FTA causes investment from Europe to spike

Foreign direct investment from Europe has shot up since the Korea-European Union Free Trade Agreement (FTA) took effect last July.

According to a report by the Ministry of Strategy and Finance yesterday, EU countries invested a total of $3.56 billion in Korea from July to March, up 60.5 percent from the corresponding period one year earlier.

Over the same nine-month period, total inward FDI stood at $10.6 billion, marking an on-year retreat of 0.8 percent.

The ministry said the amount of FDI from the Continent grew even during the euro zone crisis. This compared favorably to drops of 16.4 percent throughout 2009 and 17.1 percent in 2010.

European companies’ investments in Korea’s manufacturing sector - specifically, chemicals, electronics and transportation equipment - doubled in the wake of the FTA, while their spending in the service sector jumped 37.4 percent.

Over the same three quarters ending in March this year, Korea’s total outward FDI to Europe plummeted 34.1 percent to rest at $3.66 billion.

The major targets of Korean businesses were textiles, electronics and transportation equipment, which received a financial boost of 413.5 percent on-year.

Local companies were more reserved in dealing with Europe’s services sector, however, with outward FDI falling 7.9 percent to $11.76 billion.

Net FDI, which is calculated by subtracting Korea’s total investment in Europe from money coming the other way, stood at $90 million over the nine months, showing how the Continent is by far the bigger spender.

However, the gap has shrunk enormously since it stood at $3.24 billion one year earlier.

“The Korea-EU FTA has influenced businesses’ foreign investment activities, mainly in the manufacturing sector. Policy measures will be needed to increase the positive effects of FDI, for example, by attracting investments for new growth businesses, services and expanding outward FDI as well,” the ministry said in its report.

It also underscored the importance of raising investments for potential M&As with promising companies in Europe’s manufacturing and services sectors as new opportunities arise due to the region’s ongoing fiscal woes.

By Song Su-hyun[ssh@joongang.co.kr]