[Viewpoint] It's the Regulation, Stupid

Choi Jun-seon, Honorary Professor at Sungkyunkwan University School of Law

Presidents always make a certain promise when they take office: to firmly control regulations. Former President Lee Myung-bak said that regulatory poles must be uprooted, and former President Park Geun-hye even presided over an over seven-hour-long final debate, saying that the thorn under the fingernail must be removed. The results were not significant. On his first day in office, January 20, 2017, U.S. President Donald Trump declared a war on regulations by instructing, through his Chief of Staff, to halt the introduction and review of new regulations except for urgent or national security-related issues until new heads of administrative agencies were appointed. Did he actually win this war?

Feelings toward President Trump are extremely polarized among both Koreans and Americans. However, regardless of opinions, his achievements in deregulation must be acknowledged. From the beginning of his term, he issued Executive Order No. 13771 to prevent the total regulatory costs from increasing due to new regulations. He strongly enforced the so-called 'two-for-one rule,' which requires eliminating two existing regulations for every new regulation introduced. As a result, during his three years in office, 7.6 existing regulations were repealed for every new regulation introduced, exceeding the original goal by more than three times. Among the regulations under legislative consideration since 2016, 635 were withdrawn, 700 were designated as long-term review tasks, and 244 were put on hold (2018 Economic Report of the President). At the end of 2017, the tax law was amended to significantly reduce the federal corporate tax rate from 35% to 21%. The Washington Post reported on December 16, 2018, citing data analyzed by the Institute on Taxation and Economic Policy (ITEP), that the effective federal corporate tax rate for about 400 major U.S. corporations was 11.3%, the lowest since the analysis began in 1984. This means that the effective tax rate, which is the actual tax paid by corporations after various deductions and tax benefits, is about half of the statutory tax rate.

What about South Korea? The current Korean administration, backed by an overwhelmingly powerful ruling party, has the power to do anything. However, as seen in housing policy, it focuses its enormous power on creating regulations. Everything is done that way. Contrary to the U.S., South Korea raised the corporate tax rate from 22% to 25% starting in 2018. It appears to be mass-producing regulations through a complete overhaul of the Fair Trade Act and amendments to the Commercial Act. It plans to enact the 'Act on the Fairness of Online Platform Intermediary Transactions' to resolve the dominant-subordinate issues in the platform sector. This is a historically and business-wise regressive declaration to thoroughly block innovative companies like Google and Amazon from emerging in Korea. The distribution industry is the best at creating quality jobs, yet there are more than 20 distribution regulation bills proposed by ruling party lawmakers. It is laughable to say that the Fourth Industrial Revolution will be promoted while regulating the data service industry itself.

In fact, from 2017 to 2019, a total of 3,151 regulations were newly established or strengthened through government legislation. Of these, only 110 cases (3.5%) were classified as important regulations during preliminary review and underwent deliberation and resolution by the Regulatory Reform Committee, while 96.5% were classified as non-important regulations and did not even receive a full review. Of the 110 cases, only 10 (0.3%) were recommended for withdrawal. What is particularly problematic is that regulations under subordinate laws such as enforcement ordinances, which do not require parliamentary review, account for 84.4% (Team Leader Yoo Jung-joo and Deputy Director Ko Yong-i, Federation of Korean Industries). Additionally, South Korea has introduced and implemented a regulatory cost management system since 2016, but it suddenly stopped publishing the number of registered regulations through the Regulatory Information Portal from the second half of 2015, allowing only searches by ministry or legal clause. While shouting for regulatory reform, it has effectively given up on reform.

Regulatory reform requires managing both quantity and quality to expect visible results. Quantity management should be conducted in parallel, such as publicly comparing the number and content of newly established/strengthened and repealed/relaxed regulations along with the number of registered regulations. It is not about whether it is a New Deal or an Old Deal. Stop blaming the previous administration or the novel coronavirus (COVID-19) and firmly eliminate regulations. Then the market will move on its own. This is the word of Friedrich Hayek, who won the Nobel Prize in Economics in 1974.