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Aug 29, 2010

Sean Hayes quoted by Korea Times on D-8 Investment Visa

By Cathy Rose A. Garcia
Korea Times (August 27, 2010)

Foreign-owned restaurants and other businesses have been slowly popping up around Seoul in recent years. There have been a growing number of foreign entrepreneurs, who are living and doing business in Korea.

Foreign entrepreneurs typically carry a D-8 corporate investor visa, which is obtained after investing a minimum of 50 million won ($42,000).

But the government’s plan to double the minimum capital requirement for foreign direct investment (FDI) by October is expected to stifle the growth of foreign-owned small and medium enterprises (SME) in Korea.

The Ministry of Knowledge Economy announced last month it revised the Foreign Investment Promotion Act to raise the capital requirement for D-8 corporate investor visa holders to 100 million won ($84,000)

A spokesperson from the Ministry of Knowledge Economy said it was the right time to raise the minimum foreign investment requirement, considering the amount has remained stagnant for nearly 10 years. .

In 1991, the minimum foreign direct investment requirement was 25 million won per person, or a total of 50 million won. In 2001, it was revised to 50 million won per person.

``If you count the cost of doing business, cost of living, rent and price levels in the last 10 years, it is not too farfetched to be revising the capital requirement to 100 million won... The amount (50 million won) seems too small now,’’ the ministry spokesperson told The Korea Times.

However, there have been reports that the Ministry of Justice had requested the Ministry of Knowledge Economy to increase the investment requirement since it was too low. Some foreigners have allegedly taken advantage of this by availing of investor’s visas to enter the country and stay in Korea indefinitely, but not to do business.

But would a 100 percent increase in capital requirement be enough to prevent some foreigners from abusing it? Or would it just simply discourage foreigners from investing into Korea at a time when FDIs are already declining?

The D-8 corporate investor visa is issued to foreigners who start small and medium enterprises in Korea. There are no restrictions on what type of businesses can be started.

A representative from the Seoul Global Business Center, which provides consulting services for foreigners who want to establish businesses, said many foreigners are interested in opening restaurants or food businesses. Other types of businesses they are interested in include online shopping, trading and consulting.

``We have foreigners coming to the center, inquiring about how to start a business, the proper visa status needed, investments and how to register a company. We assist them with various things,’’ the representative said.

Foreigners need have at least 50 million won in foreign currency before they can establish a business in Korea. The funds have to be remitted from overseas to an account in Korea, as proof of it being a foreign direct investment. Once the company is registered and the funds are transferred, the foreigner can obtain a D-8 visa.

However, there has recently been an increase in the applications and issuance of D-8 visas, which raised alarm bells for the Ministry of Justice.

There have been instances of some individuals who do not have the required minimum capital and have resorted to paying so-called ``agents.’’ These agents will forward money from their overseas accounts to the applicants’ accounts. In return for loaning the amounts and helping complete the application, the agents will be paid exorbitant fees by the applicants.

Sean Hayes, a lawyer who co-leads the J&S Law Firm's International Practice Group, said the ministry’s plan to raise the foreign investment requirement will not discourage this small number of foreigners from abusing the D-8 visa.

``The Ministry's solution to the problem will likely never solve the problem ― these agents will simply charge higher fees and find other creative ways to get approval for applicants,’’ Hayes told The Korea Times.

Instead, the plan may further tarnish Korea’s image as an investment destination. ``Raising the capital requirement will lead to negative press and possible a feeling by potential investors that Korea is not a foreign-capital friendly destination. The attitude is already widespread and thus risking an increase in negative sentiment for the sake of not allowing entry of a small number of individuals is obviously an unwarranted risk,’’ Hayes said.

Many of the foreigners who are abusing the system are from less developed nations, so Hayes proposed changes in the immigration process.

``A two-tier approach to visa applicant screening and additional training for immigration officials on how to adequately scrutinize visa applications from countries that are less developed economically than Korea is a better approach. Also, Korea needs a total revamp of its immigration laws to allow needed skilled workers to be more easily employed by employers in need of these workers,’’ Hayes said.

There are already some prospective investors who are being turned off by the increase in capital requirement.

Some have approached the Seoul Global Business Center to ask for assistance in setting up their business in Seoul, but are now thinking of stalling their plans to be able to raise more funds.

``Some only have 50 million won as their maximum money right now. So it is becoming a problem for them to raise 100 million,’’ a representative from the center said.

If obtaining a D-8 corporate investor visa would be a problem, the Ministry of Knowledge Economy spokesperson suggested foreigners who want to do business here can try applying for a D-9 trade management visa or C-2 short-term business visa. The D-9 visa is for overseas traders who do import and export business, while the C-2 visa is issued for self-employed people, consultants for Korean companies and those involved in trading business.

However, it seems the government’s tightening of FDI requirements comes at a time when FDI has continued to decline. In the first half, only $4.33 billion in FDIs have been recorded, a 6.7 percent drop from $4.64 billion during the same period in 2009.

Government officials downplayed any possible effect of the new investment requirement on overall FDIs, since SMEs only make up a miniscule portion.


Aug 1, 2010

Korean Antitrust Laws' Evolution

Korea Times (07/30/2010)
by Sean C. Hayes

Over the past decade, Korea has fostered the development of a Fair Trade Commission (FTC) with the power to actively fight to eliminate anticompetitive forces in the market.  This admirable evolution is welcomed by most domestic consumers.

However, in many cases, anticompetitive practices may actually be a benefit to consumers in the short and long term.

In these cases, a more nuanced Chicago School approach is necessary in order to incorporate a little realism and reason to the discussion and not to jeopardize economics for the sake of cookie-cutter-like rules.

An FTC ruling to fine the importers of BMW cars was recently upheld by the Seoul High Court.

The seven importers were fined a combined 14 billion won. Their practices were traditional horizontal price-fixing arrangements.

Many in the antitrust field would have expected the outcome after the uncovering of a price-fixing relationship between the importers.

Consumers are hoping that after this holding, competition may reduce the price of new and used BMW cars. Because of market dynamics, however, the situation does not seem hopeful.

These types of decisions and the recent proactive nature of the FTC should be a wake-up call to the numerous companies in Korea that have abused their dominant power to the detriment of consumers.

This should, also be a wake-up call to those doing business in Korea in any market dealing with vertical relationships with suppliers, distributors and even directly with consumers.

The Korean FTC is aggressively investigating perceived practices that have no provable present damage to consumers.

These cases often concern relationships with suppliers, reward and loyalty programs and franchise, licenses, distributors and like vertical agreements and arrangements.

These modern aggressive courting and FTC practices concerning vertical relationships in Korea, may be counter to the primary purpose of antitrust laws and thus should be considered by the FTC, but with a more nuanced and tailored approach.

Competition and antitrust laws were initially intended, in the United States, the EU and throughout much of the world, as tools to protect consumers.

They were not intended as tools to protect competitors, suppliers and distributors unless a finding was obtained that protecting these classes of market participants would, in the end, protect consumers.

The purpose of antitrust laws is best stated by John Stuart Mills.

Both the cheapness and the good quality of commodities are most effectually provided for by leaving the producers and sellers perfectly free, under the sole check of equal freedom to the buyers for supplying themselves elsewhere.

This is the so-called doctrine of Free Trade, which rests on grounds different from, though equally solid with, the principle of individual liberty asserted in this Essay.

Restrictions on trade, or on production for purposes of trade, are indeed restraints; and all restraint, qua restraint, is an evil..

Mills believed restraint on trade was an evil, since consumers could be plagued with inferior commodities for a higher price.

With much criticism, many courts, however, have extended the protection and thus the purpose of antitrust laws to include direct competitors, suppliers and distributors even without a showing of damage to consumers.

Critics, including, former Judge Robert Bork have vehemently criticized this modern trend because of its obvious break from the initial purpose of antitrust laws and their lack of a principled economic reason for extending antitrust laws to these practices.

For all antitrust cases, the FTC and court should apply a standard Chicago School approach to handling these issues and those considered economic and market realities and the true and initial purpose of antitrust laws.

The FTC and courts should be leery on ruling certain actions as a per se violation of antitrust laws when a vertical relationship, efficient mergers, issues concerning vertical franchises, distributors, suppliers,licensing and like agreements are involved and even in some questions when horizontal restraints on trade are involved.

A recognition of the Chicago School approach and not simply per se rules wrapped in nothing more than a lack of understanding of economic and market realities will not lead to the protection of consumers, but will simply be an added tool for market participants to handle disputes.

This will potentially harming consumers and violating the intent of antitrust laws.