South
Korea's
economy, historically based on agriculture, has undergone extraordinarily rapid
industrialization since the early 1960s. The country's gross domestic product,
or GDP, expanded by more than nine percent annually between the mid-1960s and
mid-1990s. A series of five-year economic plans implemented beginning in 1962
concentrated on the development of export-oriented and import-substituting
manufacturing. Economic aid, especially from the United States and Japan, has been vital to the
economic growth of the country, which in the span of a generation grew from one
of the world's poorest nations to an industrial power. As one of the "Four
Dragons" of East Asia - alongside Taiwan, Singapore and Hong Kong -- South
Korea has achieved an incredible record of expansion. Three decades ago,
its GDP per capita was comparable to the poorer countries of Africa and Asia. Today, its GDP per
capita is seven times India's, 13 times North Korea's and already close to that of the lower
ranking economies of the European Union.
This success through the late 1980s was achieved by a system of close ties
between government and business, including directed credit, import
restrictions, sponsorship of specific industries and a strong labor effort. The
government promoted the import of raw materials and technology at the expense
of consumer goods and encouraged savings and investment over consumption. Under
this development regime, South Korean business groups, the chaebol, grew into
large multinational enterprises, but there was also a tendency for each major
group to mirror what the others were doing and to push growth at the expense of
profitability and sound balance sheets. By the mid-1990s, while the chaebol were
large, there was considerable duplication in their output mix (e.g. most groups
were in automobile manufacturing) and a growing overhang of excess capacity
that required more and more export volume to keep the factories busy.
Meanwhile, the standard of living was rising rapidly, a prosperous middle class
was emerging and spending on consumer goods, including imports, was rising
rapidly. In fact, by the mid-1990s, the 'export dependent' Korean economy was
actually running merchandise trade deficits and by 1996, the current account
deficit had ballooned to more than US$23 billion, or 4.5 percent of GDP.
The Asian financial crisis of 1997-1998 exposed long-standing weaknesses in
South Korea's development model, including high corporate debt-equity ratios,
massive foreign borrowing and an undisciplined financial sector in which
lending liberally supported headlong industrial expansion without due regard
for profitability. As first Thailand, then Indonesia saw the exchange value of
their currencies collapse as portfolio and bank deposit investors rushed to get
out of Asian countries with 'softly pegged' currencies and large current
account deficits, South Korea also fell victim to foreign investors' rush for
the exits. The Bank of Korea saw its international reserves dissipating rapidly
and was forced to let the won find its own level in the market. It promptly
declined sharply in value, averaging W1400/US$ in 1998 as compared to W804/US$
in 1996.
In December 1997, South Korea signed an enhanced $US58 billion International Monetary
Fund package, including loans from the IMF, World Bank and Asia Development
Bank. Under the terms of the program, South Korea agreed to accelerate the opening of its
financial and equity markets to foreign investment and to reform and
restructure its financial and corporate sectors to increase transparency,
accountability and efficiency. By the end of 1998, it had recovered financial
stability -- rebuilding foreign exchange reserves to record levels by running a
current account surplus of $US40 billion that year. Seoul has also made a
positive start on a program to get the country's largest business groups to
swap subsidiaries in an effort to promote specialization. Also, the
administration has directed many of the mid-sized conglomerates into
debt-workout programs with creditor banks. The stock market, which fell sharply
at the onset of the crisis, rose by 33 percent in 1998 and a further 70 percent
through 1999 although in mid-2002, they are still below the heady levels they
had reached in 1995 when the world's portfolio investors were eager to get into
the Asian Miracle. By year-end 2001, South Korea had completely repaid its IMF loan package and
did it well ahead of schedule. Its sovereign foreign currency debt rating has
progressively moved back from 'junk' status as well, currently standing at BBB+
(as rated by Standard and Poors), a solid 'investment grade' rating, though
still not a strong as the AA- rating it carried just prior to the financial
crisis of 1997.
While
South Korea was affected by the
global economic slowdown of 2001, it weathered the storm much better than many
of its middle-income export-oriented neighbors who suffered recessions when the
United
States
economy slowed. South Korea's aggregate demand has a better mix of domestic consumption
and investment than many of its neighbors and those components of demand helped
the country perform better during 2001 than many Asian economies. GDP growth
did slow to three percent in 2001, down sharply from the 9.3 percent and 10.9
percent expansion rates of 2000 and 1999 respectively. Those very rapid growth
rates do reflect the fact that South Korea does produce goods for export that a very
attractive in major markets like the United States and the economy definitely participates
fully when there are boom times in world trade. The inflation rate as measured
by the GDP deflator was actually negative in 1999 and 2000 and a moderate two
percent in 2001; consumer price inflation was also very low in 1999 and 2000,
although not negative. In 2001, consumer price inflation picked up to over four
percent, but that does not indicate a threat of accelerating inflation. The
unemployment rate has continued to decline from the peaks it hit during the
Asian Crisis; unemployment averaged 3.7 percent in 2001, down from 4.1 percent
in 2000 and 6.3 percent in 1999.
Since the recovery from the Asian financial crisis (which put the fiscal
balance into a steep deficit), South Korea's fiscal policy been conservative and has generally
'overperformed' on its budget surplus predictions. In 2001, the fiscal surplus
came in at 1.7 percent of GDP, up from 1.1 percent of GDP in 2000 and a
dramatic improvement over the 3.3 percent deficit of 1999 when the economy was
still climbing out of the sharp contraction of 1998.
World Bank Group Data: not available
The
current account surplus was US$8.6 billion, or 2.1 percent of GDP, in 2001,
continuing its decline from the massive US$40 billion surplus of 1998 when the
sharp contraction of the Korean economy and its loss of international
creditworthiness resulted in a very large reduction in imports of goods and
services. But, the current account surplus in 2001 is still a very large
departure from the large current account deficit (US$23 billion) of 1996the
last full year of the "Asian Miracle" boom. A major factor in the
huge swing of the current account from deficit to surplus is the swing of the
merchandise trade balance from deficit to surplus since 1996. In 2001, the trade
surplus was US$13.4 billion whereas in 1996, the trade balance was in deficit
by more than US$14 billion. While the trade surplus in 2001 was large in US
dollar terms, it did represent the continuation of the trend of declining
surpluses since 1998, the year in which imports fell by 35 percent and in which
the trade surplus hit US$41.6 billion! In 2001, the decline in global trading
volumes was clearly evident in both Korea's exports and imports; both declined from their
year 2000 levels. But, even at their reduced level in 2001 as compared to their
peak in 2000, Korean exports to the rest of the world were substantially higher
than they were at the peak of the Asian boom of the mid-1990s. And, imports are
still below the level they reached in 1996. This dramatic swing in the trade
balance reflects both the very significant restructuring of the economy and the
change in the terms of trade (largely due to the depreciation of the won) that
have made Korean exports relatively cheaper and imported goods relatively more
expensive.
Trade in international services has been less affected than trade in
merchandise goods by the events of the past five years. Korea has typically run a
deficit on services with the rest of the world; it did so before the Asian
financial crisis and it continues to do so today. In the past two years, the
services deficit has been US$3-3.5 billion annually. Similarly, Korea's net factor income
payments are in deficit; it pays out more in dividends and interest to
foreigners who have invested in Korea or who have loaned funds to Korea than it receives on
loans and investments made abroad by Koreans. Unilateral transfers, including
remittance of earnings of Koreans working abroad and foreign workers in Korea, are large in both
directions, but Korea typically has received more transfers from abroad than it has
paid out, although that pattern did not hold during 2001 when there was a small
deficit on unilateral transfers.
The dramatic changes in the current account balance are not mirrored in a swing
of the financial account from surplus during the Asian Miracle years (i.e.
before 1997) to a deficit today as might normally be expected. Rather, the
financial account in the past three years has also been in surplus. After the
crash of 1997-8, Korea attracted a large inflow of foreign direct investment as
Korean assets were both cheaper to buy in foreign currency terms as the won
depreciated and were for sale as the corporate sector rushed to rationalize and
restructure. Similarly, portfolio investment in Korea has remained almost as high in the past
three years as it was during the Asian boom.
Since both the current account and the financial account have been in surplus
over the past three years, the overall balance of payments has been a huge surplus,
totaling US$13 billion, US$23 billion and US$33 billion in 2001, 2000 and 1999
respectively. These huge overall payment surpluses enabled South Korea to both rebuild its
international reserves and to repay its 'exceptional financing'the US$58 billion
in loans taken from the IMF during the crisis. As of year-end 2001, South Korea's international
reserves stand at more than US$100 billion, up from just US$20 billion in 1997.
|
Balance of Payments |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
Exports: |
$159.2 billion f.o.b. (2002 est.) |
|
Exports - commodities: |
Electronic products, machinery and equipment, motor vehicles, steel, ships; textiles, clothing, footwear; fish |
|
Exports - partners: |
US 20.7%, China 12.1%, Japan 11.0%, Hong Kong 6.3%, Taiwan 3.9% (2001) |
|
Imports: |
$146.6 billion f.o.b. (2002 est.) |
|
Imports - commodities: |
Machinery, electronics and electronic equipment, oil, steel, transport equipment, textiles, organic chemicals, grains |
|
Imports - partners: |
Japan 18.9%, US 15.9%, China 9.4%, Saudi Arabia 5.7%, Australia 3.9% (2001) |
The
South Korean Stock Exchange listed 725 companies at the end of the1990's.
All foreigners wishing to invest in the Exchange must register with the
Securities Supervisory Board in order to receive an Investment Registration
card that is required to work through a brokerage firm. Foreign investors must
also have a foreign currency as well as a Won currency account in order to
transfer funds to the brokerage's share transaction account. Foreigners are
limited to purchasing listed stocks.
Total foreign investment limits are 20 percent, with any individual limited to
3 percent. Foreign investment for KEPCO and POSCO is limited to 15 percent.
For more information about the South Korean Stock Exchange, see URL:
http://www.kse.or.kr/eng/.
The new
Foreign Investment Promotion Act (FIPA) went into effect on November 17, 1998, replacing the former 1966 Foreign
Capital Inducement Act (FCIA). Like the FCIA before it, the FIPA (and related
regulations) categorizes business activities as either open, conditionally or
partly restricted, or closed to foreign investment. FIPA considerably reduced
the number of restricted sectors, although restrictions remain on 28 industrial
sectors, four of which are entirely closed to foreign investment. (Please see
chart on next page.) As a result of a March 1, 2000, revision of the Korean Industrial
Classification Standards. restricted industrial sectors increased to 28 (from
21 in 1999). The revision added several industrial subsectors, such as cable
television distribution, satellite broadcasts, radioactive disposal, etc, which
did not exist when the previous standards were drafted. In contrast, 120
categories were restricted in 1996. Although the ROKG has no plans to open
currently restricted sectors, it will review restricted sectors from time to
time for possible further openings. According to the Ministry of Commerce,
Industry, and Energy (MOCIE), 99.6% of industrial sectors are open to foreign investors
(that is, only four of 1121 industrial sectors are completely closed to foreign
investment), well above the OECD average.
The major points of the 1998 FIPA are as follows:
Simplified procedures, including those for FDI notification and registration;
Expanded tax incentives for high-technology FDI;
Reduced rental fees and lengthened lease durations for government land
(including local governments);
Increased central government support of local FDI incentives;
Establishment of a one-stop Investment Promotion Center (IPC) within the
Korea Trade
Promotion Corporation to assist foreign investors in dealing with the
bureaucracy;
Establishment of an ombudsman office within the IPC to assist foreign
investors.
1. Currency Conversion and Transfer Policies
The ROKG has substantially removed past restrictions on financial transfers in
and out of Korea. In the past, foreign exchange
transactions were strictly regulated by the Foreign Exchange Control Act and
its associated regulations. Even before this act was replaced in 1999, the ROKG
liberalized transactions in medium- and long-term overseas borrowings, purchase
and sale of local real estate and dealings in over-the-counter (OTC) stocks and
bonds.
On April 1, 1999, the Foreign Exchange Transaction Act
(FETA) came into effect, replacing the Foreign Exchange Control Act. This act
liberalized foreign transfer law in two steps, the first taking effect
immediately and the second at the end of 2000. The first stage fully
liberalized all current-account transactions by business firms and banks,
paring down the former, very lengthy negative list to five items. Most of those
items affect foreign exchange transactions by individuals, including overseas
travel expenses.
The FETA's second-stage liberalization will dismantle most remaining
restrictions as of January
1, 2001, except for those
that could harm international peace and public order such as money laundering
and gambling. Three specific types of transactions will not be liberalized:
non-residents are not permitted to buy won denominated hedge funds, including
forward currency contracts;
the Financial Supervisory Commission will not permit foreign currency
borrowing by "non-viable" domestic firms;
the ROKG will monitor and ensure that Koreans firms which have extended
credit to foreign borrowers will collect their debts.
The ROKG has retained the authority to reimpose restrictions in the case of
severe economic or financial emergency.
Capital-account liberalization under FETA has been extensive. All
capital-account transactions are permitted unless specifically prohibited. 72
of the 91 transactions specified by the OECD code of liberalization of capital
movements now are permitted. For instance, non-residents now may open deposit
accounts in domestic currency (won) with maturities of more than one year and
may engage in offshore transactions, such as issuing domestic currency (won)
denominated securities abroad.
The right to remit profits is granted at the time of the original investment
approval. Banks control the now pro-forma approval process for FETA-defined
open sectors. For conditionally or partially restricted investments (as defined
by FETA), approval for both the investment and remittances rests with the
relevant ministry.
When foreign-investment royalties or other payments are proposed as part of a
technology licensing agreement, the agreement and the projected stream of
royalties both must be approved by a bank or by the Ministry of Finance and
Economy (MOFE). Again, approval is virtually automatic.
An investor wishing to effect a remittance must present an audited financial
statement to a bank to substantiate the payment. To withdraw capital, a stock
valuation report issued by a recognized securities company or the Korean appraisal
board also must be presented.
Foreign companies seeking to remit funds for investments in restricted sectors
first must seek appropriate ministerial approval and must obtain bank approval,
after demonstrating the legal source of the funds and proving that relevant
taxes have been paid.
Limits on how much money foreign and domestic travelers may take out of Korea per trip will be dropped at the beginning of 2001.
Conversion of the national currency (the won) into foreign currencies for the
importation of goods and services is possible at local banks. The external
value of the won is the responsibility of the Bank of Korea, the central bank.
Daily fluctuation limits have been completely removed, and the Bank of Korea
has committed itself under the IMF program to limit its interventions to
"smoothing" operations (rather than to attempt to manage the exchange
rate). As a reference price, the Bank of Korea uses the previous day's weighted
average of won-dollar interbank transactions. Casinos are open only to
foreigners, except on case-by-case ROKG approval.
2. Expropriation and Compensation
Korea follows generally accepted principles of
international law with respect to expropriation. The law protects all
foreign-invested enterprise property from expropriation or requisition. If
private property is expropriated, it can only be taken for a public purpose,
and then only in a non-discriminatory manner. Property owners are entitled to
prompt compensation at fair market value. The Embassy is not aware of any cases
of uncompensated expropriation of property against American citizens.
3. Dispute Settlement
Serious investment disputes involving foreigners are the exception rather than
the rule in Korea, except in cases involving intellectual
property rights. There exists a body of Korean law governing commercial
activities and bankruptcies that constitutes a means to enforce property and
contractual rights, with monetary judgments usually made in the domestic
currency. The judgments of foreign courts are not enforceable in Korea.
Although commercial disputes can be adjudicated in a civil court, foreign
businesses often feel that this is not a practical means to resolve disputes.
For example, proceedings are conducted in the Korean language, often without
adequate translation. Foreign lawyers, (i.e., who have not passed the Korean
Bar), are almost always prohibited by Korean law from representing clients in
Korean courts.
Civil procedures common in the United States,
such as pretrial discovery, do not exist in Korea.
During litigation of a dispute, foreigners may be barred from leaving the
country until a decision is reached. Legal proceedings are expensive and
time-consuming. Lawsuits often are contemplated only as a last resort,
signaling the end of a business relationship.
Commercial disputes may also be taken to the Korean Commercial Arbitration
Board (KCAB). The Korean Arbitration Act and its implementing rules outline the
following steps in the arbitration process:
parties may request the KCAB to act as informal intermediary to a settlement;
unsuccessful, either or both parties may request formal arbitration, in which
case the KCAB appoints a mediator to conduct conciliatory talks for 30 days;
if unsuccessful, an arbitration panel consisting of one or three arbitrators
is assigned to decide the case.
If one party is a not resident in Korea, either
may request an arbitrator from a neutral country.
When drafting contracts, it always is a good idea to provide for arbitration by
a neutral body such as the International Commercial Arbitration Association
(ICAA). Foreign companies should seek local expert legal counsel when drawing
up any type of contract with a Korean entity.
Korea is a member of the International Center for
the Settlement of Investment Disputes (ICSID). It has also acceded to the New
York Convention (formally called the United Nations Convention on the
Recognition and Enforcement of Foreign Arbitral Awards). Korea is a member of the International Commercial Arbitration
Association and the World Bank's Multilateral Investment Guarantee Agency
(MIGA). It is important to keep in mind that Korean courts may ultimately be
called upon to enforce an arbitrated settlement.
4. Performance Requirements and Incentives
Korea ceased imposing performance requirements
on new foreign investment in July 1989 and eliminated all preexisting
performance requirements in December 1992.
5. Private Ownership Rights
Korea fully recognizes rights of private
ownership and has a well-developed body of laws governing the establishment of
corporate and other business enterprises. Private entities may freely acquire
and dispose of assets but the Fair Trade Act may limit cross-ownership of
shares in two or more firms if the effect is to restrict competition in a particular
industry.
Property law was a key area of the Korean economy that was liberalized in 1998.
The Alien Land Acquisition Act (as amended) grants even non-resident foreigners
and foreign corporations the same rights as Koreans in purchasing and using land.
Portfolio investment in real estate is now permitted as well. In fact, since
the liberalization of real estate regulations in June 1998 until the end of
March 2000, foreign entities cumulatively purchased 1.36 million square meters
of land in the Seoul area (worth $2.26 billion).
Almost no restrictions remain on foreign ownership of local shares. As of 2000,
Korean law permits foreign direct investment through mergers and acquisitions
with existing domestic firms, including hostile takeovers. The prohibition on
cross-ownership between companies was repealed on April 1, 1998.
6. Protection of Property Rights
Korea has made significant efforts to
strengthen its intellectual property rights (IPR) laws and enforcement,
although there have been inconsistencies with respect to court interpretation
and rulings on the law. The lack of IP protection for computer software,
pharmaceutical patents and proprietary information and copyrights prompted USTR
to upgrade Korea to "Priority Watch List" under
Special 301 in April 2000.
Pursuant to its obligations under the WTO Agreement on Trade- Related Aspects
of Intellectual Property Rights (TRIPS), Korea passed
four acts (patent, utility model, design and trademark) in December 1995, and
implemented new copyright, computer software and customs laws in 1996.
In 1997, the trademark law was amended to afford protection to three-
dimensional trademarks (registered in Korea only).
On March 1, 1998, the revised trademark law became
effective and the new patent court was established. Korea is implementing
developed- country IPR standards in many areas, but still claims developing
country status with respect to its TRIPS obligations overall.
In June 2000, Korea submitted to the WTO a report claiming
that the country is in full compliance with TRIPS.
7. Transparency of Regulatory System
The Korean regulatory environment is difficult for domestic firms to work in
and poses an even greater challenge to foreign firms. Laws and regulations are
framed in general terms and are subject to differing interpretations by
government officials, who rotate frequently. Basic concepts of administrative
procedure are not well developed. The regulatory process is not transparent and
frequent informal discussions with the bureaucracy are necessary. Mid-level
bureaucrats rely on unpublished ministerial guidelines and unwritten
administrative advice for direction. Proposed rules often are not published
prior to promulgation, or are published with insufficient time to permit public
comment and industry adjustment. After promulgation, rules can be applied
retroactively and arbitrarily. While Korea has an
administrative procedures law, the rule-making process continues to be opaque
and non-transparent, particularly for foreigners.
President Kim Dae-jung has made deregulation one of the cornerstones of his
economic policy. To date this has taken a back seat to more
"critical" economic and financial system restructuring, though the
ROKG has made a major effort to cut back on the number of regulations in force.
The regulatory picture is mixed depending on the ministry or agency. Some have
made unprecedented outreach efforts to foreign business. Complaints about
regulatory impediments vary by business sector. The practical effect of Korea's laws regulating monopolistic practices and unfair
competition is limited by the long-standing economic dominance of a few large
business conglomerates, referred to locally as "chaebol." Most
recently, on December 28,
1999, the ROKG amended the
Anti-Monopoly and Fair Trade Act. The Act has been repeatedly changed to
address the issue of unwieldy chaebol growth. In this latest revision the ROKG
repealed the prohibition of cross ownership but instead instituted a new
restriction on intra-group cross-payment guarantees. Therefore, no new
intra-group payment guarantees were allowed for the top 30 chaebol starting
from April 1, 1998. The top 30 chaebol are committed to
eliminating all existing intra-group payment guarantees by March 31, 2001. The top four chaebol already have eliminated almost all
cross-guarantees.
Chaebol domination of the Korean economy causes some practical business
problems for foreign investors. Small-and medium suppliers, for example, may be
reluctant to deal with foreign firms for fear of jeopardizing a prized chaebol
relationship. Distribution channels may be blocked by chaebol competitors who
own or dominate distribution channels, although such practices are declining as
result of the Fair Trade Commission's (FTC) vigorous intervention and consumer
advocate activities. Obtaining access to credit may be complicated by the
privileged relationships competing chaebol enjoy with local banks, though
regulations limit a bank's exposure to any single chaebol group to 25% of
capital and stipulate that 35% of lending must go to small and medium
enterprises.
8. Political Violence
Korea does not have a history of political
violence directed against foreign investors. The Embassy is unaware of any
politically motivated threats of damage to foreign-invested projects and/or
foreign-related 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.
Tensions on the Korean peninsula have remained relatively high due to the
threat from North Korean conventional military forces. In a U.S.-DPRK agreement
signed in Geneva in October 1994, North Korea agreed to freeze and eventually
dismantle its nuclear weapons program. It did so in return for improved
relations with the United
States and a program to
provide substitute energy in the form of heavy fuel oil and the construction of
light water reactors, which are less subject to use for weapons development. It
is hoped that this program, in conjunction with improved inter-Korean
relations, will ease the DPRK's international isolation and reduce tensions on
the peninsula.
The historic meeting in June 2000 between South Korean President Kim Dae-jung
and North Korean leader Kim Jong-il is a promising start in a relationship that
could do much to reduce tensions on the Korean Peninsula.
9. Corruption and Crime
Korea's historic style of governance - lack of
transparency in the formation of laws and regulations, inadequate institutional
"checks and balances," and a societal structure heavily based on
personal relationships - has provided ample opportunities for corruption and
influence peddling.
The Kim Young-sam administration (1993-1998) resolved to break with this
tradition and began a momentous reform process by requiring all bank accounts
to carry "real names" by the end of 1993. This basic change had a
profound impact in an economy where illegal wealth traditionally was hidden
through the use of multiple bank accounts established under fictitious names.
(The ROKG earlier had backtracked on this reform somewhat, by allowing the
issuing and purchase of "bearer bonds" to mobilize domestic resources
to address the financial crisis. Reacting to criticism that because the bonds
did not require the use of real name and thus could provide a tax shelter for
illegal wealth, the ROKG decided to discontinue this type of bond.)
This single change has had profound effect and likely is irreversible. Yet, the
original conditions which contributed to corruption - principally the lack of
transparency in government actions and close relationships between the
government, the banks, and the chaebol - have yet to be fully rectified. The
ROKG has taken important steps forward, including the first public hearings
held by ministries to solicit popular views on proposed changes in regulations
and laws, but much remains to be done. The Kim Dae-jung administration is fully
committed to a more open and transparent system of government. To demonstrate
such commitment, the ROKG has decided to host the third Global Forum on
Fighting Corruption in 2003.
Bribing a Korean official is a criminal act. Penalties for bribery range from
probation to life imprisonment, depending on the amount involved. Bribing a
foreign official is not a crime under Korean law, but anti-bribery legislation
has been approved, bringing Korea into compliance with the OECD initiative
against bribery. The Supreme Prosecutor in each province is responsible for
ferreting out corruption. Many business leaders and officials - including
ministers and now presidents - have been found guilty of corruption in recent
years, yet few have paid heavy fines or served much time in prison. Amid
spreading public sentiments denouncing bribery and corruption, particularly
during the April 2000 general legislative election, civic groups have become
very vocal and achieved considerable progress by identifying supposedly
"corrupt" officials and working against their re-election.
10. Labor
Korea has a highly educated and hard-working
labor force. Although labor-management relations can be contentious, they have
improved in the past several years with wages having increased more than two
and a half times over 1987 levels. Between 1987 and 1989, labor disputes
numbered in the thousands. This total declined steadily to just 80 cases in
1995. Recently, due to the economic crisis and the consequential wage cuts and
layoffs, labor disputes are once again on the increase. Korean labor groups are
quick to escalate disputes and often resort to work slowdowns, abuse of leave,
and disruption of business by holding rallies, wearing casual clothes, or
displaying protest signs at the workplace. These tactics fall outside the scope
of Korea's labor law and lead to confrontations
with authorities. In general, aside from higher wages and better working
conditions, Korean workers want a reduction in the workweek from 44-45 hours a
week (five-and-one-half-work-days) to 40 hours a week with no reduction in pay.
Sit-in strikes are common, and workers have on occasion occupied company
offices or factories.
While labor disputes are more common at Korean companies, union members at
foreign-invested firms employees tend to make greater demands on management.
Workers at foreign-owned firms perceive, most often incorrectly, that job
stability and career prospects are relatively less attractive than at Korean
firms, and as a result, labor is increasingly concerned about
reductions-in-force and issues such as severance pay. Although actions by
striking employees may be illegal, unless violence occurs, police are reluctant
to enforce the law and arrest unionists. At times, organized labor may portray
a dispute as a nationalist issue. For some companies such as banks, whose activities
are considered to be essential public services, the government has the right to
order binding arbitration to solve labor disputes.
In December 1991, following its admission to the United Nations, Korea joined the International Labor Organization (ILO) but Korea still has not ratified the basic ILO conventions on Workers
Rights (Convention no. 87 on the freedom of association, Convention no. 98 on
the right to organize and collective bargaining, and Convention no. 151 on
public service employees' right to organize). A number of international and
domestic labor groups have filed complaints against the Korean government with
the ILO's Committee on Freedom of Association. This committee issued a report
critical of Korean labor laws and practices. Its report recommended that Korea
amend its trade union law to allow workers to form plural trade unions of their
choice without restriction, to allow public servants and teachers the right to
organize trade unions and engage in collective bargaining, to repeal the ban on
third-party intervention in the settlement of labor disputes, and to facilitate
the release of imprisoned trade unionists. It should be noted that many
imprisoned trade unionists were convicted for acts of violence and destruction
of property and not for their union affiliations.
In 1997, Korea amended its labor laws to permit more
than one national labor federation. At the time of this writing (July 2000), Korea had two national labor federations - the Korean
Confederation of Trade Unions ("Minnochong" in Korean) and the
Federation of Korean Trade Unions ("Hannochong" in Korean), as well
as around 1600 distinct labor unions. After decades of refusals, the government
recently permitted Korean Air Line (KAL) pilots to form a union. Also in 1997,
the government repealed its ban on intervention by "third parties" in
labor disputes.
11. International Investment Agreements
The United States has a bilateral Treaty of Friendship,
Commerce, and Navigation with Korea, which contains general provisions pertaining
to business relations and investment. During President Kim's visit to the United States in June of 1998, President Clinton and
President Kim agreed to negotiate a Bilateral Investment Treaty (BIT) between
the two nations. If such a treaty is realized, regulations dealing with foreign
investment will be further liberalized. An example of changes proposed in the U.S. model text includes giving foreigners the right to transfer
funds into and out of Korea without delay at the current, market
rate of exchange.
The Republic of Korea
is a member of the Asia-Pacific Economic Cooperation (APEC) forum. The goal of
the APEC as outlined in their 1994 pledge is to establish a Free Trade Area
among its member countries by the year 2020. Substantive principles that are
encompassed in the APEC forum include investment liberalization, tariff
reduction, deregulation, government procurement, and strengthening IPR
protection.
The Republic of Korea
is a member of the World Trade Organization (WTO) and has signed subsidiary
agreements including TRIPs (Trade Related Aspects of Intellectual Property) and
the Government Procurement Agreement. In December 1996, Korea joined the Organization for Economic Cooperation and
Development (OECD).
12. Foreign Trade Zones
The government has designated several free export zones for the bonded
processing of imported materials into finished goods for export. The free
export zones are specially established industrial areas where foreign invested
firms can manufacture, assemble, or process export products using freely
imported, tax-free raw materials, or semi-finished goods. Tax incentives are
provided for foreign invested firms.
The
corporate income, capital gains and branch tax rate is 16 percent for enterprises
with income under W 100 million and 28 percent for enterprises with income
exceeding W 100 million. In addition, there is a 10 percent surtax on income
and capital gains. For manufacturing companies with less than 300 employees,
except for branches of foreign companies, a 20 percent tax reduction is
possible. The withholding tax on interest is 20 percent and there is no
withholding tax on dividends.
Several withholding taxes apply to foreign companies which do not maintain a
business place in Korea, these include: a two percent tax on income from leasing
equipment; 20percent tax on income from personal services; and a 25 percent tax
on interest, dividends, royalties and other income.
The American Chamber of Commerce in Korea has identified the principal tax
issues affecting U.S. companies as follows:
the increase in tax burden on tuition expenses for expatriate employees,
donation expense rules,
the inconsistency between local and national tax laws with respect to cases
pending in Mutually Agreed Procedures ("MAP"),
limitations on recognizing goodwill in an asset transfer,
foreign tax credit issues, enhancement of entertainment expenses.
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Come with me to Korea |
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- Alex Banks (Stanthorpe, QLD/ Australia ) |
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This essay introduces the reader to the many features of Korea that should place it at
the top of the discerning traveler's list of destinations
The Korean People - Friendly and Helpful
As the recent soccer world cup demonstrated, Korea's biggest asset is its
friendly, helpful people. It was rightly stated that while Japan held the world cup, Korea hosted it. Here are
citizens who go out of their way to make the visitor feel at home. And this
polite friendliness extends across all ages and levels of Korean society. Let
me give you a personal experience of their warmth and hospitality.
While traveling by bus in 1993 between Gangneung and Daejeon, my wife and I
struck up a conversation with some college students eager to practice their
English. At the mid-way point of our journey, our new acquaintances purchased
some local snacks for us. On arriving at our destination that night, they
hailed and paid for a taxi, escorted us to our accommodation and left us with a
gift of fresh oranges.
Such thoughtfulness is never far away when traveling amongst Koreans. And as
mentioned, help can be extended from a young school student right up to an
older curbside stall owner in one of the bustling markets. Korean society seems
founded on a principle of making oneself available to cheerfully help others.
It is always the little helpful interactions that make any visit to a
destination more memorable and Koreans excel in this.
The other feature that flows on from the people's friendliness is the feeling
that you are safe as you travel. Respect for others and their property is
ingrained in Korean culture and leads to a sense of personal security. Normal
precautions should always be observed when traveling internationally, but in Korea you are at very low
risk of suffering personal loss or offense.
A Land of Beauty and Calm
Korea is known as the Land of Morning Calm and a pre-dawn hike up
any of the peaks in the many national parks reinforces this description. The
park, with their Buddhist monasteries and temples, are places of enduring
serenity that reward one with breathtaking views of the countryside. Large
cities jostling with high-rise apartments are often surrounded up to their
outskirts with rice fields. Journey between Korea's major cities and you
are presented with constantly changing views of hillsides dotted with orchards
and family shrines, intersected by valleys where rice and other crops are grown
Added to this is the Korean love of gardens. You often see groups of children or retired people tending flowerbeds and lawns outside schools or other public buildings. Most of this activity seems voluntary. City apartments are set in well cared for gardens of azaleas, roses, ginkos and conifers. Large parks provide places of relaxation for family and provide quiet places of meditation for those wishing to escape the bustle of city life. Many large corporate buildings employ full time workers to tend ornate gardens. All this combines to extend the natural beauty of the country into the heart of city life.
Abundance of English Signage
A concern amongst English speaking travelers is not being able to understand
signs and directions. No such problems exist in Korea. The country has
recognized English as the world language and is moving rapidly to adopt it
almost as a second tongue. Most important signs and information sources carry
both English as well as Korean. English fluency is increasing among all levels
of population and it is always a delightful experience to conduct a
conversation with a Korean person eager to practice their English with a native
speaker.
All major service providers such as tourist offices, banks, department stores
and restaurants cater to the English speaker and often other languages such as
Japanese, Chinese, French and German as well. Larger churches offer translation
services in a range of languages. It should be noted that the listener will
quickly pick up some key Korean phrases with the help of locals, and that the
Korean writing system (Hangeul) is very easy to learn.
Getting around Korea
Korea's relatively small size
coupled with an efficient and low cost public transport system is a recipe for
getting around the country with the minimum of fuss. It starts with Korean
Air's international services which feed into an extensive domestic network. All
major cities are connected by luxury coach and express train services. These
have various classes to match any travel budget. Inter-city buses allow access
to nearly all cities and towns around the country. A growing network of
motorways and express ways allow those who wish to hire their own cars to
easily get around. Just be aware if you are a left side of the road traveler,
that Koreans drive on the right side.
A feature of getting around Seoul and its satellite cities of Seongnam, Ansan
and Incheon is the subway system. This comprehensive rail network is very user
friendly, and inexpensive to use. Each of the lines that circle and criss-cross
the city is colour coded with each station numbered as well as named with signs
in English and Korean. Stations are sited in conjunction with major department
stores and shopping areas and significant tourist stops. All this combines to
give the traveler unparalleled access to all of Seoul's features.
Where the Ancient Meets the Modern
Korea provides an interesting
mix the old and the new. Lanes of traffic circle the impressive old city gates
of Dongdaemun (the East Gate) and Namdaemun (the South Gate). Across the northern
part of the city centre, Gyeongbokgung and Changgyeonggung palaces look across
modern inner city office buildings. It is just a few city blocks from Insa-dong
with its alleyways of pottery, folk art and calligraphy shops to the bright
lights, fashion boutiques and coffee shops of Myeong-dong. The bustle and
haggling of Namdaemun and Dongdaemun Markets contrasts with the fashionable Lotte
and Shinsegae department stores. You can be dazzled by the latest technological
gadgets at Yongsan Electronics Market or travel by bus to watch a master
ceramist practicing skills that have been passed down over many centuries.
There are the inevitable modern amusement parks such as Everland and Lotte
World. But for me the real Korean experience lies in its natural attractions.
Contrasts are everywhere yet it is to Korea's credit that they have grown into a modern economy without losing touch with their history and national identity.
A Rich Historical Tapestry
As a person who comes from a country (Australia) with such a short conventional
history, it is an amazing experience to stand in front of some of Korea's national treasures
and realize that these are in some cases one or two thousand years old. The
stories often associated with these provide a glimpse into the lives of the
royal dynasties and their people down through the ages.
Korea has experienced the
ravages of conflict throughout its history. A visit to the mountain fortresses
transports one back to the days of the Mongolian invasions. My two visits to
the Demilitarized Zone were a sobering reminder of Korea's recent past. It makes
one appreciate the absence of war within the border of Australia, but also makes one's
heart go out in sympathy to this nation of essentially peace loving people
whose country has so often suffered at the hands of others.
The food experience of Korea
Korean cuisine presents visitors with a myriad of sensations and flavours but be
prepared for some of them to be hot and spicy. Koreans seem to add red chilli
paste either directly to dishes or at the very least, serve it as an
accompaniment with most meals. Main courses of meat, fish or chicken are served
with a range of side dishes including rice and Gimchi, the national dish
consisting of fermented cabbage to which ginger, garlic and hot peppers have
been added. One thing is for sure, the there is no shortage of dining places to
choose from as every second store in Korea seems to offer food. It is always handy
to check the tourist guide as most major provincial cities and regions have
special dishes such as Dakgalbi in Chuncheon and Galbi in Suwon.
The Final Word on Korea
For too long, Korea's tourist profile has been a well-kept secret. Perhaps this
is due to the prominence given to other more well-known Asian destinations.
Perhaps it is due in part to Korea's own self-effacing and humble attitude
to itself. But it only takes a short time in this wonderful country to realize
what a wonderful experience can be enjoyed amongst this friendly people.
Sources: Country Watch, Central Intelligence Agency: http://www.cia.gov
International Monetary Fund: http://www.imf.org
World Bank: http://www.worldbank.org
Travel: http://english.tour2korea.com