[Weekly Review] The Korean Economy Caught in 'Legal Risk'

[Image source=Yonhap News]

[Asia Economy Reporter Moon Chaeseok] Following the 'Fair Economy 3 Acts (Amendments to the Commercial Act and the Fair Trade Act, and the enactment of the Financial Group Supervision Act),' companies have expressed concerns throughout the week upon hearing the legislative notice for the class action system and punitive damages system. Commercial landlords are at risk of losing the right to demand contract termination from tenants for six months. Although exports recorded a positive figure for the first time in the third quarter, the daily average was still negative. The increase in working days by two was a significant factor.

◆Legislative Notice for Class Action System and Punitive Damages System

[Image source=Yonhap News]

The Ministry of Justice announced on the 23rd that it will issue legislative notices starting from the 28th to expand the class action system, which was limited to the securities sector, to all fields, and to expand the introduction of the punitive damages system. The bill is planned to be submitted to the National Assembly within this year.

The class action system is a system that obligates relief for all victims even if only some of the victims file a lawsuit. It was previously applied only to stock price manipulation and false disclosures, but from now on, the class action system will be introduced for all fields where there are more than 50 victims claiming damages.

The punitive damages system, which recognizes liability for damages up to five times the amount of actual damages, will be expanded. According to the amendment, liability for damages of 3 to 5 times the actual damage amount will be recognized for large-scale illegal acts. The punitive damages system will be specified in the Commercial Act.

◆Despite Corporate Outcries... "Fair Economy 3 Acts" to be Passed in the Regular National Assembly

Kim Tae-nyeon, Floor Leader of the Democratic Party of Korea./Photo by Yoon Dong-ju doso7@

Even before the Ministry of Justice's legislative notice related to lawsuits, companies complained to the political circles that survival was uncertain due to COVID-19 and other factors.

On the 21st, Park Yongman, Chairman of the Korea Chamber of Commerce and Industry, criticized the political circles, saying, "Companies are struggling on the brink of life and death, but I don't know what the political circles are doing."

However, on the 24th, Kim Tae-nyeon, floor leader of the Democratic Party of Korea, firmly stated that the Fair Economy 3 Acts would definitely be passed within this regular National Assembly session.

◆Commercial Landlords Prohibited from Terminating Contracts Even if Monthly Rent is Overdue for 6 Months

Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, is greeting attendees at the 'Real Estate Market Inspection Meeting of Related Ministers' held on the 23rd at the Government Seoul Office in Jongno-gu, Seoul. Photo by Kang Jin-hyung aymsdream@

In the real estate market, news was announced that policies potentially restricting landlords' business rights are being promoted.

On the 23rd, Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, announced at the '7th Real Estate Market Inspection Meeting of Related Ministers' that if tenants suffer damage from infectious diseases like COVID-19, they can request rent reduction from landlords, and even if tenants do not pay rent for six months, this period will be excluded from the delinquency period.

The amendment to the Commercial Building Lease Protection Act containing these provisions passed the Legislation and Judiciary Committee on the 23rd and was submitted to the plenary session on the 24th.

Deputy Prime Minister Hong said, "We are discussing excluding six months from the delinquency period when calculating the statutory three-month rent delinquency period after the amendment takes effect." If this happens, under current law, landlords can terminate contracts after three months of delinquency, but this period will be extended to nine months.

◆Slight Export Rebound in September, the Last Chance in Q3

[Image source=Yonhap News]

The Korea Customs Service announces export performance three times a month: for the 1st to 10th, 1st to 20th, and monthly. In the third quarter, when the government confidently predicted an export rebound, there were nine opportunities in total?three times each in July, August, and September. Out of these nine opportunities, South Korea's exports barely turned positive eight times.

According to the 'September 1-20 Export and Import Status (provisional clearance basis)' announced by the Korea Customs Service on the 21st, South Korea's exports during this period amounted to $29.6 billion, an increase of 3.6% ($1.02 billion) compared to the same period last year. This is the first increase in export value for the 1st to 20th period in six months since a 10% increase in March. The daily average export value was $1.91 billion, a decrease of 9.8% ($200 million) compared to last year.

The number of working days from the 1st to 20th of this month was 15.5 days, two days more than last year, which included the Chuseok holiday. The number of working days in late September is 0.5 days more than last year, and the total for September is 2.5 days more.

This means that exports must rebound positively in September. Due to the Chuseok holiday, the number of working days in October will be two days fewer, making it difficult to record positive results.