FKI "Regulatory Cost Management System Ineffective, Virtually Useless"

Source: Federation of Korean Industries

[Asia Economy Reporter Changhwan Lee] There have been criticisms that the effectiveness of the Cost Management System for Regulations, a system designed to reduce regulatory burdens on citizens and businesses, is low.

The Federation of Korean Industries (FKI) announced on the 22nd that an analysis of the operation status of the Cost Management System for Regulations, which started in July 2016, showed that the system was applied to only 8.2% of newly established or strengthened regulations, participation by ministries has decreased, and the obligation for ministries to disclose their operation status has not been properly observed.

The Cost Management System for Regulations (Cost In, Cost Out) is a system that offsets the regulatory costs (cost in) caused by the establishment or strengthening of regulations that impose cost burdens on business activities by abolishing or easing existing regulations with equivalent costs (cost out), thereby reducing the burden on the regulated parties. It has been implemented since July 2016 based on the Prime Minister’s directive, the "Administrative Regulation Handling Guidelines for Reducing the Burden on Citizens."

According to the Regulatory Reform White Paper published by the Regulatory Reform Committee, the regulatory costs reduced through the Cost Management System for Regulations amounted to 853.3 billion KRW by the end of last year. By year, the reductions were 558.7 billion KRW (65.5%) in 2016 and 202.2 billion KRW (23.7%) in 2017, with the reductions during the first year and a half accounting for 89.2% of the total. Subsequently, reductions were 18.5 billion KRW (2.2%) in 2018 and 71.3 billion KRW (8.4%) in 2019, indicating that the effectiveness of the system has decreased compared to its initial implementation, the FKI emphasized.

Among the 28 ministries subject to the Cost Management System for Regulations, 3,900 regulations were newly established or strengthened over four years, but only 321 cases (8.2%) applied the system, meaning that more than 9 out of 10 newly established or strengthened regulations were excluded from the system’s application.

Since the implementation of the Cost Management System for Regulations, 7 ministries, accounting for 25.0% of all target ministries, had no applicable regulations at all, and 6 ministries (21.4%) had three or fewer cases over four years (less than one case per year on average). The FKI explained that 13 ministries, or 46.4% of the 28 ministries subject to the system, are effectively not participating in the Cost Management System for Regulations.

Yoo Hwan-ik, Director of Corporate Policy at the FKI, said, "While countries like the UK and the US, which operate similar systems, have achieved significant results in reducing regulatory costs, Korea’s Cost Management System for Regulations has not achieved the intended outcomes. We need to carefully review the past operational status and promptly prepare measures to enhance its effectiveness."

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