SEOUL MOVES TO EASE FOREIGN TAKEOVERS LIBERALIZATION PACKAGE AIMED AT OECD ENTRY

SEOUL MOVES TO EASE FOREIGN TAKEOVERS LIBERALIZATION PACKAGE AIMED AT OECD ENTRY

South Korea is proposing to expose its companies to foreign takeovers as part of an investment-liberalization package aimed at bringing the country into the fold of industrialized nations.

Korean officials said the changes should be sufficient to satisfy the requirements of the Organization for Economic Cooperation and Development, to which it has applied for membership.In Washington, meanwhile, U.S. and South Korean negotiators Friday continued trying to reach agreement on opening Korea's car market.

The measure on takeovers is one in a series of steps Seoul is taking to improve the climate for foreign investors, bringing them on a par with domestic companies.

Also in the package is proposed legislation to ease and clarify tax requirements, streamline customs procedures and remove restrictions on construction contracts.

U.S. Department of Commerce officials in Seoul said the planned revision of the laws is part of "Korea's ongoing process of opening itself to the world economy - which will ultimately mean more opportunities to come for foreign traders and investors."

OECD officials in Paris said that while they had not specifically requested any of the reforms, the changes in South Korea's business laws and practices are essential if the country wants to meet membership criteria.

Among the key requirements for OECD membership are unhampered foreign investment, freedom of capital movement, national treatment, a minimum level of currency convertibility, and transparent tax rules.

South Korea applied for OECD membership in March, but the lengthy process of examination by numerous committees has just begun, making the country's acceptance in 1996 unlikely.

The proposed investment rules would allow foreign investors to establish a presence in South Korea by acquiring shares in a domestic company. Today, foreign investors are restricted for the most part to "greenfield" projects, through joint ventures or partnerships with domestic firms; limited portfolio

investments are also allowed.

Mergers and acquisitions will be subject to government approval, and only friendly takeovers will be allowed at first.

Beginning in 1997, many of the foreign investments that were subject to prior approval will only need to be reported to designated foreign-exchange banks.

Seoul also plans, as of January, to abolish export and other performance requirements attached to approvals that were issued to projects with foreign equity before December 1992. Foreign manufacturing or trading companies will no longer need approval if they wish to expand the line of products beyond those approved by the government.

At the OECD's suggestion, South Korea is also proposing to make its tax rules more transparent and to set up objective criteria for government audits.

The finance ministry, reacting to U.S. businesses' concerns, has also proposed to simplify the procedure for assessing income taxes under transfer- pricing rules, and to ease documentation requirements for registering foreign companies.

Separate tax legislation has been proposed by the government to set up arbitration rules and establish procedures aimed at preventing tax avoidance by companies located in tax havens.

On the surface, the Commerce Department officials said, the "proposed legislation would appear to respond to several key concerns of foreign investors." But, they cautioned, "in the Korean context, the true impact of the legislation will only be apparent after the text of necessary implementing regulations is available."

"The climate for acquisitions and mergers in Korea has never been hospitable, and thus foreign investors contemplating such a step should not expect a smooth ride, regardless of law or regulation," they said.