Tuesday, 28 May 2013
Overseas Business Risk – South Korea
Political and Economic
Korea is the world’s 12th largest economy (IMF, PPP basis, 2010), the 4th largest in Asia, and 10th largest trading country in terms of trade volumes of merchandises and services. The economy grew by 2.1 % in 2012, and is forecast to grow by between 2 and 3 % in 2013.
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 international economic strategy has been to negotiate Free Trade Agreements (FTAs) with its major trading partners. The EU-Korea FTA was signed on 6 October 2010 and came in to force in July 2011. The FTA is providing for the removal of duties on 97% of all duties within three years. It is the second biggest free trade deal ever. The FTA is expected to deliver up to 32 Billion Euro in increased trade between the two parties. In addition, Korea has begun to recognise international standards resulting in no double testing of products. It will also encourage co-operative development and R&D. Other non-tariff tariffs have been addressed.
Of particular interest to the UK are the falling tariffs on iron and steel, pharmaceuticals and alcoholic beverages, major British exports to Korea. In addition, the FTA has opened Korea’s legal services market to EU firms, and facilitates the storage of financial data off-shore (both previously major issues for the UK). It will also cut Korean red tape on EU automakers by eliminating duplicate safety and environmental tests. The UKTI reports and offer British business an analysis of the most promising opportunities which the EU-South Korea FTA has presented.
Park Geun-hye, from the centre-right Saenuri Party, was elected President in December 2012 and took up office in February 2013. Despite growing public discontent towards the Lee Myung-bak government, in defeating Moon Jae-in of the DUP by a wider margin than many commentators expected, Park Geun-hye secured a further five years in power for the conservative Saenuri party. In 2011/12, Park was credited with revamping and renaming the party. During the election campaign, she successfully moved policy to the centre while keeping her traditional support base on the right on board.
The 299 seat single-chamber National Assembly forms the legislative branch of government and its members serve four-year terms. The last National Assembly election was in April 2012. The conservative Saenuri party hold 149 seats, the liberal opposition Democratic United Party (DUP) hold 128, with the remaining 23 held by minor parties and independents.
Park has pledged to pursue an “era of happiness” and a “second [economic] miracle on the Han River”. Economic growth, welfare expansion and public security are her policy priorities. To that end, Park has instigated a comprehensive government restructuring. The newly created Ministry of Science ICT and Future Planning (MSIP) will be entrusted with developing the nation’s new growth engines. It will have a £11bn budget to spur creative industries, basic science, nuclear and ICT, with the aim of pulling the country away from the spectre of slow growth seen in recent years. MSIP will subsume functions previously dispersed across government and in effect become a ‘super Ministry’ responsible for delivering many of Park’s election pledges.
For the South Korean government, maintaining good relations with Tokyo, Washington and Beijing is a delicate balancing act. Korea’s relationship with the US remains a key part of their political and security interests. Stronger links are being developed with ASEAN. Trilateral co-operation with China and Japan continue to mature, with Heads of Government and Foreign Ministers meeting every few months and the establishment of a trilateral cooperation secretariat in Seoul in September 2011. Korea enjoys a strong economic relationship with China, with China being Korea’s biggest trading partner. Historically the Korea – Japan relationship has been easily spoiled by emotive historical and territorial disputes, as demonstrated by President Lee’s visit to the disputed Dokdo/Takeshima islands in August 2012 and Deputy Prime Minister Aso’s visit to the Yasukuni Shrine in March 2013. There is always the potential for difficult historical issues to emerge unexpectedly and push Korea – Japan relations into a temporary downward spiral. However, President Park Geun-hye has come into office stating her intention to develop a forward looking relationship with Japan.
President Park Geun-hye’s new North Korea policy is still in its initial stages, but has already faced some big challenges. She has been keen to pursue a different policy to her predecessor President Lee, and has focused on trying to establish room to build trust and engagement – “trustpolitik”. The policy is aimed at creating an environment for initiatives such as providing humanitarian support, establishing economic development projects and launching a renewed inter-Korean dialogue. In return, the DPRK would agree to denuclearise.
However, since her inauguration in February, President Park has seen a series of provocative North Korean actions hinder her proposed policy, and has had to take a tough approach to North Korean threats of attack in response to the last UN resolution. She has made it clear that South Korea would immediately retaliate if attacked. The North’s most recent round of provocations peaked with the current closure of the Kaesong Joint-Industrial zone, and the exclusion of South Korean companies and workers from therein. It is unclear if this will prove to be a permanent measure. Currently, tensions remain high and it is unclear whether the DPRK will back down or launch a further provocation, although since the end of the US-Korean joint ‘Foal Eagle’ exercises North Korea’s rhetoric has eased somewhat.
President Park is still seen as trying to move North/South relations forward since the end of the previous leadership. On coming to power in February 2007, President Lee refused to continue the unconditional economic assistance to the DPRK, the so-called ‘Sunshine Policy’. This led to the virtual severing of inter-Korean relations and dialogue for most of Lee’s administration and a continuous stream of anti-Lee vitriol from the DPRK’s propaganda machine. Relations during President Lee’s term were tumultuous, marked by the shooting dead of a South Korean tourist at the Mount 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 Kaesong Industrial Complex in summer 2009; a November 2009 naval clash; and in March 2010, the sinking of the South Korean Navy Ship Cheonan on 26 March 2010 in which 46 sailors died. In November 2010, there was a further attack by DPRK when it shelled Yeonpyeong Island killing two civilians and two marines.
There was a further deterioration in December 2012, when the DPRK successfully launched a satellite. This led to international condemnation (as the launch tested DPRK ballistic missile technology) and UN Security Council Resolution 2087. DPRK responded in February with a nuclear test which led to a further UN Security Council Resolution and increased sanctions.
In general, there is a high level of respect for human rights in the Republic of Korea. The domestic framework is impressive and there is a vibrant civil society to protect it. An obstacle in further strengthening respect for human rights in South Korea is the lack of political consensus to eliminate legislation that has not kept up with the country’s democratic progression. Notably, the lack of a legal basis for the moratorium on executions, remaining provisions in the National Security Law that restrict freedom of assembly and expression and the absence of the right to conscientious objection to military service.
Korea has been a member state of the International Labor Organization (ILO) since 1991 and signed 24 of its critical conventions as of 2011. Since 1992, the ILO’s Committee of Freedom of Association (CFA) has received 9 complaints from labour groups in Korea.
Trade unions are legal in Korea but only 11% of the workforce belongs to one. It is notable that the government has refused to recognise any trade union set up by non-Korean migrant workers. Strikes are classed as illegal if striking workers resort to violence, unlawful occupation of premises or inflict damage to facilities. The suppression of illegal strikes has been known to result in heated confrontation between demonstrators and the police.
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 2012, South Korea was ranked 45th on Transparency International’s corruption perception index (CPI). This is a fall from 2009 and 2010’s high point of 39th. Although it’s true that as 12th largest economy it should be higher, it is still ranked above 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.
There is a low threat from terrorism, but you should be aware of the global risk of indiscriminate terrorist attacks, which could be in public areas, including those frequented by foreigners.
Tower blocks in Seoul
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.
On 20 March, South Korea was the victim of simultaneous cyber attacks, affecting three major broadcasting stations and three banks. Although the banks were able to get their computers and cash machines back up and running within a couple of hours, the attack on the broadcasting stations seemed more severe with reports that servers had been destroyed. The South Korean government immediately launched a cross-government investigation into the attacks, with the latest public announcement that the origin was DPRK.
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
If UK companies need professional legal advice for any business issues, UKTI Seoul can provide a list of local lawyers upon request.
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.