A free trade agreement (FTA) is a pact between two or more nations to reduce import – export barriers among them. Under a free trade policy, goods and services can be bought and sold across international borders with little or no government tariffs, quotas, subsidies, or prohibitions to inhibit their exchange. So, how do FTAs affect foreign direct investment (FDI)?
1. The Impact of Free Trade Agreements on Foreign Direct Investment in Korea
There are many positive influences that FTAs may drive FDI flows. Firstly, FTAs will remove export regulations by lowering trade barriers to facilitate the movement of intermediate or final products between parent firms in source countries, and foreign affiliates in host countries. Secondly, it can arise from other conditions negotiated in the FTA, such as investment regulations that increase the mobility of fund and capital flows. These regulations make it easier for multinational corporations to divert financial resources to their foreign affiliates when the need arises, such as building a new factory in the host country.
2. The Free Trade Agreements between Korea and other countries
Currently, Korea has concluded, effectuated 21 FTAs with 59 countries and already signed 02 FTAs, including:
– Effectuated FTAs:
+ EFTA (4 countries): Switzerland, Norway, Iceland, Liechtenstein
+ ASEAN (10 countries): Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Vietnam, Thailand. This is the first FTA with world’s large economic block.
+ 27 countries in Europe: Austria, Belgium, Bulgaria, Croatia, Cyprus, Czechia, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden
+ 5 countries in Central America: Nicaragua, Honduras, Costa Rica, El Salvador, Panama
+ RCEP (Regional Comprehensive Economic Partnership): Korea, 10 ASEAN member countries, China, Japan, Australia, New Zealand
Signed FTAs:
+ In October 26, 2021, Korea signed FTA with Philippines for Southeast Asian market expansion.
+ In October 11, 2023, Korea signed FTA with Ecuador which is a bridgehead for Latin American market penetration.
These FTAs illustrate that Korea is opening up for deep international integration. Moreover, Korea is a large and potential market welcoming foreign investment.
