Overseas Business Risk - South Korea

See below for information on key security and political risks which UK businesses may face when operating in South Korea.

Political and Economic

Korea is the world’s 12th largest economy (IMF, PPP basis, 2010) and the 4th largest in Asia. The economy is booming with growth of 6.1% in 2010. It is home to iconic and world beating brands such as Samsung, LG, Hyundai and KIA. Indeed Samsung electronics, the world’s largest electronics company has a turnover comparable to Apple, Google and Microsoft combined. It boasts a wealthy, tech savvy population. GDP PPP is touching USD $30,000 per person.

South Korea’s main economic policy has been to negotiate Free Trade Agreements (FTAs) with its major trading partners. The EU-Korea FTA was signed on 6 October 2010 and will come in to force in July 2011. It will lead to the removal of duties on 97% of all duties within three years. It is the second biggest free trade deal ever. When ratified, the FTA will deliver up to Euro 32 billion in increased trade between the two parties. In addition, Korea will recognise international standards resulting in no double testing of products. It will also encourage co-operative development and R&D and other non-tariff tariffs have been addressed.

Of particular interest to the UK will be falling tariffs on iron and steel, pharmaceuticals and alcoholic beverages, major British exports to Korea. In addition, the FTA will open Korea’s legal services market to EU firms, and will allow financial data to be held off-shore (both are currently major issues for the UK). It will also cut Korean red tape on EU automakers by eliminating duplicate safety and environmental tests. The UKTI report 100 Opportunities for UK Companies in Korea, offers British business an analysis of the most promising opportunities which the EU-South Korea FTA would generate.

Politics

The Korean President, Lee Myung-bak is from the centre-right Grand National Party: the party which also holds a majority in Korea's National Assembly. With a background in Hyundai, President Lee has declared himself a champion of business and of basing Korea's future on "Green growth". The consensual nature of Korean politics means it is often difficult to secure National Assembly approval for government legislation, despite its majority. But Lee is committed to securing a swift, green recovery for Korea.

As in most democracies the ruling party traditionally suffers in mid-term elections, and the June 2010 local elections were a more bruising appraisal for the GNP than most of the major media outlets had predicted. Although the party stuck behind President Lee when the going was good, factionalism within the party meant that post mid-terms the most significant check on the President’s legislative agenda has been the parliamentary GNP’s desire to be on the right side of public opinion. Because of President Lee’s low approval ratings, and the pre-eminence of a rival faction leader in the race for the party’s 2012 presidential candidacy nomination, influential figures within the GNP have begun to publicly contradict him. This has led to some critics labelling Lee Myung-bak a ‘lame-duck’ president.

Regional Issues

Businessman working at a computer

On the 05 April 2009, North Korea launched a “communications satellite”, which failed to get into space and a second nuclear test on 25 May 2009. These moves were widely condemned by the international community and resulted in UNSCR 1874. As a consequence, North Korea has announced that it will no longer take part in Six Party Talks on denuclearisation, and has said it will reactivate some of its decommissioned nuclear facilities. While these developments are disappointing, and inter-Korean relations remain tense, there is no imminent threat of cross-border violence.

For the South Korean government, maintaining good relations with Tokyo, Washington and Beijing is a delicate balancing act. However, Chinese reluctance to condemn North Korea over the Cheonan and Yeonpyong incidents and the subsequent South Korean-US military exercises has strained political relations between Seoul and Beijing.

Inter-Korean Relations

President Lee has refused to follow the centre-left administrations in offering unconditional economic assistance to the DPRK – the so-called “Sunshine Policy”. This provoked a stream of anti-Lee vitriol from the DPRK’s propaganda machine and virtually severed inter-Korean dialogue.

Relations during the first half of President Lee’s term were tumultuous, marked by the shooting of a South Korean tourist at the northern Kumgang Tourist Resort in July 2008, a second DPRK nuclear test in May 2009, the three month detention of a South Korean worker from the northern Kaesong Industrial Complex in summer 2009, and a November 2009 naval clash.

But 2010 brought a new low-point. Relations deteriorated significantly following the sinking of the South Korean Navy Ship Cheonan on 26 March 2010, in which 46 sailors perished. South Korea conducted an investigation into the sinking with the assistance of experts from the US, UK, Sweden and Australia, and concluded that a DPRK torpedo attack was the cause. The DPRK denied the attack, and Chinese sympathy towards the DPRK meant that Seoul was unable to secure a direct condemnation of the Pyongyang in the ensuing UN Security Council Presidential Statement. Seoul followed up with a show of force in the form of joint US – South Korea military exercises and Pyongyang responded with bellicose rhetoric.

In August, President Lee presented a three-stage unification proposal under which the two Koreas would form: a ‘peace community’ involving denuclearization of the peninsula; then an ‘economic community’ for cross-border economic integration; and eventually a ‘community of the Korean nation’ with no institutional barriers between them. The DPRK condemned the proposal, but within a month it appeared like inter-Korean relations were beginning to thaw. Seoul first offered humanitarian aid for DPRK flood victims, Pyonyang later released a detained South Korean fishing boat and both sides re-started cross-border family reunions.

Although the DPRK let President Lee bask in the international limelight surrounding the G20 Seoul Summit on 11 November, it only did so for a matter of days. On 21 November reports that the DPRK had developed a uranium enrichment programme broke through a respected US scientist. Then, just two days later in response to South Korean naval exercises in the West Sea, the DPRK shelled Yeonpyong Island killing two civilians and two military personnel. Graphic television footage of the attack meant that this latest DPRK provocation hit home harder than previous incidents and provoked domestic criticism of the South Korean military. In response, President Lee sacked the Defence Minister and promised to exercise the right to self defence in case of future DPRK provocations.

President Lee’s firm public pledge to seek an apology from the DPRK for the Cheonan and Yeonpyeong attacks has strong public support in South Korea. So the DPRK’s May 2011 revelations that South Korea had initiated secret inter-Korean talks were extremely embarrassing for him.

More information on political risk, including political demonstrations is available in FCO Travel Advice.

Bribery and Corruption

Bribery is illegal. It is an offence for British nationals or someone who is ordinarily resident in the UK, a body incorporated in the UK or a Scottish partnership, to bribe anywhere in the world.

In addition, a commercial organisation carrying on a business in the UK can be liable for the conduct of a person who is neither a UK national or resident in the UK or a body incorporated or formed in the UK. In this case it does not matter whether the acts or omissions which form part of the offence take place in the UK or elsewhere.

In 2009 and 2010, Korea was ranked 39th on Transparency International’s corruption perception index (CPI) the improvement from 40 in 2008 and 43 in 2007 was remarked on by Transparency International as being one of the most significant jumps. Although it’s true that as 12th largest economy it should be higher, it is still higher than something like some EU Member States, including Italy who is a member of the G8. Korea is also a member of OECD and the general perception is that it should be ‘cleaner’ than it is.

Although the total number of cases of corruption in public arena has decreased significantly, methods of bribery have been developed in more secret and sophisticated ways. The authorities are fighting to catch up.

Currently, ACRC (Anti-corruption & Civil Rights Commission) is a central institution that deals with fighting corruption in the public sector and protecting civil rights from unfair administrative practices.

Visit the Business Anti-Corruption portal page providing advice and guidance about corruption in South Korea and some basic effective procedures you can establish to protect your company from them.

Read the information provided on our Bribery and corruption page.

Terrorism Threat

There is a low threat from terrorism in South Korea. But you should be aware of the global risk of indiscriminate terrorist attacks that could be in public areas, including those frequented by expatriates and foreign travellers

Read the information provided on our Terrorism threat page.

Protective Security Advice

As one of the world’s most "wired" countries, IT crimes (such as worm infection, hacking, phishing, identity theft, credit card fraud, pornography, illegal music/movie downloads, etc.) are often reported in Korea. In 2003, the government set up a National Cyber Security Centre (NCSC), to tracking rising cyber exploitation, operating a monitoring room year-round, 24/7. The NCSC is the central point of government for identifying, preventing and responding to cyber attacks and threats in South Korea.

Since the use of internet banking is increasing, the incidence of hacking and information theft also keeps on rising. The government enacted the Electronic Financial Transactions Act in 2006. Download a pdf version of the handbook titled Electronic Financial Services In Korea published by the Financial Supervisory Service in December 2010.

Read the information provided on our Protective security advice page.

Intellectual Property

Regarding Intellectual Property Rights, it is highly recommended that companies register their patents and trademarks with the Korean Industrial Property Office (KIPO) prior to making any major business decisions in dealing with Korean companies. In principle, the patent and trademark registration system used here is based on a "first-to-file" (or, more accurately, the first to successfully register) with KIPO. Therefore, the sooner you register, the better. Companies will be disadvantaged in any future disputes over IPR if they have not registered in Korea. Below are contact details for KIPO:

International Co-operation Division

Korean Intellectual Property Office

Add: Government Complex-Daejeon, Dunsan-dong, Seo-gu,

Daejeon Metropolitan City, Korea

Tel: 82 42 481 5072

Fax: 82 42 471 3459

URL: www.kipo.go.kr

If UK companies need professional legal advice for any business issues, UKTI Seoul can provide a list of local lawyers upon request.

Read the information provided on our Intellectual Property page.

Organised Crime

The crime rate in the Republic of Korea is low, and civilians are strictly prohibited from arming themselves. However, some criminal organisations operate businesses that make very big and quick money; gambling, drug trafficking, prostitution, private loan, real estate dealings, construction contracts, etc. Those organisations accumulate property through such operation and then launder the proceeds by investing in legal businesses.

Read the information provided on our Organised crime page.