South Korea

Executive Summary

The Republic of Korea (ROK) offers foreign investors political stability, public safety, world-class infrastructure, a highly skilled workforce, and a dynamic private sector.  Following market liberalization measures in the 1990s, foreign portfolio investment has grown steadily, exceeding 36 percent of the Korea Composite Stock Price Index (KOSPI) total market capitalization as of February 2021.

Studies by the Korea International Trade Association, however, have shown that the ROK underperforms in attracting FDI relative to the size and sophistication of its economy due to a complicated, opaque, and country-specific regulatory framework, even as low-cost producers, most notably China, have eroded the ROK’s competitiveness in the manufacturing sector.  A more benign regulatory environment will be crucial to foster innovations such as fifth generation (5G) mobile communications that enable smart manufacturing, autonomous vehicles, cloud computing, and the Internet of Things – technologies that could fail to mature under restrictive regulations that do not align with global standards.  The ROK government has taken steps to address regulatory issues over the last decade, notably with the establishment of a Foreign Investment Ombudsman to address the concerns of foreign investors.  In 2019, the ROK government created a “regulatory sandbox” program to spur creation of new products in the financial services, energy, and tech sectors.  Industry observers recommend additional procedural steps to improve the investment climate, including Regulatory Impact Analyses (RIAs) and wide solicitation of substantive feedback from foreign investors and other stakeholders.

The revised U.S.-Korea Free Trade Agreement (KORUS) entered into force January 1, 2019, and helps secure U.S. investors broad access to the ROK market.  Types of investment assets protected under KORUS include equity, debt, concessions, and intellectual property rights.  With a few exceptions, U.S. investors are treated the same as ROK investors in the establishment, acquisition, and operation of investments in the ROK.  Investors may elect to bring claims against the government for alleged breaches of trade rules under a transparent international arbitration mechanism.

The ROK’s COVID-19 response has been exemplary, serving as a global role model.  It has been science-driven, with the Korea Disease Control and Prevention Agency leading from day one; transparent, with public health experts briefing the public almost every day; and trusted, with public compliance on social distancing guidelines, including universal mask-wearing.  Largely due to successful handling of COVID-19, including through sound fiscal and monetary responses, the ROK was able to manage the pandemic without shutting down the economy, and GDP dropped a mere one percent in 2020.  The ROK government was also aggressive in pursuing economic stimulus, devoting more than USD 220 billion to stimulus in 2020.  As a result, the Korean domestic economy fared better than nearly all its OECD peers.  The risk of a COVID resurgence still looms, and Korea’s export-oriented economy remains vulnerable to external shocks, including supply chain disruptions, going forward.  The attention of the public, the government, and the health establishment has now turned to the task and logistics of mass vaccination.  In late February, the Moon administration launched the vaccination program nationwide, with the goal of achieving herd immunity by November.  President Moon has promised to inoculate all residents for free in 2021, beginning with front-line healthcare workers.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 33 of 180 https://www.transparency.org/cpi2020
World Bank’s Doing Business Report 2020 5 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2020 10 of 131 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, stock positions) 2018 $61,822 https://www.selectusa.gov/servlet/servlet.FileDownload?file=015t0000000LKNs

https://www.bea.gov/sites/default/files/2020-07/dici0720_0.pdf

World Bank GNI per capita 2019 $33,790 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

Investment Climate Statements
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