THE NEXT WAVE OF FOREIGN
DIRECT INVESTMENT
THE Joongang Daily reportedin January2010 that the number of foreign or foreign- invested companies operating in Korea more than doubled over the last 10 years.
There were 4317 foreign companies doing business
in Korea in 1998 according to the Korea National Tax
Service. By 2009, the number rose to 9612. Foreign
companies are broadly engaged across diverse industry sectors. Most foreign companies are engaged in
the wholesaling business (29%), manufacturing
(21%), or service (21%) sectors.
As the number of foreign companies has grown,
the Korean government has taken steps to make it
easier for foreign companies to invest and do business in Korea. Following the Asian financial crisis of
the late 1990s, Korea adopted the Foreign
Investment Promotion Act. The FIPA eliminated most
restrictions on foreign investment, and in principle
guarantees that foreign-owned companies have the
same rights and legal protections as domestic companies. There are still some industries where foreign
ownership is prohibited or limited to a certain percentage, but for most industries the former restrictions have been repealed.
In recent years Korea has also actively negotiated
bilateral free trade agreements with the United
States, the European Union, the European Free Trade
Area, the Association of Southeast Asian Nations
Hee Chul Kang
Robert W. Wachter
The Korean government is sending the message that
foreign companies are welcome in Korea. The
message is not just rhetorical, it has been backed up.
(ASEAN), Chile and Singapore. The free trade agreements with the US and the EU have not yet been
implemented. The Korea-EU agreement was signed in
2009, and will likely be ratified in 2010.
The Korea-US agreement was signed, but has not
yet received approval by Congress or the Korean
National Assembly. Congressional Democrats have
raised some labor-related objections. Industry groups
in both countries are still lobbying for and against
specific provisions in the treaty. President Obama
threatened to oppose the treaty during the 2008
Presidential campaign, but since that time has not
indicated whether the United States will require that
some provisions be renegotiated. Although the time-line for Congressional approval remains uncertain, the
treaty will very likely come into effect, perhaps with
further modifications. When it does come into effect,
it will be the largest free trade agreement that the
United States has concluded since NAFTA.
The free trade agreements not only reduce tariffs
and other barriers to trade, but they reaffirm the principle of the Foreign Investment Promotion Act, which
guarantees that foreign-invested companies have the
same legal rights as Korean-owned companies. In
addition to these formal protections, Korean governmental agencies are also making a conscious effort to
become more user friendly to foreign companies and
foreign investors. In recent years many other Korean
governmental agencies have introduced English language websites to assist foreign investors and foreigners living in Korea. Now some agencies are going
a step further. The Financial Supervisory Commission,
which is charged with overseeing the financial industry, reported this month that it will start conducting
weekly briefings in English on its website.
The Korean government is sending the message
that foreign companies are welcome in Korea. The
message is not just rhetorical, it has been backed up
by real action. The World Bank’s International
Finance Corporation publishes annual statistics that
quantify the relative ease or difficulty of doing business in 187 different countries. The IFC’s methodology and detailed rankings are available online at
www.doingbusiness.org.
In 2010 Korea ranked 19th in the world, four
places higher than its 23rd ranking in 2009. Korea
scored high in the ease of enforcing contracts (5th),
the ease of trading across borders (8th), and the ease
of obtaining credit (15th), but scored much lower for
paying taxes (49th), the ease of starting a business
(53rd), registering property (71st) and employing
workers (150th).
The most difficult issues foreign companies usually
face in Korea are labor and employment-related.
Korean law does not recognize at-will employment.
Most employer-employee relationships are contractual for the first two years. After two years, even if there
