"Increased Economic Regulations... Companies Face Worsening 'Market Entry' for 5 Consecutive Years"

KCCI Analyzes Regulatory Legislation Status
"Increase in Regulatory Laws Inevitable for New Industry Creation
Control-Oriented Regulation Management Hinders Industrial Innovation"

[Asia Economy Reporter Choi Seoyoon] Economic regulations that burden businesses have been steadily increasing over the past five years, according to an analysis. It is argued that to improve the perception of regulatory innovation, not only existing regulations need to be improved, but the regulatory system managing newly established and strengthened regulations must also be enhanced.

According to the report titled “Current Status and Implications of Regulatory Legislation Seen through the Regulatory Information Portal,” released by the Korea Chamber of Commerce and Industry on the 10th, a total of 304 regulatory laws were newly established or strengthened over the five years from 2017 (based on promulgation). Among them, 151 cases, nearly half, were identified as economic regulations that burden businesses.

In particular, 'entry regulations' that hinder free market entry by businesses have been steadily increasing every year. Among economic regulations, 75.5% (114 cases) were entry regulations. Other competition regulations related to monopolies and unfair trade accounted for 14.6% (22 cases), and price regulations were 9.9% (15 cases), according to the survey.

Regulatory laws refer to laws that include regulatory provisions. The Regulatory Coordination Office determines whether government-initiated bills contain regulations, while the Ministry of Government Legislation decides for bills proposed by lawmakers, and these are disclosed on the Regulatory Information Portal. This survey analyzed all regulatory laws disclosed on the portal and examined the final promulgated laws to obtain the results.

Among the regulatory laws, 101 included provisions that newly established punishment standards or strengthened penalties such as increased fines or surcharges. Professor Kwak Noseong of Yonsei University said, “An excessive focus on criminal penalties can suppress business activities,” adding, “The possibility of receiving excessive punishment for unintended mistakes during business operations may influence companies to stay with existing businesses rather than taking on new challenges, or even decide to reduce domestic operations and relocate production facilities overseas.”

9 out of 10 Newly Established or Strengthened Regulatory Laws Are 'Legislations by Lawmakers' That Do Not Undergo Regulatory Impact Assessment

Analysis of the 304 regulatory laws by legislative initiator showed that 271 were legislations by lawmakers. Nine out of ten newly established or strengthened regulatory laws were initiated by lawmakers. It was also pointed out that unlike government-initiated bills, bills proposed by lawmakers do not undergo regulatory impact assessments, which can create a 'blind spot in regulatory management.'

Professor Lee Hyukwoo of Paichai University said, “Since legislations by lawmakers can be pursued without regulatory impact assessments, there is a tendency for regulatory laws to be legislated mainly through lawmakers’ initiatives,” adding, “Bills proposed without thorough review inevitably cause conflicts or overlaps, which is concerning.” He further explained, “As regulatory laws continue to increase, regulatory improvements that businesses can actually feel on the ground are not being achieved despite government efforts at regulatory reform.”

The unchanging number of regulations also shows that regulatory reform is not producing substantial effects. The tally of registered regulations has remained at about 15,000 for ten years. This means that while efforts were made to eliminate regulations, new regulations were continuously created on the other hand. As of May this year, the number of registered regulations was 14,961, similar to the 14,857 announced by the government ten years ago.

The slow pace of improvement in Korea’s regulatory environment was also highlighted as a problem. According to the Product Market Regulation (PMR) index published every five years by the OECD since 1998, Korea has ranked among the top nine countries with high regulatory levels for 20 years. Notably, among the seven countries that had stricter regulations than Korea in the first evaluation in 1998, except Turkey, countries such as Portugal, the Czech Republic, and Hungary have already lowered their regulatory levels relatively.

Professor Lee Minchang of Chosun University said, “Even looking at the internationally comparable OECD Product Market Regulation index, it is clear how slow the improvement of the regulatory environment is,” adding, “While an increase in regulatory laws is an inevitable step with market sophistication and new industry creation, control-oriented regulatory management rather hinders industrial innovation,” and emphasized, “It is necessary to comprehensively manage both the quantity and quality of regulations and make bold attempts for speedy regulatory reform.”

"Regulatory Improvement and Abolition Require More Time and Cost... New Regulations Must Be Managed More Strictly"

The report proposed a comprehensive overhaul of the regulatory management system for successful regulatory reform, including ▲ introduction of impact assessments for legislations by lawmakers ▲ consolidation of regulatory laws ▲ strengthening of regulatory management systems.

Currently, Korea conducts regulatory impact assessments only for government-initiated bills, whereas major countries such as the United States, France, the United Kingdom, and Germany also conduct impact assessments on legislations by lawmakers. The OECD also recommended in its 2017 Regulatory Reform Report to strengthen legislative quality through cost-benefit analysis of legislations by lawmakers, emphasizing that bills to introduce impact assessments for legislations by lawmakers currently pending in the National Assembly should be promptly enacted.

Furthermore, as the current government has announced plans to introduce a regulatory cost reduction system based on the ‘One in, Two out’ approach and flexible reduction targets by ministries for institutional improvement, it argued that to ensure the effectiveness of the system, it is necessary to introduce groundbreaking incentives linked to regulatory cost reduction.

Ok Hyejung, team leader of the Regulatory Sandbox Office at the Korea Chamber of Commerce and Industry, said, “Once regulations are introduced, they are difficult to remove, and improving or abolishing them requires more time and cost, so new regulations need to be managed more strictly,” adding, “Not only individual regulatory improvements but also the system managing the creation, maintenance, management, and abolition of regulations must be supplemented and operate efficiently.”

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