Foreign investmenr ombudsman annual report 2012 eng by KOCIS

KOTRA 자료 13-013

Foreign Investment Ombudsman Annual Report 2012

Foreign Investment Ombudsman Annual Report 2012 Korea Trade-Investment Promotion Agency

Greetings

The global economy is showing signs of recovery thanks to quantitative easing policies by the United States and Japan. On the other hand, the European fiscal crisis has not appeared to be improving due to the Cyprus incident, making the future of the EU uncertain once again. Against this backdrop, the United Nations Conference on Trade and Development (UNCTAD) is seeking ways to facilitate cross-border foreign direct investment (FDI) for sustainable and inclusive growth. More than 3,000 investment promotion and protection treaties and double tax avoidance agreements have been signed globally. As such, countries around the world endeavor to build systems to promote international investment liberalization. Korea is the only country that has signed FTAs with both the EU, the most advanced economic block, and the United States, the largest economic powerhouse, and they went into effect more than a year ago. FTAs are becoming comprehensive trade and investment treaties that include investment liberalization in addition to trade liberalization. The Trans-Atlantic Trade and Investment Partnership (TTIP), which has recently been pursued by the U.S. and EU, also emphasizes comprehensive economic cooperation for bilateral trade and investment. As big and long-term cross-border investments have become more common, investor-state disputes (ISD) regarding the content, implementation and protection measures of investment projects are frequently witnessed, hindering investment inflows between countries. These ISD-related clauses were also pointed out as toxic provisions during the ratification process of the KORUS FTA at the National Assembly. Some civic groups even argued that ISD clauses hurt Koreaâ&#x20AC;&#x2122;s jurisdictional sovereignty, and that they should be scrapped.

Greetings

Korea received an emergency bailout from the IMF during the Asian foreign exchange crisis in 1997 and 1998, changing its foreign direct investment (FDI) policies from passive to active according to the IMF’s recommendations. The Foreign Investment Ombudsman system, which was introduced under such policy changes to resolve grievances raised by foreign enterprises operating in Korea, now celebrates its 14th anniversary. The Foreign Investment Ombudsman system is highly recognized as an important institutional device for international investment facilitation. The system has been introduced and discussed at various international venues, including UNCTAD and APEC. In April of 2012, at the 3rd World Investment Forum held by UNCTAD in Doha, Qatar, Russia announced its adoption of the Ombudsman system, while the Brazilian government expressed a strong desire to visit Korea to learn about it. More recently, Kaznex Invest of Kazakhstan plans to send its delegations to Korea to benchmark the system. Korea’s Foreign Investment Ombudsman system has garnered global attention for its pro-active grievance resolution efforts for foreign investors in Korea: 350 cases, including 90 cases of administrative intervention, were resolved in 2012 by revising laws or requesting the administrative cooperation of relevant ministries. Researchers from the World Bank, under which the International Centre for Settlement of Investment Disputes (ICSID) is run, conducted an in-depth analysis of Korea’s Ombudsman system. In August of 2012, the Ombudsman’s Office received a commendation from the Japanese Ministry of Foreign Affairs for its contribution to addressing difficulties faced by Japanese investors in Korea. With the effectuation of both the Korea-U.S. and Korea-EU FTAs, there is a greater need for Korea to create a more transparent investment environment that satisfies FTA provisions and international standards. That is why the Chairman of the American Chamber of Commerce in Korea emphasized the reasons for strengthening the Ombudsman’s authority as well as the importance of the system.

Foreign Investment Ombudsman Annual Report 2012 Korea Trade-Investment Promotion Agency

I will do my utmost to attract foreign investors and help them get settled in Korea at an early stage so they can contribute to building a creative economy and producing quality jobs, which are the two main goals pursued by the new administration. To create job opportunities in foreign-invested firms and help these companies find qualified employees, we have held the Job Fair for Foreign-Invested Companies and the On-Campus Recruiting Expo for ForeignInvested Companies every year. In addition, the Ombudsman’s Office will support local governments to induce FDI in local free economic zones and industrial complexes by providing them with tailored investment aftercare solutions. To advance the Korean economy, we must take advantage of globalization and build an investment climate that can facilitate both trade and investment liberalization as a multi-track FTA hub nation. Korea’s outward investments have been three to four times bigger than inward investments over the past six years. This structural imbalance undermines the Korean economy’s growth engines and job creation efforts. To attract more inbound FDI, the Ombudsman’s Office will do its best as a reliable and authoritative dialogue channel to provide practical resolutions for foreign investors. In this report are grievance resolution cases and information about system improvements and administrative intervention performance for 2012, which I am very pleased to share with you. I hope the knowledge-based global enterprises of Korea can work with local companies in international value-added chains, thereby contributing to the achievement of Korea’s creative economy and production of quality jobs. Choong Yong Ahn, Ph. D. Foreign Investment Ombudsman April 2013

C o n t e n t s

Foreign Investment Ombudsman System and Grievance Resolution Body

Summary I. Foreign Direct Investment Trends 2012

16 19

1. Global Foreign Direct Investment Trends 2. Foreign Direct Investment Trends in Korea

II. F oreign Investment Ombudsman System and Grievance Resolution Body 26 35

1. Introduction to the Foreign Investment Ombudsman System 2. Operation of the Grievance Resolution Body

III. Foreign Investment Aftercare Performance 2012 40 40

1. Grievance Resolution Activities (1) Better Identification and Resolution of Grievances Through One-Stop Services

Foreign Investment Ombudsman Annual Report 2012 Korea Trade-Investment Promotion Agency

(2) A ftercare Visits to Parent Companies of Foreign-Invested Firms to Promote Reinvestment 2. Common Grievance Resolution Activities (1) Job Fair for Foreign-Invested Companies 2012 (2) On-Campus Recruiting Expo for Foreign-Invested Companies 2012 (3) Meetings with Foreign Investors 3. Promotion Activities of the Ombudsman System (1) CEO Forum for Foreign-Invested Companies 2012 (2) Ombudsman System Promotion Activities at Home & Abroad (3) Public Relations Activities at Home & Abroad

IV. Foreign Investment Ombudsmanâ&#x20AC;&#x2122;s Report

45 52 52 54 56 59 59 61

Appendix 78 87

1. Best Practices of System Improvement 2. Best Practices of Administrative Intervention

Foreign Investment Ombudsman System and Grievance Resolution Body

Purpose • To effectively resolve the grievances of foreign investors and foreign invested-companies, contribute to improving the investment environment and attract reinvestment - Date of Establishment: October 26, 1999 - Location of Establishment: Korea Trade-Investment Promotion Agency

Legal Basis • Article 15-2 of the Foreign Investment Promotion Act (Foreign Investment Ombudsman, etc.) - Article 21-3 of the Enforcement Decree of the Foreign Investment Promotion Act (Functions, etc. of Foreign Investment Ombudsman) - Article 21-4 of the Enforcement Decree of the Foreign Investment Promotion Act (Operation, etc. of Grievance Committee)

Organization • Foreign Investment Ombudsman • Executive Consultants (Home Doctors) in the fields of taxation, labor, finance, accounting, law, construction, IT, etc. • Employees of KOTRA

Available Support • A ll areas including investment system, investment incentives, taxation, finance, foreign exchange, tariff, customs, construction, environment, law, selection of plant sites, visa/ immigration, IT, intellectual property, etc. - Exceptions include private disputes between companies, business of individual companies, requests that contradict global standards and matters that unfairly influence other companies or industries.

Responsibilities • To assign Home Doctors (executive consultants) to each foreign-invested company or region to receive and resolve their grievances • To request the cooperation of the government and relevant organizations and recommend system improvements to resolve grievances • To come up with measures to improve the foreign investment system through external activities such as participating in the Foreign Investment Committee • To prevent grievances from occurring in advance and conduct projects to improve the investment environment • To provide assistance in attracting reinvestment from foreign-invested companies

Foreign Investment Ombudsman Annual Report 2012 Korea Trade-Investment Promotion Agency

History • June 1991: The Office of the Foreign Investment Consultation was established within the Ministry of Trade and Industry. • April 1996: The Office of the Foreign Investment Consultation was reorganized to become the Office of the Foreign Investment Grievance Consultation under the Ministry of Trade and Industry. • July 1998: The Investment Aftercare Team was established within the Korea Investment Service Center (KISC), KOTRA. • O ctober 1999: Dr. Wan-Soon Kim was commissioned as the first Foreign Investment Ombudsman. • March 2001: The Foreign Investment Ombudsman had been appointed by the Minister of Commerce, Industry and Energy. However, with the revision of relevant laws, the Ombudsman is now directly appointed by the President of the Republic of Korea. • January 2002: The Office of the Foreign Investment Ombudsman was included in the KISC. • March 2012: The Korea Investment Service Center (KISC) was renamed Invest KOREA and reorganized. • May 2006: Dr. Choong Yong Ahn was commissioned as the second Foreign Investment Ombudsman. • April 2008: Dr. Choong Yong Ahn was appointed a member of the Presidential Council on National Competitiveness. - February 2010 to May 2011: Dr. Choong Yong Ahn was reappointed a member of the Presidential Council on National Competitiveness. • January 2009 to June 2010: Dr. Choong Yong Ahn was appointed a member of the Regulatory Reform Committee. • May 2009: Dr. Choong Yong Ahn was recommissioned as the Foreign Investment Ombudsman. • June 2010 to June 2012: Dr. Choong Yong Ahn was appointed Chairman of the Regulatory Reform Committee. • March 2012: The Foreign Investor Support Office was included under the Foreign Investment Ombudsman. • May 2012 to date: Dr. Choong Yong Ahn was recommissioned as the Foreign Investment Ombudsman.

Contact Information • Tel: +82-2-3460-7631~2, 7639 • Fax: +82-2-3460-7944 • Website: www.i-Ombudsman.or.kr

◈ Summary ◈ ▒ Foreign Direct Investment 2012

(Unit: US$ billion, %)

Classification

2007

2008

2009

2010

2011

2012

Notified amount (Growth rate)

10.51 (△6.5)

11.71 (11.4)

11.48 (△2.0)

13.07 (13.8)

13.67 (4.6)

16.26 (18.9)

Actual amount (Growth rate)

7.69 (△14.9)

8.39 (9.1)

6.75 (△19.5)

5.41 (△19.8)

6.58 (21.6)

10.38 (57.8)

● (In general) Foreign direct investment (FDI) hit a record high of US$16.26 billion on a notification basis in 2012, up by 18.9 percent year-on-year. The actual amount of investment arrived in Korea also jumped by 57.8 percent to reach US$10.38 billion, the largest amount since 1999. ● (Business type) Foreign direct investment in the service industry doubled year-on-year to US$2.54 billion in 2012, becoming the No.1 industry in terms of investment for the first time in recent four years. ● (Investment type) Looking at the average record for the past four years, greenfield investment accounted for 80 percent, whereas investment involving M&A accounted for 20 percent. Although the proportion of M&A type investment is relatively small, it has increased by 1.7 times year-on-year to account for 24.6 percent in 2012.

▒ Grievances Resolved in 2012 ● Number of grievances resolved: 385 (2010) → 403 (2011) → 348 (2012) - The total number of grievances resolved in 2012 decreased slightly, by 13.5 percent, compared to the previous year, but the number of cases addressed through system improvement and administrative intervention increased by 44.7 percent, from 76 in 2011 to 110 in 2012.

Grievances Addressed by Resolution Type (2010-2012)

(Unit: number of cases)

Classification

System Improvement

Administrative Intervention

Home Doctor Resolution

Total

2010

334

385

2011

327

403

2012

104

238

348

▒ Attracting Reinvestment Through Grievance Resolution ● Reinvestment by foreign-invested companies recorded US$7.380 billion in 2012, accounting for 45.4 percent of total FDI of US$16.258 billion. In particular, US$1.765 billion, or 23.9 percent of the total reinvestment, was attracted through grievance resolution by the Foreign Investment Ombudsman and his team.

▒ Operation of Home Doctor System to Resolve the Grievances of Foreign-Invested Companies ● Home Doctors help resolve the grievances of foreign-invested companies by paying on-site visits and offering advice and consultations. - There are 9 Home Doctors, who are experts in fields including taxation, law, finance, construction, accounting, IT, etc. ● Home Doctors paid 709 on-site visits to foreign-invested companies and relevant organizations in 2012.

▒ Helping Foreign-Invested Companies Find Qualified Workers ● Job Fair for Foreign-Invested Companies 2012 - Date: October 25 (Thu) - 26 (Fri), 2012 - Location: Hall B1, COEX, Seoul - 91 foreign-invested companies participated (Dupont, Solvay, Google, BASF, etc.) - 16,500 job-seekers visited and received on-site job consultations - Number of people hired as a result: Approximately 212

* 『Global Job Fair & Forum 2012』(Foreign Investment Zone) - Date/Location: June 11 (Mon) - 12 (Tue), 2012/ COEX, Seoul - 18 foreign-invested companies participated (ADT, Greenland Korea Investment and Development, Denso, etc.) ● On-Campus Recruiting Expo for Foreign-Invested Companies 2012 - Chungnam National University (September 20, 2012): 5 foreign-invested companies participated, 200 job-seekers attended. - Kyungpook National University (September 25, 2012): 6 foreign-invested companies participated, 400 job-seekers attended.

▒ Best Practices of Grievance Resolution 2012 ● (System improvement) Home Doctors provided assistance in six cases in 2012 by making proposals to relevant administrative agencies to revise laws, regulations or policies. - Proposal to include imported second-hand copy machines in items subject to inspection by the head of a customs house - Request to revise safety standards and operation methods of electrical appliances - Request to reconsider regulations about harmful substances in imported fabric softeners - Request to revise Seoul Metropolitan Government Ordinance on Outdoor Advertisement Control ● (Administrative intervention) Home Doctors provided assistance in 104 cases in 2012 through administrative intervention in public organizations or investment agencies. - Assistance in receiving approval to build global R&D center - Assistance in resolving grievances regarding the administrative measures of the Korea Food & Drug Administration against the rebate of medical devices - Assistance in helping the National Police Agency investigate whether the

imported products should be classified as strategic materials - Assistance in resolving business grievances arising due to a restriction on energy use

▒ Activities to Promote Ombudsman System and Induce Reinvestment ● CEO Forum for Foreign-Invested Companies 2012 - Date: November 29 (Thurs), 2012, 17:30-21:00 - Location: Ritz-Carlton, Seoul - 195 people participated, including CEOs and executive members of foreign-invested companies and officials from the government and relevant organizations. - Introduced the resolved grievances of foreign-invested companies and promoted reinvestment ● Dispatch of task force teams (TFT) to overseas parent companies of foreign-invested companies. - May 22-27, 2012: P&G, Praxair, Diageo, etc. in United States - December 10-14, 2012: Denso, Fuji Xerox, Toray, etc. in Japan ● Activities to introduce the Ombudsman system to international organizations and relevant agencies - Assistance for benchmarking delegations from overseas investment promotion agencies - Participation of the Foreign Investment Ombudsman in various international forums as a speaker, including the World Investment Forum 2012 hosted by UNCTAD

Foreign Investment Ombudsman Annual Report 2012 Korea Trade-Investment Promotion Agency

Foreign Investment Ombudsman Annual Report 2012

Foreign Direct Investment Trends 2012

Chapter

Foreign Investment Ombudsman Annual Report 2012

Foreign Direct Investment Trends 2012

1. Global Foreign Direct Investment Trends1) ● According to the United Nations Conference on Trade and Development (UNCTAD), global foreign direct investment (FDI) had lost its growth momentum due to the prolonged global economic crisis and continued to decrease from 2008 to 2009. As the economy began to turn around in 2010, however, global FDI grew by 16.4 percent year-on-year in 2011, surpassing pre-crisis levels for the first time since the 2008 financial meltdown. * 1,790 (2008) → 1,197 (2009) → 1,309 (2010) → 1,52 4(2011) (Unit: US$ billion) ● Looking at FDI inflow in major countries and regions in the first half of 2012, it increased by 5.7 percent year-on-year in Europe despite the fiscal crisis, while it fell by 39.2 percent from US$94.4 billion to US$57.4 billion in the United States. In emerging countries, on the other hand, the FDI decrease was less than that of advanced nations despite global economic instability. In particular, inward FDI actually increased 8.2 percent from US$108.4 billion to US$117.3 billion in South America during the same period. Contrary to the sound FDI inflow in South America, Asian countries experienced difficulties in attracting FDI: India saw a 42.8 percent reduction in FDI attraction in the first half of 2012.

1) 『Korea Foreign Investment Conditions & Outlook 2013』, December 2012, KOTRA

I. Foreign Direct Investment Trends 2012

<Table I-1> Inward FDI in Major Regions and Countries (January 2011-June 2012)

(Unit: US$ billion, %)

Jan.-June 2011

July-Dec. 2011

2011 Total*

Jan.-June** 2012

Year-OnYear(%)

Total

728.7

849.4

1578.1

667.6

△8.4

Advanced Nations

329.2

462.0

791.2

298.1

△9.5

Europe

178.6

264.5

443.1

188.8

5.7

USA

94.4

132.6

227

57.4

△39.2

Japan

-1.7

0.0

-1.7

352.8

340.3

693.1

336.0

△4.8

22.0

21.4

43.4

23.1

5.1

South America

108.4

111.5

219.9

117.3

8.2

East Asia

121.0

102.2

223.2

107.4

△11.3

54.7

62.4

117.1

51.8

△5.4

46.7

47.0

93.7

33.5

△28.3

Region/Country

Emerging Countries Africa

Southeast Asia Transition Countries

Note) The 2011 total figures are correction values calculated based on data of major countries and regions (* correction value, ** estimated value)

● Cross-border M&A recorded US$526 billion in 2011, up by 53 percent yearon-year as mega-deals that involved more than US$3 billion jumped from 44 to 62 cases during the same period. Investment in greenfield projects had fallen for two consecutive years to reach US$904 billion in 2011 and has been holding steady since then. Overall, global FDI growth in 2011 was prompted mainly by an increase in international M&A. However, greenfield FDI has been greater than cross-border M&A since the 2008 financial crisis in terms of the total investment amount.

Foreign Investment Ombudsman Annual Report 2012

<Table I-2> Cross-Border M&A and Greenfield Investment

(Unit: US$ billion)

1800 1600

M&A

1400

Greenfield

1200 1000 800 600 400 200 0

2007

2008

2009

2010

2011

※Source UNCTAD, World Investment Report 2012(August 2012)

● FDI inflow to the service industry plunged from 2009 to 2010, but rebounded to US$570 billion in 2011. Since then, investment in this field has grown sharply: the top 5 FDI inducing industries in 2011 were mining, chemical, utility, transportation and communications, and other service industries (most of them being oil and gas-refining related services). Inward FDI in the primary industry also recovered from the downward trend of the previous two years, from 2009 to 2010, to record US$200 billion in 2012. <Table I-3> FDI Projects by Industry (2005-2011) Categories

(Unit: US$ billion)

Primary Industry Manufacturing Industry Service Industry

'05-'07 (average)

130

670

820

2008

230

980

1,130

2009

170

510

630

2010

140

620

490

2011

200

660

570

※Source: UNCTAD, World Investment Report 2012(2012.08)

● Due to a delay in global economic recovery, international FDI increased only by 8.4 percent in the first half of 2012, which is lower than the previous estimate, but is expected to grow more in the second half of the year. In

I. Foreign Direct Investment Trends 2012

addition, FDI is likely to pick up in 2013 as we anticipate higher economic growth compared to the previous year. <Table I-4> Global FDI Inflow Categories Total

(Unit: US$ billion)

Average FDI

Actual FDI

'05-'07 '09-'11 2009

2010

FDI Forecast

2011

2012

2013

1,473 1,344 1,198 1,309 1,524 1,495-1,695 1,630-1,925

Developed Economies

972

658

606

619

748

735-825

810-940

646

365

357

318

421

410-450

430-510

North America

253

218

165

221

268

225-285

290-340

Developing Countries

443

607

519

617

684

670-760

720-855

Africa

55-65

70-85

Latin America and the Caribbean Sea

116

185

149

187

217

195-225

215-265

Asia

286

374

315

384

423

420-470

440-520

Transition Countries

90-110

100-130

※Source: UNCTAD, World Investment Report 2012(2012.08)

2. Foreign Direct Investment Trends in Korea2) ▒ Total Foreign Direct Investment in Korea ● Foreign direct investment (FDI) reached a record high with US$16.26 billion on a notification basis in 2012, up by 18.9 percent from the previous year’s US$13.67 billion. The amount of investment that actually arrived in Korea also went up by 57.8 percent year-on-year from US$6.58 billion to US$10.38 billion, the largest amount since 1999. ● Looking at investment characteristics by region, FDI from Hong Kong, 2) 『Foreign Direct Investment Trends 2012』, January 2013, MKE

Foreign Investment Ombudsman Annual Report 2012

Singapore and China rose by 192 percent, 130 percent and 11.7 percent, respectively, year-on-year, as the Greater China Region made large investments in Korea’s tourist industry. FDI from advanced economies also showed signs of taking off: Japanese investment in parts and materials grew by 98 percent and investment from the U.S. rose by 54.9 percent thanks to the effectuation of the KOREA-US FTA. Due to the European fiscal crisis, however, FDI from the EU declined by 46.6 percent. <Table I-5> Foreign Direct Investment by Year 200 Notified Amount

155

150

Actual Amount

153

163

137 110

100

103

104 91 66

‘97

‘98

‘99

‘00

‘01

‘02

‘03

‘04

‘05

‘06

‘07

‘08

‘09

‘10

‘11

‘12

※Source: Foreign Direct Investment Trends 2012 , January 2013, MKE

▒ FDI Characteristics by Country ● (Japan) FDI from Japan in 2012 recorded US$45.41 million, up by 98.4 percent from the previous year’s US$22.89 million. Looking at FDI by industry and investment type, it jumped in all areas: 68.0 percent in manufacturing and 142.9 percent in service, and 427.3 percent in M&A and 52.5 percent in greenfield investment.

I. Foreign Direct Investment Trends 2012

<Table I-6> FDI from Japan by Industry

(Unit: US$ million)

Category

2011

2012

Growth Rate (%)

Total

2,289

4,541

98.4

Manufacturing Industry

1,265

2,125

68.0

657

921

40.2

Chemical Nonmetallic Mineral

110

344

213.2

Machinery & Equipment

101

155

54.6

Electricity & Electronics

256

488

90.9

Service Industry

995

2,416

142.9

※Source: 『Foreign Direct Investment Trends 2012』, January 2013, MKE

● (United States) FDI from the United States in 2012 recorded US$36.74 million, up by 54.9 percent from the previous year’s US$23.72 million. By industry, FDI into manufacturing increased by 65.2 percent and by investment type, FDI involving M&A jumped by 245.4 percent. ● (Greater China Region) Total FDI attracted from this region increased by 106.6 percent from US$19.39 million in 2011 to US$40.06 million in 2012: from Hong Kong, by 192 percent; from Singapore, by 130 percent; and from China, by 11.7 percent. FDI into the service industry was the highest, with a 122.2 percent increase thanks to regional development projects and more, followed by the manufacturing industry, which attracted 67.4 percent more FDI than it did the previous year. * Service Industry: US$1.59 billion in 2011 → US$3.53 billion in 2012 (up by 122 percent)

Foreign Investment Ombudsman Annual Report 2012

<Table I-7> FDI from Greater China Region by Region

(Unit: US$ million)

Category

2011

2012

Growth Rate (%)

Total

1,939

4,006

106.6

China

651

727

11.7

Taiwan

98.2

Hong Kong(*)

572

1,670

191.7

Singapore(*)

611

1,405

129.9

Malaysia

182

94.8

(*) Many American and Japanese investors make investments via Hong Kong and Singapore. ※Source: 『Foreign Direct Investment Trends 2012』, January 2013, MKE

▒ Foreign Direct Investment Outlook 2013 ● Considering all the opportunities and threats, total FDI in Korea will slightly decrease from the previous year in 2013 with US$15 billion on a notification basis and US$8 billion in actual amount. This is because, although investments from the U.S. and China are likely to increase, those from Japan and the EU are expected to further slow. * (Opportunities) Recovery of global economy in 2013, record amount of cash held by international companies, effects of FTA with the U.S. and EU, rising investment in service industry, expanded investment from Greater China Region, etc. * (Threats) Unresolved European fiscal crisis, aftereffects of global recession, fiscal austerity measures of the U.S., weak yen, relocation of production bases of Korean conglomerates to overseas, etc.

I. Foreign Direct Investment Trends 2012

<Table I-8> Foreign Direct Investment Outlook in 2013 by Country Countries

Outlook

United States

• T he investment of American companies in Korea is expected to remain strong because Korea became a more attractive investment destination compared to other Asian countries in terms of the finance and service industries due to the KORUS FTA.

Japan

• Last year, investments of mid- and large-sized Japanese companies soared, especially in the petrochemical industry, as Japanese firms’ overseas investment increased due to various factors such as a strong yen. However, Japanese investment to Korea is anticipated to fall slightly as Japanese SMEs are likely to lead investments this year.

Great China Region

• Chinese companies are very interested in investing in the tourism and leisure industry, as the number of tourists from China and Japan has risen sharply in Korea. Therefore, it is anticipated that investments in the tourism and leisure industry will continue to increase led by large real estate developers.

• Following last year, the recovery of investment to Korea from the EU will remain slow, as capital investments from this region fall due to the European fiscal crisis. However, investments in the service industry, including in finance and logistics, are expected to further expand.

※Source: 『Korea Foreign Investment Conditions & Outlook 2013』, December 2012, KOTRA

Foreign Investment Ombudsman Annual Report 2012 Korea Trade-Investment Promotion Agency

Foreign Investment Ombudsman Annual Report 2012

Chapter

Foreign Investment Ombudsman System and Grievance Resolution Body

Foreign Investment Ombudsman Annual Report 2012

Foreign Investment Ombudsman System and Grievance Resolution Body

1. Introduction to the Foreign Investment Ombudsman System â&#x2014;? (Purpose) The Foreign Investment Ombudsman system was first introduced on October 26, 1999, under the Foreign Investment Promotion Act, for the purpose of supporting the affairs of grievance settlement in foreign-invested companies operating in Korea. The Foreign Investment Ombudsman is commissioned by the President on a recommendation of the Minister of Knowledge Economy via deliberation of the Foreign Investment Committee3). He/she also heads the grievance settlement body, which supports the duties of the Ombudsman.

3)â&#x20AC;&#x201A; As provided in Article 27 of the Foreign Promotion Act, the Foreign Investment Committee is chaired by the Minister of Knowledge Economy, and its members include ministers of relevant government departments and agencies; the Minister of Strategy and Finance, the Minister of Foreign Affairs and Trade, Minister of Public Administration and Security, Minster of Environment, heads of central administrative organizations related to the committee agenda, mayors and provincial governors, and the president of KOTRA.

II. Foreign Investment Ombudsman System and Grievance Resolution Body

◈ Legal Base for Foreign Investment Ombudsman System ◈ •Paragraph ①, ②, ⑩, Article 15-2 of the Foreign Investment Promotion Act ① For the purpose of supporting the affairs of grievance settlement in foreign-capital invested companies, foreign investment Ombudsman is commissioned from among the persons of abundant learning and experience in foreign investment business. ② The foreign investment Ombudsman under paragraph ① (hereinafter referred to as "foreign investment Ombudsman") shall be commissioned by the President by the recommendation of the Minister of Knowledge Economy after deliberation by the Foreign Investment Committee. ⑩ The Korea Trade-Investment Promotion Agency shall establish a grievance committee under its jurisdiction in order to support the business of foreign investment Ombudsman. • Paragraph ②, Article 21-4 of the Enforcement Decree of the Foreign Investment Promotion Act ② A foreign investment Ombudsman shall be the head of a grievance committee under Article 15-2 (7) of the Act (hereinafter referred to as "grievance committee").

● (Function) The Foreign Investment Ombudsman and his grievance resolution body collect and analyze information concerning the problems foreign firms experience, request the cooperation of and recommend the implementation thereof to relevant administrative agencies, propose new policies to improve the foreign investment promotion system, and carry out other necessary tasks to assist foreign-invested companies in solving their grievances. In particular, the Foreign Investment Promotion Act, partly revised on December 11, 2012, newly included provisions that strengthened the Ombudsman’s authority to more effectively improve regulations regarding grievances faced by foreign investors. According to the new provisions, the Foreign Investment Ombudsman may request that the heads of relevant agencies report the results of their grievance handling and corrective measures. (Article 15-2, paragraph 5) In addition, the Ombudsman can also introduce these agencies’ failure to follow his recommendations to the Foreign Investment Committee, should such a case arise. (Article 15-2, paragraph 6)

Foreign Investment Ombudsman Annual Report 2012

◈ Legal Basis for the Function of the Office of the Foreign Investment Ombudsman ◈ •Paragraph ③ and ④, Article 15-2 of the Foreign Investment Promotion Act ③ If necessary for settling the grievances of foreign investors and foreign-capital invested companies, any foreign investment Ombudsman may request the head of a relevant administrative agency and foreign-investment related agency (hereinafter referred to as "relevant administrative agency, etc.") to render necessary cooperation in the following subparagraphs. In such cases, the head of the relevant administrative agency, etc. in receipt of such request shall comply therewith, unless extenuating circumstances exist. 1. Making explanation to a relevant administrative agency, etc. or submitting data in accordance with the standards prescribed by Presidential Decree; 2. Stating opinions of related employees, interested persons, etc.; 3. Rendering cooperation for site visits ④ Where necessary according to the results of settling the grievances of foreign investors and foreign-capital invested companies, any foreign investment Ombudsman may recommend the heads of relevant administrative agencies and public agencies to take corrective measures on related affairs. ⑤ The heads of relevant administrative agencies and public agencies who received recommendations to take corrective measures in accordance with paragraph ④ shall notify the Foreign Investment Ombudsman of the results of handling grievances in writing within a period as prescribed by Presidential Decree. <Newly Inserted, December 11, 2012> ⑥ If the heads of relevant administrative agencies and public agencies do not implement recommendations to take corrective measures made under paragraph ④, the Foreign Investment Ombudsman may request the Foreign Investment Committee to introduce the matters related to the recommendations as an agenda. <Newly Inserted, December 11, 2012> • Paragraph ②-⑤, Article 21-3 of the Enforcement Decree of the Foreign Investment Promotion Act ② The foreign investment Ombudsman shall perform the following: 1. Investigation and handling of grievances of foreign investors and foreign-capital invested companies;

II. Foreign Investment Ombudsman System and Grievance Resolution Body

2. Preparation of policy measures for improving a foreign investment system and recommendation on the implementation thereof to the relevant administrative agencies and public agencies; 3. Other necessary matters for handling the grievances of foreign investors and foreign-capital invested companies. â&#x2018;˘ "Standards prescribed by Presidential Decree" in Article 15-2 (3) 1 of the Act means any of the following cases: 1. Where it is necessary for investigating whether a foreign investment-related system complies with international practices or standards; 2. Where it is necessary for tackling difficulties experienced by foreign-capital invested companies in their management or improving the related systems; 3. Where it is necessary for improving the living conditions of foreign investors and foreigners working for foreign-capital invested companies. â&#x2018;Ł Recommendation for corrective measures under Article 15-2 (4) of the Act (hereinafter referred to as "recommendation for corrective measures" in this Article) shall be made in writing with the following matters specified: 1. Current status and problems of related Acts and subordinate statutes, institutions and policies; 2. Details of recommendation for corrective measures; 3. Matters recognized by the foreign investment Ombudsman as being necessary, such as the reply deadline for related administrative agencies and public agencies. â&#x2018;¤ The foreign investment Ombudsman may verify and inspect the performance of the details of recommendation for corrective measures.

Foreign Investment Ombudsman Annual Report 2012

Profile of the Foreign Investment Ombudsman Foreign Investment Ombudsman, Dr. Ahn Choong Yong • Distinguished Professor at Graduate School of International Studies, Chung-Ang University (August 1974 to date) • Former Chairman of Regulatory Reform Committee • Former Member of Presidential Council on National Competitiveness Education - 1968-1972: Ph.D., Ohio State University - 1966-1968: M.A., East West Center Program, University of Hawaii - 1959-1963: B.A., Economics Department of Kyungpook National University Career - Jan. 2009 to June 2012: Chairman and Member, Presidential Regulatory Reform Committee - Aug. 1974 to Feb. 2006: Professor, Dept. of Economics, Chung-Ang University, Seoul - 2011 to date: Editorial Board, Global Asia - April 2008 to May 2011: Member, Presidential Council on National Competitiveness - Jan. 2002 to Jan. 2005: President, Korea Institute for International Economic Policy (KIEP) - 2002-2010 Chairman, APEC Education Foundation - Feb. 2002 to Feb. 2005: Chairman, APEC Economic Committee - June 2004 to Oct. 2005: Chairman, Technology Dept., Presidential Advisory Council on Science & Technology - Dec. 1999 to Feb. 2005: Member, National Economic Advisory Council - Feb. 1999 to Mar. 2002: Chairman of the Board, Chohung Bank - Dec. 1994 to Dec. 1995: President, Korea International Economics Association - Dec. 2001 to Dec. 2002: President, Korean Association of Trade and Industry Studies

II. Foreign Investment Ombudsman System and Grievance Resolution Body

- Jan. 1990 to Jan. 1992: President, Korean Econometric Society - Aug. 1993 to June 1994: Visiting Professor, Economic Research Institute, Kyoto University, Japan - 1992 to 1993: UNIDO Chief Technical Advisor to the Economic Planning Unit of Malaysia to work on Manufacturing Sector Development - 1978 to 1988: Independent Consultant, IBRD, seven times Honors & Awards - August 7, 2012: Commendation from the Japanese Ministry of Foreign Affairs for the Ombudsman’s work in advancing economic cooperation between Korea and Japan - 1984: The 14th Economist of the Year, patronized by the Maeil Economic Daily, Korea - November 22, 2000: The 1st Okita Policy Award, bestowed by the National Institute for Research Advancement, Prime Minister’s Office, Japan - October 11, 2001: Academic Excellence Award, bestowed by Chung-Ang University - 2002: 13th Free Economy Publication Award, from the Federation of Korean Industries - 2006: Aquamarine Stripes Medal Books and Papers - Modern East Asian Economy, Iwanami Shoten, 2000 - Modern Korean and East Asian Economy, Pakyoungsa, 2001 - Modern East Asian Economy, Peking University Press, 2004 - 「Northeast Asian Economic Cooperation 2001: The First Step towards Integration」, Co-author, Pakyoungsa, 2003 - Several papers were published in global academic journals including the “Review of Economics and Statistics,” “European Economic Review,” “Japanese Economic Review,” “Asian Journal of Economics,” “Global Asia,” “North Holland,” “Cambridge Univ. Press,” “Oxford Univ. Press,” “Springer and Edward Elgar,” etc.

Foreign Investment Ombudsman Annual Report 2012

Foreign Investment Ombudsman Receives a Commendation from the Japanese Ministry of Foreign Affairs

On August 7, 2012, the Japanese Ministry of Foreign Affairs expressed its gratitude to the Foreign Investment Ombudsman for his contribution to resolving the grievances of Japanese companies operating in Korea and enhancing understanding between the two countries, and presented a commendation on behalf of the Japanese Foreign Minister.

II. Foreign Investment Ombudsman System and Grievance Resolution Body

Ombudsman Q&A on Benefits of the Ombudsman System Which company can use the Foreign Investment Ombudsman system? Foreign investors and all companies registered as foreign-invested companies in Korea may use the system. How can a company file its grievance to the Office of the Foreign Investment Ombudsman? A foreign-invested company may file its grievance through any convenient means, including e-mail, the Ombudsmanâ&#x20AC;&#x2122;s website, phone, fax, Twitter and in person. Companies may also receive assistance from on-site visits by consultants of the Office of the Foreign Investment Ombudsman. How much does grievance resolution cost? All steps in the grievance resolution process, including consultation and assistance, are provided to foreign-invested companies at no charge. In what areas can grievance resolution be applied? We provide resolution for grievances in all fields, ranging from corporate management to the living environment of foreign investors. Exceptions include private disputes between companies, sales of individual companies, requests that contradict global standards, and matters that unfairly influence other companies or industries. Will a consultation with the Ombudsmanâ&#x20AC;&#x2122;s Office be kept confidential? Other than for the purpose of resolving the problem, all grievances filed would be kept strictly confidential and not revealed to any third party pursuant to paragraph 5, Article 15-2 of the Foreign Investment Promotion Act.

Foreign Investment Ombudsman Annual Report 2012

â&#x20AC;ť Paragraph (5), Article 15-2 of the Foreign Investment Promotion Act: Any Foreign Investment Ombudsman shall neither use data received from the head of a relevant administrative agency, etc. under paragraph (3) or confidential information that he/she learned in the course of performing his/ her duties for any purpose, other than those prescribed in this Act, nor reveal them to any third party. Could a filing company be at a disadvantage with government authorities or local government agencies for filing a grievance? Absolutely not. The Ombudsmanâ&#x20AC;&#x2122;s Office seeks to resolve grievances from the foreign investorâ&#x20AC;&#x2122;s point of view. Also, cases involving government agencies can be handled anonymously at the request of the filing company or if deemed necessary. How can a filing company check the status of the grievance resolution process? A Home Doctor will keep the company informed through every step of the resolution process and receive additional inquiries at any time.

II. Foreign Investment Ombudsman System and Grievance Resolution Body

2. Operation of the Grievance Resolution Body ● (Organization) The grievance settlement body, headed by the Foreign Investment Ombudsman, is currently operated by the Investment Aftercare Division at KOTRA (Korea Trade-Investment Promotion Agency). <Table II-1> Organization Chart of Foreign Investment Ombudsman and Grievance Resolution Body President & CEO of KOTRA Foreign Investment Ombudsman Foreign Investor Support Office

Invest KOREA

Investment Planning Dept.

Investment Promotion Dept.

Investment Consulting Center

Strategic Investment Promotion Team

Service and Financial Industry Investment Promotion Team

Manufacturing Industry Investment Promotion Team

Investment Information Team

Investment Public Relations Team

Investment Administration Team

Investment Aftercare Division (9 Home Doctors and 4 employees of KOTRA)

● (Grievance Resolution Process) Home Doctors ① receive grievances via on-site visits, online, or email ② examine the grievances and seek resolutions by contacting relevant organizations, if there are any, ③ store and manage matters related to the grievance resolution in the SCRM, KOTRA’s customer management system, and ④ notify the filing company of the results.

Foreign Investment Ombudsman Annual Report 2012

☞ The importance of attracting reinvestment by preventing the grievances of foreign-invested companies in advance and improving the investment environment has grown significantly. As a result, a series of legal systems was established with the goal of strengthening cooperation between the Foreign Investment Ombudsman and relevant administrative agencies to more efficiently carry out grievance resolution activities, which are often accompanied by system improvements or administrative intervention. According to the Foreign Investment Promotion Act revised in 2010, the Foreign Investment Ombudsman has obtained new authority with the government and relevant organizations to 1) request the submission of related data, 2) request a statement of opinion, 3) request cooperation when paying on-site visits, 4) recommend corrective measures4), and 5) verify and inspect the implementation of the corrective measures5). In such cases, the government agencies thus requested to cooperate shall present the results of grievance handling or their opinion on such matters within seven days of the date on which the request was made6). The foreign investment promotion offices in charge of handling foreign investment affairs in central administrative agencies or local governments shall fully cooperate upon receiving a request for cooperation from the grievance settlement body (hereinafter referred to as the “Investment Aftercare Division”) with respect to civil petitions concerning foreign investment.

4) Paragraph ③ and ④, Article 15-2 of the Foreign Investment Promotion Act 5) Paragraph ⑤, Article 21-3 of the Enforcement Decree of the Foreign Investment Promotion Act 6) Paragraph ③, Article 21-4 of the Enforcement Decree of the Foreign Investment Promotion Act

II. Foreign Investment Ombudsman System and Grievance Resolution Body

◈ Legal Basis for Operation of the Grievance Settlement Body ◈ • Paragraph ②,③ and ⑤-⑧, Article 21-4 of the Enforcement Decree of the Foreign Investment Promotion Act ② A foreign investment Ombudsman shall be the head of a grievance committee under Article 15-2 (7) of the Act (hereinafter referred to as “grievance committee”). ③ The head of a grievance committee may request a relevant administrative agency or a foreign-investment related agency to cooperate for the purposes of handling grievances of foreign investors and foreign-capital invested companies. In such cases, the agency so requested shall present the results of handling grievances or its opinion on such matters within seven days after the date on which the request was made. ⑤ For effective handling of grievances of foreign investors and foreign-capital invested companies, the head of a grievance committee may designate agents in exclusive charge of handling grievances for each region or foreign-capital invested company, and may manage such agents. ⑥ Where an employee belonging to a grievance committee hears opinions or visits a site under Article 15-2 (3) of the Act in order to support business activities of foreign investment ombudsmen, he/she shall carry a certificate indicating his/her authority and produce it to interested persons. ⑦ The head of a grievance committee shall analyze the results of solving difficulties experienced by foreign-capital invested companies on a quarterly basis and report them to the Minister of Knowledge Economy within one month after each quarter expires. ⑧ Necessary matters, other than those provided for in paragraphs (2), (3), (5), (6) and (7) concerning the organization and operation of a grievance committee shall be determined by the president of the Korea Trade-Investment Promotion Agency subject to the deliberation by the Commission.

Foreign Investment Ombudsman Annual Report 2012 Korea Trade-Investment Promotion Agency

Foreign Investment Ombudsman Annual Report 2012

Chapter

III

Foreign Investment Aftercare Performance 2012

Foreign Investment Ombudsman Annual Report 2012

III

Foreign Investment Aftercare Performance 2012

1. Grievance Resolution Activities (1) Better Identification and Resolution of Grievances Through One-Stop Services ● The Foreign Investment Ombudsman and the Investment Aftercare Division provide one-stop assistance services ranging from a Home Doctor’s direct resolution to revision of law, which often requires system improvements or administrative intervention. A Home Doctor assigned to each company is dispatched to the site to offer consultations about the grievances faced by individual foreign-invested companies. <Table III-1> Grievance Resolution by Year (2003-2012) Filed Grievances

Resolution Type

Year

No. of Cases

2003

369

△22.3

267

2004

324

△12.2

229

2005

351

8.3

264

2006

353

0.6

261

Growth Rate (%)

System Administrative Improvement Intervention

Home Doctor Resolution

III. Foreign Investment Aftercare Performance 2012

Filed Grievances

Resolution Type

Year

No. of Cases

2007

370

4.5

298

2008

353

△4.5

269

2009

365

3.4

279

2010

385

5.4

334

2011

403

4.6

327

2012

348

△13.6

104

238

Total

3,621

179

676

2,766

Growth Rate (%)

System Administrative Improvement Intervention

Home Doctor Resolution

Note) System improvement refers to regulatory reforms and/or a change in laws; administrative intervention refers to steps taken to make improvements within an existing legal framework; Home Doctor resolution refers to problems solved internally by Home Doctors, quite often through consultations. ※Source: Investment Aftercare Division, KOTRA

● In 2012, the Office of the Foreign Investment Ombudsman handled a total of 348 grievances from foreign-invested companies ― 13.6 percent less than the previous year’s 403 cases. By resolution type, however, grievance resolution related to administrative organizations increased significantly ― 110 cases were handled through system improvements and administrative intervention, up by 44.7 percent from the previous year’s 76. <Table III-2> Grievance Settlement by Resolution Type (2011-2012) System Improvement (3.2%)

Administrative Intervention(15.6%)

Home Doctor Resolution(81.1%)

Grievance Resolution 2011(403 cases total) ※Source: Investment Aftercare Division, KOTRA

System Improvement (1.7%)

Administrative Intervention (29.9%) up by 34 cases(44.7% up) year-on-year

Home Doctor Resolution(68.4%)

Grievance Resolution 2012(348 cases total)

Foreign Investment Ombudsman Annual Report 2012

● According to an analysis of the 348 (100%) cases settled in 2012 by field, grievances involving investment incentives topped the ranking with 47 cases, or 13.5 percent, followed by: standards·certification·inspection (42 cases, 12.1%); investment system·procedure (39 cases, 11.2%); taxation (38 cases, 10.9%); visa·immigration (26 cases, 7.5%); labor·human resources (25 cases, 7.2%); plant site·new establishment·expansion (25 cases, 7.2%); and customs·trade (19 cases, 5.5%). Others include construction·land (9 cases), finance·foreign exchange (9 cases), civil disputes (3 cases), insurance·welfare (1 case), sales·distribution·advertisement (5 cases), electricity·water supply (3 cases), discrimination (4 cases), and environment (5 cases). <Table III-3> Grievance Resolution by Field (2012) 11.2% (39 cases) 13.5%(47 cases) 7.5%(26 cases)

10.9%(38 cases)

7.2%(25cases) 5.5% (19 cases) 12.1%(42 cases) 25.0%(87 cases)

Plant Site, New Establishment & Expansion Customs & Trade Standards, Certification & Inspection Other Labor & Human Resources Visa & Immigration Taxation

7.2%(25 cases)

Investment Incentive Investment System & Procedure

※Source: Investment Aftercare Division, KOTRA

● Grievance resolution related to investment incentives fell 38.2 percent, from 76 cases in 2011 to 47 cases in 2012, but has continuously accounted for the largest proportion of the grievances filed during the last five years. Problems arising in the course of reinvestment by foreign-invested companies, such as designation of individual-type foreign investment zones and application for designation as businesses involving high-end technologies, are the main source of grievances related to investment incentives. On the other hand, grievance resolution in the field of standards·authorization·inspection jumped by the most, at 133.3 percent, from 18 to 42 cases year-on-year. Many of them were related to strengthened government policies to support SMEs, such as the designation of businesses suitable for SMEs or rival products between SMEs.

III. Foreign Investment Aftercare Performance 2012

Also grievance resolution regarding second-hand copy machines, which were again included in a list subject to customs inspection, increased. <Table III-4> Grievance Resolution by Field 2008-2012 Year Field

2012 2008 2009 2010 2011 Resolved Cases (Number)

Ratio (%)

Growth Rate(%) (‘12/’11)

Taxation

10.9

△11.6

Labor Relations & HR

7.2

△7.4

Investment Procedure

11.2

25.8

Customs & Trade

5.5

△26.9

Investment Incentives

13.5

△38.2

Finance & Foreign Exchange

2.6

28.6

Visa & Immigration

7.5

△13.3

Construction & Land

2.6

△35.7

Sales, Distribution & Advertisement

1.4

0.0

Plant Site

7.2

△37.5

0.9

△75.0

12.1

133.3

Insurance & Welfare

0.3

Environment

1.4

0.0 △16.7

Road & Transportation

0.0

Living Environment

0.0

0.9

△25.0

58 353

77 365

82 385

63 403

52 348

14.9 100.0

△17.5 △13.6

Civil Disputes Standards, Certification & Inspection

Electricity & Water Supplies Other Total

※Source: Investment Aftercare Division, KOTRA

Foreign Investment Ombudsman Annual Report 2012

⁂ Grievances Resolved by Local Governments in 2012 ⁂ ☞ To promote foreign investment aftercare services by local governments and strengthen their link with the Office of the Foreign Investment Ombudsman in their grievance resolution efforts, 16 local governments (Foreign Investment Promotion Offices) submit information on grievances that have been filed and resolved at the request of the Foreign Investment Ombudsman within 10 days of the end of every quarter. These grievance resolution activities by local governments are included in the 『Grievance Resolution Performance Report for Foreign-Invested Companies』 published every quarter by KOTRA’s Investment Aftercare Division.

◈ Legal Basis for the Function of a Local Government’s Foreign Investment Promotion Office ◈ • Paragraph ①, Article 16 of the Foreign Investment Promotion Act: Every central administrative agency, Special Metropolitan City, Metropolitan City, Do, Special SelfGoverning Province and Si/Gun/Gu (referring to an autonomous Gu) may each designate its office in charge of foreign investment as a foreign investment promotion office, or install a foreign investment promotion office, for the purpose of efficiently rendering support for foreign investment by encouraging the smooth handling of civil petitions concerning permission, authorization, license, approval, designation, cancellation, report, recommendation, consultation, etc. related to foreign investment (hereinafter referred to as “permission, etc.”), by supporting swift handling of grievances of foreign investors and foreign-capital invested companies, and by establishing a cooperation system among related institutions. • Paragraph ②, Article 16 of the Foreign Investment Promotion Act: When a foreign investment promotion official receives a request for cooperation by a relevant administrative agency, the Investment Support Center or grievance committee with respect to civil petitions concerning foreign investment, he/she shall cooperate in a positive manner. • Paragraph ②, Article 22 of the Enforcement Decree of the Foreign Investment Promotion Act: Every foreign investment promotion official shall, upon receiving a request from the head of a grievance committee to submit the current status of the receipt, examination and resolution of difficulties provided for in paragraph ①-4, cooperate with the head of the grievance committee by submitting it within ten days after the end of every quarter.

☞ For better aftercare services from local governments, the Ministry of Public Administration and Security included “efforts to identify grievances,” “grievance

III. Foreign Investment Aftercare Performance 2012

resolution rate” and more in its 「Local Governments Joint Evaluation Policy Guidelines」 as an index to evaluate the FDI promotion efforts of local municipalities and provinces. The foreign investment grievance resolution performance of local governments was first reflected in the index in 2009. Since then, the Foreign Investment Ombudsman and the Investment Aftercare Division have consulted with relevant government ministries including the Ministry of Knowledge Economy to improve the index in the evaluation system for a fair assessment of the performance. Efforts have also been made to run the aftercare monitoring system more effectively for foreign-invested companies.

(2) Aftercare Visits to Parent Companies of Foreign-Invested Firms to Promote Reinvestment ● (Reinvestment Increase) Foreign direct investment (FDI) is divided into new investment and reinvestment by foreign-invested companies already operating in Korea. In particular, reinvestment has been the largest component of total FDI actually invested in Korea over the past two years, accounting for 67 percent and 64 percent in 2011 and 2012 respectively. <Table III-5> FDI by Investment Type

(Unit: US$ million)

2011(A)

Notification Basis

Actual Investment

2012(B)

Amount

Ratio (%)

Amount

Ratio (%)

Growth Rate (B/A)

New investment

6,125

44.8

6,965

42.8

13.7

Reinvestment

6,939

50.7

7,380

45.4

6.4

Total(*)

13,673

100.0

16,258

100.0

18.9

New investment

1,632

24.8

2,164

20.9

32.6

Reinvestment

4,407

67.0

6,644

64.0

50.8

Total(*)

6,576

100.0

10,376

100.0

57.8

Note) Long-term loan is included in total(*). ※Source: 『Foreign Direct Investment Trends 2012』, January 2013, MKE

Foreign Investment Ombudsman Annual Report 2012

● (Importance of Aftercare Service) As the proportion of reinvestment in total FDI is increasing, attracting reinvestments by continuously improving the business environment through investment aftercare services and grievance resolution efforts has emerged as a core strategy in inducing FDI. The following virtuous cycle has been created as a result: Foreign-invested companies are satisfied. → Successful grievance resolution cases are spread by word of mouth. → Reinvestment and new investments are induced. Therefore, pursuing two-track efforts - identifying new investment opportunities and drawing opportunities for reinvestment at the same time - is the surest and most effective method of attracting inbound FDI. ☞ To attract reinvestment from foreign-invested companies, building their confidence in the Korean government’s FDI policies is key. The Foreign Investment Ombudsman and the Investment Aftercare Division are actively supporting these companies by resolving their grievances so that they can make investments and do business freely in Korea. Efforts have also been led by the Ombudsman and his team to create a business-friendly environment, streamline laws and regulations, and upgrade administrative practices. Among the total reinvestment of US$73.8 million notified in 2012, reinvestment through the grievance resolution activities of the Ombudsman and his office accounted for 23.9 percent, or US$17.65 million.

III. Foreign Investment Aftercare Performance 2012

<Table III-6> Attracting Reinvestment Cases Through Grievance Resolution 2012 Company Name Notified (Parent company’s Business Type Reinvestment location)

Company A (USA)

Chemical

Grievances

• G r i e v a n c e s r e l a t e d t o e a r l y investment notification • G rievances related to overdue report period of expanded items to US$50 million be registered by plants (March 28, • Grievances related to designation as an 2012) individual foreign investment zone • Consultations to address grievances following designation as a business appropriate for SMEs

Company B (Germany)

• Grievances related to investment Machinery US$53 million project incentives • Consultations to apply for cash grant for (April 25, • Help foreign technicians apply for transportation 2012) E-7 visa

Company C (Japan)

US$263 million (May 16, 2012)

• R equest to review environment regulation standards • Plant site selection according to a new factory construction plan • Grievances related to the payment of a security deposit • G r i e v a n c e s r e l a t e d t o t h e introduction of capital goods • Consultations to apply for a business involving high-technology

US$11.7 million (Dec. 27, 2012)

• Grievances related to tax reduction of a company located in an industrial complex for foreign investors • Assistance reviewing documents to apply for a business involving hightechnology • Grievances related to conditions to be designated an individual foreign investment zone • Grievances related to acknowledgment of loan-term loan as investment

Company D (Japan)

Glass products for other industries

Electronic components

※ Source: Investment Aftercare Division, KOTRA

Foreign Investment Ombudsman Annual Report 2012

● (Aftercare Visits to Parent Companies of Foreign-Invested Firms) The Foreign Investment Ombudsman has dispatched Task Force Teams (TFT) to the parent companies of foreign-invested companies doing business in Korea more than twice a year since 2005 to successfully attract reinvestment by addressing their grievances. TFT activities are the best example of what creates the virtuous cycle of “grievance resolution ⇄ reinvestment”. Through TFT visits, Korea’s Foreign Investment Ombudsman System can be known to many other countries through the introduction of grievance resolution cases. These visits serve as opportunities to receive grievances faced by the parent companies of foreign-invested enterprises while investing in Korea and their requests to the Korean government, and to provide information on Korea’s investment environment and related policies. ● (Major Achievements) In 2012, TFTs visited parent companies of foreigninvested firms in North America and Japan, which were expected to expand businesses in Korea thanks to successful grievance resolution. The goal of the visits was to listen to other grievances regarding investment and their requests, and to offer consultations on reinvestment. <Table III-7> Outcome of TFT Visits to Parent Companies of Foreign-Invested Firms 2012 Region (Period)

North America (May 22- 27, 2012)

Company or Organization (Location)

Main Events

P&G (Cincinnati)

• T he company expressed gratitude to the Ombudsman’s Office for improving standards related to the packaging of liquid detergent by increasing the empty space up to 15 percent.

Praxair (Connecticut)

• The company granted a plaque of appreciation to the Foreign Investment Ombudsman for helping Praxair Korea get permission to be located in the capital area through system improvements.

Chamber of Commerce, Cincinnati

• T he Ombudsman attended the Korea FDI Policy Regime seminar and introduced Korea’s Ombudsman system.

III. Foreign Investment Aftercare Performance 2012

Region (Period)

Japan (December 10-14, 2012)

Company or Organization (Location)

Main Events

Yodogawa Hu-Tech (Osaka)

• T he company expressed its hope to expand business in Korea and discussed ways to promote mutual cooperation and assistance.

Denso (Nagoya)

• The company discussed its grievances regarding designation as an individual-type foreign investment zone and plans to reinvest more than US$50 million.

Fuji Xerox (Yokohama)

• The Ombudsman visited the R&D center and Customer Value Creation center. (The Incheon R&D center is developing manufacturing technologies such as recycling parts.)

Toray (Tokyo)

• The Ombudsman introduced Korea’s incentive systems and discussed ways to reinvest in the green industry.

Mitsui-Soko (Tokyo)

• The company had plans to reinvest more than US$50 million and build a logistics warehouse at Busan Port, which will create 130 new jobs.

Sumitomo Chemical (Tokyo)

• T he company is considering reinvesting to expand facilities to make touch panels.

※Source: Investment Aftercare Division, KOTRA

☞ Visiting the parent companies of foreign-invested firms contributes to strengthening aftercare services to promote reinvestment through business cooperation between KOTRA’s local Korea Business Centers, parent companies, their foreign affiliates in Korea, and the Foreign Investment Ombudsman, thereby doubling the effects of grievance resolution. In particular, the visits have huge promotion effects directly or indirectly on the foreign enterprises by showing that they can receive systemic assistance when they start a business in Korea and when they reinvest. Moreover, by reporting their grievances and suggestions to the relevant administrative bodies, the Ombudsman helps promote FDI consistently and in a practical manner.

Foreign Investment Ombudsman Annual Report 2012

<Diagram III-1> TFT Visiting Parent Companies of Foreign-Invested Companies (North America) ◆ The Ombudsman visited P&G. (May 23, 2012) • T he Ombudsman had a meeting with D i m i t r i P a n a y o t o p o u l o s , t h e V ice Chairman of P&G. • ( left) Dimitri Panayotopoulosthe, Vice Chairman of P&G • (right) Dr. Choong Yong Ahn, the Foreign Investment Ombudsman

◆ The Ombudsman visited Praxair. (May 25, 2012) • The company presented the Ombudsman with a plaque of appreciation for helping them resolve grievances. • (left) Executive Vice President, Scott Telesz • ( right) Dr. Choong Yong Ahn, Foreign Investment Ombudsman

◆ The Ombudsman visited the Cincinnati Chamber of Commerce. (May 23, 2012) • T he Ombudsman had meetings with enterprises in Cincinnati including GE Aviation and Polezero.

III. Foreign Investment Aftercare Performance 2012

<Diagram III-2> TFT Visiting Parent Companies of Foreign-Invested Companies (Japan)

Yodogawa Hu-Tech (Dec. 10, 2012)

Denso (Dec. 11, 2012)

Fujixerox (Dec. 12, 2012)

Toray (Dec. 13, 2012)

Mitsui-Soko (Dec. 13, 2012)

Sumitomo Chemical (Dec. 14, 2012)

â&#x20AC;ťSource: Investment Aftercare Division, KOTRA

Foreign Investment Ombudsman Annual Report 2012

2. Common Grievance Resolution Activities ※ The Foreign Investment Ombudsman and the Investment Aftercare Division have contributed to creating jobs by helping foreign-invested companies find qualified workers, which is a common challenge. In addition, meetings with foreign investors are held regularly to provide active communication channels and practical resolutions for their grievances.

(1) Job Fair for Foreign-Invested Companies 2012 ● 2012 marked the 7th anniversary of the Job Fair for Foreign-Invested Companies, which has provided many foreign firms with a practical solution to the skilled-labor shortage and job seekers with quality jobs in global companies. ● Held on October 25-26, the job fair aimed to produce more job opportunities, raise awareness about foreign investors, and eventually induce further investment by creating a better business environment in Korea.

<Job Fair for Foreign-Invested Companies 2012> •Title: Job Fair for Foreign-Invested Companies 2012 •Date: Oct. 25 (Thurs) - Oct. 26 (Fri), 2012, 09:30-18:00 •Venue: Hall B1, 1F, COEX •Hosted by: Ministry of Knowledge Economy •Organized by: KOTRA • Sponsored by: KITA (Korea Industrial Technology Association), KETI (Korea Electronics Technology Institute) •Supported by: Google, Korea TOEIC Committee •Size: 91 participating companies and 16,500 visitors

III. Foreign Investment Aftercare Performance 2012

● 91 companies, 26 of which are ranked in the Global Fortune 500 (ADT, BOSCH, eBay, etc.), participated in the job fair, with the number of visitors reaching 16,500. <Diagram III-3> Job Fair for Foreign-Invested Companies 2012

※ Source: Yonhapnews (top), Investment Aftercare Division, KOTRA (bottom)

● Before the 2012 job fair, officials from the Office of the Foreign Investment Ombudsman met with the Korea Electronics Technology Institute to discuss ways to help foreign-invested companies find science and engineering workers. A meeting of HR personnel from foreign-invested companies was also held to

Foreign Investment Ombudsman Annual Report 2012

promote cooperation between the participating companies and the Association of University Employment Management, and to provide practical assistance for their recruitment activities. ● The Korea Industrial Technology Association ran an exhibit for science and engineering recruitment, fostering an inter-connected system between potential employees and employers through which foreign-invested companies needing science and engineering workers and employment agencies can exchange information at any time. <Diagram III-4> Pre-Meetings for the Job Fair

A meeting to help foreign-invested companies find science and engineering workers (April 10, 2012)

A meeting of HR personnel from foreigninvested companies (October 18, 2012)

※ Source: Investment Aftercare Division, KOTRA

(2) On-Campus Recruiting Expo for Foreign-Invested Companies 2012 ● The On-Campus Recruiting Expo for Foreign-Invested Companies has been held twice a year since 2011 to provide college students in rural areas with information about applying for jobs with foreign-invested companies. The 3rd and 4th expos were held in 2012 in cooperation with local universities, aiming at building long-term networks between companies and job seekers.

III. Foreign Investment Aftercare Performance 2012

<Table III-8> On-Campus Recruiting Expo for Foreign-Invested Companies Date

Region (Venue)

Participating Companies

Visitors

May 25, 2011

Youngnam (Pusan National University)

6 companies (Dassault Systemes, Kongsberg Maritime, Bosch Rexroth, Google, Solvay, Zara)

400

Oct. 12, 2011

Honam (Chonnam National University)

5 companies (Ebay , Emerson Process Management, 3M, Alps Electric Korea, Arneg)

300

Sep. 20, 2012

Chungcheong (Chungnam National University

5 companies (Robert Bosch Korea, ZARA, Johnson Controls Automotive Korea, ThyssenKrupp Elevator Korea, ABB Korea)

200

Sep. 25, 2012

Yeongnam (Kyungpook National University)

6 companies (Dassault Systemes Korea, Toray Advanced Materials Korea, Robert Bosch Korea, ABB Korea, H&M, SSLM)

400

※ Source: Investment Aftercare Division, KOTRA

● At this year’s job expos, held at Chungnam National University and Kyungpook National University, leading global enterprises from each industry provided employment information and one-on-one job consulting, attracting not only college students in the region, but also job seekers from other provinces.

Foreign Investment Ombudsman Annual Report 2012

<Diagram III-5> On-Campus Recruiting for Foreign-Invested Companies 2012

Employment information session at Chungnam National University

One-on-one job consulting at Chungnam National University

Employment information session at Kyungpook National University

One-on-one job consulting at Kyungpook National University

※ Source: Investment Aftercare Division, KOTRA

● The Foreign Investment Ombudsman and the Investment Aftercare Division endeavor to deliver more satisfactory results to participating companies and visitors and to expand expos to create a virtuous employment cycle in which job creation, reinvigoration of the local economy, and reinvestment encourage one another.

(3) Meeting with Foreign Investors ● The Foreign Investment Ombudsman has regularly organized meetings with foreign investors to deal with common difficulties faced by global enterprises in Korea. These meetings serve as an opportunity to resolve grievances more

III. Foreign Investment Aftercare Performance 2012

swiftly and aggressively through face-to-face exchanges of opinion among participants. <Diagram III-6> Meeting with Foreign-Invested Companies 2012

※ Source: Investment Aftercare Division, KOTRA

● The Office of the Foreign Investment Ombudsman organized 5 talks with foreign investors in 2012 to discuss pending issues by region and topic. After the meetings, tailored resolutions for each grievance were provided, including the making of suggestions to the government or request for the cooperation of relevant agencies. Through these continuous aftercare services, Home Doctors also increased the level of foreign-invested firms’ satisfaction with their grievance resolution work.

Foreign Investment Ombudsman Annual Report 2012

<Table III-9> Talks With Foreign-Invested Companies in 2012 Title (Date)

Participating Companies/ Organizations

Agenda

Meeting with industrial gas manufacturers after the g o v e r n m e n t ' s d e c i s i o n t o Three foreign-invested classify businesses appropriate companies for SMEs (January, 10)

To discuss the ripple effects of and response to the announcement of the National Commission for Corporate Partnership to select businesses appropriate for SMEs

Meeting with foreign-invested Five foreign-invested companies engaged in the companies in Jeju tourism industry of Jeju Island Island (May, 2012)

To l i s t e n t o g r i e v a n c e s regarding the tourism industry in Jeju Island and review the revision of relevant regulations of the Foreign Investment Promotion Act

Five foreign-invested Meeting with foreign-invested companies and relevant companies in science and agencies, including engineering industry the Korea Electronics (April, 2012) Technology Institute

To discuss ways to nurture science and engineering workers and help them find jobs by connecting foreigninvested companies and specialized employment agencies

Four foreign-invested companies and relevant agencies, including the Korea Elevator Maintenance Association

To discuss responses regarding the revision of the Enforcement Decree of Elevator Safety and Management Act

Attended an Inaugural Ceremony of the Jeju Association of Foreign Invested Eleven foreign-invested Companies (JAFIC) and held a c o m p a n i e s i n J e j u meeting with foreign-invested Island companies in Jeju Island (September, 2012)

To listen to the grievances of foreign-invested companies in Jeju Island and discuss resolutions

Meeting with foreign-invested companies regarding revision of elevator maintenance and repair regulations (September, 2012)

â&#x20AC;ť Source: Investment Aftercare Division, KOTRA

III. Foreign Investment Aftercare Performance 2012

3. Ombudsman System Promotion Activities ※ The Office of the Foreign Investment Ombudsman has promoted reinvestment by foreign investors by introducing resolved grievances and how the business climate has been improved as a result. The Ombudsman has also publicized the excellence of the Foreign Investment Ombudsman system worldwide, attracting potential investors and laying the groundwork for new investment opportunities.

(1) CEO Forum for Foreign-Invested Companies 2012

※ Source: Investment Aftercare Division, KOTRA

● 2012 marks the 7th anniversary of the CEO Forum, which was first held in 2006. Through the forum, the Office of the Foreign Investment Ombudsman has made great efforts to induce reinvestment by inviting the CEOs and executives of global enterprises and by introducing Korea’s investment environment and major policies, not to mention grievance resolution cases for foreign-invested companies. ● The forum opened on November 29 with 195 participants, including government officials and executives from 87 foreign-invested companies. The event was graced by two important speakers - Seok Cho, the Vice Minister for Trade and Energy, Ministry of Knowledge Economy, and Young Ho Oh, the President & CEO of KOTRA, who delivered an opening speech and a welcoming speech, respectively.

Foreign Investment Ombudsman Annual Report 2012

● Forum participants were able to gain information about Korea’s investment climate directly through the speeches of government officials. The Deputy Minister of Tax and Customs, Ministry of Strategy and Finance, gave a presentation about new and revised tax policies, and the Director General of Cross Border Investment, Ministry of Knowledge Economy, talked about new FDI policies for 2013. The forum wrapped up with a presentation by Foreign Investment Ombudsman Ahn Choong Yong about major grievance resolution cases as well as investment aftercare systems. Following the presentations was a Q&A session in which the Ombudsman had a chance to listen to the difficulties and answer the questions of the participating companies directly, boosting their confidence in our partnership. <Diagram III-7> The CEO Forum for Foreign-Invested Companies 2012

Note) The CEO Forum for Foreign-Invested Companies serves as a crucial tool for building mutual trust between government agencies and foreign investors through direct contact. Grievances resolved over the year are introduced case by case as well, boosting the confidence of Korea’s foreign-invested companies.

III. Foreign Investment Aftercare Performance 2012

● In particular, an MOU between the Office of Regulatory Reform, PMO, and the Office of the Foreign Investment Ombudsman was established at this year’s forum to improve the investment and business climate for foreign investors and build a cooperative system. The MOU laid the groundwork to resolve grievances more effectively through cooperation for: ① upgrading systems to deal with difficulties faced by foreign investors, ② identifying and resolving grievances regarding regulations applying to foreign-invested companies, ③ a concerted effort between the two agencies to induce reinvestment, and ④ improving the investment environment for foreign investors. <Diagram III-8> MOU Between Office of Regulatory Reform, PMO and Office of the Foreign Investment Ombudsman

※ Source: Investment Aftercare Division, KOTRA

(2) Ombudsman System Promotion Activities at Home & Abroad ● The Office of the Foreign Investment Ombudsman endeavors to share about Korea’s advanced Foreign Investment Ombudsman system and enhance global awareness about Korea’s business-friendly environment by offering benchmarking tours and workshops to international organizations and overseas investment promotion agencies visiting Korea, and by giving speeches at international forums. ● Korea’s FDI aftercare services, such as the Ombudsman system and its

Foreign Investment Ombudsman Annual Report 2012

results, have been introduced to investment delegations - from Vietnam, Sweden, Ireland, Indonesia, China, Latin America, Thailand, etc. - that came to Korea in 2012. <Table III-10> Promotion Activities for Foreign Delegates 2012 Date

Delegations

Agenda

May 15

Chinese delegation from Guangdong

• I ntroduction of Korea’s Ombudsman system and networking

June 5

Swedish economic mission

• Presentation on Korea’s economic outlook and implications of Korea-EU FTA

Sept. 10

Indonesian investment promotion team

• I ntroduction of grievance resolution assistance of the Ombudsman system

Oct. 16

Irish delegation

• Discussion of ways to promote bilateral trade and investment

Oct. 22

Latin American IPA benchmarking team

• I ntroduction to the Ombudsman and investment aftercare service system

Nov. 16

Delegation from Thailand Board of Investment

• I n t ro d u c t i o n t o K o re a ’s k n o w - h o w regarding the resolution of grievances of foreign investors

Dec. 18

Vietnamese investment delegation

• Presentation on ways to improve investment climate for prevention of ISD

※ Source: Investment Aftercare Division, KOTRA

● When the Swedish economic mission and Latin American Investment Promotion Agency (IPA) visited Korea, the Foreign Investment Ombudsman gave presentations under the theme of Korea’s economic development models and roles and the functions of the Ombudsman system, the importance of aftercare services, and actual grievance resolution cases. These presentations garnered great acclaim from the audience, raising awareness about Korea’s investment environment.

III. Foreign Investment Aftercare Performance 2012

<Diagram III-9> Meeting With Foreign Delegations in 2012

※ Source: Investment Aftercare Division, KOTRA

● The Foreign Investment Ombudsman engaged in various overseas promotion activities as well by 1) attending the World Investment Forum 2012, at the invitation of UNCTAD, as a panelist in April, 2) making policy proposals about a Korea-China-Japan trilateral investment agreement in September, 3) giving presentations at the KORUS FTA Utilization Seminar hosted by AMCHAM in May, and 4) participating in the Northeast Asia Economic Cooperation Strategy Meeting on Energy, Trade, Investment, and Economy held in Tokyo in July. At these events, he explained about the important outcomes of grievance resolution activities and Korea’s business-friendly investment policies to international organizations and relevant investment agencies.

Foreign Investment Ombudsman Annual Report 2012

<Diagram III-10> Ombudsman at the World Investment Forum 2012 hosted by UNCTAD

Ombudsman at the World Investment Forum 2012 held in Doha, Qatar, in April 2012

An article published in the "IK Bulletin," KOTRA: The Ombudsman gave a speech at the 16th China International Fair for Investment and Trade in Xiamen, China, in Sep. 2012.

III. Foreign Investment Aftercare Performance 2012

(3) Public Relations Activities at Home & Abroad ● The Foreign Investment Ombudsman and the Investment Aftercare Division have taken the lead in publicizing the excellence of Korea’s grievance resolution system and enhancing public awareness about foreign investment through various channels. In 2012, the Ombudsman system and cases of investment environment improvements were actively promoted through daily newspapers at home and abroad. ● The Ombudsman wrote business columns for the “Korea Times” in 2012 with such varied themes as “ISD clause essential part of FTA,” “Enhance KoreaEU FDI partnership,” and “First five-year economic plan of Korea.” These articles not only introduced the results of grievance resolution activities and Korea’s FTA policies, but also analyzed ways to attract FDI in depth. <Table III-11> Foreign Investment Ombudsman in the Press 2012 Date

Press

Title

Jan. 16

Korea Times

•Can Asia save world economy?

April 16

Korea Times

•Welfare state in capitalism

May 14

Korea Times

•ISD clause essential part of FTA

June 11

Korea Times

•CSR revisited

June 28

Munhwa Ilbo

• Slowly growing Korean economy - an opportunity to improve economic fundamental

July 9

Korea Times

•Intra-Asian tourism development

Aug. 6

Korea Times

•Northeast Asian Development Bank revisited

Aug. 8

Kuki News

Sept. 3

Korea Times

•Northeast Asian economic community

Sept. 9

Chosun Ilbo

• We must think politics and economies separately to respond to Japan, not be too focused on Chinese market, and expand the stage to Russia

Oct. 8

Korea Times

•Enhance Korea-EU FDI partnership

Oct. 25

Kuki News

Oct. 29

Korea Times

•Korea-India deepening partnership

Nov. 26

Korea Times

•First five-year economic plan of Korea

• Rising financial demands - We should strengthen the fiscal status of the nation first

•Green Climate Fund - An opportunity to step up soft powers

Foreign Investment Ombudsman Annual Report 2012

● The Foreign Investment Ombudsman has also been communicating about grievances recently resolved through the Ombudsman’s Office column in Invest Korea’s monthly IK Bulletin so that international firms with similar problems or in the same industry can gain practical advice. <Diagram III-11> A Grievance Resolution Case Introduced in the “IK Bulletin”

Note) The February edition of the “IK Bulletin’s” Ombudsman’s Office introduced a regulation improvement case related to product packaging. The Foreign Investment Ombudsman and Home Doctors requested that the Ministry of Environment improve systems to allow up to 15 percent of empty space in liquid detergent packages and transparent film three-dimensional packaging for cosmetics to ensure product quality.

III. Foreign Investment Aftercare Performance 2012

<Table III-12> Articles of Ombudsman’s Office in 2012] Publication Date

Title

Jan. 2012

•Korea Must Renew FDI Efforts in 2012

Feb. 2012

•Adjusting Standards That Hinder More Than Help

Mar. 2012

•Foreign Investment Ombudsman System Helps Prevent ISDs

April 2012

•Leisure Services Industry a New Economic Driver

May 2012

•Supporting Not Just Investment, but R&D Investment

June 2012

•Making History, One Case at a Time

July 2012

•Pushing for Fair Policies

Aug. 2012

•Tourism FDI Needs Refined Incentives

Sep. 2012

•Building a Northeast Asian Investment Community

Nov. 2012

• Making Strides Toward Economic Integration With the ChinaJapan-Korea Trilateral Investment Agreement •Revising Signboard Regulations for a Better-Looking City

Dec. 2012

•A Fair Approach to Fines

Oct. 2012

※ Source: Investment Aftercare Division, KOTRA

Foreign Investment Ombudsman Annual Report 2012 Korea Trade-Investment Promotion Agency

Foreign Investment Ombudsman Annual Report 2012

Chapter

Foreign Investment Ombudsmanâ&#x20AC;&#x2122;s Remarks

Foreign Investment Ombudsman Annual Report 2012

Foreign Investment Ombudsman’s Remarks

• Korea’s FTAs with the United States and EU, the world’s most advanced economies, took effect in 2012. These agreements should observe international trade and investment standards to have the same legal force as domestic rules. In particular, foreign-invested companies in Korea must be guaranteed the same level of protections and investment climate in accordance with protective measures for cross-border investments as Korean firms are when they invest overseas. • To that end, the government newly established provisions to strengthen the Ombudsman’s roles through a revision of the Foreign Investment Promotion Act. Under the revised act, the Foreign Investment Ombudsman can request that relevant administrative agencies submit documents and recommend system improvements. But these provisions do not have legally binding power to provide practical solutions for grievances. Therefore, the following is what I would like to propose to overcome such limitations. • First, when introducing administrative regulations regarding cross-border investments, we have to consider whether they meet these FTA agreements as well as international standards. For example, some foreign-invested companies in Korea are currently classified as SMEs based on their parent companies’ assets, which is a globally unprecedented practice. Furthermore, as

IV. Foreign Investment Ombudsman’s Report

a broad range of business types were uniformly designated as SME-suitable industries, it has become difficult for these companies to access markets. Second, when modifying laws related to investments, especially about incentives, applicable cases, interim measures, and exceptional cases should be defined clearly to ensure legal stability for foreign investors, thereby securing their confidence in investing in Korea. It is also important to create predictable investment climates by notifying these companies of the changes in advance. • Third, when it comes to the legal interpretation of obscure investment-related laws, higher administrative authorities should provide active interpretations and clear standards, rather than letting local governments make their own. • Fourth, Korea’s outbound investments have been three to four times bigger than inbound investments for the past six years. We must deal with this structural imbalance to achieve the new administration’s national agenda of building a creative economy and creating more jobs. Providing tailored solutions to attract more inward FDI and aftercare services for those businesses already operating in Korea is instrumental in this regard. To that end, we need to build a consensus between ministries to create an environment that is more foreign investor-friendly than that of rival nations. • Fifth, efforts should be pursued to nurture expert researchers who study ISD cases, and exemplary practices and principles in the world related to FDI.

Foreign Investment Ombudsman Annual Report 2012

⁂ Ombudsman’s Opinions ⁂ Enhancing Korea-EU FDI partnership ※This column was titled 「Enhancing Korea-EU FDI partnership」 and appeared in the “Business Focus” section of <The Korea Times> on October 8, 2012. It was significant that the European Union and Korea launched together three weeks ago in Brussels a highlevel bilateral track II forum to discuss broad issues of mutual interest, ranging from security, diplomacy to trade and cross-border foreign direct investment (FDI) flows, following the effectuation of the Korea-EU free trade agreement (FTA) a year ago. High-level participants from the EU commission, academics and Korean counterparts indicated that the Korea-EU FTA is indeed one of high quality in terms of the elimination and reduction of both tariffs and non-tariffs barriers. The EU participants assessed that the bilateral FTA should serve as a benchmark for the EU to negotiate a series of intended FTAs with such countries as the U.S., Japan and key developing economies. Both sides reaffirmed their high respect for human rights in a political system and level-playing-field principles in international economic relations. It is well known that the EU has been engulfed in the sovereign debt crises of southern European member economies and a prolonged recession. Many experts admit that a central dimension of the current EU crisis involves problems in the banking system. EU leaders during the sessions seemed determined to design a new breakthrough to maintain euro integrity and a robust EU economy. Against this backdrop, this forum was one of the most insightful and rewarding I have participated in as a student of the fascinating integration process of modern Europe. In terms of FDI inflows into Korea, the EU has

IV. Foreign Investment Ombudsman’s Report

been the largest investor, occupying about 47 percent of Korea’s total FDI from 2001 through mid-2012, followed by Japan and the United States. Multinational companies from the EU have greatly contributed a new source of growth, job creation and technology transfer to Korea by being deeply connected in increasingly rising global value chains. To name just a few for which I, as the Foreign Investment Ombudsman, have helped in terms of business operations, Bosch Rexroth Korea, Odfjell Terminals Korea, Solvay and Tesco Academy have all been involved in supplying essential components, storage and distribution, training and R&D activities in renewable energy industries to upgrade the Korean economy. Given the FDI inflow from the EU to Korea, Korea’s FDI outflow to the EU has also been impressive. Korean multinational companies including Hyundai, Samsung and LG have been highly visible in the Czech Republic, Slovakia, Poland, Hungary and other EU member states by investing in auto manufacturing and electronics and hiring hundreds of thousands of locals. In fact, in the past three years, Korea’s outward FDI to the EU recorded $15 billion, far exceeding the EU’s investment of $10 billion into Korea. The beneficial impacts of Korea’s FTA with the EU can be materialized if and only if bilateral cross-border FDI can occur to take advantage of the improved and transparent economic environment as mandated by the bilateral FTA. This bilateral FDI flow and the surge of European and Korean cars onto the streets of both sides clearly indicate the positive impacts of the bilateral FTA. It should be noted that an increase in Korean cars in the EU is basically due to shipments of Korean brands made within the EU and elsewhere outside Korea. The Korea-EU FTA model clearly suggests that any protectionist measures are having selfdefeating consequences in this globalizing world. For the EU, Korea could be viewed as an important strategic gateway to a rising Asian economy. For Korea, the EU is a strategic partner with which to upgrade the Korean economy to a higher value-added echelon.

Foreign Investment Ombudsman Annual Report 2012

During my flight back to Korea, I kept thinking of the visionary political leaders who conceived European integration. Jean Monnet, a founding father of the EU, once said, “Nothing is lasting without institutions.” We can apply the EU’s integration wisdom to Northeast Asia. Next year, both the EU and Korea, as likeminded partners, will celebrate the 50th anniversary of mutual diplomatic recognition and continue to address how to conavigate toward a more peaceful and prosperous world.

Foreign Investment Ombudsman System helps Prevent ISDs ※This article was titled 「Foreign Investment Ombudsman System Helps Prevent ISDs」 and appeared in the “Ombudsman’s Office” section of the <IK Bulletin> in March, 2012. Many nations are turning to foreign direct investment for sustainable economic growth and the rising number of trans-border trade agreements worldwide is in the thousands. Unfortunately, the downside to this has been the overlapping of free trade agreements and investor-state disputes (ISD) arising from differences between local regulations and global standards. To tackle these issues while promoting inter national investment for shared prosperity, the United Nations Conference on Trade and Development (UNCTAD) has held the World Investment Forum (WIF) every other year since 2008. Government delegations including ministerial-level officials and global business leaders discuss at this forum policy options for sustainable investment, including how to prevent and resolve ISDs.

IV. Foreign Investment Ombudsman’s Report

Foreign Investment Ombudsman Dr. Ahn Choong Yong has been invited as a speaker to this year’s forum in Doha, Qatar in April. Having spoken at the last forum as well, Dr. Ahn will present this time on the achievements of Korea’s Foreign Investment Ombudsman system and how other countries have worked to benchmark the post-investment care program. The system consists of the Foreign Investment Ombudsman and his support team of Home Doctors, or civil consultants specializing in taxes, customs duties, labor, legal issues and more. For 13 years, the Home Doctors have helped resolve grievances filed by investors doing business in Korea by providing oneon-one consulting via visits, phone or email and, if necessary, by recommending to authorities regulation revisions or administrative action. In 2011, the Home Doctors resolved 403 cases spanning all areas. What makes the aftercare system all the more special and effective is that the Ombudsman and his Home Doctors are, in fact, civil experts and not from the public sector or government. This lends them broader perspectives, objectivity and a greater readiness to understand issues from a business’ standpoint. Home Doctors also provide one-stop services and keep all cases strictly confidential. Thanks to the Ombudsman system, Korea has never had an ISD and was recognized as an ISD-free country at the APEC ISD workshop in 2008. And as revealed in the Korea Trade-Investment Promotion Agency’s 2009 survey on 50 countries, the Foreign Investment Ombudsman system is the only post-investment care program in the world, and many foreign organizations have visited Korea to benchmark it. The World Bank’s Foreign Investment Advisory Service has conducted an in-depth interview with Dr. Ahn, and the World Association of Investment Promotion Agencies and Indonesia Investment Coordinating Board have sent delegates to Korea on training programs to learn about the Ombudsman system. It has also been introduced at meetings of APEC, USAID and other international organizations. At WIF 2012, Dr. Ahn plans to stress that preventing ISDs through grievance resolution and post-investment care services is as important as putting in place legal instruments and procedures for addressing existing disputes. With Korea’s aftercare program having been proven as a practical measure for preventing ISDs, the Foreign Investment Ombudsman system is once again expected to take the spotlight. By Ahn Choong Yong, Ph.D Foreign Investment Ombudsman

Foreign Investment Ombudsman Annual Report 2012 Korea Trade-Investment Promotion Agency

Foreign Investment Ombudsman Annual Report 2012

Appendix

Chapter

Foreign Investment Ombudsman Annual Report 2012

Appendix

1. Best Practices of System Improvement • Where necessary to resolve the grievances of foreign investors and foreigncapital invested companies, the Foreign Investment Ombudsman may recommend that relevant administrative agencies and public agencies take corrective measures on laws, systems, and policies according to the Foreign Investment Promotion Act. (※Paragraph 4 of Article 15-2, Paragraph 4 of Article 21-3 of the Enforcement Decree of the Foreign Investment Promotion Act) • In 2012, four out of six recommendations for system improvement made by the Foreign Investment Ombudsman and Home Doctors were accepted. The Ombudsman’s Office received a reply from relevant organizations saying that the rest of the two recommendations would be reviewed in the long term as well so that they, too, can be reflected in policies through the revision of related laws. <Table V-1> Grievances Resolved by System Improvement 2012 No

Content

Result

• R ecommended revision of notifications of Korea Customs Office to include imported second-hand copy machines in the list subject to customs inspection

Accepted

• Recommended revision of the Enforcement Rule of Electrical Appliances Safety Control Act on safety inspections for imported second-hand copy machines that received safety certifications

Accepted

• R ecommended reexamination of quality and safety Long-term management of harmful materials in fabric softener review required

V. Appendix

Content

Result

• Recommended revision of detailed regulations of Customs Act on imposition of fine for negligence

Accepted

• Recommended introduction of energy efficiency rating system Long-term for industrial refrigerators and freezer cabinets review required

• Recommended system improvement of Seoul Metropolitan Government Ordinance on Outdoor Advertisements Control

Accepted

※Source: Investment Aftercare Division, KOTRA

Major Grievance Resolution Cases (1) Proposal to Include Imported Second-hand Copy Machines Again in the List Subject to Customs Inspection Category

Content

Relevant Korea Customs Service (KCS) Organization Relevant Regulation

Notification to designate items subject to customs inspection and verify them under Article 226 of the Customs Act

Grievance

Foreign Investment Ombudsman Annual Report 2012

Category

Content

• Resolution: System improvement is needed to include “safety inspection for second-hand copy machines” in the notification of KCS by revising the “notification for designating items subject to customs inspection and verifying methods under Article 226 of the Customs Act.” • Resolution Process - (Feb. 16, 2011) The 1st meeting with foreign-invested companies was held. - (May 3, 2011) The 2nd meeting with foreign-invested companies was Resolution held. and Results - (Oct. 17, 2011) A Home Doctor visited the Clearance Panning Division of KCS and recommended revision of the relevant notification. • Results - (Dec. 26, 2011) The revised version was reflected in notification No. 2011-53, KCS. - (Jan. 4, 2012) The Home Doctor in charge of the matter reported the results and had a follow-up meeting.

Relevant Photos

Illegal importation of second-hand copy machines

Meeting with foreign-invested companies

V. Appendix

(2) Request to Revise Electrical Appliance Safety Standards and Operation Methods (Notification of Korea Agency for Technology and Standards) Category

Content

Relevant Korea Agency for Technology and Standards, MKE Organization Relevant Regulations

Enforcement Rule of Electrical Appliances Safety Control Act, Electrical Appliances Safety Standards and Operation Methods

Grievance

• Background: The Ombudsman’s Office received management grievances from major foreign-invested copy machine manufacturers in Korea about the rising importation of illegal second-hand copy machines, an issue that has long remained unresolved. • Main Issue: In the “Proposal to revise parts of the Enforcement Rule of Electrical Appliances Safety Control Act (Article 14),” which was preannounced on July 1, 2011, there were provisions to exempt secondhand copy machines from some or all of the tests if the same model had been imported repeatedly. In such cases, however, consumer safety and product quality cannot be guaranteed. In particular, paragraph 1 of Article 14 of the Enforcement Rule, which exempted repeatedly imported products from all of the tests, undermined the effectiveness of the existing “electrical appliances safety inspection system” and “preinspection system.” Furthermore, this resulted in reverse discrimination, where domestically produced electrical appliances and newly imported products faced tougher regulations than second-hand ones. • R equest: Second-hand copy machines are vulnerable to accidents because they can catch on fire due to their old parts. However, there were almost no regulations against them. Therefore, systemic improvement was urgent to mandate that these imported second-hand machines receive safety inspections before being distributed.

Foreign Investment Ombudsman Annual Report 2012

Category

Content

Resolution and Results

• Resolution: The Ombudsman recommended the deletion of the phrase, “to exempt repeatedly imported products from all of the tests” in paragraph 1, Article 14 of the Enforcement Rule of Electrical Appliances Safety Control Act, and that it be changed to “to exempt repeatedly imported products from some of the tests”. (The revised version was announced on Sept. 30, 2011) • Resolution Process: The recommendation above was reflected in Article 6-2 of the Enforcement Rule of Electrical Appliances Safety Control Act. The Ombudsman requested a revision of the relevant notification so that when the same model of second-hand copy machines, which had received safety inspections at the time of the first importation, was to be imported again, they should undergo important tests as prescribed by the President of the Korean Agency for Technology and Standards (KATS). - (Dec. 27, 2012) A Home Doctor visited KATS and discussed the revision of the relevant notification. - (Feb. 8, 2012) A “Proposal to Revise Electrical Appliance Safety Standards and Operation Methods” was pre-announced. • Results: The above recommendations were reflected in notification No. 2012-120 of KATS, 「Electrical Appliances Safety Standards and Operation Methods under paragraph 3, Article 3, and paragraph 3, Article 11 of the Electrical Appliances Safety Control Act」, which was notified on March 14, 2012.

V. Appendix

(3) Request to Reexamine Standards to Regulate Harmful Substances in Imported Fabric Softener Category

Content

Relevant Korea Agency for Technology and Standards (KATS), MKE Organization Relevant Regulations

Paragraph 2, Article 19 of the Quality Control and Safety Management of Industrial Products Act, Paragraph 2, Article 2 of the Enforcement Rule of the Act

Grievance

• B ackground: Multinational Company E wanted to export fabric softeners produced overseas, but failed to meet Korea’s standards regarding organic hazardous substances. • Main Issue: Among the organic hazardous substances regulated by the Act, the benzylisothiazolinone (BIT) found in Company E’s products is a preservative widely used in industrial products around the world and not regulated in most of the countries. • Request: The permissible level of benzylisothiazolinone was 15mg per 1 kilogram, which was too strict to meet international standards. Therefore the company requested that the relevant ministry review the regulation.

Resolution and Results

• R esolution: According to the applicable range of fabric softeners prescribed by the Safety Self-Assurance Annex, fabric softeners are products added at the last stage of washing clothes to soften fabric or prevent static electricity. The amount of softener residue left after the laundering is too little to have an impact on the human body. Given that the BIT regulations at that time were based on standards applicable to Korean cosmetics or Europe’s eco-certified products, they needed to be changed. • Resolution Process - (March 13, 2012) The Ombudsman requested that KATS delete BIT in the provisions regarding standards for organic hazardous substances in fabric softener, or increase the permissible level by reviewing the possibility of using BIT as a preservative. • Future Assistance Plan: KATS is preparing to pre-announce the revised regulations to increase the permissible level of BIT by considering the opinions of experts, consumers, etc, and the policy directions of harmful substance safety management for domestically produced industrial products.

Foreign Investment Ombudsman Annual Report 2012

(4) Proposal to revise parts of the Detailed Enforcement Regulations About Imposing and Collecting a Fine for Negligence in Accordance with the Customs Act, etc. Category

Content

Relevant Korea Customs Service (KCS) Organization Relevant Regulations

Detailed Enforcement Regulations About Imposing and Collecting a Fine for Negligence in Accordance with Customs Act, etc. • Background: The customs office imposed a fine of 50,000 to 200,000 won on express cargo companies when their cargo, which had been initially reported for list clearance, had to undergo regular customs due to false information declaration. ※ When express cargo companies reported the import of express goods valued at less than US$100, they would receive “list clearance” by providing minimum cargo information – details from commercial invoices given to them by their customers, the exporters. List clearance would not be granted if false information were declared, in which case cargo would have to go through a regular customs process.

Grievance

Resolution and Results

• M ain Issue: On November 4, 2010, foreign express cargo firms including Company F raised the common grievance that it was unfair to fine the companies that simply transported the goods despite the fact that the exporters, the commercial invoice providers, were actually responsible for information accuracy. • Request: Even though these express cargo companies tried hard to have exporters write correct information on commercial invoices, they couldn’t fulfil all the requests of the KCS because they were doing business with more than 220 countries. Therefore system improvements were needed to ease the too strict rules for levying fines for negligence. • Resolution: The Ombudsman’s Office helped resolve the grievance by recommending an improvement of standards for imposing fines for negligence. • Resolution Process - (Nov. 1 and 4, 2010) The 1st and 2nd meetings with foreign-invested companies for grievance resolution were held. - (Nov. 1, 2011) The Ombudsman’s Office held a meeting with relevant agencies including KCS. ※ The Foreign Investment Ombudsman called for swift implementation of the agreement to ease the standards of levying fines.

V. Appendix

Category

Content

Resolution and Results

※ KCS and Incheon Main Customs agreed to ease the regulations for imposing fines by revising the “Detailed Enforcement Regulations about Imposing and Collecting a Fine for Negligence in Accordance with Customs Act, etc.” or establishing other internal guidelines. • Results: The Detailed Enforcement Regulations about Imposing and Collecting a Fine for Negligence in Accordance with Customs Act, etc. was revised on December 26, 2011 and came into effect on January 1, 2012. • Expected effects: Under the new system, 50 percent of the fines for negligence are expected to be reduced. ※ Standards to levy fines according to each category (before and after revision) - Relevant provisions for punishment: Paragraph 4-3, Article 277 of the Customs Act - Violation: Anyone who violated Article 254-2 of the Customs Act ① Obvious errors in name of goods ② Obvious errors in price of goods ③ Obvious errors in names of receivers

Category

Standards to determine violation

Fines (KRW 10,000) Category 1

All the violations are 5 counted as one case (less than Before if the date, express 100 cases per revision cargo company or company over cargo airplane is the the past year) same. Report error rates: 5 The number of After report errors out (less than 5 revision of all reports per percent of date, company, or report error) airplane

Category 2 Category 3 10

(100-300 (more than cases) 300 cases)

(less than (more than 10 percent) 10 percent)

Foreign Investment Ombudsman Annual Report 2012

(5) Request to Improve System Related to Seoul Metropolitan Government Ordinance on Outdoor Advertisement Control Category

Content

Relevant Seoul Metropolitan Government Organization Relevant Regulations

Seoul Metropolitan Government Ordinance on Outdoor Advertisements Control

Grievance

• B ackground: The Seoul Metropolitan Government Ordinance on Outdoor Advertisements Control uniformly regulated signboards to prevent them from becoming too big or too many. But it also hindered the creative business activities of multinational fashion distributors like Company G. (Grievance received on January 6, 2012) • Main Issue: Different districts in Seoul had different rules, and the Ordinance uniformly applied regulations (one signboard per store, less than 45cm long) regardless of the size of stores, failing to meet international standards.

Resolution and Results

• R esolution: The regulation had nothing to do with its original purpose of pursuing aesthetic beauty and should be revised to enable multinational companies’ creative business activities with advertisements that meet global standards. • Resolution Process - (Dec. 29, 2011) The 275th Regulatory Reform Committee meeting, presided over by the Foreign Investment Ombudsman, was held to deliberate on the Enforcement Decree of the Outdoor Advertisements, etc. Control Act, where the Ombudsman requested that the Ministry of Public Administration and Security and the Seoul Metropolitan Government revise the Ordinance by taking the current situation into account to come up with reasonable measures. - A Home Doctor visited Seoul Metropolitan Government on Feb. 9, 2012, to consult on system improvements in order to address the grievances of multinational distributors about outdoor advertisements. - The revised Seoul Metropolitan Government Ordinance on Outdoor Advertisements Control was proposed to the Seoul Metropolitan Council on April 6, 2012, and put to a vote on Sept. 10, 2012. - On Sept. 28, 2012, Park Won Soon, the mayor of Seoul, announced ordinance No. 5362, the “Seoul Metropolitan Government Ordinance on Outdoor Advertisements Control.” • Results: New regulations reflecting most of the requests of the foreign investors now apply to outdoor advertisements throughout Seoul. Up to two outdoor advertisements are allowed per store in commercial, industrial, and residential areas. It is meaningful that reasonable management rules that satisfy international standards were established.

V. Appendix

2. Best Practices of Administrative Intervention â&#x20AC;˘ If necessary for settling the grievances of foreign investors and foreign-capital invested companies, the Foreign Investment Ombudsman may request that the head of a relevant administrative agency and foreign-investment related agency render necessary cooperation such as; 1) submitting data, 2) stating the opinions of related employees, interested persons, etc., and 3) cooperating on site visits. In such cases, the agency so requested shall present the results of handling grievances or its opinion on such matters within seven days after the date on which the request was made. (Paragraph 3, Article 15-2 of the Foreign Investment Promotion Act, and Paragraph 3, Article 21-4 of the Enforcement Decree of the Act) â&#x20AC;˘ Among the grievances received by the Foreign Investment Ombudsman and the Investment Aftercare Division in 2012, a total of 104 cases required administrative intervention; 87 cases, or 83.7 percent, were resolved through either accepting requests (42 cases) or checking facts (45 cases). Eight cases received favorable responses and 9 cases were turned down. <Table V-2> Grievances Resolved by Administrative Intervention in 2012 No.

Content

Result

Grievances related to charging rent due to the company's engagement in other business activities that were not stated in the Fact Checked contract

Grievances related to imposing local (registration) tax

Grievances related to the establishment of storage facilities in a Fact Checked factory site

Grievances related to registration as a fee-charging employment agency

Grievances related to rejection of export credit guarantee

Fact Checked

Grievances related to collection of reduced acquisition tax

Fact Checked

Request Accepted

Foreign Investment Ombudsman Annual Report 2012

No.

Content

Result

Grievances related to application to receive High Technology Fact Checked Certification

Grievances related to redemption of long-term loan at maturity

Grievances related to tariff on capital goods to be imported in 2012

10 Grievances related to restriction on energy use 11

Requests for assistance to help executives from parent company enter Korea

Fact Checked Request Accepted Request Accepted Request Accepted

12 Grievances related to tariff on royalty payment

Fact Checked

13 Grievances related to local (registration) tax

Fact Checked

14 Grievances related to business suspension

Fact Checked

Grievances related to meeting with the Director General of the Korea Food & Drug Administration (KFDA)

16 Grievances related to foreign loan 17 Grievances related to application for receiving license 18 Grievances related to local (registration) tax 19

Request Accepted Fact Checked Request Accepted Turned Down

Grievances related to defining capital goods under the Foreign Fact Checked Investment Promotion Act

20 Request for correction of tax reduction decision

Request Accepted

Grievances related to development-type FIZ designation standards of Fact Checked the Ministry of Knowledge Economy

Requests for assistance to change the status of researchers in technology sector and apply for registration as a foreign worker

Request Accepted

Grievances related to administrative order for packaging inspection of Gangnam-gu Office

Request Accepted

Grievances related to Korea Customs Service's notification for items Fact Checked subject to customs inspection

Requests for consultation about possibility to receive cash grants for Fact Checked investment projects

26 Requests for assistance to greet investors at the airport

Request Accepted

V. Appendix

No.

Content

Result

27 Grievances related to receiving approval to build global R&D center

Request Accepted

28 Grievances related to product registration

Favorable Response

Grievances related to receiving employment and education Fact Checked subsidiary

30 Grievances related to suspension of courier truck supply 31 Grievances related to acquiring D-8 visa 32

Fact Checked Request Accepted

Requests to check whether it is considered FDI when long-term loan Fact Checked is exempted

33 Requests regarding exemption from parts of safety inspection

Favorable Response

Grievances related to KFDA's administrative measures about medical device rebate

Request Accepted

Grievances related to application for 7-year tax reduction of Free Economic Zone

Request Accepted

Grievances related to authorization procedures to build a wind Fact Checked power complex

Grievances related to administrative measures against doctors under the dual punishment system of medical device rebate

38 Grievances related to receiving cash grants

Request Accepted Turned Down

39 Grievances related to qualifications of oils to be supplied to KEPCO

Request Accepted

40 Request to change tax reduction status

Request Accepted

Grievances related to a failure to fulfill investment promise by a Fact Checked company in Techno Valley

42 Grievances related to visa issuance of a foreign CEO 43

Requests to offer consultations about possibility of receiving Fact Checked incentives for investment projects

44 Grievances related to buying a lot in the industrial complex 45

Request Accepted

Grievances related to renegotiation of drug prices due to wrong data

Fact Checked Favorable Response

Foreign Investment Ombudsman Annual Report 2012

No.

Content

Result

Grievances related to the transfer of foreign investment zone 46 Turned Down ownership after receiving financial loan 47

Grievances related to standards for connectors to produce electric vehicles

Request Accepted

Grievances related to methods to identify accurate data for renegotiation of drug prices

Request Accepted

49 Grievances related to product registration 50 Assistance to standardize AC quick charging for electric vehicles

Turned Down Request Accepted

Grievances related to investigation to determine strategic materials by the National Police Agency

Grievances related to revision of the Enforcement Rule of Trucking Fact Checked Transport Business Act

Grievances related to dual-application of investment tax amount Fact Checked deduction and tax reduction

54 Requests from MKE to confirm high-technology/products

Request Accepted

Fact Checked

55 Grievances related to introduction of capital goods (lighting devices) Fact Checked 56

Grievances related to introduction of capital goods (electric wire and Fact Checked power code)

Grievances related to application as a business accompanying highend technology

Request Accepted

Requests to change legal qualification of resident employees from headquarters

Request Accepted

59 Grievances related to remanufacturing of toner cartridges

Request Accepted

60 Grievances related to power supply

Request Accepted

61 Grievances related to selection as a business suitable for SMEs

Turned Down

Grievances related to tariff reduction of raw materials (controversy over interpretation of MOU phrase)

Grievances related to introduction of capital goods subject to tariff Fact Checked reduction

64 Requests for assistance to apply for cash grant 65

Favorable Response

Fact Checked

Grievances related to consultation with relevant agencies to claim Fact Checked administrative trial

V. Appendix

No.

Content

Result

66 Grievances related to payment of stock after capital increase

Request Accepted

67 Grievances related to receiving approval to sell medical devices

Request Accepted

68 Grievances related to receiving approval to install pipes

Request Accepted

69 Grievances related to visa issuance of foreign employees

Fact Checked

70 Requests for consultations to apply for cash grant

Fact Checked

71 Grievances related to application for individual-type FIZ designation

Request Accepted

72 Requests for assistance to apply for individual-type FIZ

Request Accepted

Requests for assistance to determine objects that can occupy green Fact Checked zone area

74 Grievances related to application for E-7 visa 75 Grievances related to factory building area

Turned Down Favorable Response

Grievances related to importation and zero tax rate application of Fact Checked Para-xylene

Grievances related to quarantine certification for importing animal blood samples

Requests for advice about customs refund system and procedure for Fact Checked export items

79 Grievances related to tax reduction procedures 80 Grievances related to compensation for factory site

Favorable Response

Request Accepted Fact Checked

81 Grievances related to changing qualifications for D-8 visa

Request Accepted

82 Grievances related to imposing tax on royalty payment

Request Accepted

83 Request for cooperation to make tax reduction decision

Request Accepted

84 Grievances related to renewal of alien registration certificate 85

Fact Checked

Application to receive permission to install underground pipes in the Turned Down green zone area

Foreign Investment Ombudsman Annual Report 2012

No.

Content

86 Grievances related to disapproval of FDI Requests for assistance to receive airport VIP cards for executives 87 from headquarters 88

Result Fact Checked Request Accepted

Grievances related to companies in the foreign investment industrial Fact Checked zone at the time of business suspension or closure

89 Grievances related to regulation violations and reporting policies 90 Grievances related to employment of the disabled 91 Grievances related to false media report about food additives

Request Accepted Fact Checked Favorable Response

Grievances related to imposing fines for not reporting acquisition of Fact Checked land

Grievances related to liquid cargo transportation pipes to be built in the green zone

94 Grievances related to importation of injection molder 95 Requests to help invite foreign investors to Korea

Request Accepted Fact Checked Request Accepted

Grievances related to allowing 7-year tax reduction in the Free Economic Zone

Request Accepted

Grievances related to suspension of negotiation with authorization agency about development projects

Favorable Response

Grievances related to aquisition tax for leased vehicles of Seoul Fact Checked Metropolitan Government

Grievances related to establishment of underground pipes due to the delayed construction of industrial complex

100

Grievances related to issuance of E-7 visa for foreign technicians in Fact Checked Korea

101 Grievances related to renting factory sites 102 Grievances related to new designation of recycled toner cartridges 103 Requests for assistance to help relocate headquarters 104

Request Accepted

Fact Checked Request Accepted Fact Checked

Grievances related to administrative measures of environment Fact Checked management offices of industrial complex against land pollution

â&#x20AC;ť Source: Investment Aftercare Division, KOTRA

V. Appendix

Major Grievance Resolution Cases (1) Grievances About Imposing a Registration Tax (Local Tax) Category

Content

Relevant Ministry of Public Administration and Security, Anti-Corruption & Civil Organization Rights Commission, Gumi City Government Relevant Regulation

Restriction of Special Taxation Act, Local Tax Act

Grievance

• Background: Foreign-invested Company H was in an individual-type foreign investment zone and subject to a tax reduction. It received registration tax, or a local tax cut for its capital increase made for reinvestment. In December 2009, however, the Ministry of Public Administration and Security (MOPAS) sent an official document about legal interpretation, saying that the registration tax at the time of capital increase was not subject to tax reduction under the Restriction on Special Taxation Act. The Company had to pay KRW 120 million in registration tax imposed by the local government. • M ain Issue: When MOPAS had been asked about registration tax reduction at the time of capital increase by foreign-invested firms before, it had replied twice that the tax was "subject to exemption". (June 8, 2004, October 23, 2008). Furthermore, the Tax Tribunal ruled in March 2011 that the registration tax imposed on another foreigninvested company should be canceled under the principle of good faith and the principle of estoppel. • Request: Registration tax collected unfairly should be refunded.

Foreign Investment Ombudsman Annual Report 2012

Category

Resolution and Results

Content • Resolution: Through consultation with MOPAS, the Ombudsman helped the company file a civil complaint with the Anti-corruption & Civil Rights Commission about the tax. The Commission reviewed the case and recommended that the local government return the tax. • Resolution Process - (May 26, 2011) A Home Doctor visited MOPAS to discuss the grievance. ※ MOPAS said the tax already paid cannot be refunded directly despite the decision made by the Tax Tribunal. However, the company may file a civil complaint about the tax with the Anti-corruption & Civil Rights Commission, and the Commission may recommend that the relevant local government take corrective measures and refund the money. - (December 12, 2011) The Ombudsman's Office helped the company file a civil complaint and requested the cooperation of the Anticorruption & Civil Rights Commission. ※ Through an internal review, the Commission judged that the company's claim was reasonable and recommended that the local government refund the tax. • Results: The local government informed the company on February 17, 2012 that it would refund KRW 120 million of the tax and interest.

(2) Grievances About Establishment of Global R&D Center Category

Content

Relevant Seoul Metropolitan Government Organization Relevant Regulation

Seoul Metropolitan Government Ordinance on City Planning

Grievance

• Background: Company I signed an MOU with Ewha Womans University to build an R&D center within the campus. However, the Seoul Metropolitan Government said the land on the campus was classified as a natural green zone where construction approval could not be given. Seoul city made the suggestion of using another neighboring area instead, which the company accepted.

V. Appendix

Category

Content

Grievance

• Main Issue: Company I plans to open a global R&D center in September 2013, when the company celebrates the 150th anniversary of its foundation. Construction should be completed by May 2013, but the alternative area Seoul city proposed needed the approval of the Urban Planning Committee due to geographical factors such as nearby tunnels. • R equest: To complete the construction in time, the administrative cooperation of the Urban Planning Committee should be rendered as soon as possible.

Resolution and Results

• Resolution - (December 6, 2012) At a meeting with foreign-invested companies in Seoul city presided over by the Foreign Investment Ombudsman, Company I requested active assistance to resolve its grievance. - (May 7, 2012) The Ombudsman's Office visited Seoul City Hall, explained the grievance of Company I, and requested the active cooperation of the city. Seoul city agreed to introduce the issue to the Urban Planning Committee meeting. - (March 21, 2012) The issue was introduced at the Urban Planning Committee meeting, but the Committee decided to conduct an onsite investigation on the concerned area in addition to a document review because safety issues had emerged after the landslide of Mt. Umyeon. - (April 4, 2012) The Committee finally gave approval through reintroducing the issue. • Result: Company I can now apply to receive construction authorization from the Seodaemun-gu office.

Relevant Photos

MOU between Company I and Ewha Womans University

Foreign Investment Ombudsman Annual Report 2012

(3) Grievances About Korea Food & Drug Administration's Administrative Measures Related to Medical Device Rebate Category

Content

Relevant Korea Food & Drug Administration (KFDA) Organization Relevant Regulations

Paragraph 2, Article 18 of Medical Devices Act

Grievance

• Background: Company J has imported and sold hemodialysis devices to hospitals through a Price Per Treatment (PPT) sales system for 30 years. ※ Price Per Treatment model: It is a sales method where the price of expensive medical devices is divided and paid according to the number of times the device is used. It is effective in promoting expensive medical devices for diagnosis or treatment as well as reducing the financial burden of hospitals. • Main Issue: The Rebate Dual Punishment System was introduced against medical devices in addition to medicines according to the Medical Devices Act revised in October 2010. Company J was under summary indictment by the prosecutors for providing hospitals with hemodialysis for free, and filed a lawsuit in protest against the decision. On the other hand, the KFDA decided to take administrative measures based on the prosecutor's summary indictment.

Resolution and Results

• Opinions of Relevant Agencies - Foreign Investment Ombudsman: Leasing hemodialysis devices under the PPT system is different from rebate, which is banned by the Medical Devices Act, and is a widely used method in advanced countries including Germany. No issue has been raised against its legality by relevant agencies like the Fair Trade Commission since the model was first introduced in Korea. If the KFDA takes administrative measures based only on the prosecutor's summary indictment without any independent investigation, it is against the presumption of innocence principle of the Criminal Procedure Act. Therefore, appropriate measures should be taken to respond to this unfair decision. - KFDA: It decided to wait and delay its administrative actions until the court renders a judgement. • Future Plan: The Department of Justice is very cautiously approaching the issue because the result will become a standard to define the range of rebates in the medical device industry.

V. Appendix

(4) Grievances About Classifying Import Products as Strategic Materials Category

Content

Relevant Defense Acquisition Program Administration, Ulsan Metropolitan Police Organization Agency Relevant Regulations

Notification on Export and Import of Strategic Materials

Grievance

• Background: Company L has been exporting fluorine products since 2007, including IF5, which has been approved as strategic materials. • Main Issue: When police in Ulsan were cracking down on unauthorized strategic materials in August of 2012, they found F2 and N2 in exports of Company L, which they classified as strategic materials, and ordered the company to appear in court for violating the Foreign Trade Act and Defense Acquisition Program Act. The police also requested that the Defense Acquisition Program Administration determine whether the products should be classified as strategic materials. • Request: In other countries including Germany, where the headquarters of Company L is located, these F2 and N2 products are being exported freely without receiving approval as strategic materials. So the company claimed it was unfair that the internationally authorized products were considered illegal only in Korea. In addition, if it were to receive administrative or criminal punishment for breaking the regulations concerned, that would have negative impacts on business activities and the company's image. Therefore, the company requested a peaceful settlement.

Resolution and Results

• Fact identified: The legal basis for determining the products as strategic materials was the Wassenaar Arrangement on Export Controls of Conventional Weapons, and Dual-use Items and Technologies. This Arrangement classified "compounds" composed of fluorine as strategic materials, but it was mistranslated as "mixtures" composed of fluorine in Korean. That was why the export products of the company, including fluorine mixtures, were mistakenly determined as strategic materials. • Resolution Process: A Home Doctor visited the Defense Acquisition Program Administration on August 19, 2012, to deliver the company's grievance and give the documents from the State Department of the United States that confirmed the materials in the products were fluorine mixtures, not compounds. • Results: Company L received a reply from the Defense Acquisition Program Administration on August 27, 2012 saying that the F2 and N2 products were not classified as strategic materials. As a result, the company was allowed to export them continuously without receiving any criminal or administrative punishment.

Foreign Investment Ombudsman Annual Report 2012

(5) Grievances about Receiving Approval to Sell Medical Devices Category

Content

Relevant Gangnam Community Health Center, Ministry of Land, Transport and Organization Maritime Affairs. (MLTMA) Relevant Regulations

Grievance

Medical Devices Act, Building Act • Background: German Company N has been manufacturing and selling medical and laboratory devices including a centrifugal separator, and established its corporate body in Korea in November of 2011. The company had received approval to sell imported medical devices before, but needed to be authorized again to take over and sell medical devices that had been exclusively sold by a Korean pharmaceutical company. • Main Issue: The qualification to be authorized as a medical device seller is unclear because the Enforcement Decree of the Building Act stipulated that the building in which such a company is located should be a Class II neighborhood living facility, while there are no such requirements in the Medical Devices Act. • Request: The company made a request to check whether general business facilities that are not classified as Class II neighborhood living facilities can also apply for medical device sales business. • Fact identified: The Ministry of Land, Transport and Maritime Affairs once replied to inquiries about receiving approval as a medical device sales business that when a building is used as an office for sales business without stores, it should be categorized as "neighborhood living facilities" or "business facilities" according to its size, etc.

Resolution and Results

<Relevant Regulations> Paragraph ②, Article 2 (Definitions) of Building Act: The uses of buildings shall be classified into the following categories, and the subcategories of the uses of buildings in each such category shall be prescribed by Presidential Decree: 3. Class I neighborhood living facilities; 4. Class II neighborhood living facilities; 7. Commercial facilities; 14. Business facilities; 28. Other facilities prescribed by Presidential Decree

V. Appendix

Category

Content â&#x20AC;˘ Resolution Process: Since it was difficult to change building use or relocate the office to appropriate facilities, the Ombudsman's Office decided to make application documents based on the reply of the Ministry of Land, Transport and Maritime Affairs. - (September 10, 2012) A Home Doctor visited Gangnam Community Health Center and submitted an application. â&#x20AC;˘ Result: After deliberations of the health center, the company received approval as a medical device business and began to directly sell the products that it took over from the Korean company.

100

Foreign Investment Ombudsman Annual Report 2012

(6) Grievances About Establishment of Transportation Pipes Category

Content

Relevant Ulsan Regional Maritime Affairs and Port Office Organization Relevant Regulations

Harbor Act

Grievance

• Background: Company N, jointly built by Japanese Company O and Korean Company P, runs a tank terminal business to store liquid oil. It plans to load and unload oil using dock No. 2 of Onsan Port, which has been exclusively rented and used by Company P. • Main issue: The Ulsan Regional Maritime Affairs and Port Office said it couldn't approve the loading and unloading of liquid cargo at dock No. 2 of Onsan Port because the port was only allowed to handle "other minerals." • Request: The plan to use dock No. 2 of Onsan Port had already been pursued for two to three years and recognized by the Ulsan Metropolitan City government. It was unfair to delay the approval because of the recent conflict involving port transportation unions. The assistance of the Office of the Foreign Investment Ombudsman was needed for a peaceful settlement.

Resolution and Results

• Resolution Process - (August 22, 2012) A Home Doctor visited the Ulsan Regional Maritime Affairs and Port Office. ※ The Port Office recognized that dock No. 2 of Onsan Port was vacant quite often because of Company P's efforts to improve process efficiency in loading and unloading minerals. As a public organization whose purpose was to run the port more effectively, the office didn't oppose the plan. However, it was unfortunate that this project to change port use was not included in the Basic Port Plan, which was newly implemented in 2011, before the company actually started the project. ※ The Home Doctor told the port office that KRW 30 billion had been already invested in the project by Japanese Company O to build 10 tanks. The plan was contributing directly and indirectly to making Korea an oil hub of Northeast Asia by creating new oil storage facilities. Therefore, the Ombudsman's Office requested that the office make a swift decision to approve the plan. • Results: As the port construction plan was approved on September 20, 2012, the export cargo of Japanese Company O could be handled as planned in October.

V. Appendix

101

(7) Grievances About Registration as a Fee-Charging Job Placement Service Category

Content

Relevant Gangnam-gu Office Organization Relevant Regulations

Grievance

Employment Security Act • Background: Company Q, a job placement agency, opened its branch in Gangnam-gu, Seoul, in December of 2011 and was going to initiate its business to help Korean job seekers find work in foreign companies, and foreign-invested companies in Korea find qualified workers. However, the company needed to be registered in the local government under the Employment Security Act to provide fee-charging job placement services. • Main Issue: Company Q had three registered executives, but two of them were non-standing members who resided in Japan. Gangnam-gu Office requires foreign executives to submit foreign registration numbers when registering companies as job placement agencies that charge fees. However, Company Q couldn't be registered as such because those nonstanding executives did not have foreign registration numbers. • Resolution Process - A Home Doctor visited Gangnam-gu Office and requested that they take passport numbers instead of foreign registration numbers according to the Guidelines on Deposit Application for Foreigners, etc.

Resolution and Results

※ Article 2 of the Guideline (Resident Registration Number of Foreigners, etc.): When the party who is making a deposit is an overseas resident or foreigner, the resident registration number in the deposit application can be replaced with a passport number, foreign registration number, or place of residence number in Korea. - E nforced on September 21, 2005, Established Rule No. 596 on Registration of Family Relationship - Enacted on August 26, 2005 by the National Court Administration of the Supreme Court

• Result: The Gangnam-gu Office decided to accept the birth date on the application form instead of the foreign registration number of nonstanding executives who do not reside in Korea when registering as a feecharging job placement agency.

102

Foreign Investment Ombudsman Annual Report 2012

(8) Grievance About a Decision to Allow 7-Year Tax Reduction in the Free Economic Zone Category

Content

Relevant Korean Free Economic Zones Organization Relevant Regulations

Special Act on Designation and Management of Free Economic Zones, Article 121-2 of Restriction on Special Taxation Act

Grievance

• Background: Company R, jointly invested by German enterprise S and Korean company T 50-50, is now building plants to produce automobile parts in Incheon Free Economic Zone. A total of US$45 million of FDI is expected to be made, US$32 million of which has already been invested. • Main Issue: The company has applied for 7-year tax reduction within the free economic zone, and the application was going to be deliberated by the Free Economic Zone Committee on December 6, 2012. • Request: To win the approval of the Committee in the deliberation, the company asked for the Ombudsman's assistance in submitting documents and advice.

Resolution and Results

• Resolution Process - (November 28, 2012) A Home Doctor visited Company R and had a meeting. ※ Company R received a 5-year tax reduction for its investment of US$23 million in 2011. As a reinvestment of US$8.8 million was made in August 2012, the company met the requirement for a manufacturing business to receive a 7-year tax reduction, a business investing more than US$30 million. To apply for it, the company had consulted with relevant ministries, but received a reply that it might be difficult to designate the company as a business subject to a 7-year tax reduction. There was also a lot of information and documents to be submitted about technologies, ripple effects, and employment. - (December 3, 2012) A Home Doctor had a meeting with officials from Korean Free Economic Zones. ※ T he Home Doctor explained about the technologies of Company S, possibility of future reinvestment, and how hard the Ministry of Knowledge Economy and Incheon Free Economic Zone authorities tried to attract the company's first investment, and requested aggressive support for the Committee's deliberation. • R esult: (December 6, 2012) The Free Economic Zone Committee decided to give the company a 7-year tax cut.

V. Appendix

103

(9) Grievances About Products Subject to Verification of the Head of a Customs House Category

Content

Relevant Korean Agency for Technology and Standards (KATS), Korea Customs Organization Service (KCS) Relevant Regulations

Notification on Items to be Verified by the Head of a Customs House and Methods for Verifying them under Article 226 of the Customs Act

Grievance

• Background: According to the Notification on Items to be Verified by the Head of a Customs House and Methods for Verifying them under Article 226 of the Customs Act, amended on December 26, 2011, fabric softeners for babies under 36 months old, which had been subject to Korea Product Safety (self-safety verification), are now included in items that should be verified by the head of a customs house. Accordingly, products that already received Korea Certification (KC) or Korea Product Safety (KPS) are required to present verification of the head of a customs house and product manuals. • Main Issue: The notification was supposed to be applied to industrial products imported and reported from April 1, 2012. Because there was no government guidance about specific procedures, however, it was difficult for foreign-invested companies to prepare for the new system. • Requests: Many foreign-invested firms trading in clothes wanted to hear the official explanations of relevant organizations through meetings, etc. about procedures to receive verification of the head of a customs house.

Resolution and Results

• Resolution Process - (March 19, 2012) The Ombudsman's Office held a meeting with foreign-invested companies and KATS. ※ Participating companies requested a grace period to prepare for the new system and clear instruction about product models that will be subject to the system. ※ KATS said it will review the opinions of the industry about product models. But the grace period is not considered because there is enough time before the system is actually implemented. It will listen to the opinions of the industry continuously through meetings or other dialogue channels. • R esult: At the meeting with government agencies, participating companies presented their opinions about the system and listened to policy directions about relevant issues such as product grouping.

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Foreign Investment Ombudsman Annual Report 2012

(10) Grievances About Restriction on Energy Use Category

Content

Relevant Ministry of Knowledge Economy (MKE), Korea Electric Power Corporation Organization (KEPCO) Relevant Regulations

Announcement on Energy Use Restriction (MKE Announcement No. 2011-599, December 5, 2011) • Background: With energy saving having become a national issue, the government is carrying out energy conservation policies pro-actively to respond to low power reserves.

Grievance

※ MKE had implemented energy saving regulations from December 15, 2011 to February 29, 2012 by limiting power use during the peak hours (10:00 to 12:00 and 17:00 to 19:00) not to exceed 90 percent of the average monthly consumption of the same month and same time of the previous year. Any business that violated this rule was punished by a fine for negligence not exceeding three million won, as prescribed by Article 78 of the Energy Use Rationalization Act and Article 53 of the Enforcement Decree of the Act.

• Main Issue: Company U complained that its energy consumption limit for February was too low to observe the government guidelines. This was because there were five days of production holidays in February of the previous year. • Request: Because of the company's rising production following the expansion of the business, Company U had no choice but to stop producing to comply with the government's new policy. Their request was to exclude those five production holidays of the previous year when calculating the average energy use of the month.

Resolution and Results

• Resolution Process: A Home Doctor visited MKE and had a meeting. - (January 5, 2012) In Company I's case, the average energy use of February was significantly lower than that of January in the previous year due to the five production holidays. And the manufacturing business still needs to use a certain amount of power even during a production stoppage. Therefore, the Home Doctor argued that there should be some adjustment by using January's energy consumption data instead of February's in calculating the previous year's average power use so that the company's operation would not be hindered this year. • R esult: (January 26, 2012) MKE accepted the request and KEPCO decided to use January's energy data when calculating February's energy limit through i_SMART, its online power management system for efficient energy use (http://pccs.kepco.co.kr).

Foreign Investment Ombudsman Annual Report 2012 Korea Trade-Investment Promotion Agency KOTRA자료 13-013

Foreign Investment Ombudsman Annual Report 2012 President & CEO: Young Ho Oh Publisher: KOTRA Publication Date: April 2013 Address: KOTRA Bldg. 13, Heolleungno, Seocho-gu, Seoul, Korea (Zip Code) 137-749 Tel: +82-2-3460-7114 Website: www.kotra.or.kr / www.i-ombudsman.or.kr Printed by Hwasinmunhwa co.ltd. Tel: +82-2-2277-0624

KOTRA 자료 13-013 Foreign Investment Ombudsman Annual Report 2012

Foreign Investment Ombudsman Annual Report 2012

KOTRA 자료 13-013

Foreign Investment Ombudsman Annual Report 2012