The U.S. Department of State’s Investment Climate Statements provide information on the business climates of more than 170 economies and are prepared by economic officers stationed in embassies and posts around the world. They analyze a variety of economies that are or could be markets for U.S. businesses. The Investment Climate Statements are also references for working with partner governments to create enabling business environments that are not only economically sound, but address issues of labor, human rights, responsible business conduct, and steps taken to combat corruption. The reports cover topics including Openness to Investment, Legal and Regulatory Systems, Protection of Real and Intellectual Property Rights, Financial Sector, State-Owned Enterprises, Responsible Business Conduct, and Corruption.
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 37 percent of the Korea Composite Stock Price Index (KOSPI) total market capitalization as of February 2022.
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 innovative 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 inside the Korea Trade-Investment Promotion Agency (KOTRA) 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, adding mobility and biohealth in 2021 and 2022. 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 has taken a transparent approach in its COVID-19 response, under the leadership of the Korea Disease Control and Prevention Agency. Public health experts brief the public almost every day and the public has largely complied with social distancing guidelines and universal mask-wearing. These measures largely staved off the disease through the end of 2021, by which time over 80 percent of Koreans had been vaccinated and the government began relaxing social distancing measures. In February and March 2022, however, a new wave fueled by the omicron variant rapidly spread, peaking at over 621,000 positive cases on March 17. As of March 28, 2022, more than 12 million Koreans have tested positive for COVID-19 and total infections rose over ten million and deaths mounted. The pandemic’s economic impact has been limited. GDP dropped a mere one percent in 2020 before recovering by four percent in 2021, in part due to aggressive stimulus including more than USD 220 billion in 2020. As a result, the Korean domestic economy fared better than nearly all its OECD peers. The economic impact of the omicron outbreak remains uncertain, and Korea’s export-oriented economy remains vulnerable to external shocks, including supply chain disruptions and high energy prices, going forward.
To access the ICS, visit the U.S. Department of State Investment Climate Statements website.