Regulation needs defining
By Stefan Halusa
During a nationally televised roundtable in March 2014, President Park Geun-hye announced a “War on Regulation,” introducing various measures in different industries to tackle some of the most urgent regulatory obstacles for businesses in Korea. The Park administration initiated efforts to concentrate deregulation especially in sectors such as education, healthcare, finance, tourism, and information and communication technology (ICT).
Although regulatory reforms were introduced in the following years, the recently published 2016 Business Confidence Survey has shown that many European businesses in Korea are still not fully satisfied with the government’s policy regarding regulations. Fifty-four percent of European companies in Korea stated that the reforms implemented in 2016 did not help their businesses and only 5 percent are confident the Korean government will start to implement meaningful reforms. The government’s responsibility and obligation to define the regulatory framework to ensure safety, security and health of consumers and to protect the environment is unquestioned. But when regulations become obstacles, by restricting rather than enabling companies to develop and to create new job opportunities, they lead to higher costs for consumers and reduced consumer choice and influence in the competition for the best solution or product. This is especially true when regulators impose different local standards, instead of applying global ones. Or when new standards are defined, and applied retroactively to already delivered products, making them obsolete.
There are examples in various industries where this is the case in Korea:
― The international standard for car window washing fluid is that it needs to operate down to minus 23 degree Celsius in winter. The Korean regulation is minus 25 degrees Celsius, all year round. This also causes tons of antifreeze to be released into the environment.
― The EU has defined food standards which apply for all member countries. Still Korea insists on individual country assessment when it comes to deliveries e.g. of beef, fruit or vegetables. So far hardly any shipments take place.
― Serialization of pharmaceutical products such as specialized and over-the-counter (OTC) drug products in Korea demand unique reporting of two requirements. Serialized products must contain the Korea drug code (KDC) rather than GTIN. Expiration date, lot number and a 2D data matrix or linear barcode are required.
― Venture capital funds invested by SMEs are limited when investing into the fintech sector because of the SME Establishment Act. Additional barriers for startups to enter the finance market exist in form of a required starting capital of 1 billion won, long government review processes and specifically Korean security protocols for online payment consisting of third-party encryption, ActiveX and Public Key Certificates. Such regulations mean that, despite Korea’s high internet penetration rate and ICT infrastructure, the fintech industry is less globally competitive.
Korea’s economy, like very few other countries in the world, depends on success in export markets. The global competitiveness of Korean companies and their products are key to the future economic growth of Korea. This requires state-of-the-art components, materials, processes, equipment and services _ in other words, state-of-the-art suppliers. It is, therefore, in Korea’s own best interest to attract global companies to invest and do business in Korea.
They can and will make important contributions to strengthening the global competitiveness of Korean industry. Regulations, which hinder overseas companies to compete here, thereby giving shelter to local companies, will in the long run, undermine competitiveness. The dramatic changes, which the digital transformation of the industry will cause, will accelerate this process.
Despite such challenges, Korea remains an important market for European companies and especially German companies, which are optimistic about growth in Korea. Seventy percent of German companies plan to expand their operations in Korea in 2017 by organic growth, and 51 percent want to increase the number of permanent positions. In order to improve Korea’s attractiveness to foreign investors, the Korean government should continue to focus on improving the business environment and regulatory framework for future growth.
Stefan Halusa is president of Korean-German Chamber of Commerce and Industry.