2/22/2007

Bill Sought to Limit FDI in Key Sectors

Korea Times Feb. 22, 2007

By Kim Yon-seStaff Reporter
A group of lawmakers and policymakers are moving to legislate a law aimed at placing restrictions on foreign investment in some key industries.

The move is aimed at blocking takeover attempts in the weapons, energy and steel sectors and other high technology areas that have some comparative advantages.
The Ministry of Commerce, Industry and Energy (MOCIE) is reviewing the bill in consideration of national security concerns.

Last year, Rep. Lee Sang-kyeong of the governing Uri Party came up with the bill, representing a group of lawmakers from the ruling and opposition parties.

Lee stressed the need for legislation modeled after versions in other countries including the U.S. Exon-Florio Act in which foreign direct investment must undergo prior screening by the Committee on Foreign Investment. The purpose of the scrutiny is intended to determine whether a foreign firm’s acquisition of a U.S. firm threatens national security.

The bill, however, faces difficulty at the National Assembly as it has not been adopted as an item on the agenda for the extraordinary session now under way, according to MOCIE officials.
``A series of public hearings should precede the proposal at the National Assembly,’’ a ministry official said. ``It will take several months before the bill is discussed at the Assembly.’’
He said, ``We will make public our stance when the bill is brought to the Assembly.’’ He added that the Ministry of Finance and Economy (MOFE) and the Ministry of Foreign Affairs and Trade (MOFAT) are also reviewing the bill.

The Federation of Korean Industries (FKI), the top chaebol lobby group, has also pressed for the introduction of the law similar to Exon-Florio Act.

The FKI said 58 domestic conglomerates and financial companies, such as Samsung Electronics and Shinhan Financial Group could face hostile takeover bids as Korea’s M&A system falls short of global standards.

Japan has come up with a similar scheme as its Finance Ministry can ban foreign investment under Tokto’s Foreign Exchange and Trade Act.

Canada also restricts foreigners’ takeovers of big companies under the Investment Canada Act.
The United Kingdom is not totally open to foreign investors, either. Non-British investors are obliged to inform the Financial Services Authority when they buy a more than 10-percent stake in a local company.

In sharp contrast, all investors, regardless of nationality, are allowed to hold majority shares in companies in South Korea. The Finance and Economy Ministry backs the current system, stressing the necessity for an open market.

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SeanHayes@ipglegal.com