1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
The ROK government welcomes foreign investment. In a March 2019 meeting, President Moon Jae-in equated the foreign business community’s success with the Korean economy’s progress. The ROK government offers incentives to foreign companies bringing in technology and investments contributing to the ROK’s manufacturing sector. Hurdles for foreign investors in the ROK include regulatory opacity, inconsistent interpretation of regulations, unanticipated regulatory changes, underdeveloped corporate governance, rigid labor policies, Korea-specific consumer protection measures, and the political influence of large conglomerates, known as chaebol.
The 1998 Foreign Investment Promotion Act (FIPA) is the principal law pertaining to foreign investment in the ROK. FIPA and related regulations categorize business activities as open, conditionally- or partly-restricted, or closed to foreign investment. FIPA also includes:
- Simplified procedures to apply to invest in the ROK;
- Expanded tax incentives for high-technology investments;
- Reduced rental fees and lengthened lease durations for government land (including local government land);
- Increased central government support for local FDI incentives;
- Creation of “Invest KOREA,” a one-stop investment promotion center within the Korea Trade-Investment Promotion Agency (KOTRA) to assist foreign investors; and
- Establishment of a Foreign Investment Ombudsman to assist foreign investors.
The ROK National Assembly website provides a list of laws pertaining to foreigners, including FIPA, in English (http://korea.assembly.go.kr/res/low_03_list.jsp?boardid=1000000037).
The Korea Trade-Investment Promotion Agency (KOTRA) facilitates foreign investment through its Invest KOREA office (also on the web at http://investkorea.org). For investments exceeding 100 million won (about USD 88,000), KOTRA helps investors establish domestically-incorporated foreign-invested companies. KOTRA and the Ministry of Trade, Industry and Energy (MOTIE) organize a yearly Foreign Investment Week to attract investment to South Korea. In February 2021, Trade Minister Yoo Myung-hee met with representatives of foreign-invested firms in the ROK and noted the critical role they play in the ROK economy and job creation. The ROK’s key official responsible for FDI promotion and retention is the Foreign Investment Ombudsman. The position is commissioned by the ROK President and heads a grievance resolution body that collects and analyzes concerns from foreign firms; coordinates reforms with relevant administrative agencies; and proposes new policies to promote foreign investment. More information on the Ombudsman can be found at http://ombudsman.kotra.or.kr/eng/index.do.
Limits on Foreign Control and Right to Private Ownership and Establishment
Foreign and domestic private entities can establish and own business enterprises and engage in remunerative activity across many sectors of the economy. However, under the Foreign Exchange Transaction Act (FETA), restrictions on foreign ownership remain for 30 industrial sectors, including three that are closed to foreign investment (see below). Relevant ministries must approve investments in conditionally- or partially-restricted sectors. Most applications are processed within five days; cases that require consultation with more than one ministry can take 25 days or longer. The ROK’s procurement processes comply with the World Trade Organization (WTO) Government Procurement Agreement.
The following is a list of restricted sectors for foreign investment. Figures in parentheses generally denote the Korean Industrial Classification Code, while those for air transport industries are based on the Civil Aeronautics Laws:
- Nuclear power generation (35111)
- Radio broadcasting (60100)
- Television broadcasting (60210)
Restricted Sectors (no more than 25 percent foreign equity)
- News agency activities (63910)
Restricted Sectors (less than 30 percent foreign equity)
- Newspaper publication, daily (58121) (Note: Other newspapers with the same industry code 58121 are restricted to less than 50 percent foreign equity.)
- Hydroelectric power generation (35112)
- Thermal power generation (35113)
- Solar power generation (35114)
- Other power generation (35119)
Restricted Sectors (no more than 49 percent foreign equity)
- Newspaper publication, non-daily (58121) (Note: Daily newspapers with the same industry code 58121 are restricted to less than 30 percent foreign equity.)
- Television program/content distribution (60221)
- Cable networks (60222)
- Satellite and other broadcasting (60229)
- Wired telephone and other telecommunications (61210)
- Mobile telephone and other telecommunications (61220)
- Other telecommunications (61299)
Restricted Sectors (no more than 50 percent foreign equity)
- Farming of beef cattle (01212)
- Transmission/distribution of electricity (35120)
- Wholesale of meat (46313)
- Coastal water passenger transport (50121)
- Coastal water freight transport (50122)
- International air transport (51)
- Domestic air transport (51)
- Small air transport (51)
- Publishing of magazines and periodicals (58122)
Open but Separately Regulated under Relevant Laws
- Growing of cereal crops and other food crops, except rice and barley (01110)
- Other inorganic chemistry production, except fuel for nuclear power generation (20129)
- Other nonferrous metals refining, smelting, and alloying (24219)
- Domestic commercial banking, except special banking areas (64121)
- Radioactive waste collection, transportation, and disposal, except radioactive waste management (38240)
Other Investment Policy Reviews
The WTO conducted its seventh Trade Policy Review of the ROK in October 2016. The Review does not contain any explicit policy recommendations. It can be found at: https://www.wto.org/english/tratop_e/tpr_e/tp446_e.htm
The ROK has not undergone investment policy reviews from the OECD or United Nations Conference on Trade and Development (UNCTAD) within the past three years.
Registering a business remains a complex process that varies according to the type of business being established, and requires interaction with KOTRA, court registries, and tax offices. Foreign corporations can enter the market by establishing a local corporation, local branch, or liaison office. The establishment of local corporations by a foreign individual or corporation is regulated by FIPA and the Commercial Act; the latter recognizes five types of companies, of which stock companies with multiple shareholders are the most common. Although registration can be filed online, there is no centralized online location to complete the process. For small- and medium-sized enterprises (SMEs) and micro-enterprises, the online business registration process takes approximately three to four days and is completed through Korean language websites. Registrations can be completed via the Smart Biz website, https://www.startbiz.go.kr/. The UN’s Global Enterprise Registration (GER), which evaluates whether a country’s online registration process is clear and complete, awarded Smart Biz 2.5 of 10 possible points and suggested improvements in registering limited liability companies. The Invest KOREA information portal received 2 of 10 points. The Korea Commission for Corporate Partnership and the Ministry of Gender Equality and Family (http://www.mogef.go.kr/) are charged with improving the business environment for minorities and women. Some local governments provide guaranteed bank loans for women and/or the disabled.
The ROK does not have any restrictions on outward investment. The ROK has several institutions to assist small business and middle-market firms with such investments.
- KOTRA has an Outbound Investment Support Office that provides counseling to ROK firms and holds regular investment information sessions.
- The ASEAN-Korea Centre, which is primarily funded by the ROK government, provides counseling and business introduction services to Korean SMEs considering investments in the Association of Southeast Asian Nations (ASEAN) region.
- The Defense Acquisition Program Administration opened an office in 2019 to advise Korean defense SMEs on exporting unrestricted defense articles.
2. Bilateral Investment Agreements and Taxation Treaties
As of March 2021, the ROK has 17 FTAs in force, encompassing trade with 57 countries including the United States, and 94 bilateral investment treaties. The ROK has signed (but not ratified) additional FTAs in 2020 with 15 other countries, including 14 Asian countries under the Regional Comprehensive Economic Partnership (RCEP), and a bilateral FTA with Indonesia; negotiations for bilateral FTAs with Cambodia and Israel have concluded, but the agreements are not yet signed. Ongoing FTA negotiations include an ROK-China-Japan trilateral FTA, and bilateral FTAs with Ecuador, Mercado Común del Sur (Mercosur), the Philippines, Russia, and Malaysia. Negotiations are also in-progress to expand the ROK-China FTA services and investment chapter and to enhance existing FTAs with ASEAN, India, and Chile. The ROK also agreed to begin FTA negotiations with Uzbekistan, the Eurasian Economic Union (Russia, Armenia, Belarus, Kazakhstan, and Kyrgyzstan) and the Pacific Alliance (Mexico, Peru, Columbia, and Chile). Separately, the ROK has entered into negotiations on a possible digital trade agreement with Singapore. President Moon said in January 2021 his government will examine participation in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.
As of March 2021, the ROK had signed bilateral tax agreements with 93 countries. The ROK National Tax Service has a special unit dedicated to processing Advance Pricing Agreement and Mutual Agreement Procedure requests from North America, Europe, and Australia, as timely processing of these requests has historically been a frequent subject of disputes. The U.S.-ROK bilateral income tax treaty entered into force in 1979. A complete list of countries and economies with which South Korea has concluded bilateral investment protection agreements, such as BITs and FTAs with investment chapters, is available at http://www.mofa.go.kr/www/wpge/m_3834/contents.do and http://investmentpolicyhub.unctad.org/IIA.
Despite formal tax agreements and dispute resolution mechanisms, U.S. investors have raised concerns about discrimination and lack of transparency in tax investigations by ROK authorities.
3. Legal Regime
Transparency of the Regulatory System
ROK regulatory transparency has improved, due in part to Korea’s membership in the WTO and negotiated FTAs. However, the foreign business community continues to face numerous rules and regulations unique to the ROK. National Assembly legislation on environmental protection or the promotion of SMEs has created new trade barriers that disadvantage foreign companies. Also, some laws and regulations lack sufficient detail and are subject to differing interpretations by government regulatory officials. In other cases, ministries issue non-legally binding guidelines on implementation of regulations, yet these become the bases for legal decisions in ROK courts. Regulatory authorities also issue oral or internal guidelines or other legally-enforceable dictates that prove burdensome for foreign firms. Intermittent ROK government deregulation plans to eliminate oral guidelines or impose the same level of regulatory review as written regulations have not led to concrete changes. Despite KORUS FTA provisions designed to address transparency issues, they remain persistent and prominent.
The ROK constitution allows both the legislative and executive branches to introduce bills. Ministries draft subordinate statutes (presidential decrees, ministerial decrees, and administrative rules), which largely govern the procedural matters addressed by the respective laws. Administrative agencies shape policies and draft bills on matters within their respective jurisdictions. Drafting ministries must clearly define policy goals and complete regulatory impact assessments (RIAs). When a ministry drafts a regulation, it must consult with other relevant ministries before it releases the regulation for public comment. The constitution also allows local governments to exercise self-rule legislative authority to draft ordinances and rules within the scope of federal acts and subordinate statutes. The enactment of laws and their subordinate statutes, ranging from the drafting of bills to their promulgation, must follow formal ROK legislative procedures in accordance with the Regulation on Legislative Process enacted by the Ministry of Government Legislation. Since 2011, all publicly listed companies must follow International Financial Reporting Standards (IFRS, or K-IFRS in the ROK). The Korea Accounting Standards Board facilitates ROK government endorsement and adoption of IFRS and sets accounting standards for companies not subject to IFRS. According to the Administrative Procedures Act, authorities proposing laws and regulations (acts, presidential decrees, or ministerial decrees) must seek public comments at least 40 days prior to their promulgation. Regulations are sometimes promulgated after only the minimum required comment period and with minimal consultation with industry.
Regulatory changes originating from legislation proposed by members of the National Assembly are not subject to public comment periods. As a result, 80 percent of all new regulations are written and passed by the National Assembly without rigorous consideration of possible effects or solicitation of public comments. The Official Gazette and the websites of relevant ministries and the National Assembly simultaneously post the Korean language text of draft acts and regulations, accompanied by executive summaries, for a 40-day comment period. Comments are not made public, and firms may struggle to translate complex documentation, analyze, and respond adequately before the expiration of this period. After the comment period, the Ministry of Government Legislation reviews the laws and regulations to ensure they conform to the constitution and monitors government adherence to the Regulation on Legislative Process. While the Regulatory Reform Committee (RRC) reviews all laws and regulations to minimize government intervention in the economy and to abolish all economic regulations that fall short of international standards or hamper national competitiveness, the committee has been less active in recent years.
In January 2019, Korea introduced a “regulatory sandbox” program intended to reduce the regulatory burden on companies that seek to test innovative ideas, products, and services. Depending on the business sector in which a particular proposal falls, either MOTIE, the Ministry of Science and ICT, or the Financial Services Commission manages the program. The program is open to Korean companies and foreign companies with Korean branch offices. Websites and applications are only available in Korean. The business community has welcomed this effort by regulators to spur innovation.
The ROK government enforces regulations through penalties (either fines or criminal charges) in the case of violations of the law. The government’s enforcement actions can be challenged through an appeal process or administrative litigation. The CEOs of local branches can be held legally responsible for all actions of their company and at times have been arrested and charged for their companies’ infractions. Foreign CEOs have cited this as a significant burden to their business operations in Korea.
The ROK’s public finances and debt obligations are generally transparent, with the exception of state-owned enterprise debt.
International Regulatory Considerations
The ROK has revised local regulations to implement commitments under international treaties and trade agreements. Treaties duly concluded and promulgated in accordance with the constitution and the generally recognized rules of international law are accorded the same standing as domestic laws. ROK officials consistently express intent to harmonize standards with global norms by benchmarking the United States and the EU. The U.S., U.K., and Australian governments exchange regulatory reform best practices with the ROK government to encourage local regulators to employ more regulatory analytics, increase transparency, and improve compliance with international standards; however, unique local rules and regulations continue to pose difficulties for foreign companies operating in the ROK. The ROK is a member of the WTO and notifies the Committee on Technical Barriers to Trade of all draft technical regulations. The ROK is also a signatory of the Trade Facilitation Agreement (TFA). The ROK amended the ministerial decree of the Customs Act in 2015, creating a committee charged with implementing the TFA. The ROK is a global leader of modernized and streamlined procedures for transportation and customs clearance. Industry sources report the Korea Customs Service enforces rules of origin issues largely in compliance with ROK obligations under its free trade agreements.
Legal System and Judicial Independence
The ROK legal system is based on civil law. Subdivisions within the district and high courts govern commercial activities and bankruptcies and enforce property and contractual rights with monetary judgments, usually levied in the domestic currency. The ROK has a written commercial law, and matters regarding contracts are covered by the Civil Act. There are also three specialized courts in the ROK: patent, family, and administrative courts. The ROK court system is independent and not subject to government interference in cases that may affect foreign investors. Foreign court judgments, with the exception of foreign arbitral rulings that meet certain conditions, are not enforceable in the ROK. Rulings by district courts can be appealed to higher courts and to the Supreme Court.
Laws and Regulations on Foreign Direct Investment
The ROK has a transparent legal system with a strong rule-of-law tradition and an independent judiciary. FIPA is the principal basic law pertaining to foreign investment in the ROK. The Invest KOREA website (http://investkorea.org) provides information on relevant laws, rules, and procedures for foreign investment in the ROK.
Laws and regulations enacted within the past year include:
- On August 5, 2020, three new data protection laws took effect: the Personal Information Protection Act (PIPA), the Promotion of Information Communications Network Utilization and Information Protection Act (the “Network Act”), and the Use and Protection of Credit Information Act (the “Credit Information Act”). These laws are intended to strengthen privacy rights by reducing unnecessary collection of personal information and prohibiting its unauthorized use or disclosure.
- On April 6, 2021, an amended Labor Standards Act (LSA) took effect. The amendments modify certain restrictions on allowable work hours for employees and add certain health and safety requirements for overtime labor.
Key pending/proposed laws and regulations as of April 2021 include:
- On September 28, 2020, the Ministry of Justice proposed bills expanding the scope of class action lawsuits and to provide for punitive damages.
- On December 9, 2020, the National Assembly passed amendments to the Trade Union and Labor Relations Adjustment Act (TULRAA). The revised TULRAA is intended to bring ROK law into compliance with International Labor Organization standards and is scheduled to take effect on July 6, 2021.
- On January 6, 2021, the Personal Information Protection Committee (PIPC) of the National Assembly proposed an amendment to the Personal Information Protection Act (PIPA) to define how businesses may use personal information and to strengthen protection of personal information.
- On January 8, 2021, the National Assembly passed the Serious Accident Penalty Act (SAPA), to take effect one year after promulgation. The SAPA establishes new health-and-safety obligations for businesses and executives and imposes stiff penalties on those that fail to comply.
Competition and Antitrust Laws
The Monopoly Regulation and Fair Trade Act (MRFTA) authorizes the Korea Fair Trade Commission (KFTC) to review and regulate competition and consumer safety matters.
KFTC has a broad mandate that includes promoting competition, strengthening consumers’ rights, and creating a suitable environment for SMEs. In addition to investigating corporate and financial restructuring, the KFTC can levy sizeable administrative fines for violations of law and for failure to cooperate with investigators. Decisions by KFTC are subject to appeal in Korean courts. As part of KORUS implementation, KFTC instituted a “consent decree” process in 2014, whereby firms can settle disputes with KFTC without resorting to the court system.
Over the last several years, a number of U.S. firms have raised concerns that KFTC targets foreign companies with aggressive enforcement. An amendment to the MRFTA in September 2020 improved the administrative decision-making process by the KFTC, including permitting access to confidential business information, limited to outside legal counsel, in order to protect possible trade secrets.
Expropriation and Compensation
The ROK follows generally-accepted principles of international law with respect to expropriation. ROK law protects foreign-invested enterprise property from expropriation or requisition. Private property can be expropriated for public purposes such as urban redevelopment, new industrial complexes, or constructing roads, and claimants are afforded due process and compensation. Private property expropriation in the ROK for public use is generally conducted in a non-discriminatory manner, with claimants compensated at or above market value. Embassy Seoul is aware of one case in which a U.S. investor filed an investor-state dispute lawsuit in 2018 against the ROK government, claiming that the government had violated the KORUS FTA in expropriating the investor’s land. The case was dismissed in the ROK judicial system on jurisdictional grounds in September 2019. The ROK government allotted USD 20 billion in its 2019 budget for land expropriation – a 38 percent increase from the previous year.
ICSID Convention and New York Convention
The ROK acceded to the International Centre for Settlement of Investment Disputes (ICSID) in 1967 and the New York Arbitration Convention in 1973. While there are no specific domestic laws on enforcement, South Korean courts have made rulings based on the ROK’s membership in the conventions.
Investor-State Dispute Settlement
The ROK is a member of the International Commercial Arbitration Association and the World Bank’s Multilateral Investment Guarantee Agency. These bodies can call upon ROK courts to enforce an arbitrated settlement. When drafting contracts, some firms choose arbitration by a third party such as the International Commercial Arbitration Association. Companies have access to local expert legal counsel when drawing up contracts with a South Korean entity. The KORUS FTA contains strong, enforceable investment provisions. The United States also has a bilateral Treaty of Friendship, Commerce, and Navigation with the ROK with general provisions pertaining to business relations and investment. Foreign court judgments, with the exception of foreign arbitral rulings that meet certain conditions, are not enforceable in the ROK. There is no history of extrajudicial action against foreign investors. As noted above, one U.S. investor filed an investor-state dispute (ISD) lawsuit in 2018 against the ROK government, claiming that the government had violated the KORUS FTA in expropriating the investor’s land. The case was dismissed on jurisdictional grounds in September 2019. A U.S. activist fund submitted a notice of arbitration over an ISD pertaining to the KORUS FTA, also in 2018. This firm claimed to have suffered serious financial losses due to the merger of two large conglomerates, stating the ROK government illicitly intervened by mobilizing the National Pension Service as a large shareholder in the process of approving the merger. Another U.S. investor filed for arbitration seeking compensation for losses incurred from the same controversial merger. Both cases are pending before a United Nations Commission on International Trade Law (UNCITRAL) tribunal.
International Commercial Arbitration and Foreign Courts
ROK civil courts can adjudicate commercial disputes, though foreign firms note the following impediments to litigation:
- Proceedings are conducted in Korean;
- ROK law prohibits foreign lawyers who have not passed the Korean Bar Examination from representing clients in ROK courts;
- Civil procedures common in the United States such as pretrial discovery do not exist in the ROK; and
- During litigation of a dispute, courts may bar foreign citizens from leaving the country until the court reaches a decision.
Due to the expense and time required to obtain judgement, lawsuits are generally initiated only as a last resort, signaling the end of a business relationship. ROK law governs commercial activities and bankruptcies, with the judiciary serving as the means to enforce property and contractual rights, usually through monetary judgments levied in the domestic currency.
Firms may also bring commercial disputes before the Korean Commercial Arbitration Board (KCAB). The Korean Arbitration Act and its implementing rules outline the following sequential steps in the arbitration process: 1) Parties may request the KCAB to act as an informal intermediary to a settlement; 2) if informal arbitration is unsuccessful, either or both parties may request formal arbitration, in which the KCAB appoints a mediator to conduct conciliatory talks for 30 days; and 3) if formal arbitration is unsuccessful, the KCAB assigns an arbitration panel consisting of one-to-three arbitrators to decide the case. If either party is not resident in the ROK, either may request an arbitrator from a neutral country. If foreign arbitral awards or foreign court rulings meet the requirements of Civil Procedure Act Article 217, local courts can enforce their terms. ROK authorities emphasize non-discriminatory arbitration of disputes, but statistics on outcomes are unavailable. Embassy Seoul is not aware of statistics on court rulings on investment disputes with state-owned enterprises.
The Debtor Rehabilitation and Bankruptcy Act (DRBA) stipulates that bankruptcy is a court-managed liquidation procedure where both domestic and foreign entities are afforded equal treatment. The procedure commences after a filing by a debtor, creditor, or a group of creditors, and determination by the court that a company is bankrupt. The court designates a Custodial Committee to take an accounting of the debtor’s assets, claims, and contracts. The Custodial Committee may grant voting rights among creditors. Shareholders and contract holders may retain their rights and responsibilities based on shareholdings and contract terms. The World Bank ranked ROK policies and mechanisms to address insolvency 11th among 190 economies in its 2020 Doing Business report. Debtors may be subject to arrest once a bankruptcy petition has been filed, even if the debtor has not been declared bankrupt. Individuals found guilty of negligent or false bankruptcy are subject to criminal penalties. The Seoul Bankruptcy Court (SBC) has nationwide jurisdiction to hear major bankruptcy or rehabilitation cases and to provide effective, specialized, and consistent guidance in bankruptcy proceedings. Any Korean company with debt equal to or above KRW 50 billion (about USD 44 million) and/or 300 or more creditors may file for bankruptcy rehabilitation with the SBC. Thirteen local district courts continue to oversee smaller bankruptcy cases in areas outside Seoul.
4. Industrial Policies
The ROK government provides the following general incentives for foreign investors:
- Cash incentives for qualified foreign investments in free trade zones, foreign investment zones, free economic zones, industrial complexes, and similar facilities;
- Tax and cash incentives for the creation and expansion of workplaces for high-tech businesses, factories, and research and development centers;
- Reduced rent for land and site preparation;
- Grants for establishment of community facilities for foreigners;
- Reduced rent for state or public property; and
- Preferential financial support for investing in major infrastructure projects.
Additionally, the ROK government provides incentives for investments that would increase ROK-based production of materials, parts, and equipment in six critical industrial sectors: semiconductors, displays, automobiles, electronics, machinery, and chemicals. The Seoul Metropolitan government provides separate support for SMEs, high-technology businesses, and the biomedical industry.
Note that corporate tax exemption for foreign direct investment is limited to firms registered by the end of 2018. The ROK government does not issue guarantees or jointly finance foreign direct investment projects.
Foreign Trade Zones/Free Ports/Trade Facilitation
The Ministry of Economy and Finance (MOEF) 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 – Free Economic Zones, Free Investment Zones, and Tariff-Free Zones – where favorable tax incentives and other support for investors are available. The ROK aims to attract more foreign investment by promoting its seven Free Economic Zones: Incheon (near Incheon airport); Busan/Jinhae (in South Gyeongsang Province); Gwangyang Bay (in South Gyeongsang Province); Gyeonggi (in Gyeonggi Province); Daegu/Gyeongbuk (in North Gyeongsang Province); East Coast (in Donghae and Gangneung); and Chungbuk (in North Chungcheong Province). Additional information is available at http://www.fez.go.kr/global/en/index.do. There are also 26 Foreign Investment Zones designated by local governments to accommodate industrial sites for foreign investors. Special considerations for foreign investors vary among these zones. In addition, there are four foreign-exclusive industrial complexes in Gyeonggi Province designed to provide inexpensive land, with the national and local governments providing assistance for leasing or selling in the sites at discounted rates.
Performance and Data Localization Requirements
There are no ROK requirements that firms hire local workers. Foreigners planning to work during their stay in the ROK are required by law to apply for a visa. Sponsoring employers file work permits and visa applications. Hiring firms are required to confirm that prospective employees of foreign nationality have a valid work permit prior to making a job offer. Once approved, the Ministry of Justice will issue a Certificate of Confirmation of Visa Issuance (CCVI) to the foreign worker. The worker submits this certificate with the relevant visa application forms to the ROK embassy or consulate in the applicant’s country of residence. Work visas are usually valid for one year, and issuance generally takes two to four weeks. Changing a tourist visa to a work visa is not possible within the ROK; applicants for work visas must submit their applications to an ROK embassy or consulate. The ROK has not imposed performance requirements on new foreign investment since 1992; there are no performance requirements regarding local content, local jobs, R&D activity, or domestic shares in the company’s capital. Other conditions to invest in the ROK are elaborated in FIPA.
5. Protection of Property Rights
Property rights and interests are enforced under the Civil Act. The Alien Land Acquisition Act (amended in 1998) extends to non-resident foreigners and foreign corporations the same rights as Koreans in land purchase and use. The Real Estate Investment Trust (REIT) Act supports 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. Property rights are enforced, and there is a reliable system for registering mortgages and liens, managed by the courts. Legally-purchased property cannot revert to other owners. Squatters may have limited rights to cultivation of unoccupied land.
Intellectual Property Rights
Four ROK ministries share responsibility for protection and enforcement of intellectual property rights (IPR): The Ministry of Culture, Sports and Tourism (MCST); the Korea Copyright Protection Agency (KCOPA); the Korean Intellectual Property Office (KIPO); and the Korea Customs Service (KCS). Since being removed from USTR’s Special 301 Watch List in 2009, the ROK has become a regional leader of legal IPR frameworks and enforcement of IPR.
The Ministry of Culture, Sports and Tourism announced in January 2021 a plan to fully revise the Copyright Act to reflect a move toward online platforms. The amendments aim to implement a system of extended collective licensing, remuneration management, adoption of rights of publicity, updated concepts of digital transmission, and data mining for promotion of machine learning and big data analysis.
Industry sources have expressed overall satisfaction with the ROK legal framework, calling the ROK a model for IPR protection in Asia. In July 2019, an amendment to the Unfair Competition Prevention and Trade Secret Protection Act entered into force with the following broad effects: Reduced requirements for secrecy by information owners, broadened scope of what constitutes “theft,” and increased statutory punishments for trade secret theft. KIPO suspended 10,446 online transactions in 2020, up from 7,662 cases in 2019, and closed 394 illegal online shopping malls in 2020, up from 340 in 2019. Since April 2019, KIPO rewards private citizens for reporting counterfeit goods for sale online, identifying 121,536 cases in 2019 and 126,542 in 2020. KCS handled 176 border enforcement cases in 2020 for goods worth an estimated USD 237 million. Trademark enforcement accounted for over 88 percent of cases, mostly for counterfeit watches, handbags, and apparel. KCS focused its enforcement efforts on online overseas direct purchases, which rose 40 percent by volume and 20 percent by value year-on-year in 2020. KCS also promoted IPR protection by posting public service announcements on public transportation and social media.
Some industry sources have expressed concern that the ROK’s low prosecution-to-indictment ratio in IPR violation cases, light sentencing standards, and low punitive damage assessments may not sufficiently deter infringement activity. Stakeholders continue to express concern about Korea’s pharmaceutical reimbursement policy, specifically that it is not conducted in a fair and transparent manner that fully recognizes the value of innovation.
The ROK was not listed in the 2020 Special 301 Report, nor were any ROK-based physical or online markets included in the 2019 Notorious Markets List. For additional information about national laws and points of contact at local intellectual property offices, please see the World Intellectual Property Organization’s country profiles at http://www.wipo.int/directory/en/.
7. State-Owned Enterprises
Many ROK state-owned enterprises (SOEs) continue to exert significant control over the economy. There are 36 SOEs active in the energy, real estate, and infrastructure (i.e., railroad and highway construction) sectors. The legal system has traditionally ensured a role for SOEs as sectoral leaders, but in recent years, the ROK has sought to attract more private participation in the real estate and construction sectors. SOEs are currently subject to the same regulations and tax policies as private sector competitors and do not have preferential access to government contracts, resources, or financing. The ROK is party to the WTO Government Procurement Agreement; a list of SOEs subject to WTO government procurement provisions is available in Annex 3 of Appendix I to the Government Procurement Agreement (GPA). The state-owned Korea Land and Housing Corporation enjoys privileged status on state-owned real estate projects, notably housing. The court system functions independently and gives equal treatment to SOEs and private enterprises. The ROK government does not provide official market share data for SOEs. It requires each entity to disclose financial information, number of employees, and average compensation figures. The PIMA gives the Ministry of Economy and Finance oversight authority over many SOEs, mainly pertaining to administration and human resource management. However, there is no singular government entity that exercises ownership rights over SOEs. SOEs subject to PIMA must report to a cabinet minister. Alternatively, the ROK President or relevant cabinet minister appoints a CEO or director, often from among senior government officials. PIMA explicitly obligates SOEs to consult with government officials on budget, compensation, and key management decisions (e.g., pricing policy for energy and public utilities). For other issues, government officials informally require either prior consultation or subsequent notification of SOE decisions. Market analysts generally acknowledge the de facto independence of SOEs listed on local security markets, such as the Industrial Bank of Korea and Korea Electric Power Corporation; otherwise, SOEs are regarded either as fully-guaranteed by the government or as parts of the government. The ROK adheres to the OECD Guidelines for Multinational Enterprises and reports significant changes in the regulatory framework for SOEs to the OECD. A list of South Korean SOEs is available in Korean at: http://www.alio.go.kr/home.html. The ROK government does not confer advantages on SOEs competing in the domestic market. Although the state-owned Korea Development Bank may enjoy lower financing costs because of a governmental guarantee, this does not appear to have a major effect on U.S. retail banks operating in Korea.
Privatization of government-owned assets has historically faced protests by labor unions and professional associations, and has sometimes suffered a lack of interested buyers. No state-owned enterprises were privatized between 2002 and November 2016. In December 2016, the ROK sold part of its stake in Woori Bank, recouping USD 2.1 billion, and plans to sell its remaining stake gradually by 2022. As of March 2021, the government holds a 17.25 percent stake in Woori Bank. Most analysts do not expect significant movement toward privatization in the near future. Foreign investors may participate in privatization programs if they comply with ownership restrictions stipulated for the 30 industrial sectors indicated in the FETA (see Section 1: Openness To, and Restrictions Upon, Foreign Investment). These programs have a public bidding process that is clear, non-discriminatory, and transparent.
8. Responsible Business Conduct
Awareness of the economic and social value of responsible business conduct and corporate social responsibility (CSR) continues to grow in the ROK. The Korea Corporate Governance Service, founded in 2002 by entities including the Korea Exchange and the Korea Listed Companies Association, encourages companies to voluntarily improve their corporate governance practices. Since 2011, its annual assessments have included guidelines and CSR reviews, including of corporate environmental responsibility. The United Nations Global Compact (UNGC) Network Korea, established in 2007, actively promotes corporate involvement in the UN Public Private Partnership for Sustainable Development Goals 2016-2030. UNGC is focused on human rights, anti-corruption, labor standards, and the environment, with 231 ROK companies listed as UNGC members as of April 2020. Government subsidies and tax reductions for social enterprises have contributed to an increase in the number of organizations tackling social issues related to unemployment, the environment, and low-income populations. The ROK government promotes the OECD Guidelines for Multinational Enterprises online via seminars and by publishing and distributing promotional materials. To enhance implementation, the ROK government established a National Action Plan overseen by the Ministry of Justice’s International Human Rights Division, designated a National Contact Point (NCP), and assigned the Korean Commercial Arbitration Board (KCAB) as the NCP Secretariat. The KCAB handled 443 cases in 2019 with a total claim amount over USD 913 million.
The National Human Rights Commission, the Ministry of Employment and Labor (MOEL), the Korea Consumer Agency, and the Ministry of Environment impartially enforce ROK laws in the fields of human rights, labor, consumer protection, and the environment. Shareholder rights are protected by the Act on External Audit of Stock Companies under the jurisdiction of the Financial Services Commission, the Act on Monopoly Regulation and Fair Trade under the jurisdiction of the KFTC, and the Commercial Act under the jurisdiction of the Ministry of Justice. The Commercial Act was revised in December 2020 to better protect minority shareholders. Other organizations involved in responsible business conduct include the ROK office of the Trade Union Advisory Committee to the OECD, the Korea Human Rights Foundation, and the Korean House for International Solidarity. The Korea Sustainability Investing Forum (KOSIF) was established in 2007 to promote and expand socially responsible investment and CSR. Through regular fora, seminars, and publications, KOSIF provides educational opportunities, conducts research to establish a culture of socially responsible investment in the ROK, and supports relevant legislative processes.
The ROK has no regulations to prevent conflict minerals from entering supply chains; however, MOTIE supports companies’ voluntary adherence to OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas. ROK companies are obligated to follow regulations on conflict minerals by export destination countries. The Korea International Trade Association and private sector firms provide consulting services to companies seeking to comply with conflict-free regulations. The ROK is not a member of the Extractive Industries Transparency Initiative. It has participated in the Kimberly Process since 2012. The ROK government is taking measures to guarantee transparency through the Mining Act, Overseas Resources Development Business Act, and other relevant laws on taxation, environment, labor, and bribery, as well as through the OECD Guidelines for Multinational Enterprises. The ROK is not a signatory to international agreements on private military or security industries, and the ROK’s small security sector focuses primarily on commercial contracts.
Department of State
- Country Reports on Human Rights Practices (https://www.state.gov/reports-bureau-of-democracy-human-rights-and-labor/country-reports-on-human-rights-practices/)
- Trafficking in Persons Report (https://www.state.gov/trafficking-in-persons-report/)
- Guidance on Implementing the UN Guiding Principles for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities (https://www.state.gov/key-topics-bureau-of-democracy-human-rights-and-labor/due-diligence-guidance/)
- North Korea Sanctions & Enforcement Actions Advisory (https://home.treasury.gov/system/files/126/dprk_supplychain_advisory_07232018.pdf)
Department of Labor
- Findings on the Worst Forms of Child Labor Report (https://www.dol.gov/agencies/ilab/resources/reports/child-labor/findings )
- List of Goods Produced by Child Labor or Forced Labor (https://www.dol.gov/agencies/ilab/reports/child-labor/list-of-goods)
- Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World (https://www.dol.gov/general/apps/ilab)
- Comply Chain (https://www.dol.gov/ilab/complychain/)
In an effort to combat corruption, the ROK has introduced systematic measures to prevent the illegal accumulation of wealth by civil servants. The 1983 Public Service Ethics Act requires high-ranking officials to disclose personal assets, financial transactions, and gifts received during their terms of office. The Act on Anti-Corruption and the Establishment and Operation of the Anti-Corruption and Civil Rights Commission of 2008 (previously called the “Anti-Corruption Act”) concerns reporting of corruption allegations, protection of whistleblowers, and training and public awareness to prevent corruption; the act also establishes national anti-corruption initiatives through the Anti-Corruption and Civil Rights Commission (ACRC). Implementation is behind schedule, according to Transparency International, which ranked the ROK 33 out of 180 countries and territories in its 2020 Corruption Perception Index with a score of 61 out of 100 (with 100 being the best score). The Department of State’s 2019 ROK Human Rights Report highlighted allegations of corruption levied against former Minister of Justice Cho Kuk in October 2019. Former ROK presidents Park Geun-hye and Lee Myung-bak were found guilty in separate corruption trials in 2018; the ROK Supreme Court upheld both verdicts in January 2021 and October 2020, respectively, and both remain imprisoned. Political corruption at the highest levels of elected office has occurred despite more recent efforts by the ROK legislature to pass and enact anti-corruption laws such as the Act on Prohibition of Illegal Requests and Bribes, also known as the Kim Young-ran Act, in March 2015. This law came into effect on September 28, 2016, and institutes strict limits on the value of gifts that can be given to public officials, lawmakers, reporters, and private school teachers. It also extends to spouses of such persons. The Act on the Protection of Public Interest Whistleblowers is designed to protect whistleblowers in the private sector and equally extends to reports on foreign bribery; the law also establishes an ACRC-operated reporting center.
A 2014 ferry disaster that resulted in the deaths of 304 passengers brought to public attention collusion between government regulators and regulated industries. Investigators determined that companies associated with the vessel had used insider knowledge and government contacts to skirt legal requirements by hiring recently-retired government officials. In response, the ROK government tightened regulations for hiring former government officials. This reform expanded the number of sectors restricted from employing former government officials, extended the employment ban from two to three years, and increased scrutiny of retired officials employed in fields associated with their former duties. The Public Service Ethics Commission, between May 2017 and February 2019, approved approximately 85 percent, or 1,335, of the requests made by former political appointees and government officials to accept government-affiliated or private sector positions, according to local press. Most companies maintain an internal audit function to detect and prevent corruption. The Board of Audit and Inspection, which monitors government expenditures, and the Public Service Ethics Committee, which monitors civil servants’ financial activities and disclosures are official agencies responsible for combating government corruption. The ACRC focuses on preventing corruption by assessing the transparency of public institutions, protecting and rewarding whistleblowers, training public officials, raising public awareness, and improving policies and systems. The Act on the Prevention of Corruption and the Establishment and Management of the Anti-Corruption and Civil Rights Commission, along with and the Protection of Public Interest Reporters Act, protects nongovernment organizations and civil society groups reporting cases of corruption to government authorities. In April 2018, laws were updated to allow individuals filing allegations of corruption to report cases through attorneys without disclosing their identities to the courts. Violations of these legal protections can result in fines or prison sentences. U.S. firms have not identified corruption as an obstacle to FDI. The ROK ratified the UN Convention against Corruption in 2008. It is also a party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions and a member of the Asia-Pacific Economic Cooperation Anti-Corruption and Transparency Working Group. The ROK Financial Intelligence Unit cooperates with U.S. and UN efforts to disrupt sources of terrorist financing. Transparency International has maintained a national chapter in the ROK since 1999.
Resources to Report Corruption
Government agency responsible for combating corruption:
Anti-Corruption and Civil Rights Commission
Government Complex-Sejong (7-dong), 20, Doum 5-ro, Sejong-si 339-012
Tel: +82-44-200-7151 (International Relations Division)
Anti-corruption non-government organization:
10. Political and Security Environment
Relations between the ROK and the Democratic People’s Republic of Korea (DPRK) are tense despite rapprochement efforts in 2018, and the two Koreas maintain one of the world’s most heavily-fortified borders. The United States has had a security alliance with the ROK since 1953, with over 28,000 U.S. troops currently stationed in the ROK. The presence of U.S. forces has ensured stability on the Korean Peninsula since 1953 and has enabled the ROK to grow into a modern, prosperous democracy boasting one of the world’s largest economies in 2020. The two Koreas committed at an April 2018 inter-Korean summit to reduce military tensions on the border and to work toward a permanent peace regime on the Korean Peninsula. Likewise, in the June 2018 Singapore Summit between former President Trump and Chairman Kim Jong Un, the United States and DPRK agreed to work toward the transformation of U.S.-DPRK relations, the construction of a lasting and stable peace regime on the Korean Peninsula, the complete denuclearization of the Korean Peninsula, and the recovery and repatriation of POW/MIA remains from the Korean War. A subsequent summit in Hanoi in February 2019 and a meeting at the inter-Korean Joint Security Area in June 2019 did not result in further breakthroughs.
The ROK’s relations with Japan remained strained in 2021, primarily due to the ROK Supreme Court’s 2018 decisions directing Japanese companies to compensate South Koreans subjected to forced labor during World War II, including the court-directed seizure of defendant company assets, as well as Japan’s subsequent tightening of export controls against the ROK in 2019. This prompted consumer boycotts in the ROK against Japanese goods, causing a significant drop in local sales for certain products, including beer and automobiles, as well as at certain Japanese retail chains.
Public health experts and economists gave the ROK government under President Moon Jae-in overall high marks on its management of the COVID-19 pandemic, as infections were kept to lower levels than many other OECD countries without the adoption of draconian restrictions. In the first few years of the Moon administration the ruling Democratic Party (DP), with its near-super majority in the National Assembly, was able to unilaterally advance many of its policy priorities, particularly in the area of judicial reform. By the start of 2021, steep rises in the price of housing and a string of scandals involving Moon’s senior officials and DP lawmakers, including a high-profile land speculation scandal that broke weeks before key by-elections in Seoul and Busan, damaged the standing of the ruling party and resulted in rising public support for the main opposition People Power Party. Nevertheless, the Moon administration welcomed the arrival of the Biden-Harris administration and its renewed focus on strengthening strategic alliances, with both governments exploring renewed cooperation in topics such as climate change, public health, supply chain cooperation, and cyber issues.
The ROK does not have a history of political violence directed against foreign investors. There have not been reports of politically-motivated threats of damage to foreign-invested projects or foreign-affiliated 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. There have also been protests in the past directed at U.S. economic, political, and military interests (e.g., beef imports in 2008 or deployment of Terminal High Altitude Area Defense in 2017 with protests continuing into 2021). The ROK is a modern democracy with active public political participation, and well-organized political demonstrations are common. For example, large-scale rallies were a regular occurrence throughout former President Park Geun-hye’s impeachment proceedings in 2016 and 2017. The protests were peaceful and orderly. The presidential by-election and transition that followed Park’s impeachment proceeded smoothly and without incident.
11. Labor Policies and Practices
Upon taking office in May 2017, President Moon Jae-in declared himself the “Jobs President,” and his administration has introduced a number of employment-related reforms since then. In an attempt to reduce the ROK’s notoriously long working hours, the Moon administration introduced a mandatory 52-hour workweek regulation in July 2018. Domestic and foreign companies, however, expressed concern that the measure added further rigidity to the ROK’s already inflexible labor market. According to Statistics Korea (http://kostat.go.kr/portal/eng/index.action), there were approximately 28 million economically active people in the ROK as of January 2021, with an employment rate (OECD standard) of approximately 57 percent. The overall unemployment rate of 5.7 percent in January 2021 is much less than the 9.5 percent unemployment rate of youth aged 15-29. The country has two major national labor federations. As of December 2020, the Federation of Korean Trade Unions (FKTU) had 1,018,358 members, and the Korean Confederation of Trade Unions (KCTU) had 1,044,672 members. FKTU and KCTU are affiliated with the International Trade Union Confederation. Most of FKTU’s constituent unions maintain affiliations with international union federations.
The minimum wage is reviewed annually. Labor and business set the minimum wage for 2021 at KRW 8,590,720 (approximately USD 8 per hour), a 21.5 percent increase from 2020. According to Statistics Korea, non-regular workers received 62.8 percent of the wages of regular workers in 2020. Non-regular workers on contracts stipulating monthly pay received KRW 1.73 million per month (about USD 1,575) while regular workers paid monthly received KRW 3.36 million (about USD 3,050).
For regular, full-time employees, the law provides for employment insurance, national medical insurance, industrial accident compensation insurance, and participation in the national pension system through employers or employer subsidies. Non-regular workers, such as temporary and contracted employees, are not guaranteed the same benefits. Regarding severance pay for regular workers, ROK law does not distinguish between firing versus laying off an employee for economic reasons. Employers’ reliance on non-regular workers is partially explained by cost savings associated with dismissing regular full-time employees and re-hiring non-regular workers. In 2004, the ROK implemented a “guest worker” program known as the Employment Permit System (EPS) to help protect the rights of foreign workers. The EPS allows employers to legally employ a certain number of foreign workers from 16 countries, including the Philippines, Indonesia, and Vietnam, with which the ROK maintains bilateral labor agreements. In 2020, the ROK increased its annual quota to 56,000 migrant workers. At the end of 2020, approximately 181,073 foreigners were working under the EPS in the manufacturing, construction, agriculture, livestock, service, and fishing industries.
Legally, unions operate autonomously from the government and employers, although national labor federations comprised of various industry-specific unions receive annual government subsidies. The ratio of organized labor to the entire population of wage earners at the end of 2019 was 12.5 percent. ROK trade union participation is lower than the latest-available OECD average of 16 percent in 2016. More information is available at http://stats.oecd.org/. Labor organizations are free to organize in export processing zones (EPZs), but foreign companies operating in EPZs are exempt from some labor regulations. Exemptions include provisions that mandate paid leave, require companies with more than 50 employees to recruit persons with disabilities for at least two percent of their workforce, and restrict large companies from participating in certain business categories. Foreign companies operating in Free Economic Zones have greater flexibility to employ “non-regular” workers in a wider range of sectors for extended contractual periods. ROK law affords workers the right of free association and allows public servants and private workers to organize unions. The Trade Union and Labor Relations Adjustment Act provides for the right to collective bargaining and action, and allows workers to exercise these rights in practice.
The National Labor Relations Commission is the primary government body responsible for labor dispute resolution. It offers arbitration and mediation services in response to dispute resolution requests submitted by employees, employers, or both parties together. Labor inspectors from the Ministry of Employment and Labor also have certain legal authorities to participate in labor dispute settlement. The Korea Workers’ Compensation and Welfare Service handles labor disputes resulting from industrial accidents or disasters. In June 2018, the ROK President established the Economic, Social and Labor Council to serve as an advisory group on economic and labor issues. The Act on the Protection of Fixed-Term and Part-Time Workers prohibits discrimination against non-regular workers and requires firms to convert non-regular workers employed longer than two years to permanent status. The two-year rule went into effect for all businesses on July 1, 2009. Both the labor and business sectors have complained that the two-year conversion law forced many businesses to limit the contract terms of non-regular workers to two years and incur additional costs with the entry of new contract employees every two years. More information can be found in the Department of State’s Report on Human Rights Practices for 2020: https://www.state.gov/reports/2020-country-reports-on-human-rights-practices/south-korea/.