South Korea is less dependent on international trade, considering imports and exports as a proportion of its GDP.
Although the opening of the Korean economy to international trade and its integration into the world economy continued to be reflected in a high ratio of trade (exports plus imports) of goods and services to GDP, which in 2020 stood at 69.2%, this portion is lower than that recorded five years ago.
In 2015, international trade accounted for 84.8% of South Korea’s GDP, according to data from the World Trade Organization (WTO).
However, trends in international trade and foreign direct investment (FDI) reflect the continuing importance of Asia and the Pacific as Korea’s main regional market and provider of FDI.
China, the United States, the European Union and Japan remain its main trading partners; Likewise, exchanges under free trade agreements (FTAs) and regional trade agreements (RTAs) continued to increase steadily during the period under review.
The FDI regime underwent important changes during the last five years, namely, according to the WTO:
- Tax incentives in the form of reductions or exemptions from local taxes and import duties and the interruption of the granting of new tax credits to companies with foreign investment from 2019.
- The elimination of restrictions on foreign investment in fishing activities and in support of air transport.
- The modification, in 2020, of the Law for the Promotion of Foreign Investments, the main legislative text, which now allows the granting of incentives for the reinvestment of undistributed and unused profits.
Nevertheless, cumulative FDI volumes remain low compared to other OECD countries.
Since 2016, South Korea has continued to promote a free and open economy based on market principles.
As an important measure to support the development of SMEs, in 2017 the Administration of Small and Medium Enterprises was restructured and expanded, which became the Ministry of SMEs and Emerging Companies.
South Korea continued its efforts to improve transparency in public administration through e-government strategies and participatory budgeting at the national level.
Under the Five-Year Plan for the Administration of State Affairs, launched in 2017, job creation is considered the top priority of economic policy.
In 2019 the Vision for an Innovative and Inclusive Nation was announced. Regulatory reforms were carried out to reduce barriers to trade and investment through the establishment of regulatory laboratories, the designation of special regulatory-free zones, and the application of the “cost offset” method when introducing new regulations.