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KOCHAM ANNUAL POSITION PAPER: 2002

An Agenda to Strengthen U.S.-Korea Economic Relations

(click here to download the Presentation PDF of the KOCHAM Position Paper)

    1. Overview and Current Status
    2. Dynamic Hub of Asia
    1. Korea and the United States: Commercial, Political and Strategic Partners
    2. Korea’s Commitment to Free Trade: Restraining Protectionist Pressures
    3. Toward a U.S.-Korea Free Trade Agreement (FTA)
    4. Korea’s Support for the Global War on Terrorism
    5. Korean Security: North-South Relations & Support for World Cup
    1. Korean-U.S. Business Cooperation: Promoting Stronger Alliances and Relationships
    2. Korean Companies: Globalization and Investment in the U.S.
    3. Issues and Obstacles Toward Greater Economic Cooperation
    4. Korean Companies: Obstacles to Doing Business in the U.S.

I. KOCHAM: Overview and Mission

The Korean Chamber of Commerce and Industry in the USA, Inc. (KOCHAM) is a not-for-profit business organization headquartered in New York City. As the most prominent representative of U.S.-based Korean firms, KOCHAM works to build awareness and good will between the people, governments and business communities of Korea and the U.S. This includes an annual trip to Washington, D.C. and participation in the annual Korea-U.S. Business Council meeting.

  • KOCHAM is a non-for-profit private business organization headquartered in New York City. Founded in June 1992, KOCHAM now serves over 450 U.S.-based Korean companies located across the U.S. Our members include most major Korean corporations operating in the U.S., as well as locally-based Korean financial institutions, attorneys, CPAs and other service professionals.
  • As the most prominent representative of U.S.-based Korean firms, KOCHAM fulfills a multi-faceted role. In addition to raising the management skills of its members, KOCHAM is active in a range of "corporate diplomacy" initiatives to build greater awareness and goodwill between the people, governments and business communities of Korea and the United States. KOCHAM is also dedicated to building closer relationships between Korean and U.S. firms.
  • Serving as the voice of its members in the U.S., KOCHAM participates in a wide range of organizations and forums that focus on relevant bilateral and multilateral issues. This includes undertaking an annual trip to Washington to brief U.S. government and other officials on the views of the Korean business community. It also includes playing a major role within the Korea/U.S. Business Councils and Korea/Southeast U.S. Economic Committee.
  • The following document represents a summary of the current views and positions of KOCHAM on the occasion of its annual visit to Washington on May 212-22,2002 and its participation in the annual Korea/U.S. Business Council meeting in Seoul in June of 2002.

Prepared, New York City, May 15, 2002


II.1 Korea in the Global Economy: Overview & Current Status

Over the past year Korea has been a star performer — leading Asian nations in efforts to restructure and reform their economies. Measures adopted in response to the 1997 IMF crisis have helped to liberalize its financial system and to introduce transparency and the new technologies and business practices needed to create a knowledge-based society. International investors, analysts and executives have endorsed these achievements through ratings upgrades and asset purchases that have made Korean capital markets among the best performing in the world.

  • Korea is moving to rapidly introduce the reforms needed to create a market-driven economy. This is necessary to deliver sustainable growth. Substantial progress has been achieved in four areas, including: a) corporate sector, through enhanced corporate governance and profitability; b) financial sector, through disposal of non-performing loans and consolidation; c) labor sector, through more flexible labor market and peaceful dispute resolution; and d) public sector, though privatization and deregulation.
  • Korea’s success is reflected in the dramatic change of its external position. Korea was a net debtor country with obligations totaling $54 billion in 1997. Earlier this year, it achieved a net credit of $41.6 billion. Foreign exchange reserves also declined to less than $4 billion in 1997. Today, Korean reserves stand as high as $108 billion — higher than the U.S., Germany or France.

  • In a rare move, Moody's Investors Service raised Korea’s sovereign rating by two notches on March 28, 2002. This allowed the nation to regain the "A" rating it possessed before the 1997 crisis. Korea's foreign currency country ceiling for bonds and notes has risen from "Baa2" to "A3".
  • Equally impressive is the dramatic change of investor sentiment. On the equity side, Korea’s main stock market index has risen by almost 80% since last September — constituting one of the best performances in the world.
  • The Financial Times and New York Times have both recently contrasted Korea’s achievements with those of Japan. Both publications praised Korea and observed that while the nation has traditionally looked to Japan for guidance, in some cases the reverse is now true. Many Korean firms and the efforts of its government now serve as a model for other countries that are looking to upgrade and expand their economic potential.
  • As the voice of the Korean business community in the U.S., KOCHAM applauds the efforts of our government and colleagues back in Korea. We look forward to redoubling our efforts to maintain and expand on the tremendous progress that has been achieved over the past few years.

II.2 Korea in the Global Economy: Dynamic Hub of Asia

Korea today is very different from only a few years ago. An increasingly efficient and open market, Korea is attracting an onslaught of foreign investment — in recent years totaling nearly $52 billion — from corporations and investors who recognize the effects of empowered consumers and a radically different corporate environment. Additionally, taking advantage of its strategic geographical location, Korea has made a substantial investment into the air, marine and other infrastructure facilities that will enable it to effectively position itself as the "Dynamic Hub of Asia".

  • Comprehensive structural reform has helped to transform the Korean economy, which achieved near 3% growth in 2001. This is a year when most economies contracted. Investors now express great optimism — driving Asia’s 4th largest economy to new heights.
  • Korea attracted nearly $52 billion in foreign direct investment from 1998-2001. This is more than twice the $25 billion it gained in the 36 years prior to the crisis. Ninety-eight percent of all industrial sectors are now unrestricted. Power-generation, telecom and broadcasting are being deregulated and real estate and foreign exchange transactions have been fully liberalized.
  • Foreigners now own about 37% of listed Korean shares. Among Korea’s most competitive and widely-held companies such as Posco, Samsung Electronics and Kookmin Bank foreigners hold about 66% of listed equity. This is an extraordinary change from a few years ago.

  • As non-performing loans have been reduced from 13% of banking assets in 1999 to 3.4% last year, Korean banks, which recorded a 4 trillion won loss four years ago, now earn net profits totaling 5.2 trillion. Performance is expected to further improve through the introduction of a new system allowing financial institutions– rather than regulatory agencies – to monitor the health of corporations and to lead restructuring efforts when necessary.

  • Of Korea’s top 30 firms in 1997, 16 have been closed or significantly reorganized. Companies that remain have downsized and sold assets. Debt/Equity ratios of the top four business groups have declined from 473% to 162% in the three years since the crisis. Today, nonviable companies can be dealt with easily and quickly, due to new laws that facilitate bankruptcy, reorganization and M&A. Corporate governance has also improved dramatically. A system requiring outside directors has been established as well as new rules that increase the ability of shareholders to exert control.

  • Korea has also placed itself on the cutting edge of new technology. More than one of every seven Koreans now has broadband access. That is nearly five times greater than the U.S. Over half the population uses the Internet and the ratio of people using online stock transactions overtook the U.S. over two years ago. Korea is also a world leader in mobile communications. It was the first country to commercialize CDMA technology and remains the world’s leading maker of CDMA phones. Out of a population of 47 million, there are 30 million mobile phone subscriptions. That is more than one subscription for every adult -- far ahead of the U.S., Japan and most European countries.
  • Korea has discovered the important role that domestic spending can play in stabilizing its economy. As the nation begins to reduce its traditional focus on savings in favor of consumption, it is providing additional diversity to an economy that has traditionally relied upon exports and capital investment.
  • Korean firms, including Samsung Electronics, Kia, Hyundai Automotive and LG have made significant progress in launching high-end proprietary brands that have been positively received by U.S. and other foreign consumers.
  • Korea has also begun to take advantage of its strategic location. It has made significant investments to develop the expanded physical infrastructure needed to position the nation as the business and financial hub of Northeast Asia. This includes the new Inchon Airport, which possesses the capacity to carry 27 million passengers and 1.7 million tons of cargo annually. Over the next two decades, the airport will grow in phases to handle 100 million passengers. It is the largest infrastructure project ever undertaken in Korea. Additional infrastructure includes a renovation of Inchon’s seaport and the resumption of rail traffic through North Korea.
  • This is not to suggest Korea has overcome all obstacles or that no problems lay ahead. Korea remains extremely dependent on international trade, which contributes up to 73% of its GDP. Many external factors remain beyond its control. Much will depend on a stable world environment and the ability of the U.S. to emerge from recession. Other concerns include the need for Japan to regain its economic footing and for Korea to meet the competitive challenge presented by a rising China.
  • KOCHAM stands ready to assist in Korea’s ongoing transformation. It dedicates itself to helping Korea realize its vision of developing a North Asian business and financial hub and to promote a unified and prosperous economy. By serving as an outpost and facilitator for Korean firms in the U.S., it seeks to help Korean and U.S. executives to develop the business and personal relationships they need to achieve success in each other’s markets.

III.1 Korea and the United States: Commercial, Political and Strategic Partners

Korea remains America’s most loyal and staunchest ally in Asia — maintaining close commercial, political and strategic relations throughout its entire post-war history. Trade between the economies more than doubled over the past decade. Politically, the South Korean people have learned much from the U.S. and now enjoy a strong democracy and dedication to market-oriented economic principles.

  • Many Americans are unaware of the full depth of the Korea-United States relationship and the important role Korea plays as a major commercial, strategic and political partner. Trade between the two economies more than doubled over the past decade -- reaching an all-time high level of $67 billion in 2000. Since the 1997 financial crisis, the U.S. has overtaken Japan as Korea's largest import supplier. South Korea is now the sixth largest U.S. export market and its seventh largest trade partner. Major U.S. exports to Korea include aircraft, semiconductors and machinery. South Korea is also the fourth largest market for U.S. agricultural products and third largest market for U.S. beef.
  • The U.S. has been Korea's largest export market for several decades. In recent years it has accounted for about 20% of total exports -- approximately 5% of Korea's GDP. Major U.S. imports from South Korea include semiconductors -- accounting for nearly 20%, electrical and general machinery, cell phones, autos, textiles and steel.
  • Korea and the U.S. share many political values. Democracy and market-oriented principles are firmly entrenched and the nation has come a long way since direct presidential elections were restored in 1987. Its well-educated work force is quickly transforming itself into a sophisticated consumer society -- with increasingly diverse perceptions and preferences. Consumption of goods and services is growing at a rapid rate — making Korea an increasingly attractive market for foreign consumer and luxury goods manufacturers.
  • Korea also serves as a firm strategic ally of the U.S. Its firm commitment is based on historic reasons as well as a general affinity with the American people. Most importantly, the South Korean people have not forgotten the sacrifice of the American people and military in the face of communist aggression over 50 years ago. They appreciate the 37,000 U.S. troops that remain stationed in South Korea to this day. This force serves to ensure Korean security, while acting as a stabilizing force in the world at large.
  • KOCHAM endorses these trends and looks forward to continuing and expanding its efforts to maximize the benefits of this important relationship.

III.2 Korea’s Commitment to Free Trade: Restraining Protectionist Pressures

Korea has moved rapidly in recent years to abandon its traditional reliance on trade barriers as a means to protect its domestic economy. It has come to understand the essential need to open its markets. Intensive reform has helped to change Korean business practices, however, it is feared that U.S. moves to impose prohibitive tariffs on steel could invite a domino effect of protectionism from other nations, which would threaten to weaken and undermine the international trading system at large.

  • Korea has been moving rapidly to open its economy. This is helping to facilitate market access, protect intellectual property rights, liberalize labor practices and rectify a range of other issues that once constrained the free flow of goods, services and capital. The result has been the most rapid recovery in Asia and rising domestic consumption.
  • Having initiated these changes -- with more on the horizon — Korea was disturbed to see the U.S. seemingly waver from its own commitment to free trade. This was evidenced in President Bush's March 6th decision to impose prohibitive tariffs on most U.S. steel flat-rolled product imports, along with a tariff rate quota on slab steel imports of up to 30%.
  • Given that the present problems of the global steel industry are due to global overcapacity, unilateral trade-restrictive measures will not serve as a solution for the difficulties faced by U.S. domestic industries. Furthermore, U.S. imposed safeguard measures do not take adequate account of current OECD-sponsored efforts to address global overcapacity and may hinder future prospects to achieve significant progress on this issue.
  • The problems faced by the U.S. steel industry is the result of insufficient restructuring, not increased imports. In fact, imports of flat-rolled steel products has declined substantially since 1998, and the volume of total steel imports in 2001 was lower than in previous periods. Therefore, the imposition of U.S. safeguard measures cannot be justified on these grounds.
  • KOCHAM is concerned that U.S. safeguard measures will provoke a global proliferation of protectionism, resulting in a detrimental effect on a world economy that is gradually showing signs of recovery. The imposition of a staggering 30% tariff rate on top of other restrictive measures such as anti-dumping duties essentially blocks the ability of Korean steel to enter the U.S. steel market.
  • KOCHAM strongly requests that the U.S. government withdraw it's safeguard measures in their entirety, or at a minimum, modify them at the earliest possible date to comply with relevant WTO agreements.

III.3 Toward a U.S.-Korea Free Trade Agreement (FTA)

A U.S.-Korea FTA would enrich both nations. KOCHAM urges Korean and U.S. opinion leaders to join us in pushing to accelerate the completion of this initiative so that both countries can enjoy the benefits in coming years.

  • Korea’s interest in bilateral trade initiatives can be attributed to the need to reconstruct and rationalize its domestic economy. New trade pacts can help to facilitate inflows of foreign capital and management skills, to provide consumer benefits and to inject new competition into the Korean market.
  • From a U.S. standpoint, an FTA can provide increased trade and investment opportunities. In particular, the U.S. can increase a wide range of exports to Korea. The U.S. could also use its expanded access to the Korean market as a platform for increased activity throughout the Asia Pacific Region.
  • A U.S.-Korea FTA also serves as a catalyst to jump-start the next stage of regional free trade movement within APEC and as a building bloc to further strengthen the multilateral trading system. A FTA would also help to strengthen geopolitical ties and security ties between Korea and the U.S.
  • A FTA would benefit both nations. But to achieve these gains, each would need to change long-standing policies that protect affected industries and interests from foreign competition. Both sides need to bridge the necessary economic and political interests.
  • In Korea, the most vociferous opposition to a FTA with the U.S. would likely come from agricultural interests. Korea’s agricultural sector is globally uncompetitive -- but still holds considerable clout in national politics. The farm sector has disproportionate representation in the National Assembly, even though agriculture, forestry, and fishing now account for only five percent of GDP and eleven percent of the Korean population.
  • In the manufacturing sector, Korean support for an FTA depends on whether a prospective trade pact can deal with problems relating to antidumping and countervailing duties. Reforms in these areas are particularly important for the steel and electronics industries, a frequent target of U.S. cases.
  • The views of U.S.-based Korean companies toward a FTA are highlighted in a survey undertaken by KOCHAM and FKI in 2001. This survey interviewed 50 major U.S.-based Korean companies and showed that 87% of companies surveyed favored FTA negotiations with the U.S. and 60% expect trade between Korea and the U.S. will expand and become more balanced.
  • One major sign of progress toward completing an FTA over the past year, which was viewed very positively by Korean companies, was the release of the ITC’s report on a Korea-U.S. FTA to the U.S. Senate finance committee last fall. The positive nature of the ITC report gives Koreans confidence the U.S. government also sees the benefits of a FTA with Korea.
  • According to the report, trade between Korea and the U.S. has risen to $69 billion, yet substantial benefits are lost because both countries put relatively high tariffs onto selected products. The report estimates if a FTA would allow for all economic sectors to be fully liberalized with zero tariffs, U.S. exports to Korea would increase by $19 billion and Korean exports to the U.S. would increase by $10 billion at the same time.
  • One immediate task that must be overcome is passage of the Bilateral Investment Treaty (BIT) now under consideration.
  • KOCHAM urges Korean and U.S. opinion leaders to join us in making common efforts to facilitate FTA negotiations. This includes working to pass the BIT. In view of the growing commercial ties and importance of our bilateral relationship, U.S.-based Korean companies think it is time to more aggressively discuss the prospects of a U.S.-Korea FTA. This will help to accelerate the completion of this initiative so that both countries can enjoy the benefits in coming years.

III.4 Korea’s Support for the Global War on Terrorism

An affront to moral decency, the terrorist actions of September 11, 2001 can be seen as an attack on all civilized nations. The Republic of Korea expresses its sincerest concern and regrets as both a nation and a people. It stands ready to join together with the U.S. in its efforts to promote global security. This is recognized as an essential prerequisite and foundation for a stable, growing and prosperous world economy.

  • The South Korean people especially abhor the deplorable terrorist actions of September 11, 2001. This attack caused untold damage and the tragic deaths of thousands of U.S. and foreign citizens — including 18 Koreans. It also served as an invasion into the homeland of the courageous U.S. soldiers and families who had sacrificed to save the South Korean people during the Korean War.
  • The Republic of Korea expresses its sincerest concern and regrets as both a nation and a people. Joining together with the U.S. and other civilized nations, South Korea stands ready to do its part in the critical fight to promote global security. This is recognized as an essential prerequisite and foundation for a stable, growing and prosperous world economy.
  • South Korea pledges to make every effort to be a strong, supportive partner of the U.S. in the global war on terrorism. This has included an immediate commitment by its government to provide medical and transport support after the September 11th tragedy. Military ties between the two nations, already strong before the attacks, are now even stronger.
  • On November 12, 2001 a private sector delegation of Korean business leaders led by the Federation of Korean Industries’ Vice Chairman Sohn, Byung-Doo traveled to New York and Washington to donate one million U.S. dollars to two relief organizations aiding families of September 11th victims. Their concern and support was further demonstrated by the participation of Korean business and government leaders during the World Economic Forum (WEF) which was held in New York City earlier this year.
  • KOCHAM was especially pleased to see the WEF being hosting in New York — our headquarters and the home of so many Korean firms. Not only did this event help to demonstrate the essential vitality and dynamism that underlies New York City -- it also emphasized the civilized world’s determination to stand together tall in rejection of mindless terrorism.

III.5 Korean Security: North-South Relations & Support for World Cup

After maintaining a constant state of alert for almost five decades, South Korea has adopted a "Sunshine Policy" that seeks to enage the North in an economic and policy dialogue. Considerable progress has been made, with one major achievement being the resumption of freight traffic from North to South this fall. Next month’s World Cup, which will be co-hosted by Japan and Korea, also offers tremendous promise, providing a vehicle that can help promote a new spirit of cooperation in North Asia.

  • President Kim Dae-Jung’s sunshine policy was implemented in 1998, marking a new era, in which the South sought to engage the North in an economic and political dialogue, as opposed to the open confrontation that existed in the past. This course has not been easy or without delay -- yet significant progress has been achieved over the past three years.
  • Freight trains are expected to begin crossing from North to South this fall — allowing inter-Korean rail traffic and cargo for the first time in nearly fifty years and South Korean firms recently opened North Korea’s first car assembly plant. Major South Korean telecom firms plan to visit the North to compete for a half-billion-dollar cell-phone project and one entrepreneur hopes to soon begin flying hundreds of South Koreans to Pyongyang to play at North Korea’s only 18-hole golf course. Smaller firms have also begun to conduct business in the North.
  • Furthermore, while the South Korean people are making every effort to engage in a constructive dialogue with the North, it is determined not to do so in a manner that sacrifices its national security. One sign of this commitment is the recent purchase of 40 U.S. F-15K fighter jets — reinforcing South Korea’s ability to deal with any conflict that emerges.
  • This year’s World Cup Soccer Tournament, which will be co-hosted this June by Korea and Japan offers tremendous promise as a means to usher in new era of cooperation in North Asia. Korea and Japan share many economic, cultural and social ties and this event promises to help both countries to improve these ties and the prospect of initiating a Korea-Japan bilateral free trade agreement.
  • To build on the emerging spirit of cooperation and good will, KOCHAM recently helped sponsor an event organized by the Korea and Japan Societies in N.Y. Professionals from both countries and the U.S. united together to commemorate the upcoming World Cup and to promote closer relations between all three countries.

IV.1 Issues and Obstacles Toward Greater Economic Cooperation Between Korea and the United States

Korean-U.S. Business Cooperation: Promoting Stronger Alliances and Relationships

An ongoing private sector dialogue is essential to complement public sector communications and to strengthen relationships between Korean and U.S. firms. The Korea-U.S./U.S.-Korea Business Councils have been helping for over a decade to promote an exchange of information among larger companies. Special attention needs to be paid to building interactions between the small to mid-sized firms that serve as a dynamic source of growth in both countries.

  • The Korea-U.S./U.S. Korea Business Councils were established in 1988 as bilateral forums. They facilitate an ongoing dialogue between Korean and U.S. business leaders to promote understanding and cooperation between Korea and the United States. These councils have played a unique role in helping to resolve various trade conflicts by allowing high-level talks among private sector leaders from both countries. Members are kept updated and able to interact with their counterparts to develop relationships and discuss a wide range of critical bilateral economic, financial, political and security issues

  • Business relations between Korea and the U.S. are increasingly important as Asia recovers and accounts for an ever-greater share of the world economy. Strengthening these councils and other business organizations that focus on the Korean-U.S. relationship is essential to promote a healthier business environment and closer relationship between Korean and U.S. firms. This will promote the competitiveness of both economies and help to raise trade and investment flows, not only bilaterally, but in third countries as well.

  • Special attention, however, needs to be paid to promote stronger relationships and interactions between small- to medium-sized enterprises — who serve as a dynamic source of growth in both countries. Unlike major U.S. firms, who are active and aware of Korea’s attractiveness as a business and investment destination, smaller firms have remained on the sidelines.

  • As a result the U.S. has lost its position as the leading foreign investor in Korea in favor of Europe and many U.S. firms are losing out to their competitors as a result.

  • KOCHAM urges Korean and U.S. government leaders to provide what support they can to enhance the role and importance of these councils while preserving their independence as private sector-led organizations. At the same time, we urge Korean and U.S. business leaders to redouble their efforts to utilize these councils as mechanisms to enhance commercial cooperation and the ensuing benefits that can be achieved through an expanding bilateral relationship.

IV.2 Korean Companies: Globalization & Investment in the U.S.

The growing scale and depth of the Korean economy requires that its corporations adopt a more global focus and Korean firms have moved rapidly to expand their overseas operations. This includes many substantial investments in the U.S. by Korean companies and many new jobs for U.S. citizens have developed as a result.

  • As the Korean economy has developed, its economy has become more complex. Increased prosperity has raised living standards and business costs, eroding Korea’s competitiveness as a low-cost manufacturing platform.
  • More complex structures are needed to develop the scale, depth and market presence that can build brands and sustain Korea’s competitiveness in the face of an emerging China and other lower-cost competitors.
  • To achieve this goal, Korean firms need to assume a more multinational character. This entails expanding their overseas operations, internationalizing their business practices and allowing greater numbers of non-Koreans to enter the boardrooms and management ranks of Korean firms. As Korea’s largest and most important export and foreign market, substantial attention has been devoted to upgrading their presence in the United States. Their activities are having a significant impact, providing jobs to Americans and enriching local communities. As of 2001, there were approximately 2800 Korean investments in the U.S. totaling nearly $9 billion.
  • Additionally, Hyundai Motor Co., picked Alabama last month as the site for a $1 billion investment in its first U.S. plant. When completed by the end of 2004, it will employ at least 2,000 workers and by the following year have an annual production capacity of 300,000 vehicles. Other notable investments by Korean firms include:

Source: FKI, As of Sept. 2000

Firm

Location

Amount of Investment

Ratio of Employees (Korean: U.S.)

Hyundai Electronics

San Jose, CA

$687 million

40:340

USS:Posco Ind.

Pittlburgh, PA

$388 million

12:980

PMX Industries, Inc.

Ceda Rapids, IA

$250 million

3:270

Maxtor Corp

Longmont, CO

$207 million

1:800

Hyundai Precision

San Diego, CA

$47.5 million

4:50

Hanwha Chemical

Irvine, CA

$45 million

4:170

Kia Motor Corp.

Irvine, CA

$30 million

13:157

TV/COM Intl

San Diego, CA

$29 million

1:220

Hanyoung Inc.

Carson, CA

$10 million

7:150

SKC America Inc.

Sunnyvale, CA

N.A.

0:155

Samsung Electronics

San Jose, CA

N.A.

19:279

Hyosung

Rockhill, SC

$2.0 million

3:20 (initial)*

* As of May 2002

IV.3 Issues & Obstacles Toward Greater Economic Cooperation

Korea and the U.S. enjoy greater bilateral trade flows and closer economic cooperation than ever before, yet there are a number of important issues that need to be resolved to maximize the potential of the Korea-U.S. bilateral relationship.

  • Specific examples include:
  • Bilateral Investment Treaty: The governments of Korea and the United States have both agreed to make every effort to conclude a bilateral investment treaty (BIT) during the first half of this year. Nevertheless, U.S. concern over a range of issues including autos, movie screen quotas, intellectual property rights and corporate reform have impinged upon the conclusion of necessary negotiations.

  • While KOCHAM recognizes the need to address these issues, it concurs with the view of the American Chamber of Commerce in Korea (AMCHAM) which urges the U.S. to sign this treaty. In a recent report containing recommendations for both the Korean and U.S. governments, AMCHAM noted "This (signing of the BIT) would have the effect of guaranteeing the continuation of previously legislated reforms, and send a strong message of support for future reforms."

  • Screen Quota: One contentious issue constraining the passage of the BIT is South Korea’s 35 year old screen quota system in which theatres are required to screen Korean movies. Ironically, this issue has come to a fore at a time when South Korea’s cinema industry has been enjoying an unprecedented boom. Its films took a record 49.5% share of the local market last year and exports have more than doubled. According to the Korea Media Rating Board, the number of foreign films screened fell to 355 last year, from 427 in 2000.

  • KOCHAM notes the concerns of the U.S. film industry and firmly supports deregulation and reform that promotes free trade. Yet it does not believe this measure -- which has lost most of its relevance in any case -- should be allowed to interfere with the full benefits that can be delivered through the signing of a BIT. This concurs with the view of AMCHAM, which recently noted it "recommends de-linking this BIT from the Screen-Quota issue".
  • AMCHAM Regional Survey: To assist the Korean government in its efforts to develop Korea as a regional business hub, AMCHAM surveyed 2,000 executives in the Asia Pacific region. Seoul ranked last among the cities surveyed for reasons relating to taxes, foreign exchange controls, labor flexibility, English-language capabilities and country image.
  • KOCHAM shares many of the concerns of the executives that were surveyed. It applauds AMCHAM for undertaking this survey, believing it helps to provide a roadmap for future work in this area. Furthermore, KOCHAM endorses many of the recommendations that AMCHAM made to help guide the Korean government in its regional business hub initiative.
  • Auto Trade Problem. The Bush Administration has singled out auto trade as one of the most troublesome aspects of the U.S.-Korea trade relationship. Administration officials have highlighted the bilateral auto trade imbalance and have asked the Korean government to lower tariffs on passenger vehicles as well as to reduce auto-related taxes. The Office of the U.S. Trade Representative has specifically asked that Korea reduce its current 8% tariff for passenger vehicles to a level closer to the U.S. rate (2.5%).
  • KOCHAM acknowledges the U.S. position, but would like to emphasize that the Korean auto market is changing rapidly. Sales of imported cars in Korea are increasing, due to restored consumer confidence, a reduction in the special excise tax, and aggressive marketing. Sales of imported vehicles reached an all-time monthly high in April and are expected to continue to grow in the months ahead. More needs to be done to increase the level of import sales in Korea, which remains low in absolute terms. Changing consumer perceptions and increasing income will help address this problem. Moreover, General Motors’ acquisition of Daewoo Motor Company promises to dramatically raise the U.S. share of Korea’s domestic market to more than 20%.
  • Intellectual Property Rights (IPR): Korea is generally credited for having made progress toward improving its legal and regulatory framework and enforcement mechanisms for protecting intellectual property rights (IPR). However, concerns remain about consistent, sustained enforcement of intellectual property laws for computer software, pharmaceutical patents, proprietary information and copyrights. This prompted the Office of the United States Trade Representative (USTR) to maintain Korea on the ‘Watch List’ included within its 2002 Special 301 Report.
  • KOCHAM urges U.S. government and corporate leaders to understand the growing recognition within Korea that IPR protection is critical to its efforts to develop a "knowledge-based" economy. The Korean government is implementing the WTO/TRIPS agreement, and working to bring Korean IPR laws in line with international standards. A number of enforcement campaigns have been initiated, including raids on 2,315 institutions suspected of software piracy and a Standard Enforcement Team established to crack down on the illegal reproduction of video games and sound recordings.

IV.4 Korean Companies: Obstacles to Doing Business in the U.S.

As perhaps the freest and most attractive market in the world, the U.S. attracts businesses from all over the world that are looking to expand outside of their borders. Notwithstanding the many real attractions that it offers, there are a number of real obstacles that should be addressed.

  • Perhaps due to its immigrant tradition, the U.S. allows easy entry to foreign firms and investors compared to many other countries. Through its ability to act as a "market of first and last resort", the U.S. has offered stability to the world trading system. This has encouraged many nations, including Korea, to develop their industrial capacity and expand trade beyond their borders.
  • U.S. firms and investors benefit from this growth, through their ability to obtain sourcing platforms, customers for their goods and services and profitable investment opportunities.
  • On the other hand, Korean firms face a number of obstacles that constrain their ability to operate in the U.S. Many of these problems are unfortunate byproducts of the heightened security initiated as a result of the tragic September 11th attacks. This has created real obstacles in areas including import restrictions, delays in customs and other logistical clearances and the ability of firms to obtain necessary visas for their staff.
  • In the financial sector, Korean financial institutions have been meeting with U.S. regulators to discuss a range of issues. This includes deposit limitations that have resulted from the Foreign Bank Supervision Enhancement Act of 1991 as well as discriminatory practices that result from the different treatment of U.S. and foreign banks in respect to asset maintenance and other requirements.
  • In addition, there are a number of other tariff and non-tariff barriers that constrain the ability of Korean companies in their efforts to do business in the U.S. These concerns are also shared by many European firms and others from Asia and include measures and business practices that relate to unilateralism, and tariff, customs and technical barriers. In addition, Korean firms believe that progress can be made to simplify regulations pertaining to government and defense procurements, anti-dumping and safeguards, taxes and transfer pricing, and other areas.
  • KOCHAM understands that heightened surveillance is indeed necessary, yet believes it would be truly unfortunate if security concerns imposed a significant "terrorist surcharge", through the added costs that would accrue to both Korean and U.S. firms from substantial interference with the free flow of trade and commerce.

 

 

V. Conclusion: Key Concerns and Areas of Focus

As the most prominent representative of U.S.-based Korean firms, KOCHAM pledges to do its best to develop mutual understanding, good will and stronger relationships between the people, governments and business communities of Korea and the U.S. In this manner KOCHAM seeks to contribute to this growing bilateral partnership — helping to enrich both sides in a mutually rewarding manner.

  • The Korea-U.S. relationship has shown renewed strength in recent years as Korea has moved to introduce the dramatic reforms that have reinvigorated its economy. This has helped bilateral trade to double over the past decade. It has also led to major direct and portfolio investment flows in both directions.
  • Korea’s dramatic recovery has implications that extend far beyond its domestic economy. In addition to serving as one of most rapidly expanding markets in Asia, Korea is now building the physical and corporate infrastructure that will enable it to compete as the "Dynamic Hub of Asia". Its achievements also serve as a model for countries around the world that are seeking to restructure and reform their own economies.
  • As Korea has come to better understand the benefits that accrue from maintaining a free and open economy it is feared that U.S. moves to impose steel safeguard measures threaten to weaken and undermine the international trading system. KOCHAM urges the U.S. to acknowledge its critical impact on the trade policy of other nations and to firmly reject any measures that even hint of promoting a global spirit of protectionism.
  • Successful negotiation of a Free Trade Agreement will help to expand the potential of the Korea-U.S. bilateral relationship. Eighty-seven percent of U.S.-based Korean companies surveyed by KOCHAM favor FTA negotiations and 60% expect trade between Korea and the U.S. to grow and become more balanced should an agreement be enacted. Support from the private sector will help to overcome the barriers and accelerate the completion of this initiative so that both countries can enjoy the benefits in coming years.
  • Korea strongly supports the U.S.-led war on terrorism understanding that global security is an essential prerequisite and foundation for a stable, growing and prosperous world economy. With this in mind, South Korea’s sunshine policy promises to introduce a new spirit of cooperation with North Korea. This will not only reduce the tensions that have existed on the Korean peninsula for almost fifty years, but also to dramatically expand the potential and investor and business interest in North Asia.
Korea Successfully Initiates Comprehensive Reform Program

The 1997 financial crisis highlighted the need to restructure the Korean economy. The government of Kim Dae-Jung, inaugurated at the onset of the crisis, immediately moved to initiate a wide reaching program to position Korea for recovery and future growth. Abolishing outdated practices and regulations in favor of a new system based upon market principles -- far-reaching reform has been achieved in four areas including Korea’s corporate, financial, labor and public sectors.

  • Korea is rapidly moving to create an economy that operates on market-oriented principles. Ongoing progress is being achieved through measures designed to reform and revitalize Korea’s corporate, financial, labor and public sector. The results have not been perfect and further progress needs to be achieved — but undoubtedly, Korean business practices and its underlying economy operates in a very different manner than a few years ago.
  • In Korea’s corporate sector, 95 highly-indebted firms with loans exceeding 50 billion won were forced into bankruptcy, helping to remove market uncertainty. In addition, corporate transparency has been improved by empowering minority shareholders, adopting outside directors on the board and enhancing the lucidity of accounting practices and public disclosure.
  • Korea’s financial system has also been a primary target for reform initiatives. Several banks were re-capitalized through nationalization and others were purchased or received capital injections from foreign financial institutions. As of March 2002, 562 insolvent financial institutions have been closed.
  • Korea’s labor sector has also undergone substantial change aimed at increasing flexibility and establishing a more productive environment for labor-management relations. The number of Korean companies declaring "no-strike" resolutions has increased dramatically and labor disputes involving foreign companies have decreased from 31 cases in 2000 to 20 last year.
  • The public sector has also been targeted for administrative reform measures, and progress has been achieved through a process of massive layoffs, management innovation and privatization. A total of 6,060 administrative regulations have been eliminated or relaxed over the past four years.

KOCHAM recognizes the importance of reform as an ongoing process to enhance the efficiency of the Korean economy. To facilitate this effort, KOCHAM maintains an ongoing effort to familiarize our members and Korean government agencies with U.S. best practices and regulatory standards. This will help Korean firms and the public sector to adopt the global standards Korea will need to maintain and enhance our competitiveness moving forward.

 

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