Doors for Korea’s Service Business Should be Opened Wider

The Organization for Economic Cooperation and Development (OECD) advised the Korean government for a full-scale expansion on the privilege for foreign investors limited to the economic free zone and to relieve the restriction for foreign capital to acquire shares of Korean companies in order for continuous economic growth.

It was also pointed out that the lay-off conditions for regular workers should be alleviated and the service market opened wider.

OECD advised the above to Korea in its report on “Economic policy reform for continuous growth” announced on March 1 (local time).

According to the report that Dong-a Ilbo obtained, OECD urged to Korea that the current three economic free zones in which foreign investors are given privilege—Incheon, Busan-Jinhae, and Gwangyang Bay area—should be expanded to all over the county, and the ownership restriction of foreign capital to domestic companies should be abolished.

For current foreign investments going into the economic free zones, corporate tax is exempted for the first three years, and 50 percent is reduced for the following two years. There is no restriction in building a factory in the Seoul metropolitan area.

Foreign capital is restricted in acquiring shares in some businesses, such as that it may not acquire over 49 percent of KT shares, but OECD is advising that this restriction be lifted.

In addition, OECD reported, “Korean companies have allowed massive lay-offs of regular workers after 1998 for financial reasons, but there are still many regulations restraining the management, and have failed in increasing labor flexibility,” pointing out that the employment protection for regular workers should be lightened.

It means that as temporary workers are taking more spots in the Korean work force, the overprotection on regular workers should be loosened.

OECD added, “The labor productivity of Korea’s service business reaches only 60 percent of that of the manufacturing business, which is the lowest among OECD member countries. This is due to a high entry barrier and that competition between companies is becoming weak.”

It was also stressed that efforts for financial reform should be strengthened, such as concluding the privatization of banks as soon as possible and removing instable factors in the finance field of non-bank institutions such as credit card companies.

Meanwhile, OECD reported that the gap between member countries continuing high growths including the U.S. and member countries on a slowdown has grown wider since 1990, and if this tendency continues, the gap for the next couple of years will grow even larger.

Chi-Young Shin higgledy@donga.com