|Title||Analysis on FDI in Service among Korea-China-Japan and Strategies for Mutual Cooperation|
|Author||Hyung-Gon Jeong et al.|
|Series||Policy Analyses 11-19|
Services industry facilitate vertical and horizontal integration between industries, and make significant impact on productivity by effective use of a given nation’s internal resources. That also makes developing countries more vulnerable to impacts from opening its services market. But, as the opening of services markets has recently become a standout issue in WTO DDA and bilateral FTA negotiations, studies about international trends in opening of the services sector and strategies for coping with a more open market is being conducted actively.
Among Korea, China, and Japan, several issues about opening of the services market is being discussed through the trilateral Joint Research Project for CJK FTA. In addition, diversification of sectors for investments into China is necessary, in light of China’s recent industrial policies involving greater focus on development of high-tech industries and services. As interest on opening of services rises, various research about this issue is being conducted. Previous studies have focused mainly on characteristics of existing FTA’s of the 3 countries(Korea, China, and Japan) and status of China's service market. This study focuses on finding actual obstacles through research on institutional and non-institutional market entry barriers, and proposing various policy suggestions for promoting mutual intra-regional investment, especially about the three major service sectors; namely wholesale/retail trade, finance/insurance, and construction.
According to assessment of international organization such as the OECD FDI regulation index and the World Bank FDI & Business Environment analysis, China maintains relatively high levels of regulation on investment in services. Various surveys, evaluations and analyses point out that China also has severe restrictions on the scope and type of foreign investment. On the other hand, Korea and Japan have relatively favorable business environments; however, there still exist hidden obstacles for businesses such as negative public views concerning foreign investors, inconvenient distribution structure and commercial customs.
The numerous obstacles to mutual intra-regional investment among the three countries cannot be tackled with institutional remedies such as FTAs or investment agreements alone. While an FTA can be utilized to lower China’s high institutional restrictions on foreign investment, greater effort is necessary to lower unofficial obstacles such as commercial customs and negative public views on foreign investors in Korea and Japan.
Accordingly, this study suggests policy issues for stimulating mutual intra-regional investment among the three countries. First, common commercial customs, practices and regulation status classified by industry must be shared among three countries by constructing an active information exchange network. Second, a Korea-China-Japan FTA should be utilized as a strategic instrument for stimulating mutual intra-regional investment. Third, governments should make various efforts to encourage domestic firms to invest abroad via M&As, which is an effective means by which industries can bypass the entry barrier of service markets in each country. Fourth, in order to attract investment into Korea’s service market, the market needs to become more specialized and competitive through SME(Small and medium enterprises) support, human resource development, and reform of domestic market regulations.