Korea, Republic of (ROK) - Foreign investment

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The Foreign Investment Promotion Act (FIPA) and related regulations have governed foreign investment in ROK since May 1998 when a five year liberalization plan was announced covering a total of 11 sectors including real estate, financial services, and petroleum. The policy emphasis shifted from "control and regulate" to "promote and support." Tax benefits and incentives were provided for foreign investors in high-tech and services sectors. In December 2000, the ceiling on foreign ownership was raised from 33% to 49% when Korea Telecom— now simply KT—was offered for privatization. KT was fully privatized in May 2002, albeit with SK Telecom as its largest share holder. Japanese share of foreign investments fell from about 50% in 1987 to 5.7% in 1998, as Japanese investors have been increasingly attracted to new centers of economic growth in Southeast Asia.

As of 2002, EU countries had the largest cumulative investment in South Korea ($22.8 billion) followed by the United States with $21.8 billion. To facilitate further technology transfer, the government offers particular incentives to foreign companies in 533 categories of high technology industries. Two free export zones geared towards highly technical business activities have been established at Masan (near Pusan) and Iri (near Kunsan) to provide additional incentives for investment in favored industries. There were also completed in 1996 two industrial parks, in Chonan and Kwangju. The parks are for the exclusive use of Korean firms with heavy foreign investment.

In 1998 net FDI was $0.7 billion, a balance of an inflow of $5.4 billion and an outflow of $4.7 billion. Net portfolio equity investment was a positive $3.9 billion. In 1999 and 2000 FDI inflow was $9.3 billion in both years, and net FDI was $5.1 billion and $4.3 billion, respectively. Net portfolio investment was $11.8 billion in 1999 and $12.6 billion in 2000. After the 11 September 2001 terrorist attacks on the United States, FDI inflow dropped 62% to $3.5 billion, producing a net inflow of only $1.1 billion. For 2002, it is estimated that net FDI inflow turned negative (-$.7) and that net portfolio investment was a low $1.5 billion.

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