Growing Global Uncertainty Calls for the Adoption of the 'Two-for-One Rule' to Innovate Manufacturing Industry

US Sees 7.6 Existing Regulations Removed per New Rule 21 Regulation Introduced... UK Also Shows Significant Impact

[Asia Economy Reporter Yu Je-hoon] The reason why the domestic industrial sector proposed groundbreaking regulatory reform measures such as the ‘2-for-1 rule’ to the next government is primarily due to the increasing uncertainty in the global economic environment. Amid growing internal and external uncertainties such as the COVID-19 pandemic, countries included in advanced economies are putting all their efforts into manufacturing reshoring (policies to bring domestic companies that had moved overseas back to Korea), which is narrowing the position of our manufacturing industry.

Recently, external factors constraining domestic manufacturing include COVID-19, the US-China trade dispute and the resulting supply chain crisis, the revitalization of manufacturing in advanced economies, and increasingly stringent environmental regulations. These are difficult challenges that are hard to solve independently not only for individual companies but also at the government level. In fact, as COVID-19 continues, concerns about inflation are emerging, and situations such as border closures, business restrictions, and production facility shutdowns are becoming commonplace. The US-China trade dispute and the resulting shortages of materials, equipment, and parts are among the biggest concerns for the industrial sector recently. The semiconductor supply shortage that has hit the world this year is a representative example.

Domestic conditions are also unfavorable. Jeong Manki, chairman of the Korea Industrial Alliance Forum (KIAF), said, "Korea’s strength lies in its high R&D innovation capabilities, but problems such as slow productivity growth, aging population, low birth rate, and polarization of income and purchasing power persist," adding, "Especially in the area of formal regulations, the situation is so backward that it is evaluated to be at the level of Bangladesh and Ethiopia."

Meanwhile, countries included in advanced economies are making every effort to innovate manufacturing. According to KIAF, in the US, following the Trump administration, corporate tax rate cuts and regulatory reforms under the ‘manufacturing revival’ policy have significantly improved business conditions, attracting investment. In fact, the amount of overseas direct investment (ODI) from Korea to the US increased from $1.12 billion in 2017 to $3.91 billion in 2019.

On the other hand, various corporate regulations in Korea are not only being maintained but are increasing rapidly. Since the inauguration of the Moon Jae-in administration, the number of regulatory bills proposed by lawmakers until July this year reached 3,950, a 200.8% increase compared to the previous administration’s 1,313 bills. In the past year alone, newly established or strengthened regulations increased by 55.0% to 1,510 cases compared to the previous year, of which 96.4% were exempted from review by the Regulatory Reform Committee, and 83.8% were defined by laws below the enforcement decree level.

This contrasts with competing countries accelerating regulatory abolition aimed at manufacturing reshoring. In the US, the ‘2-for-1 rule’ introduced during the Trump administration resulted in the abolition of 7.6 existing regulations for every new regulation introduced over three years (2017-2019), and regulatory costs were reduced by an average of $14.9 billion (about 17.7 trillion KRW) annually over the past three years.

The UK introduced the ‘1-in-1-out rule’ in 2005 to eliminate regulations, which requires abolishing existing regulations with equivalent cost value for every new regulation introduced, and later replaced it with the ‘1-in-3-out rule,’ expanding the scale two to three times. According to a UK government report, after introducing the ‘1-in-3-out rule’ in 2015, UK companies reduced regulatory burdens amounting to ?6.6 billion (about 10.4 trillion KRW) by 2017.

There have been attempts to ease regulations domestically as well, but most were one-off. A representative example is the ‘Negative Regulatory Review System’ introduced during the Park Geun-hye administration to ease regulations on new industries. This system resolved regulatory difficulties by adopting a ‘principle of abolition, exceptions retained’ approach when submitted to presidential meetings. Among the 157 regulations identified at the time, 150 regulations were abolished, far exceeding the ministries’ plans (7), but it was implemented only once at the end of the administration.

The industrial sector urges the next government to adopt a negative regulation approach (a regulatory method that allows all matters not explicitly prohibited) to ease and resolve existing regulations, while actively introducing Anglo-American style regulatory relief measures to establish a foundation for innovation in domestic manufacturing.

Chairman Jeong said, "At the very least, we need to create domestic conditions where our companies can compete on equal footing with foreign companies, even if not advantageous. The next government should legislate US-style 2-for-1 rules to enhance corporate innovation and creativity," adding, "The worst regulations are entry regulations that suppress creativity and motivation for achievement. While enhancing the Fair Trade Commission’s monitoring and enforcement functions, entry regulations based on livelihood-type suitable industries or individual laws should be abolished."

This content was produced with the assistance of AI translation services.