The Korea Herald


[Editorial] Dump investment hurdles

Paradox between FTA and FDI policies

By 백희연

Published : March 31, 2016 - 17:22

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Apart from indirect investment, such as seeking equity trading gains, foreign investment in South Korea remains in the doldrums. The sluggish inbound investment can be seen in a report by the United Nations Conference on Trade and Development.

Korea saw the ratio of foreign direct investment to its gross domestic product stay at 12.7 percent from 2010 to 2014 on the average. The figure is far behind the world average, which came to 31.3 percent. The average emerging country and developed country posted FDI-to-GDP ratios of 32.2 percent and 31.3 percent, respectively.

FDI growth over the past decade was also lackluster. While the FDI scale expanded 11 percent per annum across the globe, the FDI influx to Korea stood at 5 percent per annum over the corresponding period.

This indicates that Korea has still been passive in easing regulatory barriers for foreign businesses and other economic activities here.

Policymakers and lawmakers need to contemplate the recent suggestion by LG Economic Research Institute, which proposed eliminating conventional regulations.

As the institute pointed out, hurdles on the establishment of foreigner-oriented hospitals and schools are making potential inbound investors hesitant.

In a bid to attract foreign investment, policymakers have established a number of special zones. These efforts should be acknowledged, but the problem lies in the fact they are dragging their feet on drastic deregulation and fundamental restructuring of industries.

In a survey of companies operating in a dozen special economic zones across Asia, conducted by a local research institute last year, respondents gave the lowest score to Korea in the categories of employment conditions, labor-management relations and government regulations.

Abolishing the obstacles that have kept foreign investors from the country would also result in encouraging Korean companies to increase their domestic investment.

Comparisons on the global stage show that Korea remains unpopular with foreign investors. In the 2014 FDI regulatory restrictiveness index unveiled by the Organization for Economic Cooperation and Development, Korea ranked No. 6 with a score of 0.135 among the 34 member states. The OECD average was 0.068.

The Finance Ministry and the Bank of Korea have habitually used fiscal expansion and monetary easing to boost the economy. Considering such stimulus has had limited effect and had many side effects, a paradigm shift is urgent. FDI is a core alternative.

Most of all, it is paradoxical to see the government try to sustain barriers despite its signing of free trade agreements with big economies such as the U.S. and the European Union. Both liberal and conservative administrations have been active in seeking the FTA deals for more than a decade.