URGENT
ACTION REQUESTED
June 14, 1996
VIA FAX
TO: INTERNATIONAL COMMITTEE No. 18-96
RE: TREASURY REQUEST FOR INSTITUTE VIEWS ON KOREAN MARKET ACCESS
______________________________________________________________________________
In connection with multilateral negotiations over Koreas application for membership in
the Organization for Economic Cooperation and Development (OECD), Treasury Department
officials have asked for our views on Koreas plan to gradually open its domestic investment
advisory and mutual fund markets to participation by foreign firms. Treasury would like to
know whether any of the measures would assist US firms in gaining market access in Korea
and, if the measures are deficient, what are the most important ways they should be improved
to provide meaningful access for US firms.
We understand that Koreas plan to open its market would include the following:
1) Access Through Branches
As of January 1996 a foreign firm may enter Koreas investment advisory and investment trust
management markets by establishing a branch in Korea.
The market needs test for entering the investment trust management business will be
eliminated for branches of foreign firms after January 1997.
To establish a branch, a foreign firm must have had a representative office in Korea for
at least one year. The requirement for a representative office will be eliminated in
January 1997 for investment advisory branches and in December 1998 for investment
trust management company branches.
In addition, to establish a branch office, a foreign firm must have assets under management of
at least 14 trillion won (about $17 billion), cannot have been sanctioned by its home-country
regulators during the last three years, must have no accumulated loss, and cannot have any
company in its same business group which holds a 10% or more equity participation in a
domestic Korean investment trust management company. A foreign branch must have
operating funds of 5 billion won ($6.3 million) to engage in the investment trust management
business or 300 million won ($376,000) to engage solely in the investment advisory business. A
foreign branch engaging in the investment trust business must have at least 7 employees
specialized in investment management.
2) Access Through an Equity Interest in an Existing Korean Company
As of January 1996 foreign firms may own up to a 49% equity interest in an existing Korean
investment advisory or investment trust management firm. A single foreign company may
hold no more than a 10% participation. In December 1997 the aggregate foreign limit will
increase to 100% and the limit on participation by a single foreign firm will increase to 30%.
To be eligible to acquire an equity interest in such a Korean company, a foreign firm must have
been engaged in the business of investment management continuously for the last 10 years, not
have been sanctioned by its home-country regulator during the last three years, and not have
any accumulated loss.
3) Access Through a Joint Venture
Joint venture investment trust management companies can be established after December 1996.
Foreign and domestic partners each cannot own more than 30% of the shares of the joint
venture. The aggregate cap on all foreign holdings in the joint venture of 49% will be abolished
in December 1998.
The largest foreign joint venture partner must have been engaged in the investment
management business for at least 10 years and have assets under management of at least 13
trillion won ($16 billion). The minimum capital for a joint venture is 30 billion won
($37 million), the same as the minimum capital for a new domestic investment trust
management company.
4) Access Through a Wholly-owned Subsidiary
Beginning in December 1998 a foreign firm will be able to establish wholly owned subsidiaries
in Korea to enter the investment advisory or investment trust management businesses.
Please provide any comments you have by to me by COB Monday, June 17 by phone at
202 326-5826 or by fax at 202 326-5839.
Mary S. Podesta
Associate Counsel - International