Act of Foreigner Investment Promotion

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Today’s article is on the Act of Foreigner Investment Promotion in Korea. Opposing parties of the Korean National Assembly had a hard time postulating the revision to the act until the very last minute of last year. But on January 1, 2014, the revision was finally approved by the National Assembly and will go into effect in March. Let’s find out what are the main points that we should know about the act, what changes have been made in the revision and lastly what kind of ripple effects this act might bring in both the Korean and world economy.

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The Act of Foreigner Investment Promotion, as it implies in the name, is an act that regulates foreign investments in Korea. This act was made to provide necessary supports to foreign investors to promote foreign investments which will lead to healthy national economy. Main points of this act are that foreign investors investing in Korea are exempted from corporate tax and tariffs. Moreover, currently, when a holding company’s first-tier company (Granddaughter Company) establishes a second-tier company (Great-granddaughter Company), it needs to have 100% share of the newly founded company, which means that when a Korean company wants to establish a joint-venture company with a foreign counterpart it is bound to the regulatory measures that limit owning of shares.

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This revision will bring a huge ripple effect in various areas of the Korean economy. The biggest beneficiaries would be the energy and construction industries. GS Caltex(GS Group) and SK Global Chemical(SK Group) wanted to build a joint venture company with JX Energy and Showa-Shell Corporation of Japan. These companies have already signed MOUs worth 1 billion won even before the revision had passed the National Assembly. This is why these companies actively supported the revised act to be approved.

One of the authorities of SK Global Chemical said in an interview that SK will accelerate the speed of its projects to contribute to the regional and national economy which would bring huge impact to the Korean economy as it is expected to lure 2 billion won worth of foreign investments and create jobs. But there are number of concerns regarding the revised act. What the opposing parties are insisting is that this act would give big preferential benefits to ‘Chaebols’ in Korea; Chaebols are conglomerates that have significant influence in the Korean economy. Major Chaebols in Korea include Samsung Group, LG Group and Hyundai Motors Group.

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It is true that no one exactly knows what will be the main effects of this act when it comes into effect in March. However, the majority of the public claims that the revised Act of Foreigner Investment Promotion would bring a new vitality in the Korean national economy. Yes, this might seem as a big favor for Chaebols but I think this act is inevitable as Korea needs new locomotive to pull out the economy from the long recession. The Korean government and financial authorities should keep an eye on the act and provide any necessary supports until this act finally takes a smooth landing.

Hyok Hee Kwon (kwonhyokhee@naver.com)

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