HomeReportsInvestment Climate Statements...Custom Report - ac5a451515 hide Investment Climate Statements Custom Report Excerpts: South Korea Bureau of Economic and Business Affairs Sort by Country Sort by Section In this section / South Korea Executive Summary 1. Openness To, and Restrictions Upon, Foreign Investment 13. Foreign Direct Investment and Foreign Portfolio Investment Statistics 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 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: Completely Closed 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. Business Facilitation 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. Outward Investment 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. 13. Foreign Direct Investment and Foreign Portfolio Investment Statistics Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy Host Country Statistical source* USG or international statistical source USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other Economic Data Year Amount Year Amount Host Country Gross Domestic Product (GDP) ($M USD) 2019 1,646,330 2019 $1,646,739 https://data.worldbank.org/country/korea-rep Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data: BEA; IMF; Eurostat; UNCTAD, Other U.S. FDI in partner country ($M USD, stock positions) 2019 $35,933 2019 $39,105 BEA data available at https://www.bea.gov/international/ direct-investment-and-multinational-enterprises-comprehensive-data Host country’s FDI in the United States ($M USD, stock positions) 2019 $120,808 2019 $61,822 BEA data available at https://www.bea.gov/international/ direct-investment-and-multinational-enterprises-comprehensive-data Total inbound stock of FDI as % host GDP 2019 13.6% 2019 14.5% UNCTAD data available at https://unctad.org/en/Pages/DIAE/World%20Investment%20 Report/Country-Fact-Sheets.aspx *ROK Sources: GDP – http://ecos.bok.or.kr (as of March 2021); inbound FDI – http://www.motie.go.kr (as of March 2021); outbound FDI – http://www.koreaexim.go.kr (as of March 2021); portfolio investment – http://www.fss.or.kr (as of March 2021) Table 3: Sources and Destination of FDI Direct Investment from/in Counterpart Economy Data From Top Five Sources/To Top Five Destinations (US Dollars, Millions) Inward Direct Investment Outward Direct Investment Total Inward $219,137 100% Total Outward $418,832 100% Japan $53,951 24.6% United States $100,239 23.9% United States $35,102 16% China, P.R. (Mainland) $82,323 19.7% Netherlands $20,249 9.2% Vietnam $24,501 5.8% Singapore $16,287 7.4% Cayman Islands $18,764 4.5% United Kingdom $15,535 7% Singapore $18,653 4.5% Note that ROK data differs significantly due to different calculation methods and data sources. Table 4: Sources of Portfolio Investment Portfolio Investment Assets Top Five Partners (Millions, US Dollars) Total Equity Securities Total Debt Securities All Countries $572,011 100% All Countries $344,704 100% All Countries $227,308 100% United States $254,129 44% United States $161,543 47% United States $92,586 41% United Kingdom $36,100 6% Luxembourg $24,458 7% France $18,724 8% Luxembourg $30,373 5% Japan $19,396 6% United Kingdom $16,901 7% France $27,897 5% United Kingdom $19,199 6% Brazil $10,538 5% Japan $26,878 5% Cayman Islands $14,024 4% Australia $9,944 4% Note that ROK data differs significantly due to different calculation methods and data sources. Edit Your Custom Report
