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vised, accelerated examination system, the major elements of which are: (a) patents already filed with accredited foreign patent authorities will be eligible for acceler. ated examination in Japan; (b) accelerated examination applications will be granted or abandoned within 36 months of the request date; and (c) there are limits on accelerated examination fees.

Trademark applications are also processed slowly, averaging two years and three months and sometimes taking three to four years. Infringement carries no penalty until an application is approved. In April 1992, Japan amended the trademark law to protect service marks explicitly.

Japanese copyright protection for programming languages and algorithms is ambiguous. Pirated video sales remain a problem, although the Japanese police cooperate with the Motion Picture Association of America in targeting video pirates, under 1988 Japanese IPR legislation that facilitates prosecution. Japan has committed to enforce vigorously national treatment rights. A revised copyright law, which was passed in 1991 and took effect in January 1992, extends copyright protection to 30 years. Pre-1978 foreign recordings are now protected back to 1969; foreign record. ings are provided with exclusive rights by cabinet order. Discussions by an advisory panel to the Japanese government on a proposal to relax legal restrictions against reverse engineering of software and decompilation of computer programs took place in 1994, but the panel ultimately took no action on the matter and instead recommended further study. The U.S. government and U.S. software companies registered their strong objection to any change.

Although Japan's 1990 Trade Protection Law is an improvement over protection by ordinary contract, it is still very disicult to get an injunction against a third party transferee of purloined trade secrets. 8. Worker Rights

a. The Right of Association.—This right as defined by the International Labor Or. ganization (ILO) is protected in Japan.

b. The Right to Organize, Bargain and Act Collectively:- This right is assured by the Japanese constitution. Approximately 25 percent of the active work force be. longs to labor unions. Unions are free of government control and influence. The right to strike is implicitly assumed by the constitution, and it is exercised fre. quently. Public employees, however, do not have the right to strike, although they do have recourse to mediation and arbitration in order to resolve disputes. In exchange for a ban on their right to strike, government employee pay raises are deter mined by the government, based on a recommendation by the Independent National Personnel Authority.

c. Prohibition of Forced or Compulsory Labor.—The Labor Standards Law prohibits the use of forced labor, and the law is vigorously enforced.

d. Minimum Age of Employment of Children.-Under the Revised Labor Standards Law of 1987, minors under 15 years of age may not be employed as workers, and those under the age of 18 may not be employed in dangerous or harmful work. Child labor laws are rigorously enforced by the Labor Inspection Division of the Ministry of Labor.

e. Acceptable Conditions of Work.-Minimum wages are set regionally, not nationally. The Ministry of Labor effectively administers various laws and regulations gov. erning occupational health and safety, principal among which is the Industrial Safety and Health law of 1972.

f. Rights in Sectors with U.S. Investment.--Internationally recognized worker rights standards, as defined by the ILO, are protected under Japanese law and cover all workers in Japan. U.S. capital is invested in all major sectors of the Japanese economy, including petroleum, food and related products, primary and labricated metals, machinery, electric and electronic equipment, other manufacturing and wholesale trade.

Extent of U.S. Investment in Selected Industries.-U.S. Direct Investment Position Abroad on an Historical Cost Basis-1993

(Millions of U.S. dollars)

Category

Amount

5,429 13,610

Petroleum ....
Total Manufacturing

Food & Kindred Products
Chemicals and Allied Products
Metals, Primary & Fabricated

806 3,189 260

Extent of U.S. Investment in Selected Industries.-U.S. Direct Investment Position Abroad on an Historical Cost Basis-1993—Continued

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Source: U.S. Department of Commerce, Bureau of Economic Analysis.

SOUTH KOREA

Key Economic Indicators
(Millions of U.S. dollars unless otherwise noted]

1992

1993

1994 1

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Income, Production and Employment:

Real GDP Growth (pct.)
GDP (at current prices) 2
By Sector:

Agriculture/Forestry/Fisheries
Manufacturing
Electricity/Gas Water
Construction
Financial Services
Other Services

Government Health Education
Net Exports of Goods & Services
Per Capita GDP (USD)
Labor Force (000's)

Unemployment Rate (pct.)
Money and Prices: (annual percentage rate)

Money Supply (M2)
Yield on Corp. Bonds (pct.) 3
Personal Saving Rate 3
Retail Inflation
Wholesale Inflation
Consumer Price Index (1990 base)

Average Exchange Rate (US$/1,000 won)
Balance of Payments and Trade:
Total Exports (FOB)

Exports to U.S.
Total Imports (CIF) 4

Imports from U.S.
Aid from U.S.
Aid from Other Countries
External Debt 5
Debt Service Payments
Gold and Annual Debt Service
Trade Balance - (cost. basis)

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Key Economic Indicators-Continued

(Millions of U.S. dollars unless otherwise noted)

1992

1993

19941

Balance with U.S. (cost. basis)

- 197

210 –794 1 1994 figures are all estimates based on available monthly data as of October 1994. GDP at factor cost. "Figures are actual, average annual interest rates, not changes in them. 4 Merchandise trade

5 Includes non-guaranteed privato debt 1. General Policy Framework

The South Korean Government's economic policies have traditionally emphasized rapid export-led development and the protection of domestic industries. Government intervention in the economy to promote these objectives has been pervasive throughout the post-Korean war era. Restrictions on foreign participation in the economy through trade and investment have been common. In the latter part of the 1980s, removal of explicit import prohibitions and steadily increasing domestic demand began to push Korea toward a more mature stage of economic development. Some Korean policy makers recognize the need to deregulate and modernize, but are still influenced by the dirigism of past governments.

The Korean economy is on the rebound. Growth has been accelerating since mid1993, and real GDP in the first half of 1994 rose 8.5 percent over year-earlier levels. Industrial production may climb about 10 percent in 1994, and the capacity utilization rate in factories exceeds 80 percent. The expansion is investment-led, as the large conglomerates implement ambitious plans to modernize and expand facilities. Exports, aided by the strength of the yen, remain brisk in 1994, although imports are even more buoyant. Imports from the United States are growing at double-digit rates. Consumption spending, which accounts for over half of total GDP, is rising along with optimism about the economy. Real GDP growth, which averaged 5.5 percent in 1993, will exceed 7 percent in 1994.

Despite faster growth, the economy displays few signs of overheating. Consumer prices jumped 3.3 percent between December 1993 and March 1994 due to food product shortages and public service tariff hikes, but inflation has since moderated. To forestall serious inflation, the Bank of Korea intends to hold money supply growth toward the bottom of its 14 to 17 percent target range in the latter half of 1994.

ROKG macroeconomic policy was lauded in a 1994 OECD review of the Korean economy. Government spending and taxes as a share of GNP, as well as the fiscal deficit, are low by international standards. Moreover, the quality of public expenditure is high, with an emphasis on education and public works rather than transfer payments. The national savings rate has climbed dramatically since the ROKG made inflation control a priority in the early 1980s, and now roughly equals the gross investment ratio at about one third of GNP.

At the microeconomic level, however, government intervention is extensive and costly in terms of economic efficiency. The prices of many products are de facto controlled. The ROKG allocates credit according to firm size and must approve all bond and stock issuances. Most overseas capital transactions are tightly controlled. Investment and product safety regulations inhibit domestic competition and discriminate against foreigners. ROKG task forces have been commissioned to rid the economy of obstructive and redundant regulations, but thus far progress has been marginal. 2. Exchange Rate Policies

The won has appreciated against the dollar by about one percent between January and October 1994. On the other hand, a sharp fall in the external value of the won against the yen has given Korean heavy industries price advantages over their Japanese rivals.

The U.S. Treasury has reported to the U.S. Congress that it finds no evidence of direct exchange rate manipulation by the Korean authorities to gain competitive advantage. However, Treasury noted that stringent foreign exchange and capital controls distort trade and investment flows and frustrate the emergence of a truly market-determined exchange rate. 3. Structural Policies

South Korea's economy is based on private ownership of the means of production and distribution. The government, however, has actively intervened in the South

Korean economy through low interest "policy loans," and discretionary enforcement of regulatory, policies. This has resulted in a high degree of concentration of capital and industrial output in a small number of large business conglomerates, or "chaebols." The most recent Korean government estimates indicate that the 30 largest chaebols account for 45 percent of the total capital of the domestic financial sector, and 28 percent of total manufacturing capacity. The Korean government uses tax audits and a tight grip on the financial sector to maintain effective control over Korean industry.

Historically, the import regime in Korea was structured to allow easy entry of raw materials and capital equipment needed by competitive export industries while consumer imports were severely restricted. Since the mid-1980s the Republic of Korea has eliminated most explicit import prohibitions outside of the agricultural area. Many of the problems U.S. exporters now experience in South Korea are rooted in the maze of regulations which make up complicated licensing requirements, rules for inspection and approval of imported goods, country of origin marking requirements, and other standards often inconsistent with international norms.

January 1992 marked the beginning of the Presidents' Economic Initiative (PEI), a bilateral cooperative effort to eliminate generic barriers in the areas of standards and rule-making, customs and import clearance, technology, and investment. The PEI lists of recommendations in these three critical areas built on the results of the 1989 Super 301 Agreements and addressed key doing-business concerns of U.S. firms. After more than a year of discussions, the PEI working groups issued reports on implementation in June 1993. Significant progress was made by Korea in carry. ing out the recommendations in all areas except investment, but both sides recog. nized the need for additional work on generic issues in general and on investment in particular. Also, both parties agreed that the cooperative format had been a success and wanted to continue talking.

In June 1993, the undersecretary-level Economic Subcabinet launched the Dialogue for Economic Cooperation (DEC), a year-long intensive effort to address systemic issues of deregulation and economic cooperation, The DEC was endorsed by Presidents Clinton and Kim during their July 1993 meetings in Seoul. The DEC established counterpart groups to examine specific problems in the areas of taxation, administrative procedures, import clearance, and competition policy, while the ple. nary sessions dealt with foreign direct investment issues. At the June 1994 Economic Subcabinet meeting, the U.S. side assessed the DEC as moderately successful. Both sides agreed to use the following year to implement the results of the DEC, including continued meetings of the counterpart groups. 4. Debt Management Policies

Foreign debt management is no longer a critical issue for the ROKG. Korea's gross foreign debt will total an estimated $46 billion by the end of 1994, while debt service as a share of goods and service exports is around six percent. Net foreign debt, taking into account Korea's numerous overseas assets, is approximately $10 billion.

In 1995 the Republic of Korea will graduate from its status as a World Bank loan recipient. In September 1991 the government formally filed a graduation plan which included a four-year phaseout period agreed upon with World Bank officials. 5. Significant Barriers to U.S. Exports

Formal barriers to imports have fallen, although Korea has raised new, more subtle, secondary barriers that effectively prevent the widespread liberalization envisioned under the major trade initiatives of the late 1980s. A five-year tariff reduction plan ended in 1994, when Korean tariff rates averaged 7.9 percent. As part of the Uruguay Round settlement, the government will continue to reduce tariffs. However, the "tariffication" of some agricultural items formerly subject to quotas may keep the average tariff rate high by international comparison. Korea ratified the Uruguay Round agreements and

became a founding member of the World Trade Organization (WTO) on January 1, 1995.

Korean safeguard regulations permit the government to impose special "emergency tariffs” of up to 100 percent on imported goods to protect domestic industry, Seoul also uses "adjustment tariffs” to cushion the impact of liberalization of import restrictions. In 1993 Korea removed canned pork from the list of U.S. products asfected by emergency tariffs. Batteries and glass products remain on the list.

One of the most pervasive remaining formal barriers to U.S. exports to Korca is the restriction on the ability to import on credit. Use of limited deferred payment terms (generally 60–90 days) is restricted to items with a tariff of ten percent or less, which are generally raw materials. Use of deferred payment terms for other goods requires a license from the Foreign Exchange Bank and permission from the Governor of the Bank of Korea; permission is rarely granted. U.S. firms estimate that they could increase exports by up to one third it Korean firms were allowed to buy on credit.

Licenses are required for all imports to Korea, but they are usually granted auto, matically, except for prohibited or regulated goods. These goods now include around 150 mostly agricultural products. Under Korea's agreement to phase out its GATT balance of payments (BOP) restrictions, the government is committed progressively to eliminate most of these import restrictions by 1997. In April 1994, the government reconfirmed this commitment and added a number of key items as part of the Uruguay Round agreements; some of the items will not be liberalized until the year 2000.

Korea agreed in the Uruguay Round to eliminate balance of payments restrictions on beef by December 31, 2000. A July 1993 U.S.. Korea bilateral beef agreement outlines minimum market access levels for 1993 through 1995. Under this agreement, operation of the current "simultaneous-buy-sell-system” (SBS) portion of the market will be greatly improved by the prohibition of the active involvement of the Korean government. The number of SBS participants will also increase during the course of the agreement to include non-tourist hotels, meat processors, and many supermarkets, as well as the tourist hotels and others who currently have access to the system.

Standards, licensing, registration, and certification requirements effectively limit U.S. exporters' access to the Korean market. Unreasonably, tough and arbitrarily. enforced standards and labelling requirements have adversely affected U.S. exports of a wide variety of consumer products, including appliances and electronic equipment. Registration requirements for products such as chemicals and cosmetics ham. per entry into the market and often require U.Ş. firms to release detailed proprietary information on the composition of their products.

Effective January 1, 1993, a Prime Ministerial Decree outlined improved procedures for standards and rules-making, including a requirement for public notice, minimum comment periods, and an adjustment period prior to implementation. However, the decree does not have the force of law. The government plans to introduce a full-fledged Administrative Procedures Act in 1995. Administrative procedures were one of the principal topics of discussion in the DEC. The United States hopes to influence the plans for the Administrative Procedures Act and has commented on intermediate regulations.

The Korean government has begun to implement a five-year program of financial sector reforms, announced in May 1993, to reduce controls on banks and other sinancial institutions. Measures taken to date include the listing of many controls on interest rates, removing documentation requirements on most forward foreign exchange contracts, and easing slightly foreign banks' access to won currency funding. However, under the timetable for reform some critical measures, such as full won convertibility and freedom of capital movements, are not scheduled to be achieved until 1997. Moreover, in a number of areas government restrictions continue to deny national treatment to foreign banks and securities firms. For example, foreign banks face significant impediments in the form of a variety of funding and lending limits tied to local branch (as opposed to global) capital, difficulties in obtaining approval for new financial products, and requirements to capitalize each sub-branch sepa. rately. Foreign securities firms must meet extremely high capital requirements and may not place orders for foreign securities on behalf of Korean clients.

Changes in regulations announced in June 1994 resulted in a streamlining of for. eign investment applications procedures and the easing of a number of barriers to direct foreign investment. At the same time the government announced accelerated opening of several sectors that had previously been closed to foreign investors. Earlier changes to laws and regulations governing foreign purchases of land made it easier for foreign-invested companies to purchase land for staff housing and busi. ness purposes.

Despite these improvements, U.S. investment in Korea continue to face a number of significant barriers. Restrictions on access to offshore funding, including offshore borrowing, intracompany transfers, and intercompany loans are particularly burdensome for foreign-invested companies. Foreign equity participation requirements remain in some sectors, and licensing requirements, economic needs tests, and other regulatory restrictions limit foreign investment in sectors that are nominally open to foreign investors. Investment in most professional services remains restricted for foreign firms. Downstream services by foreign firms remain restricted. Retail dis. tribution by foreign-invested firms, for example, is subject to limits on the number of outlets and floor spaces. These restrictions will not be listed until 1996.

The government has done little to educate a public accustomed to a closed domestic market on the benefits of imports, particularly to consumers. Most Koreans have

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