South Korea as a Country for US Investment and Trade

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South Korea as a Country for US Investment and Trade

Table of Contents

Introduction
Main Text
Conclusion
Bibliography

Introduction

South Korea stands out in the history of the world as a nation that has extraordinarily advanced within a span of forty years from being one of the poorest countries in the world to becoming one of the most technologically advanced country in the realm of consumer goods industries and in heavy goods industries (McConnell et al, 2004) The rate of the growth of the economy has permitted the rapid expansion of employment and reduction of unemployment (Dell and Dell, 1991). It has even upgraded the quality of its labor force and expanded its stock of capital. Although South Korea was primarily an exporter of agricultural products and raw materials a half century ago, it now exports large quantities of manufactured goods. It was announced in April 2002, by the Korean Government that it has a new vision of transforming South Korea into a Northeast Asian business hub. After this, Koreas industrial development paradigm is undergoing a new shift in the economic and business spheres, particularly towards a new market-oriented paradigm of economic growth and corporate governance in place of the old model of the developmental state, which ran its course until two decades ago. Thesis: South Korea as a nation has evolved over the past few decades in the context of its financial, government and human resources and this makes it a suitable destination for international trade and investment for the United States.

Main Text

Korea was a single nation till the Japanese were expelled from it after their defeat in World War II and the Korean peninsula came under the control of the Russians in the north and the United States in the south. The nation was divided along the 38th parallel and for three yeas, the UN tried to negotiate a deal to restore a single Korean nation. The south held elections in 1948 and declared a republic under the presidency of Syngman Rhee (1875-1965). The United States supported the south with military aid during the Korean War while Chinese troops backed the north. After the war President Rhee took over the South Korean government and ruled for three terms till he was ousted in 1960. A second republic based on a parliamentary system was toppled within nine months of its formation by the military junta led by Major General Park Chung Lee (1917-1979). However, democracy was restored with the elections and Korea has been a stable republic after that (Haggett, 2002).

Geographically, the Korean Peninsula extends for about 1000 kilometers southward from the northeast part of the Asian continent. The west coast of the peninsula is bordered by the Korea Bay to the north and the Yellow Sea to the South whereas the east coast is bordered by the Sea of Japan also known as the East Sea. The coastline is highly indented and many islands lie adjacent to the peninsula. The northern land border is formed by the Yalu and Tumen rivers that separate Korea from China. North Korea is separated from South Korea by the Demilitarized Zone (DMZ formed after the Korean War). Unlike Japan or the northern provinces of China, the Korean peninsula is geologically stable and there are no active volcanoes or earthquakes. IT has a temperate climate with four distinct seasons (Savada, 1997). Within South Korea, there is regional difference between the Kyongsang region and the Cholla region. South Koreas political elite that include President Park Chung Hee, Chun Doo Hwan and Roh Tae Woo have come from the Kyongsng region and hence it has received a lot of government assistance to progress. South Korea is one of the worlds most densely populated countries. Because 70 percent of the land in South Korea is mountainous, the population tends to be concentrated in the lowland areas (Savada, 1997).

Koreans form a single ethnic group with a single language and there are no minority groups apart from a few Chinese. The Korean language was influenced by the Chinese. The modern writing system known as hangul is based on phonetics (Haggett, 2002). There are a number of different religions in South Korea Buddhism, Confucianism and Christianity together with Chonogyo, a combination of the other three. Shamanism also exists in some rural areas and Changga Hakhoe, a type of Japanese militant Buddhist Society has spread in the cities (Haggett, 2002). More than two thirds of the population lives in the towns and cities and about a quarter live in the capital Seoul (Haggett, 2002).

Chaebols, large groups of family controlled companies in South Korea dominated Koreas economic scene in the late 1990s and played a huge role in the technological advances of Korea and also helped in expanding R&D activities (Bridges, 2001). Koreas tremendous economic development over the past three decades is attributed to its chaebols. But more recently these chaebols are found to be failures and due to their huge debts, chaebols have been suggested by IMF to undergo total reform. In 1997, the South Korean economy faced a near collapse and had to seek IMF aid. As a quid pro quo for receiving a $58 billion package from the International Monetary Fund (IMF) South Korea had to bring about certain sweeping market-oriented reforms (Manyin, 2004). This made South Korea open its doors to foreign investors and the result is that foreign companies, including U.S. firms, now are significant shareholders in many prominent industrial conglomerates (chaebol), own an estimated 40% of the value of the shares traded on South Koreas stock exchange, and own about one-third of the Korean banking industry (Manyin, 2004). The laws regarding direct foreign investment in Korea are primarily from the Foreign Investment Promotion Act and the Commercial Code of Korea. The FIPAs primary purpose is to improve the climate for foreign investment by changing or repealing regulations which hindered foreign investment, as well as provide additional tax and other incentives. The FIPA has two main points: foreign investors will be able to invest in all kinds of South Korean businesses and secondly, there is no need for potential foreign investors to seek consent; they only have to notify the relevant authorities (Sigong Law, 2008).

The United States and South Korea have been allies since the United States intervened in 1950 and fought the Korean War to prevent a North Korean invasion from taking over South Korea. The U.S. and the Republic of Korea also share a good solid trade relationship since the 1980s; Korea has always presented American companies with enormous business opportunities and challenges. In 2003, trade between the South Korea and the United States was nearly $60 billion, making South Korea the United States seventh-largest trading partner ahead of France and Italy. (Manyin, 2004). Koreas infrastructure development needs are estimated to be more than $100 billion by the year 2000. In addition, Korea is seeking opportunities to obtain advanced technology from American high technology companies. These factors, combined with increasing discretionary income of the average Korean consumer, represent attractive trade and investment incentives for both American and Korean businesses.

However, there are a few problems to be resolved. In 2003, South Korea imported beef worth $790 million, making it the largest buyer for the U.S. However South Korea banned beef imports after an outbreak of mad-cow disease in 2003. South Korea used the beef ban as a bargaining chip to exclude rice, its staple crop, during its bilateral negotiations to protect its rice growers from competition. This caused a dent in the U.S. Korea trade relationship. To overcome the setback, South Korea and the United States are planning to have a FTA (free trade agreement) between them, to be known as the KORUS FTA. Many law makers, including Senate Finance Committee Chairman Max Baucus insist that the ban on been must be removed before the U.S-South Korea Free Trade Agreement (FTA) bill. Despite the widely acknowledged benefits of Korea- U.S. FTA, it has been stalled for nearly 18 months due to disputes over U.S. beef and the sale of U.S. autos in Korea. Considering the fact that these are testing times for markets the world over, Troy Stangarone, director of congressional affairs and trade analysis at Korea Economic Institute of America in Washington, D.C. suggests that both U.S. and Korea must be more flexible in their approach to move the agreement forward.

In the words of Myron Brilliant, Chamber Vice President for Asia and executive vice president of the U.S. Korea Business Council, South Korea is well positioned to attract increased U.S. trade and investment in light of its strategic location and recent positive economic reforms. As a marketing consultant in South Korea I would suggest that this is the time for investing in Korea to achieve maximum benefit. South Korea aims to attract more than US$12 billion (¬7.6 billion) in foreign direct investment and the government under President Lee Myung-bak has a three year plan to improve the climate for foreign investors. South Koreas economy is forecast to grow at 2.7 percent in 2009 according to the Organization for Economic Cooperation and Development (OECD) said Wednesday (MCOT, 2008). The OECD of which South Korea is a member has also advised the country to take steps to enhance transparency in taxation and policies and revamp labor market flexibility to create a more investment-friendly environment (MCOT, 2008). I would also recommend that the United States focuses on the areas of Information and Communications Technology and Science and Technology as they are the current priority areas in South Korea (UKTI, 2008). The opportunity sectors for Korea are: Sports and Leisure Infrastructure, Environment, Creative industries, financial services, Bio/Pharma and Advanced Engineering (UKTI, 2008). There is an expansion of tax incentives for high technology sector FDI in the FIPA. And the incentives include tax holidays of up to 10 years for companies investing in the field of high-technology (now exceeds some 400 categories) or supporting national competitiveness and lease cost exemptions of up to 100 percent for periods of up to 50 years (Manyin, 2004).

Conclusion

As one of the Four Tigers of East Asia, South Korea has achieved an incredible record of growth and integration into the high-tech modern world economy. The rise of Korea from a poor nation to an economically sound country has been achieved through a system of close government/business ties, including directed credit, import restrictions, sponsorship of specific industries, and a strong labor effort. Today, the government is working towards creating a liberalized business climate. Now is the time for foreign investors to enter the market. As such, South Korea offers a great destination for global business ventures.

Bibliography

Dell, Samuel Sidney and Dell, Sidney (1991). International Development Policies: Perspectives for Industrial Countries. Duke University Press, 1991
Haggett, Peter (2002). Encyclopedia of World Geography. Marshall Cavendish Publishers, 2002
Manyin, E. Mark (2004). South Korea- U.S. Economic Relations: Cooperation, Friction, and Future Prospects. CRS Report for Congress, 2004.
McConnell, R. Campbell; Brue, L. Stanley and Campbell, R. R. (2004). Microeconomics: Principles, Problems, and Policies. McGraw-Hill Professional, 2004
Savada, Matles Andrea (1997). South Korea: A Country Study. DIANE Publishing, 1999
UKTI (UK Trade & Investment) (2008). Korea (South).

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