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Korea to expand FDI zones for service sector

The government pledged to expand the country’s foreign direct investment zones and push for the removal of regulatory barriers to foreign investment.

The Ministry of Knowledge Economy said Tuesday that it has made a few modifications to the bill regarding FDIs in the country to make its investing conditions more favorable for foreign firms.

The list includes designating FDI zones in the services sector such as knowledge services, tourism, logistics, finance and education, as well as offering more incentives to such businesses. The designation of FDI zones has mostly been focused on regions around manufacturing in the past.

The move is expected to make it easier for foreign firms to secure business locations, the ministry said. Doing so has typically been hard for foreign firms due to the complex land purchasing process and high domestic land prices.

The ministry also allowed the designation of FDI zones in the city center, considering the fact that accessibility to customers are crucial for businesses in the services sector.

To create a synergy effect between foreign and local firms, the government also allowed local firms to move into such venues within the extent that they account for less than 50 percent of the total number of tenants.

Foreign firms’ stock dividends and transfers of their earned surplus reserves to capital will also be acknowledged as FDI.

The minimum amount of FDI subject to compulsory registration with the government was raised from the current 50 million won to 100 million won, as experts have pointed out that the amount was unrealistically low compared to the country’s prices.

These measures aim to support the government’s plan to attract $60 billion in foreign direct investment in the services sector by 2015 and create 150,000 new jobs. It was its latest attempt to jumpstart the growth of the stagnant service industry to lessen the Korean economy’s reliance on exports.

However, the country’s conditions for foreign investors have failed to attract as much of them as expected.

In fact, a recent OECD report showed that Korea’s FDI index, which measures how restrictive a nation’s FDI policies are, stood at 0.142 this year, the sixth highest among OECD countries and much higher than the OECD average of 0.095.

FDI in Korea during the past four years totaled just $49.2 billion, which was far less than the amount Korean firms invested overseas ($128 billion), a report by the knowledge economy ministry showed.

“FDI, although crucial for the government to create jobs and secure tax revenues, has been has remained lower than expected,” Rep. Hong Il-pyo, a Grand National Party lawmaker said during the parliamentary inspection of the ministry.

“We have to actively attract foreign investments by bolstering the country’s free economic zones, easing restrictions and nurturing new growth engine industries.”

By Koh Young-aah (
Korea Herald Youtube