221)
Cable and other program distribution (87222)
Satellite broadcasting (87223)
News agency activities (88100)
Radioactive waste disposal (90230)
In categories open to investment, foreign exchange
banks must be notified in advance of applications for
foreign investment. (All Korean banks are permitted to deal
in foreign exchange, including branches of foreign banks.)
In effect, these notifications are pro-forma, and approval
can be processed within three hours. Applications may be
denied only on specific grounds, including national
security, public order and morals, international security
obligations, and health and environmental concerns, but it
is rare for these grounds to be invoked. Exceptions to the
advance notification approval system exist for project
categories subject to joint-venture requirements and certain
projects in the distribution sector.
Relevant ministries must still approve investments in
conditionally or partly restricted sectors. Most
applications are processed within five days; cases that
require consultation with more than one ministry can take up
to 25 days or longer. The Government's procurement law no
longer favors domestic suppliers over foreigners, but some
implementation problems remain. Korea changed its
procurement law effective in 1997, to comply with its
accession to the WTO Government Procurement Agreement.
Restrictions on foreign ownership of public
corporations remain, though ownership limit levels have been
raised. Currently, foreign ownership is limited for
government-controlled utilities. Foreign ownership in
Korean telecommunications companies is limited to 49
percent. The Korean government intends to privatize many of
the remaining state-owned corporations.
The Ministry of Finance and Economy (MOFE) administers
tax and other incentives to stimulate advanced technology
transfer and investment in high-technology services. There
are three types of special areas for foreign investment
including Foreign Economic Zones, Foreign Investment Zones
and Tariff Free Zones, where favorable tax incentives and
other support for investors are available (see related
section below.)
A Korean government initiative to encourage research
and development (R&D) in strategic industries -- the New
Growth-Driving Forces (NGF) program -- wound down in 2004.
In its place the Korean government has increased its R&D
budget to local areas from 27 percent to 32 percent to
support its 21st Century Frontier R&D Project, designed to
raise Korean technology to the level of the G-8 countries.
Focusing on information technology, biotechnology,
nanotechnology and new materials, the Korean government
launched development programs in 20 new strategic areas at
the end of 2003, at a total cost of USD 3.5 billion. Much
Korean government-funded R&D taps the expertise of foreign
partners.
In 2004, Intel, IBM and HP opened R&D centers in Seoul
and several other U.S. firms have expressed an interest in
the dynamic and fast-growing Korean information technology
sector. General Motors Corporation spent USD 400 million in
2002 to buy out Daewoo Motors and establish a new auto
manufacturing company -- GM Daewoo Auto and Technology
Company (GMDAT). In 2004, GM Daewoo announced a USD 1.5
billion R&D investment, focused primarily on a new design
center and 5 years of factory upgrades.
Conversion And Transfer Policies
The Korean government has substantially removed
restrictions on financial transfers into and out of Korea.
Prior to 1999, the Foreign Exchange Control Act and
associated regulations strictly regulated foreign exchange
transactions. The Korean government subsequently
liberalized transactions in medium-and long-term overseas
borrowings, purchase and sale of local real estate, and
trading in over-the-counter (OTC) stocks and bonds.
In 1999, the Foreign Exchange Transaction Act (FETA)
fully liberalized all current-account transactions by
business firms and banks, and pared down a formerly long
list of restricted transactions to five items, most of which
cover foreign exchange transactions by individuals. A
second-stage liberalization dismantled most of the remaining
restrictions in 2001. Only transactions that could harm
international peace and public order, such as money
laundering and gambling, remain controlled. Three specific
types of transactions were not liberalized:
1) Non-residents are not permitted to buy won-denominated
hedge funds, including forward currency contracts;
2) The Financial Supervisory Commission will not permit
foreign currency borrowing by "non-viable" domestic firms;
and
3) The Korean government will monitor and ensure that
Koreans firms that have extended credit to foreign borrowers
collect their debts. The Korean government has retained the
authority to re-impose restrictions in the case of severe
economic or financial emergency.
Capital account liberalization under the Foreign
Exchange Transaction Act has also been extensive. All
capital-account transactions are permitted unless
specifically prohibited. In addition, 72 of the 91
transactions specified by the OECD code of liberalization of
capital movements now are permitted. Non-residents may open
deposit accounts in domestic currency (won) with maturities
of more than one year and may engage in offshore
transactions and issue won-denominated securities abroad.
The right to remit profits is granted at the time of
original investment approval. Banks control the now pro-
forma approval process for FETA-defined open sectors. For
conditionally or partially restricted investments (as
defined by the FETA), approval for both the investment and
remittance rests with the relevant ministry.
When foreign investment royalties or other payments are
proposed as part of a technology licensing agreement, the
agreement and the projected stream of royalties must be
approved either by a bank or the Ministry of Finance and
Economy (MOFE.) Again, approval is virtually automatic. An
investor wishing to enact a remittance must present an
audited financial statement to a bank to substantiate the
payment. To withdraw capital, a stock valuation report
issued by a recognized securities company or the Korean
appraisal board also must be presented. Foreign companies
seeking to remit funds from investments in restricted
sectors must first seek ministerial and bank approval, after
demonstrating the legal source of the funds and proving that
relevant taxes have been paid.
Expropriation And Compensation
Korea follows generally accepted principles of
international law with respect to expropriation. The law
protects foreign-invested enterprise property from
expropriation or requisition. If private property is
expropriated, it can only be taken for a public purpose, and
only in a non-discriminatory manner. Property owners are
entitled to prompt compensation at fair market value. The
Embassy is not aware of any cases of uncompensated
expropriation of property owned by American citizens.
Dispute Settlement
Serious investment disputes involving foreigners are the
exception rather than the rule in Korea. The exceptions are
cases involving intellectual property rights protection.
There exists a body of Korean law governing commercial
activities and bankruptcies that constitutes the means to
enforce property and contractual rights, with monetary
judgments usually levied in the domestic currency. Foreign
court judgments are not enforceable in Korea.
Although commercial disputes can be adjudicated in a
civil court, foreign businesses often feel that this is not
a practical means to resolve disputes. Proceedings are
conducted in Korean, often without adequate translation.
Korean law prohibits foreign lawyers who have not passed the
Korean Bar from representing clients in Korean courts.
Civil procedures common in the United States, such as
pretrial discovery, do not exist in Korea. During
litigation of a dispute, foreigners may be barred from
leaving the country until a decision is reached. Legal
proceedings are expensive and time-consuming and lawsuits
often are contemplated only as a last resort, signaling the
end of a business relationship.
Commercial disputes may also be taken to the Korean
Commercial Arbitration Board (KCAB). The Korean Arbitration
Act and its implementing rules outline the following steps
in the arbitration process: 1) parties may request the KCAB
to act as informal intermediary to a settlement; 2) if
unsuccessful, either or both parties may request formal
arbitration, in which case the KCAB appoints a mediator to
conduct conciliatory talks for 30 days; and 3) if
unsuccessful, an arbitration panel consisting of one or
three arbitrators is assigned to decide the case. If one
party is not resident in Korea, either may request an
arbitrator from a neutral country.
When drafting contracts, it may be useful to provide
for arbitration by a neutral body such as the International
Commercial Arbitration Association (ICAA). U.S. companies
may wish to seek local expert legal counsel when drawing up
any type of contract with a Korean entity.
Korea is a member of the International Center for the
Settlement of Investment Disputes (ICSID). It has also
Acceded to the United Nations Convention on the Recognition
and Enforcement of Foreign Arbitral Awards (New York
Convention). Korea is a member of the International
Commercial Arbitration Association and the World Bank's
Multilateral Investment Guarantee Agency (MIGA). It is
important to keep in mind that Korean courts may ultimately
be called upon to enforce an arbitrated settlement.
Performance Requirements And Incentives
South Korea does not maintain any measures notified to
the World Trade Organization (WTO) as being inconsistent
with TRIMs requirements, nor does the ROKG maintain any
measures that are alleged to violate the WTO's TRIMs text.
Korea ceased imposing performance requirements on new
foreign investment in 1989 and eliminated all pre-existing
performance requirements in 1992. The ROKG has no
requirement that investors purchase from local sources or
export a certain percentage of output. There is no ROKG
requirement that Korean nationals must own shares in foreign
investments or that technology be transferred on certain
terms. The Korean government does not impose "offset"
requirements on investors to invest in specific
manufacturing, R&D or service facilities. There are also no
government-imposed conditions on permission to invest.
The Korean government allows the following general
incentives for foreign investors:
-- Cash grants for the creation and expansion of workplaces
for high-tech business plants and R&D research centers;
-- Reduced rent for land and site preparation for foreign
investors;
-- Grant for establishment of convenience facilities for
foreigners;
-- Reduced rent for state or public property; and
-- Preferential financial support for investing in major
infrastructure projects.
Right To Private Ownership And Establishment
Korea fully recognizes rights of private ownership and
has a well-developed body of laws governing the
establishment of corporate and other business enterprises.
Private entities may freely acquire and dispose of assets;
however, the Fair Trade Act may limit cross-ownership of
shares in two or more firms if the effect is to restrict
competition in a particular industry.
Korea liberalized its property ownership law in 1998.
The Alien Land Acquisition Act (as amended) grants even non-
resident foreigners and foreign corporations the same rights
as Koreans in purchasing and using land. Korea has took
further steps to liberalize its property ownership laws by
implementing the Real Estate Investment Trust (REIT) Act in
2001, which supports sound indirect investments in real
estate and restructuring of corporations. The REIT Act
allows investors to invest funds through an asset management
company, and in real property such as office buildings,
business parks, shopping malls, hotels and serviced
apartments.
Almost no restrictions remain on foreign ownership of
stock in Korean firms. As of 2000, Korean law permits
foreign direct investment through mergers and acquisitions
with existing domestic firms, including hostile takeovers.
Nonetheless, no hostile takeovers have occurred in Korea
because of the lack of relevant implementation regulations
for the Foreign Investment Promotion Act. In addition, the
political environment for hostile takeovers remains
unfriendly. In early 2005, the Ministry of Finance and
Economy (MOFE) announced new stockholding disclosure rules
aimed at further complicating any possible hostile takeover
attempts. A prohibition on cross-ownership between
companies was repealed in 1998.
Protection Of Property Rights
Although respect for basic property rights in Korea,
including land use rights, is solid, and generally a matter
of course, Korea has significant shortcomings in its
protection of intellectual property rights (IPR). The
problem is particularly serious in the area of protection of
digital content -- where IPR protection is made more
complicated by Korea's very high Internet access rate and
degree of broadband connectivity. As a result of these
shortcomings, Korea was elevated from the United States
Trade Representative's Special 301 "Watch List" to the
"Priority Watch List" in January 2004 after an Out-of-Cycle
Review and was kept on the "Priority Watch List" in May
2004. While Korea has made progress on tightening IPR
enforcement in recent years, the U.S. government's review
found that the growth of online music piracy had caused
serious economic damage to recording companies. Continued
piracy of U.S. motion pictures in Korea has also resulted in
revenue loss for U.S. and Korean copyright holders.
In June 2003, the Ministry of Justice issued a
directive to prosecutors to pro-actively pursue IPR
infringement violations. Since that time, Korean police and
prosecutors have conducted more consistent raids against
software end-users. In October 2003, the National Assembly
granted policing authority to the Standing Inspection Team
responsible for investigation of software piracy, which
resulted in more frequent raids based on leads from the
software industry.
Protection of digital content has suffered, however,
due to some specific shortcomings in Korean law:
-- Insufficient Transmission Rights for Sound Recordings:
Korea has one of the highest levels of broadband Internet
penetration in the world, but struggles to keep pace with
the transformation resulting from digitization and high-
speed Internet access. A critical element missing from
Korea's Copyright Act is exclusive rights for online
dissemination of recorded music. A bill passed by the
National Assembly in September 2004 provided only narrow
"interactive" transmission rights for sound recording
producers and performers. Without broadening these rights
to cover transmission through web-casting or other non-
interactive digital transmissions, on-line piracy will
continue to damage the revenues of domestic and foreign
phonogram industries.
-- Copyright Act Shortcomings: Revisions to the Copyright
Act passed by the National Assembly in July 2000 and April
2003 included permission for enhanced technical protection
measures (TPM's) and the introduction of a framework for a
"notice and takedown system" to give an Internet service
providers (ISP) a legal incentive to respond promptly to
requests from right holders for removal of pirated content.
However, in order to fully comply with the WIPO Copyright
Treaty (WCT) ratified by Korea in 2004, further revisions to
the Copyright Act are still needed. In particular, Korea
remains in violation of its obligations under the Berne
Convention's Article 18 and TRIPS Article 14.6 to provide
full retroactive protection for pre-existing works and sound
recordings.
-- Computer Program Protection Act Shortcomings: In
December 2002, the National Assembly revised the Computer
Program Protection Act (CPPA) to provide for transmission
rights, a critical part of effective copyright regimes in
the digital age. The revision also requires Internet
service providers (ISP's) to immediately stop infringing
activity upon request of the copyright owner, for the
purpose of revising or updating programs, or for encryption
research. The CPPA should be further strengthened, however,
to clarify that the right holder has the exclusive right to
make copies, temporary or permanent, of a work or phonogram.
Unlike the Copyright Act, the CPPA does have provisions on
protection of technical protection measures used with
computer programs, although several broadly worded
exceptions still need to be narrowed.
In 2002, the National Assembly enacted the Publication
and Printing Business Promotion Act, allowing the private
sector to participate in enforcement activities against book
piracy. In 2003, Korean authorities and the private sector
began joint book piracy enforcement efforts, especially on
and near university campuses. In 2004, the Ministry of
Education sent a letter to Korean universities requesting
them not to tolerate copyright infringement on their
campuses.
Pirating of audio-visual materials in DVD format,
illegally sold by street vendors, remains a serious problem
in Korea. Despite active Korean National Police enforcement
efforts, video-DVD pirates in Korea have developed
increasingly sophisticated production facilities and
distribution methods.
Korean patent law is fairly comprehensive, offering
protection to most products and technologies. Still,
despite legislative progress, deficiencies remain in the
interpretation of claims and in the treatment of dominant
and subservient patents. The Korean Intellectual Property
Office (KIPO) strengthened restrictions on patent term
extension for certain pharmaceutical, agrochemical and
animal health products that are subject to lengthy clinical
trials and domestic testing requirements, but problems still
remain. Lack of coordination between Korean health and
safety officials and IPR personnel sometimes results in
market approval being granted for products that infringe on
existing patents.
Korea's Trademark Act, amended in 1998 to prohibit the
registration of trademarks without the authorization of
foreign trademark holders, allows examiners to reject any
registrations made in "bad faith." Despite this change, the
complex legal procedures that U.S. and other companies must
follow to seek cancellation proceedings act as a barrier to
effective enforcement, by discouraging U.S. companies from
pursuing legal remedies.
Concerning counterfeiting and trade secret protection,
in revisions to the Copyright Act made in 2000, textile
designs were afforded copyright protection as well as
protection under Korean design law. But enforcement efforts
are not consistent. The Korean Customs Service upgraded its
computer system in 2003 in an effort to enhance border
enforcement against the export of counterfeits.
Korean laws on unfair competition and trade secrets
provide a level of protection in Korea, but are sometimes
insufficient. For example, some U.S. manufacturers report
government regulations that require submission of very
detailed information of sensitive products as part of
registration procedures. The Korean Food and Drug
Administration (KFDA) revised the Pharmaceutical Affairs Act
implementing regulations to stipulate that submitted data
must be protected from authorized disclosure when the
submitting party requests protection. In 2004, the Unfair
Competition and Trade Secrets Act was amended, strengthening
penalties for disclosing trade secrets.
An Internet Domain Name Dispute Resolution Committee
was created in 2002 to arbitrate disputes and minimize court
actions. To better protect trademarks unjustly used as a
domain name, the Unfair Competition Prevention and Trade
Secret Protection Act was amended in 2004 to include such an
unjust registration of another person's trademark as a
domain name as an unfair competitive act. In addition, the
fraudulent manufacturing and sale of goods for which the
trademark has not yet registered in Korea is also considered
an unfair competitive act.
Corporate Governance And Investment Decision-Making
Investors and financial markets remain wary of
corporate governance in Korea despite significant
improvements since the 1997-98 Asian financial crisis.
Concerns about corporate governance mean Korean shares often
trade at earnings well below those of comparable companies
elsewhere. Korean policy makers acknowledge that foreign
investors often exact a "Korea Discount" when dealing with
Korean companies or in making investment decisions. As the
Chairman of the Korean Free Trade Commission (KFTC) has
stated, "the main reasons for the Korea Discount are opaque
accounting techniques, less respect for minority
shareholders, insufficient openness and excessive control by
controlling families."
Large gaps still exist between the ownership and
control of a significant number of firms in Korea, with many
traditional "chaebol" conglomerates still being run by their
founding families, despite the family's generally small
ownership stakes. Korea's accounting reform plan and Code
of Best Practices are admirable efforts, but more can be
done in these areas as well. Increasing participation by
foreign investors and stockholders, modernizing business-
government relations, and infusing professionalism in the
corporate culture could go a long way toward improving
corporate governance.
Korea's development strategy in the latter part of the
20th Century, which transformed the country from one of the
poorest nations in the world to a member of the OECD,
created a number of structural legacies that increased the
country's vulnerability during the 1997-1998 Asian financial
crisis. At that time, Korea's generally weak corporate
governance framework was compounded by a history of
government-directed financing, creating significant "moral
hazard" -- that is, the assumption that government would
make good all losses and not permit large companies to fail.
This allowed large segments of the corporate sector to
become excessively leveraged, increasing vulnerability.
Korea responded to the financial crisis by implementing a
number of corporate reforms that improved accounting
transparency, promoted corporate restructuring, and
strengthened the nation's insolvency framework.
Nonetheless, corporate governance reforms remain incomplete.
In 2003, for example, an accounting scandal at a subsidiary
of the country's third-largest chaebol revealed that
questionable corporate practices remain, including shady
accounting, reflecting disparities between ownership and
control.
The Korea Fair Trade Commission aims to reduce the gap
between ownership and control by encouraging the chaebol to
improve internal checks and balances (for example, by
adopting cumulative voting for the selection of independent
directors). The KFTC has also urged the chaebol to adopt a
vertical holding company structures so that all of a group's
equity investments are held by one company (a common
practice in other OECD countries). As an incentive for
firms to pursue these two tracks, the Korean government has
said that it would exempt complying firms from limits on
their equity investments. Few chaebol have pursued either
one of these tracks, however, in part because of stringent
conditions regarding the creation of holding companies.
The Anti-Monopoly and Fair Trade Act has been
repeatedly changed -- most recently in 2003 -- to address
the issue of excessive chaebol control over affiliates. In
the latest revision to the Act, the Korean government re-
instituted restrictions on chaebol cross-ownership,
including a ceiling on chaebol investments in affiliated
firms equal to 25 percent of a chaebol's net assets. Prior
to that, Korea's top 30 chaebol committed to eliminating all
intra-group payment guarantees by March 2001.
The practical impact of Korea's laws and policies
regulating monopolistic practices and unfair competition,
however, has been limited by the long-standing economic
strength of the chaebol. Management control at the Korean
chaebol continues to involve complicated webs of murky cross-
shareholdings among chaebol affiliates, and many chaebol
still conduct business based on family and personal
connections. Vestigial chaebol-government relations can
also sometimes influence the business-government dialogue,
to the detriment of foreign and small and medium-sized
enterprises (SME's). Thus, Chaebol influence in the Korean
economy causes some practical business problems for foreign
investors. SME suppliers, for example, may be reluctant to
deal with foreign firms for fear of jeopardizing a prized
chaebol relationship. Obtaining access to credit may be
complicated by the privileged relationships competing
chaebols enjoy with local banks -- although this is
mitigated by the fact that regulations limit a bank's
exposure to any single chaebol group's companies to 25
percent of capital, and stipulate that 35 percent of all
banks' lending must go to SME's.
There are several large Korean corporations that have
transformed themselves into well-managed multinational
corporations that have adopted "best practices" in corporate
governance consistent with U.S. and international standards.
Some of their "best practices" include more frequent board
meetings covering real operational issues; boards with more
independent board members and fewer or no founding family
members; a nominating committee for the board; financial
report certifications; and frequent and substantive outside
audits.
Foreign ownership is also playing a significant role in
promoting corporate governance reform in Korea. Korean
firms with significant foreign investment, for example, are
generally understood to be more reluctant to participate in
government-sponsored bailouts of troubled firms, impacting
the evolution of Korean financial markets. As foreign
investors now own about 60 percent of Korea's top companies
and over 40 percent of stock listed on Korea's main stock
exchange, the rights of minority and non-Korean stockholders
are becoming more clearly expressed. To some extent, this
trend has provoked a backlash against foreign investment on
the part of some chaebol and other conservative forces in
Korean society. This has led the Korean government to
consider some ill-advised policies, such as limiting the
number of foreign directors allowed on corporate boards or
requiring Korean nationality to sit on a bank's board of
directors. But few such policies have actually been
implemented thus far, and many corporate leaders in Korea
are starting to understand that -- as Korean empirical
research has demonstrated -- companies that have high
disparities between ownership and control also have lower
profitability, higher leverage ratios and lower price-to-
earnings ratios.
The Korean government is currently implementing an
accounting reform plan, taken largely from the U.S. Sarbanes-
Oxley Act, aimed at making Korean accounting standards
consistent with rigorous international standards. Key
elements of the reform plan encompass measures to increase
the responsibility and accountability of the corporate
board, management, and the audit committee. In parallel, a
committee of Korean private sector experts has established a
Code of Best Practices in response to a tasking by the
Ministry of Finance and Economy. The voluntary
recommendations included in this Code are in line with OECD
principles, and the Korea Stock Exchange (KSE) has
reinforced the importance of the Code by requiring that
companies listed on the KSE provide information to investors
about the extent to which they conform to the Code.
Following are some of the key recommendations contained in
the Code of Best Practices:
-- Easing of ownership thresholds to allow small
shareholders greater rights to inspect company books;
-- Having outside or independent directors make up at least
half (rather than a quarter) of the board members of listed
companies;
-- Establishing a nominating committee to choose board
members, with at least half of the committee consisting of
outside directors;
-- Ensuring that outside directors are truly independent,
with no interests in the company, the management, or the
controlling shareholder;
-- Having the board of directors meet at least once every
three months; and
-- Requiring that companies have audit committees consisting
of at least three directors, of which two-thirds are outside
directors.
The Korean government also plans to introduce class
action lawsuits in 2005. Minority shareholders will be able
to file class action suits against companies with assets
totaling more than 2 trillion won for manipulation of share
prices, false disclosure of information, and accounting
malpractice. This system is also expected to have a
significant impact in improving corporate governance
practices in Korea.
Transparency Of The Regulatory System
The Korean regulatory environment, difficult for
domestic companies, poses an even greater challenge for
foreign firms. Laws and regulations are often framed in
general terms and are subject to differing interpretations
by government officials, who rotate frequently. While the
regulatory process has improved since the Asian financial
crisis, it is often not transparent and frequent informal
discussions with the bureaucracy are necessary. Mid-level
bureaucrats often rely on unpublished office guidelines and
unwritten administrative advice for direction.
Vestiges of Korea's former industrial policy are also
still evident in the business environment despite the
efforts of the Kim Dae-jung and Roh Moo-hyun Administrations
to increase regulatory transparency. The Korean government
bureaucracy still influences the decisions of businesses and
investors through prescriptive regulations, policies
favoring domestic industry, and even threats of retaliation.
Investors, whether Korean or non-Korean, are often required
to disclose proprietary information to government officials
as part of the regulatory approval process. Some foreign
investors complain that the proprietary nature of the trade
information provided has not been respected and has been
obtained by local competitors.
According to Korea's Administrative Procedures Act,
proposed laws and regulations (Acts, Presidential Decrees or
Ministerial Decrees) should be published and public comments
solicited for 20 days prior to promulgation. Draft bills
are often available on the web sites of relevant ministries.
Nonetheless, the rule-making process often remains non-
transparent, particularly for foreigners. Proposed rules
are not always published prior to promulgation, or are
published with insufficient time to permit public comment
and industry adjustment. For example, regulatory changes
originating from legislation proposed by members of Korea's
National Assembly are not subject to public comment periods.
When notifications of proposed rules are made public, they
usually appear in the Government Gazette, but not
consistently, and only in the Korean language, meaning that
much of the 20-day comment period can be exhausted
translating complex documentation. After promulgation,
rules are sometimes applied arbitrarily.
President Roh Moo-Hyun has made deregulation one of the
key elements of his economic policy. The Korean government
has made efforts to cut back on the number of regulations,
and some important changes have been made, but generally
speaking deregulation has so far taken a back seat to other
economic and financial system restructuring concerns. The
regulatory picture is mixed, depending on the ministry or
agency, although some have made unprecedented efforts reach
out to foreign business.
Efficient Capital Markets And Portfolio Investment
Financial sector reform has been a bright spot for the
Korean government in the past 7-8 years and could provide a
positive example for reform efforts in other sectors of the
economy. Financial sector reforms have aimed to increase
transparency and investor confidence, and generally purge
the sector of moral hazard. Since 1997-98, the Korean
government has recapitalized the banks and non-bank
financial institutions; closed or merged weak financial
institutions; resolved many non-performing assets;
introduced internationally-accepted risk assessment methods
and accounting standards for banks; forced depositors and
investors to assume appropriate levels of risk; and taken
steps to help end the policy-directed lending of the past.
Weak supervision and poor lending practices in the Korean
banking system helped cause and exacerbate the 1997-98 Asian
financial crisis.
In the course of stabilizing Korea's banking sector
during the financial crisis, the Korean government injected
public funds, thereby acquiring de facto ownership of many
of Korea's commercial banks -- although it publicly
committed to refrain from interfering in bank lending and
management decisions, except with regard to prudential
supervision. In late 2002, the Korean government began its
ambitious plan to re-privatize the banks under its control,
with the program was initially scheduled to end by the first
quarter of 2005. Much of this re-privatization has taken
place, although the government continues to own the majority
of shares in Woori Bank and minority shares in some other
banks. Foreign banks are allowed to establish subsidiaries
or direct branches. Further relaxation of regulations has
widened foreigners' access to Korea's capital markets and
permitted foreign financial firms to engage in non-hostile
mergers and acquisitions of local financial institutions.
Currently, foreign interests control three of Korea's eight
major commercial banks: KorAm Bank (recently renamed
Citibank); Korea Exchange Bank and Korea First Bank.
Korea routinely permits the repatriation of funds, but
reserves the right to limit capital outflows in exceptional
circumstances, such as situations when uncontrolled outflows
might harm the balance of payments, cause excessive
fluctuations in interest or exchange rates, or threaten the
stability of domestic financial markets. The Korean
government did not impose such restrictions even during the
height of the Asian financial crisis.
Foreign portfolio investors now enjoy good access to
Korea's stock markets. Aggregate foreign investment
ceilings in the Korean Stock Exchange (KSE) were abolished
in 1998, and foreign investors owned 41.9 percent of KSE
stocks and 15.3 percent of the KOSDAQ by the end of 2004.
The market turnover rate was 151 percent of market
capitalization in 2004. Retail investors are extremely
active in the Korean stock markets. Some 60 percent of KSE
retail trading and 80 percent of KOSDAQ trading is conducted
online. Thus, a large majority of retail investors are day
traders, implying a constant source of volatility for the
markets. The Korean government permits stock purchases on
margin, requiring that transactions be settled within three
business days.
Portfolio investors have shown less appetite for the
smaller, more volatile, technology-rich KOSDAQ or for Korean
fixed-income investments. Since the 1999 collapse of the
Daewoo Group in 1999, Korea's largest corporate bankruptcy,
the country's bond market has been almost moribund, as
sellers have far outnumbered buyers. The total assets of
Korea's commercial banks as of the end of 2003 were 774
trillion won, or about USD 649 billion.
Short-term interest rates remain low, at around 3.7
percent, but inflation at 3.6 percent remained high
throughout 2004. Inflation for 2004 is expected to have
been around 4.0 percent. The spread between short-term
money (the overnight call rate) and long-term money (the
benchmark 3-year corporate bond rate) fell from its 400-plus
basis points high in 2000 to about 60-basis points in
December 2004. The Bank of Korea (BOK) has maintained its
target for the overnight call rate at the record-low level
of 3.25 percent since November 2004, in consideration of
sluggish domestic consumption and investment. The target
rate was 3.75 percent from July 2003 until July 2004, but on
August 12 and November 11, the BOK lowered twice its target
rate to 3.5 percent and 3.25 percent, respectively, to
stimulate domestic consumption and investment.
Political Violence
Korea does not have a history of political violence
directed against foreign investors. The Embassy is not
aware of any politically motivated threats of damage to
foreign-invested projects or foreign-related installations
of any sort, nor of any incidents that might be interpreted
as having targeted foreign investments. Labor violence
unrelated to the issue of foreign ownership, however, has
occurred in foreign-owned facilities in the past.
The Roo Moo-hyun Administration has continued South
Korea's policy of economic cooperation with North Korea,
even while maintaining a credible defense against any
possible North Korean hostilities. This North-South
engagement helps ease tensions caused by revelations in 2002
that North Korea had undertaken a second nuclear weapons
program after it had agreed to freeze an earlier one under
the U.S.-DPRK agreement signed in October 1994. Six party
talks involving the two Koreas, the United States, China,
Russia, and Japan on the elimination of the DPRK's nuclear
programs continue -- but the DPRK has still not committed to
the dismantlement of its nuclear programs.
Corruption
Despite significant improvements in recent years,
Korea's political structure still tolerates a degree of non-
transparency in the formation of laws and regulations, which
when combined with still-inadequate institutional "checks
and balances" and a societal structure heavily based on
personal ties can create opportunities and incentives for
corruption and influence peddling.
The Korean government's hosting of the third Global
Forum on Fighting Corruption in 2003 helped reinvigorate
anti-corruption efforts, and the Roh Moo-hyun Administration
began its tenure in 2003 with an ambitious agenda to reform
political funding laws, decentralize government and compel
greater corporate transparency and accountability through a
mix of political pressure and new laws and regulations. The
April 2004 National Assembly election, which took place
under new, much stricter campaign finance laws, is widely
considered to have been the cleanest ever, hopefully setting
a new precedent whereby Korean corporations are no longer
expected to bankroll political campaigns.
Bribing a Korean official is a criminal act. Penalties
for bribery range from probation to life imprisonment,
depending on the amount involved. Legislation has been
approved bringing Korea into compliance with the OECD
initiative against international bribery. The Supreme
Prosecutor in each province is responsible for ferreting out
corruption. Many business leaders and officials, including
former ministers and former presidents, have been found
guilty of corruption in recent years, sometimes for offenses
committed years earlier. Still, few have paid heavy fines
or served much time in prison. Amid spreading public
sentiment denouncing bribery and corruption, particularly
after the April 2000 general legislative election, civic
groups have become very vocal and achieved considerable
progress by identifying supposedly "corrupt" officials and
working against their re-election. Public outrage helped
propel Roh Moo-hyun, viewed by many as an untainted
outsider, to the presidency in 2003.
The controversial Anti-Corruption Law passed by the
National Assembly in 2002 is now in effect. Most notably,
this law created the Korea Independent Commission Against
Corruption (KICAC), which is semi-autonomous and empowered
to investigate public complaints of corruption at every
level of government. KICAC has established "reporting
centers" in Korea's six largest cities and invites citizen
complaints about their public officials via telephone,
facsimile, email or Internet. Despite KICAC's quick start
and seeming sincerity, many Koreans believe corruption is
still rampant in Korea, and believe even the most aggressive
independent body will have difficulty rooting it out.
The National Assembly passed an Anti-Money Laundering
Bill in 2001. That legislation met the objectives of the
Financial Action Task Force on Money Laundering's forty
recommendations, and created a Financial Intelligence Unit
(FIU) to trace suspect accounts and transactions and to
facilitate international cooperation. The government has
cooperated fully with U.S. and United Nations efforts to
identify and shut down sources of terrorist financing.
Bilateral Investment Agreements
The United States has a bilateral Treaty of Friendship,
Commerce, and Navigation with Korea, which contains general
provisions pertaining to business relations and investment.
During former Korean President Kim Dae-jung's visit to the
United States in 1998, President Clinton and President Kim
agreed to negotiate a Bilateral Investment Treaty (BIT)
between the two nations. However, negotiations in 1998 and
1999 stalled after the two sides could not resolve
differences on certain issues, including Korea's screen
quota limiting the importation of foreign motion pictures.
The Korean government and public continues to debate the
merits of meeting U.S. requirements on the screen quota,
while business groups from both countries continue to
believe that conclusion of a BIT would help deepen economic
relations.
OPIC and Other Investment Insurance Programs
U.S. investments in Korea are eligible for insurance
programs sponsored by the U.S. Overseas Private Investment
Corporation (OPIC). OPIC has not, however, guaranteed any
U.S. investments in Korea since June 1998, when OPIC
reinstated coverage it had suspended in 1991 due to concerns
about worker rights. Coverage issued prior to 1991 is still
in force. Korea has been a member of the World Bank's
(IBRD) Multilateral Investment Guarantee Agency (MIGA) since
1987.
Labor
While Korea boasts a hard-working, educated and
productive workforce, foreign investors cite volatile labor-
management relations and Korea's inflexible labor laws as a
primary investment impediment. In 2004, South Korea was
ranked 44th among 60 countries in labor market flexibility
by the Swiss-based International Institute for Management
Development. Korea loses proportionally more workdays to
strikes than any other OECD country. Although at around 11
percent the unionization rate is not especially high,
unions, kept down during decades of authoritarian rule, are
forceful in making high wage and benefit demands. Korea's
out-dated labor laws, designed decades ago to primarily with
the intention of encouraging businesses to provide the
social safety net the Korean government could not at that
time afford, contribute to the rigidity of the system and
make it difficult to dismiss workers and expensive to hire
new staff. A lack of pension mobility in the private sector
compounds the problem, as does general lack of confidence in
the social safety net for unemployed workers. Korean
management, meanwhile, often takes an old-fashioned,
confrontational approach to labor relations.
The Roh Administration is working to reform the labor
structure in Korea to make the country more attractive to
investors and help spur economic growth. Reforms to date,
however, have focused on the more politically visible
aspects of Korea's labor problems, such as how to deal with
strikes and labor-management conflict, instead of promoting
labor flexibility and mobility to stimulate the job market.
International organizations such as the ILO have urged Korea
to bring its labor code into conformance with international
standards to enhance global competitiveness. According to
ROKG figures, the number of days lost to strikes declined
from 1,271,126 in 2003 to 1,160,000 in 2004.
The Korean labor market is increasingly a polarized
one, with a core of regular workers enjoying a high level of
employment protection, and rapid wage growth, supplemented
by a large group of temporary (contract) workers whose
numbers can be more easily adjusted in line with changing
economic conditions. Korean and foreign employers cite the
difficulty of reducing the number of regular workers and the
expense of hiring new workers as reasons for hiring non-
regular workers. Temporary workers are generally not union
members and do not demand the higher wage increases expected
by union members, so their wages better reflect the overall
supply and demand conditions of Korea's labor market.
Contract workers also most often do not receive fringe
benefits, and can be terminated at the end of their contract
without severance benefits -- compounding fearful attitudes
among workers about the downsides of a flexible labor
market. Many employers have sought to replace retiring
regular workers with temporary ones. Temporary workers
usually earn about 60 percent of what regular workers make
for the same job. The National Statistics office believes
49 percent of Korean workers can be classified as
"irregular," while the unions claim the real number may be
as high as 60 percent.
The temporary worker phenomenon has a significant
downside for management, however. Korea's labor laws
stipulate that if a temporary worker's contract is extended
more than once, that worker becomes a de facto permanent
worker, protected by termination and other benefit
provisions. As a result, many companies limit such contact
extensions to just one time, and regularly turn over a
significant part of their work force. This limits
productivity growth for companies, as they must invest
considerable time training new workers, and also impacts on
the employment prospects of both new workers and those being
let go. The Korean government, labor and management sector
has yet to come to grips with this system. As a result, an
entrenched unionized workforce continues to receive
significant wages increases every year, while the remainder
of the labor force sees fewer benefits and lower wages and
wage growth, and dimmer prospects for the future.
The Roh Administration has adopted a Tripartite
Commission (Labor, Employers and Government) approach to
address these dysfunctions in the labor sector. After
initial high expectations, the Commission crafted and agreed
upon a "Social Compact on Job Creation" in February 2004.
But employers, labor, and the government are all less than
optimistic that this non-binding agreement will yield fruit,
since it is heavy with generalities and light on specifics.
An earlier "Roadmap for Industrial Relations Reform,"
drafted by the government in 2003, drew criticism from labor
confederations and business organizations. Of the 29
proposals set forth, the following were some of those
considered most problematic:
-- Redefinition of the Basic Wage: Employers argued that
the new Basic Wage would have raised expenses and impeded
the creation of new jobs. The roadmap proposed that the new
Basic Wage expand the definition of a basic wage to include
all regular benefits such as periodic bonuses, supplementary
allowances, raises, bonuses, overtime, night work, and work
on holidays;
-- No payments of wages to full time union officials:
Current laws require that companies must pay 100 percent of
the salaries of those whose full time job is to run the
union at the company. Unions oppose the elimination of this
provision;
-- Prohibition of any given industry from having more than
one union: Current laws state otherwise. Unions oppose
this change;
-- Replacement workers: Current labor law permits
management to hire replacement workers only in the case of
illegal strikes. The government would like to permit the
hiring of replacement workers without condition in the case
of "public corporations;"
-- Mandatory maintenance of minimum level of essential
public services during strikes: Supported by government but
opposed by labor.
Korean and foreign experts agree that more attention
should be paid to finding ways to promote labor mobility
while stimulating the job market. According to the OECD,
only 70 percent of all Korean wage and salary earners in
2002 were eligible for unemployment insurance and only 51
percent were actually insured. Expanding coverage would be
a step in the right direction. The government's plan to
extend unemployment insurance to daily workers would also
help. Exploring ways to better connect workers with
employers could promote labor market efficiencies.
Specifically, the Public Employment Service could seek
greater cooperation with Korea's large and long-established
network of the more than 5,000 private job placement
agencies. Vocational training in Korea lags behind other
countries with a similar level of development. Current
programs could target their participants more carefully,
keep the training programs small in scale, and ensure that
the training results in a qualification that the market
recognizes and values.
In the Korean system, government employees and
schoolteachers can carry their pension rights when they quit
one occupational plan and enter another. But there are no
such linkages between the National Pension Scheme (NPS) and
occupational pensions. The lack of portability puts such
relatively mobile workers at a disadvantage and discourages
movement between the public and private sectors. More
broadly, Korea lacks a portable 401(K)-type system for
corporate pensions. The establishment of such a system
could assist in reducing disincentives to labor mobility.
In the area of labor-management relations, Korean labor
groups are quick to escalate disputes and commonly resort to
work slowdowns, abuse of leave, and disruption of business
by holding rallies, wearing inappropriate clothing or
displaying protest signs at the workplace. These tactics
fall outside the scope of Korea's labor law and lead to
confrontations with management and authorities. Sit-in
strikes are common, and workers have occupied company
offices and factories. Korean workers were united in
seeking a reduction in the workweek from 44-45 hours a week
(five-and-one-half-work days) to 40 hours a week (five work
days), while keeping the same pay; this system began gradual
implementation in July 2004.
While labor disputes are relatively more frequent at
Korean companies than foreign-invested firms, union members
at foreign-invested firms often make greater demands on
management. Workers at foreign-owned firms perceive, most
often incorrectly, that job stability and career prospects
are relatively less attractive than at Korean firms, and as
a result, labor is concerned about reductions-in-force and
issues such as severance pay. At times, labor organizers
portray disputes with a foreign employer as issues that
offend Korean nationalism, a hot button for the Korean
public psyche. For some companies such as banks, whose
activities are considered to be essential public services,
the government has the right, although seldom used, to order
binding arbitration to solve labor disputes.
Korea joined the International Labor Organization (ILO)
in December 1991. However, Korea still has not ratified the
basic ILO conventions on Workers Rights (Convention 87 on
freedom of association, Convention 98 on the right to
organize and collective bargaining, and Convention 151 on
public service employees' right to organize), and a number
of international and domestic labor groups have filed
complaints against the Korean government with the ILO's
Committee on Freedom of Association.
In 1997, Korea amended its labor laws to permit more
than one national labor federation. Korea now has two
national federations, the Korean Confederation of Trade
Unions and the Federation of Korean Trade Unions, along with
some 1,600 distinct labor unions. Also, in 1997, the
government repealed its ban on intervention by "third
parties" in labor disputes, thus enabling labor unions to
seek outside assistance and counsel.
Foreign Trade Zones/Free Trade Zones
The Korean government has established three "Free
Economic Zones:" near Incheon International Airport outside
Seoul, near the port in Busan and at Gwangyang. When fully
developed, these areas are designed to provide a specially
enhanced business environment for foreign-invested firms.
Specific tax and tariff measures and other incentives such
as eased restrictions on foreign investment in certain
services (such as education and hospitals) are still being
debated in the National Assembly. Major infrastructure
enhancements at each site are already underway.
There are also six Foreign-exclusive Industrial
Complexes in Korea in different parts of the country,
designed to provide inexpensive plant sites, with the
national and local governments providing assistance for
leasing or selling such sites at discounted rates. In
addition, there are four "Free Trade Zones" in Iksan,
Kunsan, Daebul and Masan where companies may pursue their
business with government support, but without the usual
legal requirements such as approval procedures for export
and imports and customs duties. There are also seven
Foreign Investment Zones designated by local governments to
accommodate industrial sites for foreign investors. Special
considerations for foreign investors vary among these
options.
A good source of information on Korea's various free
trade zone schemes is the government-run "Invest Korea," an
inward investment promotion organization under the The Korea
Trade and Investment Promotion Agency (KOTRA). It can be
reached at:
Invest Korea
KOTRA Bldg. 300-9
Yomgok-dong, Seocho-gu
Seoul 137-170, Korea
Foreign Direct Investment Statistics
Foreign Direct Investment
(In USD millions)
----------Flow----------
2002 2003 2004 Stock
---- ---- ---- -----
Total Inward FDI 9,102 6,468 12,770 103,890
-United States 4,500 1,240 4,725 32,260
-Japan 1,404 541 2,249 15,509
-EU 1.680 3,062 3,005 30,682
-Others 1,518 1,625 2,791 25,439
Total Outward FDI 2,145 2,998 4,308 38,736
-U.S. 460 738 1,034 10,222
-Japan 68 47 272 915
-EU 527 144 550 6,278
-Others 1090 2,099 2,452 21,321
Source: The Export-Import Bank of Korea and Ministry of
Commerce, Industry and Energy
Note: Inflow data is based on the notification of cases,
while outflow is based on the net investments notified.
2004 outflow is data reported in the first 11 months of the
year.
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