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 37 percent of the Korea Composite Stock Price Index (KOSPI) total market capitalization as of February 2022.
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 innovative 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 inside the Korea Trade-Investment Promotion Agency (KOTRA) 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, adding mobility and biohealth in 2021 and 2022. 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 has taken a transparent approach in its COVID-19 response, under the leadership of the Korea Disease Control and Prevention Agency. Public health experts brief the public almost every day and the public has largely complied with social distancing guidelines and universal mask-wearing. These measures largely staved off the disease through the end of 2021, by which time over 80 percent of Koreans had been vaccinated and the government began relaxing social distancing measures. In February and March 2022, however, a new wave fueled by the omicron variant rapidly spread, peaking at over 621,000 positive cases on March 17. As of March 28, 2022, more than 12 million Koreans have tested positive for COVID-19 and total infections rose over ten million and deaths mounted. The pandemic’s economic impact has been limited. GDP dropped a mere one percent in 2020 before recovering by four percent in 2021, in part due to aggressive stimulus including more than USD 220 billion in 2020. As a result, the Korean domestic economy fared better than nearly all its OECD peers. The economic impact of the omicron outbreak remains uncertain, and Korea’s export-oriented economy remains vulnerable to external shocks, including supply chain disruptions and high energy prices, going forward.
|TI Corruption Perceptions Index||2021||32 of 180||http://www.transparency.org/research/cpi/overview|
|Global Innovation Index||2021||5 of 132||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, historical stock positions)||2020||$33,888||https://apps.bea.gov/international/factsheet/|
|World Bank GNI per capita||2020||$32,960||https://data.worldbank.org/indicator/NY.GNP.PCAP.CD|
1. Openness To, and Restrictions Upon, Foreign Investment
2. Bilateral Investment Agreements and Taxation Treaties
As of March 2022, the ROK has 18 FTAs in force, encompassing trade with 58 countries including the United States, and 93 bilateral investment treaties. The ROK has signed (but not ratified) additional FTAs with Indonesia, Israel, and Cambodia. Negotiations for a bilateral FTA with the Philippines have concluded, but the agreement is not yet signed. Ongoing FTA negotiations include a ROK-China-Japan trilateral FTA, and bilateral FTAs with Ecuador, Mercado Común del Sur (Mercosur), Russia, Uzbekistan, 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 the Eurasian Economic Union (Russia, Armenia, Belarus, Kazakhstan, and Kyrgyzstan) and the Pacific Alliance (Mexico, Peru, Columbia, and Chile). Separately, the ROK signed a digital trade agreement with Singapore in 2021, and started accession negotiations for the Digital Economy Partnership Agreement (DEPA). The ROK is taking steps to apply to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and held a public hearing in March 2022.
As of March 2022, the ROK had signed bilateral tax agreements with 94 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 and .
The ROK is a member of the OECD Inclusive Framework on Base Erosion and Profit Shifting and is party to the Inclusive Framework’s October 2021 deal on the two-pillar solution to global tax challenges, including a global minimum corporate tax.
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
4. Industrial Policies
5. Protection of Property Rights
6. Financial Sector
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: . 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.
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 275 ROK companies listed as UNGC members as of March 2022. 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 405 cases in 2020 with a total claim amount over USD 468 million.
The Ministry of Employment and Labor (MOEL), the Korea Consumer Agency, and the Ministry of Environment impartially enforce ROK laws in the labor, consumer protection, and the environment. The National Human Rights Commission makes non-binding recommendations regarding human rights but only reviews discrimination and harassment cases involving private firms. 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.
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 32 out of 180 countries and territories in its 2021 Corruption Perception Index with a score of 62 out of 100 (with 100 being the best score). The Department of State’s 2020 ROK Human Rights Report highlighted allegations of corruption levied against former Minister of Justice Cho Kuk and his relatives in October 2020. 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. Park received a pardon on December 31, 2021. 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.
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. In July 2021, the ACRC announced that the revised Anti-Corruption Rights Act, which allows not only whistleblowers but also respondents to confirm facts, will take effect to solve the issues of infringement of rights and interests. 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.
10. Political and Security Environment
Enshrined by the 1953 Mutual Defense Treaty, the U.S.-ROK alliance has supported the security and stability of the Korean Peninsula and broader region for nearly seven decades. At their May 2021 summit, President Biden and President Moon upgraded our countries’ relationship to a comprehensive partnership – an acknowledgment of the alliance’s evolution from its security-based origins to a future-oriented, multi-pillared relationship. The ROK’s elevation to one of the world’s top ten economies in 2021 and aspirations to build its “Global Korea” brand herald a new era in U.S.-ROK relations, especially as we seek overlap and coordination on our international economic policies.
The ROK and the Democratic People’s Republic of Korea (DPRK) remain separated by the world’s most heavily fortified border. After a flurry of diplomatic engagement in 2018-2019, including three inter-Korean summits and two U.S.-DPRK summits, engagement between the ROK and the DPRK has stagnated as North Korea shut its borders in January 2020 in response to the pandemic and resumed its missile testing in 2021.
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 in July 2019, causing a significant drop in local sales for certain products, including beer and automobiles, as well as at certain Japanese retail chains.
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 the deployment of the Terminal High Altitude Area Defense system in 2017 with protests continuing into 2022). 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.
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. President-elect Yoon Suk-yeol has pledged to ease the 52-hour workweek cap for certain labor-intensive sectors. According to Statistics Korea ( ), there were approximately 28 million economically active people in the ROK as of February 2022, with an employment rate (OECD standard) of approximately 60 percent. The overall unemployment rate of 3.4 percent in February 2022 is much less than the 6.9 percent unemployment rate of youth aged 15-29. The ROK’s female labor force participation rate was 53 percent in 2020. According to the OECD, Korea’s gender wage gap in 2020 stood at 31.5 percent, sharply above the OECD average 12.5 percent. The country has two major national labor federations. As of December 2021, the Federation of Korean Trade Unions (FKTU) had about 1.3 million members, and the Korean Confederation of Trade Unions (KCTU) had just over one million 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 2022 at KRW 9,160 (approximately USD 7.7 per hour), a 5 percent increase from 2021. 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 1,445) while regular workers paid monthly received KRW 3.36 million (about USD 2,808).
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 2021, the ROK’s annual quota stood at 52,000 migrant workers. At the end of 2021, approximately 16,073 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 2020 was 14.2 percent. ROK trade union participation is lower than the latest-available OECD average of 16 percent in 2019. More information is available at . 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. In 2021 during a period of COVID-19 social distancing restrictions which included caps on the size of public gatherings, some labor leaders were arrested when demonstrations exceeded those limits.
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: