Korea: strategic base for multinational firms

Trade, Industry and Energy Minister Yoon Sang-jick greets Anna Cecilia Malmstrom, European Union commissioner for trade, during the 5th Korea-EU Committee meeting at the President Hotel in downtown Seoul on Sept. 15. / Courtesy of Ministry of Trade, Industry and Energy

Yoon Sang-jick, trade, industry and energy minister

By Lee Hyo-sik

Multinational companies seeking to enter China and other Asian countries should set up a presence in Korea, according to the trade minister, who said the country has established an extensive free trade agreement (FTA) network with major economies around the world.

In an interview with The Korea Times, Trade, Industry and Energy Minister Yoon Sang-jick said Asia’s fourth-largest economy has emerged as a strategic post for global firms, encouraging them to take advantage of its geographical proximity to key markets, excellent residential and business infrastructure, and extensive government incentives for investors.

Yoon also said the government will do everything it can to double the amount of foreign direct investment (FDI) this year to $20 billion to help reinvigorate the sagging economy.

“Multinational businesses and investors used to invest in Korea targeting local consumers. But this FDI paradigm has changed,” Yoon said. “Now more foreign companies come here to capitalize on Korea’s expanding FTA network. They also seek to take advantage of the advanced industrial infrastructure, talented manpower and geographical proximity to China and other Asian countries.”

The minister then said the government will take more drastic steps to increase this year’s FDI to $20 billion from $10.3 billion in 2014. The nation has so far attracted about $12 billion in the first nine months of the year.

“We would like to invite at least 50 global companies seeking to make inroads into China and other Asian countries. We will draw up a list and contact each of them, asking them to set up operations in Korea,” he said. “In addition, we will encourage China and Middle Eastern countries to invest in our free economic zones (FEZs). We will mobilize more resources for the remainder of the year to attract state-run funds and private sector investors from those nations.”

On Oct. 1, POSCO, Korea’s largest steelmaker, received 1.24 trillion won ($1.05 billion) from the Public Investment Fund (PIF) of Saudi Arabia for a 38 percent stake in POSCO Engineering and Construction. It was the largest investment this year by Middle East-based entities.

To maintain the upward momentum, Yoon said the government will remove the remaining batch of regulations hindering companies and investors from doing business in the zones.

“We will exempt non-Korean companies from the environmental effect assessment and other administrative regulations when they set up plants and other facilities,” he said. “The government will allow foreign firms to freely hire non-Korean workers and extend the length of stay for foreign medical staff working inside the FEZs. We will also create advanced logistics, customs and research and development (R&D) environments for foreign businesses.”

Korea to join TPP

Korea will also take necessary steps to join the Trans-Pacific Partnership (TPP) to maintain its export competitiveness relative to Japan and other competing nations, Yoon said.

“None of the 12 TPP members opposes Korea’s bid to enter the mega trade bloc, which accounts for more than 40 percent of the global gross domestic product (GDP),” the minister said. “The government will closely study the details of the TPP agreement and will contact its members and engage in negotiations to maximize our national interest.”

On Oct. 5, the United States, Japan and 10 other nations struck a deal to create the multilateral trade liberalization regime. Korea has signed FTAs with 10 of the 12 TPP members, including the United States.

Korea expressed its intention to join the TPP in 2013 but was unable to do so at the time because it had to get consent from all 12 negotiating countries. In particular, Japan, which competes fiercely with Korea in the automobile, electronics and other industries, has had reservations about Korea’s participation.

The trade ministry projected that the country’s GDP will increase about 2.5 percent annually in the decade after joining the TPP.

The Korea International Trade Associations (KITA) and other business associations have been calling on the government to take prompt measures to become a TPP member.

Even if Korea fails to become a part of the trade bloc, its adverse effects will be short-lived, according to Yoon, who said it will take a considerable amount of time for all 12 members to ratify the trade pact.

“It will take quite a long time for the TPP to go into effect. In the meantime, Korean companies will be able to maintain their competitive edge on the back of the nation’s extensive FTA network with 52 countries,” he said. “However, in the long run, the TPP will likely have long-lasting effects on the Korean economy as it writes new rules and new standards concerning the cross-border trade of goods and services.”

Bolstering sagging exports

Korea’s outbound shipments have declined this year because of the continued global economic slump and other unfavorable external conditions, the minister said, adding that the country should take export-boosting measures to maintain cross-border trade more than $1 trillion and strengthen industrial competitiveness.

“Exports fell for the past nine months from a year earlier. Exports to China have been declining sharply as Chinese firms buy fewer finished and intermediate goods from Korean partners amid the slowing economic growth,” Yoon said.

In the first nine months of 2015, exports declined 6.6 percent to $397.1 billion from the same period last year.

“The government has introduced a set of measures to bolster outbound shipments and enhance the competiveness of local exporters. As a result, Korea’s shares in the United States, China and other major economies have begun heading upward,” he said.

The minister then stressed the importance of the ratification of the Korea-China FTA by the National Assembly, saying that Korea is losing $4 billion won in potential revenue every day.

“Once the Korea-China FTA is ratified by the parliaments in both countries, this will create a $1.2 trillion market and provide new momentum for local exporters,” Yoon said. “However, we will be losing 4 billion won in sales every day until the pact goes into effect. To boost the sagging exports to China, lawmakers must pass the Korea-China FTA as soon as possible.”

The accord, which was signed in November 2014 by Korea and China, was forwarded to the Assembly on Aug. 31.

Fostering new growth engines

Yoon said Korea has designated 13 business areas, including smart robots, smart cars and the Internet of Things, as its new growth engines to reinvigorate the economy.

“Korea’s No. 1 products in the global market dropped to 64 in 2012 from 87 in 2000, while those of China jumped to 1,485 from 698. We definitely need to foster new industrial items to maintain and advance our competitive edge,” he said. “We will make every effort to remove unnecessary regulations.”

In addition to smart robots and smart cars, the list of new growth engines includes smart bio-production systems, virtual reality training systems, wearable devices, deep-sea plants, unmanned drones, supercritical carbon dioxide power generation systems, carbon fiber, integrated materials, tailored-wellness, high-tech non-ferrous materials and smart power grid.

The government plans to spend 1 trillion won in 2015 and 4.6 trillion won more from 2016 through 2020.