External Economic Policies
Korea has pursued external economic policies commensurate with its economic status and its international responsibilities. In the early 1980s, Korea instituted a set of policies which focus on two goals: the promotion of Korea's trade relationships and the expansion of Korea's role in promoting international economic cooperation. To satisfy the first goal, Korea has been implementing policies to reduce import tariffs and to liberalize imports, investment and the service sector. The policy measures were gradually facilitated by the nation's balance-of-payments surpluses in the 1986-88 period. To satisfy the second goal, Korea has been exploring several means of promoting international cooperation.
Reducing Import Restrictions and Tariffs
On January 1, 1991, Korea liberalized the importation of 91 products (H.S. 10-digit classificaton). This was only one of a series of import liberalization measures that have been carried out since 1980. The import liberalization ratio has increased from 68.6% in 1980 to its current level of 97.3%. In October 1989, Korea was graduated from the GATT balance-of-payments protection whereby the government has agreed to eliminate remaining import controls or otherwise make them conform with GATT provisions by 1997.
Korea plans to lower its tariff rates further from 1992 to 1994. According to the new tariff reduction schedule, the average overall tariff rate will be lowered from 11.4% in 1991 to 7.9% in 1994. By that time, the average tariff rates will be on par with the rates of industrialized countries.
Investment and Services
Korea has made steps to broaden the scope of opportunities for foreign investors. In 1984, the country introduced a negative-list system for investment approval and has annually reduced the number of industries on the negative list. The list has been trimmed from 34% of all industries down to 21% in 1990. The manufacturing sector is almost completely open to foreign investors, and the service sector is becoming increasingly open as well. Those areas closely related to goods transactions, such as financial services and maritime transportation, have already been substantially liberalized; technology-intensive sectors, such as telecommunications and construction engineering, are in the process of being liberalized.
The basic policy principle governing the operation of foreign business is equal treatment of foreign and domestic investment. And, under the revised Foreign Capital Inducement Act which took effect from March 1, 1991, the direct foreign investment system has two major features: 1) a notification system will be gradually implemented from 1991 to 1993, replacing the current approval system; 2) tax privileges for foreign-invested enterprises will also be substantially curtailed to ensure fair competition between domestic and foreign firms. By the end of 1992, the current foreign investment approval system will be converted to a notification system for the appropriate businesses.
Foreign Exchange Transactions and Capital Markets
The government has been actively pursing the liberalization of foreign exchange transactions and capital markets. In 1987, the controls were relaxed on payment to invisible trade and for overseas investments by Korean residents, and in November 1988 Korea joined the IMF Article VIII nations. In March 1990, the government introduced a new foreign exchange rate system called a "market-average system." Under this system, the exchange rate is determined by market forces within flexible boundaries that are based on the previous day's exchange rate. In addition, Korea plans to gradually internationalize its currency.
Korea's capital market will be opened on a board scale to foreigners in the near future; the capital market liberalization schedule will permit overseas port-folio investment by Koreans and direct participation in the domestic securities market by foreigners by January 1992.
Economic Cooperation with Developing Countries
In 1987, Korea established the Economic Development Cooperation Fund (EDFC), the purpose of which is to provide bilateral official loans to developing countries. As of October 1990, Korea has arranged to provide loans for seven projects in seven developing nations. Korea also promotes private overseas investment and the transfer of technology. Until 1991, the government approved overseas investment of $4.59 billion in 81 countries in South east Asia, Latin America and Africa.
In addition to providing development loans and investment, the exchange of development experience has been an important part of economic cooperation. Because of its successful economic development in the past quarter century, Korea has been increasingly called upon to share its development experience with other countries. Trainees from other developing countries now came regularly to study Korea's development experience firsthand, while Korea has dispatched development experts to work with foreign governments and businesses overseas.
Participation in Multilateral Economic Forums
Korea has benefited greatly from international trade agreements and has actively participated in virtually all multilateral forums including GATT, IMF and the Asia-Pacific Economic Cooperation meetings. In the Uruguay Round of GATT, Korea has introduced proposals covering the agenda of nearly all countries and has played a mediating role in resolving many controversial issues. Korea has participated in the APEC ministerial meetings in Canberra in November 1989 and in Singapore in 1990 to promote regional economic integration.
Korea's activities in multilateral organizations are not limited to the Asian region. Korea joined the European Development Bank in March 1990 and has committed its support to development programs in Eastern Europe. Korea has also begun an informal dialogue with the OECD and held OECD-DAE (Dynamic Asian Economies) workshops in 1990.