Focus on South Korea (Issue 3, 2018)

NEW LEGISLATION DRAFTED TO SUPPORT INVESTMENT PROJECTS IN THE RUSSIAN FAR EAST

The Ministry for the Development of the Russian Far East has prepared a draft Federal Law, On state support of investment projects providing for the creation of new productions of goods (works, services) and infrastructure objects necessary for organizing such production in the Far Eastern Federal District (FEFD). The draft law improves state support for investment projects in the FEFD by reducing the rates for the mineral extraction tax, income tax, corporate property tax, and land tax.

The draft law sets the following criteria to be considered in determining whether an investment qualifies for reduced tax rates:
• the project’s focus on solving problems in creating new workplaces;
• new projects related to production within the framework of import substitution;
• the volume of investments to be invested; and
• implementation of an investment project in one of the priority sectors of the FEFD economy.

In order to receive state support, an investment project also should meet several additional requirements:
• All fixed assets, including external infrastructure, created during the implementation of the investment project should be located exclusively in the territory of one or several constituent entities of the Russian Federation that are part of the FEFD.
• The investment project should not be aimed at the extraction of oil, gas condensate, combustible natural gas, or to provide services for the transportation of oil or oil products, gas, gas condensate and its components.
• The total amount of expenses directly related to the implementation of an investment project should be at least 500 million rubles under certain conditions.

The draft law will not be binding in relationships connected with the production of tobacco products or alcohol-containing products, nor in the implementation of investment projects to construct administrative, business, and shopping centers. Currently, the draft law is at the stage of public discussion.

RESULTS OF THE EASTERN ECONOMIC FORUM-2018

On September 11-13, 2018, the 4th Eastern Economic Forum (EEF-2018) was held in Vladivostok, during which more than 100 business events were launched with about 340 heads of foreign companies. 220 agreements worth a total of more than 3.1 trillion rubles were signed at EEF-2018 (excluding agreements containing commercial secrets). These include an agreement between Far East Investment and Export Agency and Lotte International for the joint creation of the company Milk Primorye LLC. The project involves the construction of a dairy and livestock complex and will require an investment of 1.9 billion rubles.

Representatives of Russia and South Korea also discussed the increase in the volume of trade between the two countries, which, in the first seven months of 2018, grew by 30% and amounted to about $15 billion. Russia's trade representative in the Republic of Korea, Mikhail Bondarenko, noted that Russia and the Republic of Korea are successfully working together in the energy sector and on the issue of increasing purchases of liquefied natural gas. The participation of South Korean companies in the construction of infrastructure facilities, the modernization of Far Eastern ports and shipyards, and the joint development of the Northern Sea Route all seem to be promising.

At the EEF-2018, speakers noted the effective cooperation of Russia and South Korea in the legal sphere, as well as in the fields of culture, education, medicine, sports, and tourism. Particular attention is currently paid to the implementation of important large-scale projects in the Far East, the creation of new industries, and the active use of advantages for foreign business within the framework of the territories of advanced social and economic development and the Free Port of Vladivostok.

In addition, EEF-2018 resulted in agreements on the implementation of investment projects, giving a new impetus to the development of the Northern Sea Route and the development of the Arctic zone of the Russian Federation. At the same time, on November 21, 2018, at the XII International Forum “Transport of Russia,” the creation of a working group for the implementation of the Northern Sea Route development project headed by Deputy Prime Minister Maxim Akimov, was announced. At this event, the Prime Minister of the Republic of Korea, Lee Nak-yeon, emphasized the importance of the joint work of Russia and South Korea in shipbuilding and in the development of the Northern Sea Route.

FAS RUSSIA PROPOSES LEGISLATION TO IMPOSE FINES FOR VIOLATIONS OF LEGISLATION ON FOREIGN INVESTMENTS

The Federal Antimonopoly Service of the Russian Federation (FAS Russia) has prepared a draft Federal Law On Amendments to the Code of Administrative Offenses of the Russian Federation (Administrative Code of the Russian Federation), which proposes to introduce responsibility in the form of an administrative fine for carrying out transactions and other actions prohibited by Russian legislation on foreign investment in the Russian Federation, as well as for obstruction of authorized inspections by the antimonopoly authority.

Current law does provide for such liability, and is inconsistent with the prohibition in Federal Law of 29 April 2008 No. 57-ФЗ, On the Procedure for Making Foreign Investments in Business Companies of Strategic Importance to Ensure the Defense of the Country and the Security of the State. This law regulates transactions and other actions by foreign investors that establish control over an economic entity that is designated as important to the strategic defense of the Russian Federation or to state security.
Existing legislation imposes liability only for non-submission of applications, notifications, or information to the federal executive body authorized to perform the functions of monitoring foreign investment in the Russian Federation (Article 19.8.2 of the Administrative Code of the Russian Federation).

THE FIRST RUSSIAN-KOREAN FORUM OF INTERREGIONAL COOPERATION WAS HELD IN POHOHAN

On November 7-9, 2018, the 1st Russian-Korean Forum of Interregional Cooperation was held in the South Korean city of Pohang. The Forum was attended by representatives of 9 constituent entities of the Russian Federation located in the FEFD and all 17 constituent entities of the Republic of Korea. At the end of the Forum, all of its participants adopted the Pohang Declaration. This document enshrines agreements on international cooperation in the areas of trade exchange and logistics, the energy industry, and bioenergy, as well as in culture, art, and sports.

The parties also agreed on the formation of a permanent secretariat to coordinate the activities of the Forum and to expand its membership. According to the Pohana Declaration, the II Russian-Korean Interregional Cooperation Forum will be held in Primorye Territory in 2019, where representatives from an even greater number of Russian regions are expected to participate.
During the Forum, representatives of the Far Eastern regions presented their investment opportunities to the Korean audience. For example, the Association of Organic Agriculture of the Sakhalin Region presented a project to create a site for the production of natural fertilizers and suggested that the Korean side work with them on the islands, using organic technologies. Willingness to cooperate with Korean partners was also expressed by companies operating in the polymer field, in the coal industry, and those engaged in the extraction of peat.

The Primorsky Territory Development Corporation, in turn, presented the Primorye entertainment resort project; and one of the Korean companies decided to become a resident of this resort. A South Korean holding will receive a land plot of 20 hectares, where it plans to build a golf club, an amusement park, art space, and a center for water sports. The volume of investments in the project will be more than 20 billion rubles.
Currently Primorye is the largest foreign investment project in the region. The completion of the second stage of which is scheduled for 2022. The current investment under the concluded agreements, including agreements with Korean investors, is more than 78 billion rubles. The size of all investments in the project is estimated at about 117 billion rubles.

In addition, the Korean side promised to submit to the EEF-2019 a project for the reconstruction of the port of Slavyanka, which is now being prepared by Hyundai Engineering & Construction and the Ministry of Maritime and Fisheries of the Republic of Korea. The Ministry is considering the possibility of participation by other South Korean companies in the development of the port. The interest of the Korean side is associated with the unique location of the port at the junction of the borders of China, Russia and the DPRK.

REPUBLIC OF KOREA INTENDS TO CREATE THE "GLOBAL INFRASTRUCTURE FUND"

In 2022, South Korea will create the "Global Infrastructure Fund" investment support fund in Russia, in which will be invested about $100 million. The South Korean government intends to actively support local firms operating in the northern direction. According to the Ministry of Transport and Land Resources of the Republic of Korea, the priority will be to support projects in the fields of transport, energy, water resources, and the development of high-tech infrastructure in the regions.

In addition to projects in the Russian Federation, this fund will assist in the development of promising projects in the CIS, Mongolia, and Eastern European countries. A similar fund will be created for the financial support of companies that will focus on activities in the countries of the Association of Southeast Asian Nations and in India.

SOUTH KOREA APPOINTS OFFICIAL TO PROMOTE COOPERATION WITH RUSSIA

The leadership of South Korea has appointed a new head of the Presidential Committee on Northern Economic Cooperation, Kwon Goo-hoon, who previously worked for Goldman Sachs, an international financial conglomerate. The Committee on Northern Economic Cooperation (CNEC) is accountable to the President of the Republic of Korea, Moon Jae-in. CNEC was established to enhance South Korean cooperation in the Eurasia by promoting multilateral projects. At the same time, one of the priority tasks of the CNEC is to enhance cooperation with Russia.
In South Korea, the appointment of Kwon Goo-hoon, who previously headed the International Financial Fund office in Moscow, is expected to lead to positive changes in the development of Russian-Korean relations.

RUSSIA AND THE REPUBLIC OF KOREA AGREE TO JOINT DEVELOPMENT OF INNOVATIVE TECHNOLOGIES

In September 2018, a memorandum of understanding for scientific and technical cooperation was signed by the Far Eastern Federal University (FEFU) and the Korean Institute of Industrial Technology (KITECH). The parties will jointly create an innovative platform for industrial transformation and will develop innovative projects on the basis of the Russian Technopark in FEFU, which in October 2018 entered the International Association of Asian Technoparks.
FEFU and KITECH agreed to cooperate in the development of innovative technologies, physical and chemical research, and implementation of their results. Russian and South Korean scientists will jointly carry out research and development in the field of rare metals, and will develop technologies related to the extraction, processing, recovery and refining of metals. This framework of cooperation will support the transfer of production technologies, consistent with the legal requirements of the two countries.