Market Opening and FTAs

The country has opened its market in most sectors, including agriculture. Koreans have traditionally attached great importance to agriculture, viewing it as the basis of the universe. In 2015, the country also opened its rice market, the final area of the agricultural sector not subject to full international competition.

The country is pushing ahead with the complete opening of the market through FTAs. The country plans to sign FTAs with numerous countries with the aim of expanding its economic territory worldwide. As of 2017, South Korea has signed FTAs with 52 countries, including Chile, EFTA, ASEAN, India, the European Union, Peru, the United States, Turkey, Australia, Canada, China, New Zealand, Vietnam, and Colombia. In 2017, the country initialed an FTA with five Central American countries - Costa Rica, El Salvador, Nicaragua, Honduras, and Panama.

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A view of Busan Harbour, the largest port in South Korea

Support for FDI (Foreign Direct Investment)

South Korea encourages FDI under the Foreign Investment Promotion Act. In South Korea, “FDI” refers to “a foreigner’s acquisition of 10% or more of the equity share of a domestic business through an investment of not less than 100 million won, or a foreign-based business’s borrowing of a long-term (5 years or longer) loan from its parent business in a foreign country and the like.”

Under the Foreign Investment Promotion Act, the government guarantees the profits earned by foreign investors and offers them a variety of benefits, such as tax incentives, cash support, and mitigation of land-related regulations. The country also protects foreigners’ intellectual property rights and foreign exchange transactions. Foreign investors are allowed to take the profits they earn in South Korea out of the country, on the basis of creative and efficient operation.

Foreign investors are eligible for support from the South Korean government concerning the land required for the establishment of a factory or research facilities, the purchase or lease or construction of a building, or the installation of electric or communication facilities. They may ask for partial payment of the amount for up to 20 years in cases involving the purchase of land owned by either the central or a local government. The government also provides cash support in consideration of the FDI amount and the number of locals to be employed. The government is ready and willing to provide land and capital if a foreign business displays excellent technological prowess and maintains the employment of a given number of locals.

FDIs in the country surged right after the foreign exchange crisis in 1998, with the increasing trend continuing. The accumulated reported amount of FDI as of 2017 came to USD 22.9 billion, the third year in a row the USD 20 billion milestone was reached. The FDI amount suggests balanced growth trend in terms of business types, regions, and investment types.

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Foreign Direct Investment (Unit: USD 1 million / Ministry of Trade, Industry and Energy, 2017)

The government continues to improve the system for the provision of support to foreign investors. In October 2010, the government mitigated the criteria for cash support for foreign investors and expanded the scope of state/ municipality-owned land eligible for private contracts in a bid to mitigate the FDI conditions. Korea improved the conditions for FDI.

In 2016, the country revised the Foreign Investment Promotion Act to unify the procedures for registering foreign investments, which had previously differed by investment type. The government plans to shift its policies in support of foreign investors and ‘U-turn’ companies (Korean firms that refocus their investment on Korea as opposed to investing more abroad) to promote job creation.

The country also invites newly emerging countries with surplus funds, including China and the Middle Eastern countries, to invest in the service sector of the country with high added value.

As part of efforts to create a favorable environment for FDI, the government hosts Foreign Investment Week (FIW) and provides a Red Carpet Service for foreign investors. The government also operates projects to promote FDI in local authorities including sending delegations to study investment feasibility and supporting investment projects.

The country also plans to attract FDIs by providing cash support for such headquarters and R&D facilities and incentives such as tax reduction/ exemption, including holding IR sessions, etc. The country also designates locals in the Unites States, the United Kingdom, China, and Japan as PR ambassadors for FDI in the country.

Investment to Become a Regional Logistics Hub

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Incheon Airport as a Hub Airport

Incheon Airport, a regional hub airport, is a place where all airplanes around the world can be operated for 24 hours without worrying about weather condition. In Northeast Asia, the main regional hub airports include Kansai Airport in Osaka, Chek Lap Kok Airport in Hong Kong, Pudong Airport in Shanghai, and Incheon Airport in South Korea.

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Trends in air Cargo through put and transshipment volume at Incheon International Airport (Ministry of Land, Infrastructure and Transport, 2017)
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Container throughput and transshipment at ports (Ministry of Oceans and Fisheries, 2017)

South Korea is making preparations for a period when its combined export/ import volume is expected to reach US$2 trillion. The country is also striving to become a major logistics hub of Northeast Asia.

The country is investing heavily in automation and the sophistication of export/import cargo stevedoring facilities, with the aim of greatly enhancing its logistics competitiveness.

The country is striving to invigorate its air cargo network and expand industrial complexes situated close to airports. In 2016, Incheon International Airport marked an all-time record in cargo volume. Growth continued, reaching 2.92 million T in 2017. According to Airports Council International (ACI), since 2013, Dubai International Airport (UAE) has ranked 2nd in terms of international freight volumes, beating Incheon International Airport. However, Incheon International Airport is striving to take its spot back having recorded 3 million T of high-value shipments in 2018.

Air cargo has high added value. It accounts for about one quarter of the total transportation charge, although it accounts for only 0.2~0.3% of all forms of transportation cargoes in terms of weight. The South Korean government has expanded the cargo terminal of Incheon Airport and trains talented young people to take charge of airfreight logistics at the relevant educational institutions.

With the opening of Terminal 2 in January 2018, the annual cargo capacity of Incheon International Airport has increased from the previous 4.5 million T to 5.8 million T.

It is noteworthy that Incheon International Airport has ranked first in the world for 12 consecutive years in the annual evaluation of airport services conducted by the ACI, a consultative council for more than 1,700 airports around the world. This testifies to the sheer quality of operation of Incheon International Airport. Furthermore, the airport became the first airport in the world to be registered with the Airports Council International Hall of Fame.

Located on the peninsula, South Korea has many international trade ports including Busan, Incheon, Pyeongtaek, Gwangyang, Ulsan, Pohang, and Donghae. In 2016, the volume of cargo handled at the country’s ports stood at 1,509.47 million T, showing a 3.2% increase year-on-year.