Temporary Regulatory Relief to Turn Economy Around

Adopts TRR, an unprecedented step to ease economic difficulties facing SMEs and boost investment from the private sector

While joining G-20 countries in an effort to cope with the global economic crisis, the Korean government has been implementing economic stimulus measures, including a supplementary budget and the first half front-loading of this year's budget. In addition, the government is introducing temporary regulatory relief (TRR), an unprecedented step to ease economic difficulties facing SMEs and boost investment from the private sector.
Here are excerpts of an interview between NewsWorld and Kim Ho-won, deputy minister for regulatory reform at the Prime Minister's Office, who is the architect of the two-year TRR, which is to take effect from July 1.
Question: What's the definition of temporary regulatory relief (TRR)? Are there systems in foreign countries similar to the TRR concept?
Answer: This temporary regulatory relief is a system designed to halt or relax for a given period of time the execution of regulations, which cannot be immediately abolished or relieved due to policy necessity, in order to turn around the moribund economy and relieve the difficulties those in the low-income bracket face.
After a grace period of temporary regulatory relief, the relevant regulations principally reverts to their execution power, but it's a new regulatory reform measure to take into account their permanent cancellation or permanent relaxation following the end of regulatory relief if it does not cause side-effects.
There is so far a case of “space privilege” in which regulatory application is exempt in areas designated as free economic zones (FEZs) designed to lure foreign direct investments and upgrade their business environment to international standards.
This temporary regulatory relief is a kind of “time privilege” aimed at providing temporary exemption of regulations for a given period for the purpose of recovery from the economic crisis. I understand that any country's attempt to give temporary regulatory relief from multiple existing regulations has been never made. It is assessed to be a new experiment of regulatory reform that could inspire OECD countries.
Q: The government is said to have initially suggested temporary regulatory relief. What's the background for introducing the measure?
A: Thanks to the government's economic stimulus measures, including a supplementary budget, amid the global economic crisis, the nation's economic downturn seems to have leveled off, but since private consumption and facility investments continue to decline, regulatory reform is badly needed to induce investments from the private sector.
Regulatory reform has so far become one of the tasks on which the Korean government has attached top priority. It has been carrying out massive regulatory reform measures, including a sunset provision, and they have paid off to some extent. However, a great number of regulations have policy necessity, and it is not easy to revamp them on a permanent basis since they exist in a chain of the many existing interests.
Temporary regulatory relief was conceived from the new viewpoint of granting a deferment from the execution of regulations during the economic crisis period amid conflicting views of favoring swift reform to reinvigorate investments amid economic difficulties and worrying about bad effects, caused by regulatory reform.
Q: What's the scope of the beneficiaries of temporary regulatory relief?
A: The guideline for selecting the scope of the beneficiaries is focused on areas in which temporary regulatory exemptions will have significant economic effects and have immediate effects of inducing investments and creating jobs. Regulations that can severely undermine environmental and safety goals or have considerable side effects in comparison to the effects of boosting investments are excluded, however.
Preferably considered in an economic situation for boosting private investments are: 1) areas of grievances facing start-ups and private investments that can be relieved; 2) the financial burden businesses experience while engaging in economic activities that can be reduced; and 3) difficulties facing SMEs and those in the low-income bracket that can be resolved.
Regulations subject to two-year temporary regulatory relief have been selected, but those that need to be revamped permanently have been added to the process of discussions. Out of a total of 280 regulations, 145 cases or 52 percent are subject to temporary regulatory relief, and the remaining 135, or 48 percent, are in the category of regulations subject to a permanent overhaul.





















Q: You have focused on three areas. Will you specify what areas have far-reaching spillover effects?
A: The emphasis is on eliminating grievances start-up companies and the private sector experience when making investments, particularly on the expansion of the existing plants and the invigoration of industrial complexes that could lead to investments in a short-term perspective.
A cap on the building-to-land ratio for factories in restricted areas will go up to 40 percent from the current 20 percent and restrictions on the development of the neighborhood of green belt areas will be eased in order to make it easier to expand the existing factories. As a result, about 50,000 factories, roughly 39 percent of the 130,000 factories across the nation, will be granted expansion if their proprietors choose.
A uniform 6 percent cap on revenues on the private sector's development of land sites for industrial use, as directed by the Ministry of Land, Transport and Maritime Affairs, will be relaxed to anywhere within a 15 percent cap varying according to each district as stipulated by the degree of implementation. The process for the construction of tourism and leisure facilities within industrial complexes will be eased to invigorate the industrial estates. The measure will reduce by one year the process for the implementation of a project to build Universal Studio at a cost of 2.9 trillion won in Hwaseong City.
Regulations on restricting businesses’ activities will be eased in consideration of the reality to meet new business demands and ones on collective training will be revamped. Accommodation facilities and bookstores will be added to the scope of auxiliary businesses in which medical institutions are allowed to do business. Proprietors of restaurants, accommodation facilities and bath houses will be required to submit a report via the Internet instead of showing up themselves for participation in annual collective educational programs.
A priority will be also attached to SMEs and those in the low-income bracket that are susceptible to the economic crisis. The number of researchers required for the establishment of SMEs’ research institutions will be reduced from five persons to three persons. Approximately 880 SMES will be qualified for the exemption of local taxes by setting up their research bodies. Local start-ups and SMEs and venture firms will be granted another two years until the end of 2011 for reducting their corporate and income taxes estimated at about 170 billion won per annum. SMEs will have rental fees on the use of state-owned properties declined from the current 5 percent to 3 percent. Start-ups and venture firms situated in provincial areas will have the rental fees further reducted to bring about an effect of supporting more than 3 billion won annually.
Q: Will you tell us about temporary regulatory relief cases designed to boost FDIs?
A: Measures will be taken to revamp regulations in order to further accelerate foreign investments.
Restrictions imposed on foreign investments will be eased to allow foreign-invested companies to conclude private contracts on the acquisition of plots of land for urban development. The measure will give a breath of new life to the Memorandum of Agreement (MOA) between King Power Group and Hanam City signed to build the nation's largest premium outlet mall. The scope of allowable businesses within industrial areas for attracting foreign investments in the tourism sector with tax exemption and rental support will be expanded to include leisure condominiums and youth training facilities.
Foreign schools will be allowed to fill up to 30 percent of their quotas with Korean students for the next five years in order to lure investments by foreign educational institutions.
Q: Do you see how much these measures will invigorate the economy?
A: It is impossible to calculate the exact economic effects on which these measures will have since such a regulatory relaxation is linked to corporate start-ups and investments in order to make economic sense. We expect companies to seize new investment opportunities if they make the most of the temporary regulatory relief periods, which in return would turn around the economy.
A study of 100 easier-to-measure tasks subject to temporary regulatory relief shows that they are estimated at about 6 trillion won in investment inducement and alleviation of burden. We also expect such measures to create around 50,000 new jobs.
Together with the government's fiscal policies designed to overcome the economic crisis and improve corporate investment sentiment, it is significant for the government to introduce a new method of regulatory reform in the form of time privilege.
Q: Are there problems related to legal stability and equality?
A: Some raise questions about legal stability and equality about the introduction of temporary regulatory relief ― legal changes in a short period of time that could hinder continued and stable execution of regulations and problems related to regulatory differences before and after such relief periods.
Giving start-ups and investors the benefit of temporary regulatory relief in return for taking risks at difficult times is not an outright matter of going against equality.
Many legal experts share the view that it does not cause a big problem regarding legal stability since the fact that the execution of regulations reverts back after the relief period is over. The time limit on the temporary tax exemption on investments will be clarified.
Regulations that could cause excessive controversies on legal stability and equality were delisted during discussions.
Q: When will the revision of related laws and regulations be made?
A: Such temporary regulatory relief measures will be implemented as soon as possible in order to yield tangible results.
Such lower regulations as enforcement ordinances and decrees that do not require parliamentary approval will be amended during June to take them into effect on July 1. They will be consolidated in a presidential decree ordering lump-sum amendment execution and each ministry's ordinance decree to curtail the time-consuming revision process to one month.
A special measure on the revision of related laws will be submitted to the parliament for approval. nw

Kim Ho-won, deputy minister for regulatory reform at the Prime Minister's Office

Prime Minister Han Seung-soo speaks at a joint committee meeting to introduce temporary regulatory relief.