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‘That’s not possible in Korea!’

Published: 07 Apr. 2014, 21:14

Thilo Halter

On March 20, President Park Geun-hye shook up government ministries by holding a forum to discuss deregulation with local business people and government officials. During the seven-hour marathon talks, which were televised live, participants put forward 52 proposals on deregulation after the President made it very clear that bureaucratic red tape and unnecessary procedures had hindered investment and employment. To remove outdated and inhibitive regulations, specific targets were set as the president pledged to cut 20 percent of overall regulations from 15,269 to 13,069 in three years, and to introduce the “regulation cap” system implemented in Great Britain.

The foreign business community has been greatly encouraged to see the president’s strong resolve to deregulate. Without a doubt, the most significant obstacle to foreign companies is the peculiar regulatory environment in Korea, along with its interpretations at administrative levels as well as sudden changes, sometimes with immediate or retroactive effects

According to the Regulatory Reform Committee, there are 15,269 regulations imposed by the central government. However, there are an additional 52,638 regulations authorized by local governments, adding extra layers of confusion and inconsistencies. Consequently, in a recent OECD report, Korea is ranked the fourth-least competition-friendly country in the OECD, indicating that the overall regulatory system does not provide a level playing field among conglomerates and small and midsize companies (SMEs), or between domestic and foreign companies.

Not all regulations are bad or counter-productive. Yet it is obvious that excessive and inward-looking regulations have suffocated creativity and entrepreneurial spirits among talented Korean businesspeople, while they make eager foreign investors hesitate to invest in Korea as many creative services are impossible in Korea. In this sense, deregulation efforts are the key to attracting more investment, boosting economic growth and achieving the government’s vision of fostering a creative economy.

There are two aspects to transparency.

First, there are too many peculiar regulations found only in Korea that restrict even the most common business practices seen in other countries. These so-called Galapagos regulations are obviously damaging Korea’s competitiveness and foreign investor’s enthusiasm toward the country. To take a few examples, many Koreans have cried out for abolishing the ActiveX-based public certificate system. Not only did it fail to prevent massive data leakage in the financial sector, but it has held back Korea’s great potential in the online business by completely alienating foreign traders and shoppers.

As a foreign executive in the automobile industry, the sentence I heard most often after arriving in Korea was, “That’s not possible in Korea.” But I have learned that many things are indeed possible in Korea. I believe the government must target these “only in Korea” regulations to make the president’s recent deregulation initiative successful. This will encourage foreign investors and give local SMEs a fair chance to reinvent and improve existing industries.

An equally important aspect is consistency in the process of change. Foreign companies often complain about unpredictable regulatory moves that are not clearly communicated and can be interpreted differently. Foreign investors are deeply concerned that rules and regulations may change without sufficient notice - leading foreign firms to be punished tomorrow even if they abide by rules today. In a similar sense, foreign executives express worries about auditing procedures for want of clarity on requirements. Investors do not like surprises at all. If the perception of the regulatory environment is tainted by unpredictability, investors will move to more reliable locations. I still believe this is the biggest hurdle to foreign investors interested in Korea.

To achieve regulatory transparency and successful deregulation, open-minded consultation with both local and international businesses is of a great significance. It would have been more encouraging if foreign executives and chambers had been invited to the Blue House forum last month. Listening to foreigner investors is not simply a service to foreigners or a means to attract foreign investment. It is a prerequisite to understand foreign markets for Korean companies.

Still, we have high hopes. With the president’s initiative, the first steps are definitely in the right direction.

By Thilo Halter, President of the European Chamber of Commerce in Korea