[INTERVIEW] 'Foreign companies feel unwelcome in Korea'

Foreing Investment Ombudsman Kim Sung-jin gestures during an interview with The Korea Times at the Korea Trade-Investment Promotion Agency (KOTRA) in Yangjae-dong, southern Seoul, Dec. 13. / Korea Times photo by Choi Won-suk

Anti-foreign sentiment No.1 obstacle in attracting FDI

By Nam Hyun-woo

In his third year in office, President Moon Jae-in has seen a significant drop in his approval rating due to the economic downturn, which seems to be a consequence of putting much of his energy and focus on addressing the North Korea issue.

While local companies complain about the government's "distribution-centric" policymaking, foreign companies also say they feel marginalized in the government's economy plans, despite their contribution to the country's economy and job market.

"The most common complaint from foreign companies is that the Moon Jae-in administration is not welcoming foreign investments compared to previous governments, and so they feel marginalized," Foreign Investment Ombudsman Kim Sung-jin said in an interview with The Korea Times.

"However, that is a misunderstanding. This government also needs foreign investment and President Moon also has a firm belief in this. Since the presidential election was held earlier than the initial timeline and the administration's top priority has become the North Korea issue, economic matters including foreign firms came second to that."

The foreign investment ombudsman is commissioned directly by the president to provide support and grievance addressing services for foreign investors and foreign-invested companies in Korea. Established in 1999, the system of foreign investment ombudsman marks its 20th anniversary in 2019.

Along with Kim, seven private sector experts and staff supporting them are trying to make the country a more attractive investment destination, but what they hear these days are complaints from foreign companies that the Moon administration has not made "significant advances" from previous governments in terms of regulation.

"They said the previous government at least held events for them to air their difficulties, but this government does not hold such events," he said.

Kim, however, said the President will work on addressing their complaints when North Korea issues are on track for a resolution.

To show this, Kim said he proposed Moon meet with heads of foreign firms early this year and underscore the importance of foreign companies' role in Korea. Reportedly, Cheong Wa Dae also responded positively.

Afraid of foreign biz

While calls are growing for the government to make swift changes in its regulatory environment, Kim said it is more important for Koreans to admit "they don't have warm views on foreign businesses" and to "change this attitude and recognize them as the same players in the economy."

"I still see many xenophobic ideas in Koreans," Kim said. "Whether it is because of Korea's homogeneity or its experiences of seeing some foreign firms fleeing after raking in huge profits, society has an unfriendly attitude toward foreign companies, especially those making a lot of money here."

Such a hostile attitude is not only mentioned by Kim but also American Chamber of Commerce in Korea Chairman James Kim, who said in November that Korea's Fair Trade Commission (FTC) tends to treat investing firms as "criminals."

One foreign firm that officially complained about the Korean authority's hostile attitude is Apple Korea.

In June, Apple Korea filed suits with domestic courts crying foul over an FTC investigation of it, following an audit demand by an FTC official who allegedly treated Apple Korea "unfairly" during an investigation.

"That is one of the reasons why Korea can't be the home of many multinational companies' Asia-Pacific headquarters, even though the country has a great natural environment and advanced workforce," Kim said. "And I think that is a more convincing reason than the potential threat of North Korea."

Another factor that hampers foreign investment in Korea is the so-called "window guidance" by the authorities, Kim said.

Window guidance is an unofficial intervention or suggestion on what certain companies can or cannot do. Window guidance have been rampant in not only Korea but also other Northeast Asian countries including Japan because the authorities can expect faster results in putting companies into their planned policy through a phone call, memo or remark, even if there are no legal grounds.

"Even these days, firms see a lot of window guidance taking place in multiple industrial sectors, and this is clearly a hurdle for foreign firms considering Korea as their investment destination," Kim said.

"The reason behind doing window guidance is because the country's regulations are ambiguous," he said. "No matter how tough a regulation is, firms can fit themselves into it. But when it becomes ambiguous, it becomes a problem. What's worse than a bad regulation is an ambiguous one."

This is a stance that foreign firms in Korea have been stressing. A joint statement of five foreign chambers of commerce last year urged the government to "give greater weight to the predictability and consistency of the regulatory environment."

"Business is all about sentiment," Kim said. "To draw investment, we should not make a company's CEO concerned, but give them the confidence that there won't be trouble if they play within legal boundaries."

Despite growing calls for regulatory improvements and more Korean firms going abroad, the country is still growing as an investment destination.

According to the Ministry of Trade, Industry and Energy, Korea's total amount of inbound foreign direct investment (FDI) stood at $22.94 billion in 2017, up 7.72 percent from a year earlier. In the first three quarters of 2018, the inbound FDI amounted to $19.2 billion, up more than 40 percent from $13.58 billion during the same period a year earlier.

Kim stressed that this shows the country is still appealing to investors, especially tech companies.

"Despite lingering issues such as high labor costs, labor-management conflict and regulations, Korea is still attractive for foreign tech firms because of its rich talent pool, productivity, social security, large market for tech products and administrative support," Kim said. "Due to its rich manufacturing experience, the country has many source technologies as well as tech-savvy consumers who provide a test bed for companies."

He added that foreign firms play a significant role in Korea's economic growth, especially in terms of job creation.

"The Bank of Korea expects that about 80,000 people found jobs in 2018, and approximately 20,000 of those were created by foreign companies. What's important is those are quality jobs. Given the employment cliff these days, the role of foreign companies in the Korean economy is huge," Kim said.

"We have experienced that industrial competitiveness improves through competition. Foreign investment spurs industrial advances through competition, spreads technology and injects capital. We should understand that all of these contribute to the growth of the Korean economy."

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