This paper emphasizes that Foreign Direct Investment (FDI) plays an important role in the process of economic development and has a great effect on technology transfer among nations.

In the early stages of FDI, focus tends to be on labor-oriented businesses, therefore FDI promotes employment. After a degree of industrialization, FDI contributes to industrial growth in capital and technology-oriented businesses.Therefore, ASEAN nations have made efforts to introduce FDI by improving the investment environment through tax deductions or the facilitation of the movement of capital.
The Korean government has neglected to attract FDI so far compared with other AEAN nations, but this will have to change if the Korean government is to cope with the changes in the world economy. Despite the agreements made in the Uruguay Round, regionalism has spread rapidly and advanced nations will be increasingly protective of their technology.

Accordingly, this report points out that in order to overcome this situation Korea has to make a substantial effort to improve the environment for FDI. In particular, the government should take the examples given by ASEAN nations in successfully promoting economic development through inducing FDI.

This paper predicts that Korea will rise to become one of the 10th largest economies in the world in the 21st Century. As Korea's neighbors have market (Japan, Korea), technology (Japan, Russia), capital (Japan), labor (China) and natural resources (Russia), that it can develop continuously. With political and military conflict settled and barriers to trade and investment lowered, it is expected that trade with Northeast Asia nations will increase.

Furthermore, this paper proposes that Korea will secure a leading position in the world economy based on its geographical location, playing a channel role in Northeast Asia because of its economic size and the development of technology and communications.

This paper mentions that in order to promote economic cooperation in Northeast Asia, Korea will develop a new economic bloc, providing an avenue for foreign companies to target the Northeast Asian market.

This report clarifies how developing nations try to induce foreign direct investment (FDI). First, FDI can promote technology by becoming a channel for technology transfer. Second, FDI efficiently allocates capital resources for economic development. Third, as developing nations have abundant labor, influx of capital can create employment through on-the-spot employment.

This report emphasizes that FDI would have not an effect on the creation of employment micro-economically as much as raise technology in the domestic industry by transferring ultimately indispensable technology for industrial development.
This report says that Korea's FDI has been inactive compared to other developing nations, but since the 1980s, Korea's FDI has changed from direct investment in producing centers to market investment due to the growth and opening of Korea's economy.

Accordingly, this report notes that market-oriented or advanced direct investment will contribute to improving the constitution of Korea's economy, industrializing the economic structure and strengthening its international competitiveness. Together, Korea's companies should promote their advanced knowledge and systems in accordance with global and international trends.

Contents

I. Introduction

II. Federal Legal and Regulatory Framework
A. Exon-Florio
B. Hart-Scott-Rodino
C. Industry Specific Restrictions
D. Disclosure Requirements

III. State Legal and Regulatory Framework
A. Investment Incentives
B. State Tax Policy
C. Banking Regulations
D. Insurance Regulations

IV. FDI Tax Considerations
A. Legal and Regulatory Framework
B. Jurisdiction
C. Tax Treaties
D. Tax Rates

V. Recent Proposals and Policy Alternatives
A. Increased Disclosure
B. Increased Screening
C. Reciprocity
D. Performance Requirements
E. Multilateral Policy Actions

VI. Conclusion

〈References〉

Foreign direct investment("FDI") in the United States typically takes the form of real estate investments, greenfield operations, or mergers and acquisitions. Despite recent moves towards increased regulatory supervision of FDI, the U.S continues to permit foreign concerns and individuals to freely acquire U.S. real estate or U.S. concerns without the joint-involvement of a U.S. counterpart and without government approvals for money remittances or repatriation.
While broad access remains the Gerneral rule, recent legislation confining FDI features rather broad language which could potentially cover a wide range of high -technology investments. As FDI in the U.S. surged throughout the 1980s, the share of foreign-owned high -technology establishments increased(see Table 1). While the U.S. had traditionally been a major investor abroad, in the 1980s high-profile acquisitions by Japanese and German firms (see Table 2) as well as high rates of FDI growth (see Table 3) raised Public fears that U.S industrial competitiveness was at stake. In response to these concerns, the U.S. Congress enacted several statutes that either directly or indirectly have a bearing on investment decisions on the part of foreign investors in high-

High-Technology Establishments of Foreign-owned Affiliates as a Share of All U.S. Businesses

Number of High-Technology Firm Acquisitions and Establishments by Major Investing Country, 1987-1990

technology areas.
Consequently, a great deal of uncertainty exists in the current regulatory environment as to how such legislation may be interpreted or applied in specific cases. For example, such legislation has targeted Investments in industries that may threaten U.S. " national security " interests, which could be defined broadly to include investment in any high-technology industry. Moreover, recent legislation has not clarified what types of investments would be barred; in other words, what types of investments or

FDI in the United States during the 1980s

degree of investment would constitute effective "control" of a specific company. Also, foreign investors have found that U.S. tax laws also act as a barrier to FDI in that reporting requirements and complex regulations backed by extensive penalty payments are particuarly burdensome.
Beyond the formal restrictions embodied by statutory provisions that will be reviewed below, it is important to note that informal governmental powers are often an even greater constraint on FDI in the U.S. Although challenges to investment are the exception, they have occurred on occasion and are often driven by political trends. While formal restrictions are narrow in the U.S., the informal efforts of public officials have in the past blocked acquisitions in the absence of formal legislation.1)
Finally, U.S. policymakers have been considering alternative methods of regulating FDI amied at protecting U.S. industrial competitivenss. Such policy alternatives will have a bearing on future legislation defining FDI policy in the U.S as well as the future of Korea-U.S. economic relations. In late 1994, Hyundai Electronics America announced the largest Korean FDI into the United States on record, a U.S. $300 million acquisition of AT& T Corp.'s NCR Microelectronics Product Division.2) The center-piece of the deal is the highly prized petents and trademarks that will allow Hyundai Electronics America to leap ahead in terms of technological know-how. As Y.H. Kim, Chief Executive of Hyundai Electronics America in San Jose, California pointed out, "There are certain technologies which NCR Microelectronics has which are very valuable to us. It takes years to build up this kind of infrastructure." Also, recently Samsung Electronics Co. announced plans to invest U.S. 1 billion for the production of memory chips in the U.S. at greenfiled sites starting in 1998.3)
As such, Korea concerns continue to rely on U.S. FDI to upgrade critical technological capabilities and have benefited from a FDI Policy which has generally permitted free access to acquire or invest in U.S. concerns. Korean concerns also rely on U.S.-based R&D facilities to acess U.S. technological advancements (see Table 4) that may be subject to increased regulatory supervision.

U.S. R&D facilities of Foreign Companies, Selected Industries and Companies, 1992


Given recent legislation such as the Exon-Florio amendment could signal a shift towards a more restrictive FDI approach in the U.S., it is important to broadly review the entire legal and regulatory framework as well as consider potential changes which may impact Korean concerns' ability to continue to freely access U.S. technological know-how in the future.