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Investment Promotion in Practice - Republic of Korea -

April 23-24, 2013. Investment Promotion in Practice - Republic of Korea -. Korea’s Development Model. FDI Trends and Impact on the Korean Economy. Invest Korea. Investment Promotion in Practice. Concluding Remarks. The Korean Economy at a Glance.

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Investment Promotion in Practice - Republic of Korea -

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  1. April 23-24, 2013 Investment Promotion in Practice- Republic of Korea -

  2. Korea’s Development Model FDI Trends and Impact on the Korean Economy Invest Korea Investment Promotion in Practice Concluding Remarks

  3. The Korean Economy at a Glance • Foreign Exchange Reserves: • $316 billion (Feb. 2012) • *Short-Term External Debt: $136 BN (2011) • * Gross External Debt: $398 BN (2011) • Area: 100,000km2(108th) • Population: 50 million (24th) • GDP (nominal): $1.16 trillion* (15th) • - Per Capita: $23,749* (32nd) • GDP (ppp): $1.56 trillion* (12th) • - Per Capita: $31,754* (25th) • GDP Growth Rate: 3.6%(2011) • Trade (2011): ▶ Export: $557BN • ▶ Import: $524BN • * Estimate as of Sept. 2011, IMF 312 311 311 307 305 304 316 303 299 311 309 306 ※ Foreign Exchange Reserves (US$ bil.) • Inflation (CPI): 3.1%(Feb. 2012) • Unemployment: 3.5% (Jan. 2012) • Fiscal Deficit (2011) • - Excluding social security fund: △2.0% of GDP • - Overall balance: 0.4% of GDP • National Debt: 35.1% of GDP (2011) ※ Source: The Bank of Korea, IMF, World Bank, Ministry of Strategy & Finance of KOREA

  4. Some Remarks until the early 60s … Bottomless pit A nightmare Sick society

  5. Miracle on the Han River

  6. Government’s Role Exports to Overseas Market Repayment Guarantee Foreign Loan Incentives Compulsory Education System Development Abundant & Educated Labor Force

  7. Korea’s Development Model FDI Trends and Impact on the Korean Economy Invest Korea Investment Promotion in Practice Concluding Remarks

  8. Definition of FDI Definition of Foreign Direct Investment (FDI) FDI is an investment made to acquire lasting interest in enterprises operating outside of the investor’s economy. Forms of FDI are equity capital, the reinvestment of earnings and the provision of long-term and short-term intra-company loans. Type of Investment Inbound FDI Outbound FDI Foreign Investment FDI Portfolio Investment Greenfield M&A Stocks Bonds ※ Foreign Investment Promotion Act (FIPA)

  9. FDI Trends in Korea OECD membership significantly helped attract FDI “Total FDI for the decade since the Asian Financial Crisis (1998-2010) is6 times that of1962-1997.” 20.0 Recent FDI Movement 17.5 (US$ billion) 15.0 15.3 15.5 13.8 13.1 12.5 12.8 11.6 11.7 11.3 11.5 10.0 11.2 10.5 9.1 8.9 7.5 7.0 6.5 5.0 2.5 3.2 2.0 1.3 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 ※ Source: Ministry of Knowledge Economy

  10. FDI Trends in Korea By Industry By Type (US$ million) (US$ million) 7,270 11,697 Service Greenfield 5,653 1,972 M&A Manufacturing ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 By Country 1962-2011 (%) U S A 31.60 Japan 15.09 Germany 5.72 Netherlands 11.24 UK France 6.20 3.31 26.84 73.16 Others Total ※ Source: Ministry of Knowledge Economy

  11. FDI Trends in Korea – By Sector Leading sectors for inbound FDI ※ Source: Ministry of Knowledge Economy

  12. Effects of Inbound FDI on Host Country Source: Moon & Jung (2008)

  13. Impact of FDI on Korean Economy – Job Creation Source: fDiMarkets.com

  14. Free Economic Zones Korea’s Free Economic Zones (FEZs) will offer a venue for win-win development in Northeast Asia where people, information and technology converge. They will provide an optimal business environment based on policies of global standards, multicultural and multinational communities, and an innovative and pleasant living environment. Incheon FEZ Daegu-Gyeongbuk FEZ IFEZ YESFEZ DGFEZ http://ifez.go.kr/ http://www.dgfez.go.kr SGFEZ Yellow Sea FEZ Busan-Jinhae FEZ BJFEZ GFEZ JDC http://bjfez.net/ http://www.yesfez.go.kr/ Jeju Free International City Development Center Saemangeum-Gunsan FEZ Gwangyang Bay Area FEZ http://jdcenter.com/ http://www.sgfez.com/ http://gfez.go.kr/

  15. FDI Incentives Available in Korea Tax Reduction • Corporate income tax: 100% for 3-5 yrs, 50% for 2 yrs • Acquisition tax: 100% • Property tax: 100% for 5-15 yrs • Tariff, VAT, Special Excise Tax for capital goods: 5 yrs Cash Grant • To finance the construction of facilities orthe purchase of equipment related to theinvestment Location Support Others Reduction or exemption of rent Support for building of infrastructure Subsidies for employment and education Help in settling into Korea Criteria Manufacturing – $30 million FDI or moreLogistics & SOC – $10 million FDI or more Tourism – $20 million FDI or moreR&D – $2 million FDI or more

  16. Korea’s Development Model FDI Trends and Impact on the Korean Economy Invest Korea Investment Promotion in Practice Concluding Remarks

  17. Invest KOREA: Korea’s National IPA

  18. Korea’s FDI Promotion Regime Foreign Investment Committee Ministry of Trade, Industry and Energy KOTRA Korea Trade-Investment Promotion Agency TRADE Promotion INVESTMENT Promotion

  19. What Each Entity Does IK: A bridge between investors and local governments Invest KOREA Local Governments MOTIE Investors Investment Completed • Formulate investment policies PolicyFormation • Propose policy suggestions • Propose policy suggestions 1. Conduct public relations 2. Provide all FDI-related services including business-location support and consultation on industry information, tax incentives and cash grants 3. Handle investment notifications 1. Conduct public relations 2. Coordinate FDI-related administrative activities of government agencies 1. Conduct public relations 2. Help investors establish businesses Attracting Investment

  20. Organization Chart Commissioner, Invest KOREA Home Overseas (42) Investment Planning Department North America 9 3 Teams Europe 14 Investment Promotion Department Asia & Oceania 18 3 Teams Middle East 1 FOREIGN INVESTOR SUPPORT OFFICE 1 Team FOREIGN INVESTMENT OMBUDSMAN

  21. One-Stop Service Overseas Network of 42 KBCs (Korea Business Centers) Central govt. agencies Local governments Investment Services Pre-Investment Services Post-Investment Services Provideinformation on FDI incentives, markets and industries Arrange meetings w/govt. officials Assist in business-site selection Help seek business partners Provide administrative support Resolve investors’ grievances Improve business and livingenvironment Project Manager System Investment Ombudsman

  22. Project Manager System Provide information on marketsand industries Assist inplant site selection Assist in seeking business partners Comprehensive supportfor foreign investors Provide consultations about FDI incentives Arrange meetings with governmentofficials Provideadministrative support

  23. Office of the Investment Ombudsman Report Grievances CooperationRecommendation Investment Environment Improvement Grievance Resolution Ombudsman + Aftercare Team Foreign Investor Government /Gov’t Agency Home Doctor: Solution Provision “The Investment Ombudsman has played a valuable role as an advocate in resolving a wide range ofmanagement and daily life difficulties on behalf of foreign investors, thus providing an unobstructedpath to optimal business performance.” - Wayne Chumley Former Chairman, AmCham

  24. IKP (Invest Korea Plaza) • Secretarial and reception services and dedicated office space • All administrative services related to business consultation & investment • Target Tenants: VentureCapital, Private Equity, Hedge Fund Opened in October, 2006 Major services • 40 rooms available at rental rates below market price • Office size: 213-573 square feet • (Room size adjustment possible) • Rental rate: $90/square foot • Investment Consulting Center (ICC) * 24-hour hotline • 82-1600-7119 • Officials from the Ministry of Justice, the National Tax Service, Korea Customs Service, Courts of Law, etc.

  25. Korea’s Development Model FDI Trends and Impact on the Korean Economy Invest Korea Investment Promotion in Practice Concluding Remarks

  26. (1) Ombudsman & Aftercare Service

  27. Importance of Aftercare Service Effective aftercare service is becoming increasingly important and pointed out as an effective tool for cross-border investment facilitation by the UNCTAD, OECD and APEC Trends of Korea’s FDI Re-investment New Investment Source: MOTIE 27

  28. OFIO – Office of Foreign Investment Ombudsman Role of Investment Ombudsman Investment Ombudsman’s effort in his role of foreign investment promotion, through rationalization & improvement of the investment system, customs and practices of Korea. Contribution to the Sustainable Growth of the Korean Economy Attracting FDI Support for FDI Attraction Aftercare Services Ombudsman OFIO 28

  29. OFIO – Office of Foreign Investment Ombudsman The Ombudsman Office’s “Home Doctor” system delivers one-stop services to resolve a variety of grievances Blue House, Ministries, Government Agencies Home Doctor: Solution Provision The Office of the Investment Ombudsman Foreign Investor Cooperation Recommendation Report Complaints Foreign Investment Committee http://www.i-ombudsman.or.kr

  30. OFIO – Office of Foreign Investment Ombudsman Grievance Filing by Category (Unit: % of Case, 2009) Recently, taxation and tariffs, and investment incentives replaced labor issues as the most frequently filed grievances, although labor issues still have the biggest impact on Korea’s FDI environment Grievance Resolution Performance (Unit: Number of Case, 2011) System Improvement Administrative Intervention In-house Resolution Classification Total 403 327 No. of Cases Type 13 63 Source: Office of the Foreign Investment Ombudsman

  31. Ombudsman: Resolving Investor Grievances Request Positions on Cases and Propose Solutions Report Grievances Disclose Positions on Cases and Accept/Reject Proposed Solutions Home Doctors Suggest Solutions • 94% Related Government Agencies Foreign Investors Ombudsman

  32. Grievance Resolution Case-1 Most High-tech Firms Remained in a New City Development Investor Complaints in DongtanNew City Ombudsman’s Actions Ombudsman underwent a series of joint meetings with the relevant government authorities including the Prime Minister, Ministry of Land, Transport and Maritime Affairs and Korea Land Corporation. Many of the foreign-invested companies in Dongtan City were unexpectedly forced to move their plants due to its new city development plan with enlarged residential area. The urban-type, high-tech industries were allowed to stay in the area.

  33. Grievance Resolution Case-2 Non-tax Payment by Foreign Companies reduced substantially Additional Investor Complaints in Dongtan New City Ombudsman’s Actions Ombudsman underwent again a series of joint meetings with the relevant government authorities including the Prime Minister, ministers and senior secretaries to the president to mitigate unexpected tax burden on the part of foreign investors These remaining companies were subjected to non-tax payment due to expected capital gains of factory sites as nearby land becomes high rise residential area The non-tax payment imposed on the remaining companies was reduced by 89%(April 15th 2009 by MOSF), which they could pay in installments

  34. Grievance Resolution Case-3 Fingerprinting Required in Accusation Cases Filed by Labor Unions Company M’s Complaint Ombudsman’s Actions When labor law violation cases are filed by labor unions, non-Korean CEOs are required to have all their fingerprints taken every time they're called in for investigation while Koreans are not. ☞ If a labor union files several cases against its non-Korean employer, abusing this law, the employer would be subject to fingerprinting numerous times, leading to a violation of human rights as well as a negative influence on FDI attraction. The Ombudsman proposed revision of the practice to relevant agencies including the Korean National Policy Agency. With the Ombudsman's proposition accepted, now fingerprinting would take place only once.

  35. Grievance Resolution Case-4 Difficulties in Importing Food Product Materials Newly Subject to Inspection Company A’s Complaint Ombudsman’s Actions As part of an effort to curb the spread of foot-and-mouth disease, the National Veterinary Research and Quarantine Service (NVRQS) announced all imported food product materials containing egg content would be subject to inspection by the Korean Customs Service upon entry into the country. ⇒As a result, a foreign-invested company importing premix containing egg flour faced a possible suspension of production due to the lengthy delayin receiving the shipment. Ombudsman brought the issue to the attention of relevant government officials. Pre-pasteurized premix was made an exception to the inspection requirement, allowing the company to obtain its shipment on time.

  36. (2) One Stop Service

  37. CEO of KOTRA One Stop Service as of 2012.10.22 Foreign Investment Ombudsman Foreign Investor Support Office Invest KOREA Overseas Strategy & IR Promotion Team Foreign Investment Aftercare Division Inbound Investment Consulting Division 42 Overseas Offices(KBC) 1 Division 1 Division 3 teams 3 teams Aftercare Identification Support Planning Promotion

  38. Government agencies • Local governments After-care Execution Overseas Network 42Korea Business Centers Pre-Investment Consultation One Stop Service Mechanism Resolution of investor grievances Improvement of business & living environment Guidance on investment targeting Seeking of partners Notification of relevant incentives Provision of information and administrative services Investment Ombudsman Project Manager System

  39. One Stop Service 45 members: Investment Consulting Center – 32 Investment Aftercare Div. - 13 15private sector experts 11 KOTRA staff members (administrative support,etc.) 19 government officials

  40. One Stop Service One-stop service (10 areas) Settlement support • 18,780 • Information on living in Korea • One-day secretary service • Publication of newsletters • Visa issuance, • corporate establishment • FDI notification/ • registration HR & labor consultations Investment consulting • Investment procedure, • incentives • Consultations by experts • On-site consultations • On-site visits • Seminars (Services provided in 2011)

  41. (3) Other Promotion Activities

  42. Red Carpet Service • Airport pick-up & fast track service through customs, immigration and quarantine (C.I.Q) • Transportation, interpretation • Free accommodations at a 5-star hotel (up to 3 nights) • Meeting arrangement with high-level government officials and/or companies of interest • Site visits to Free Economic Zones, industrial zones 42

  43. FIW (Foreign Investment Week) • June 11-13, 2012 (http://fiw.or.kr) FIW Foreign Investment Conference Nov. 2-3, 2011 • Foreign Investment Forum • - Renewable Energies • - Service Industries (Logistics/Regional Development) • - IT and R&D • Emerging Markets Investment Forum • Foreign Investment Press Forum • PE & VC Investment Meetings • Business Partnering + Foreign Investment Partnering

  44. GAPs (Global Alliance Project Series) Program GAPs Partners 2010 2011 <Dow Chemical GAPs> Jan. 26, 2011 January June September 44

  45. Invest KOREA Advisory Council (IKAC) June 23, 2011 Oct. 28, 2011

  46. The CEO Forum for Foreign-Invested Companies 2011 Dec. 1, 2011

  47. Job Fair for Foreign-Invested Companies Sept. 29-30, 2011

  48. Service to Help Investors Settle Into Korea Get to Know Korea (e.g. Korean rice beer tour, visits to IFEZ and Gumi Industrial Complex) March 12, 2010 <Practical Tips for Using Medical Services in Korea> Free Korean Language School Apr. 4 - May 19 May 23 - June 30 Sept. 5 - Oct. 20 Oct. 31 - Dec. 15 (Registration deadline is ONE WEEK before class) March 12, 2010 <Practical Tips for Using Medical Services in Korea> Information/consultation on life in Korea provided: visa, driver’s license, etc. September 3 <Visit Gumi Industrial Complex> 48

  49. Online Presence & Invest Korea Bulletin Monthly Magazine www.investkorea.org facebook.com/investkorea @investinkorea

  50. Concluding Remarks

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