South Korea's Regulatory Competitiveness Worse Than Bangladesh's

Remote Medical Care and Tada Ban Hinder Korean Industry Competitiveness
US Removes 7.6 Existing Regulations for Every New One
Korea's Excessive Regulations Cause Companies to Lose Ground

[Asia Economy Reporter Changhwan Lee] Recently, major regulatory controversies in Korea have involved the Chemical Substances Registration and Evaluation Act (Chemicals Act), telemedicine, and the Tada Prohibition Act. These regulations are cited as representative cases that suppress corporate business activities and lower Korea's industrial competitiveness in the era of global unlimited competition.

The Chemicals Act and the Chemical Control Act are environmental regulations aimed at preventing casualties caused by chemical substances. Since chemical substances can cause numerous casualties if mismanaged, the government established the Chemicals Act and the Chemical Control Act to strengthen related regulations.

However, companies claim that government regulations require additional management costs ranging from hundreds of billions to trillions of won, urging regulatory relaxation, especially for small businesses where the survival of the company is at stake.

Regarding telemedicine, remote medical treatment between doctors and patients is fundamentally prohibited in Korea. The related Medical Service Act amendment has been pending in the National Assembly for 10 years. As of last year, the global telemedicine market was $30.5 billion, with an expected annual growth rate of 14.7%, making it a rapidly growing market. Meanwhile, Korea has not even properly grasped the size of the telemedicine market due to regulations.

Neighboring countries such as the United States, China, and Japan have long fully permitted telemedicine and developed related industries, whereas Korea has yet to properly attempt it due to opposition from doctors. Since telemedicine is impossible domestically, Korean companies possessing related technologies are reluctantly conducting business overseas.

Korea also has strict regulations on the Fourth Industrial Revolution. The amendment to the Passenger Transport Service Act, known as the Tada Prohibition Act, is a representative example. Tada is a transportation service launched in 2018, where consumers can rent a car along with a driver through a smartphone application.

Because its business model is similar to taxis, related companies strongly opposed it. Consequently, the government and National Assembly amended the Passenger Transport Service Act in April to ban Tada, which immediately ceased operations. Similar services like Uber are also unable to operate in Korea.

◆Korea's Regulatory Competitiveness Among the Lowest Globally... Worse Than Bangladesh

While regulations are increasing in Korea, advanced countries overseas are continuously removing regulations to create a business-friendly environment.

The United States has achieved results by implementing a policy to eliminate existing regulations twice the cost of new regulations (2-for-1 rule), abolishing 7.6 existing regulations for every new regulation in the past three years. Since 2015, the United Kingdom has legally mandated setting targets to reduce corporate regulatory costs during parliamentary terms, cutting costs by an average of 2.2 billion pounds (about 3 trillion won) annually.

Meanwhile, Korea's regulatory competitiveness remains among the lowest globally. According to last year's National Competitiveness Ranking by the World Economic Forum (WEF), Korea's perceived government regulatory relaxation ranked 87th, similar to Bangladesh (84th) and Ethiopia (88th). The consistency of government policies (76th) was also lower compared to major countries such as the United States (16th) and Germany (19th).

Due to lagging regulatory competitiveness, many companies invest overseas, while foreign direct investment (FDI) into Korea remains relatively low. According to the Organisation for Economic Co-operation and Development (OECD), Korea's outward direct investment (ODI) last year was $35.5 billion, whereas FDI was only $10.6 billion.

Professor Seongmin Jeon of Gachon University's Department of Business Administration emphasized, "The key to new industry-related policies is how well they can harmonize and grow with existing industries," adding, "When conflicts between new and existing industries are significant, the government should consolidate cross-governmental capabilities to proactively resolve issues among stakeholders and ease regulations that hinder innovative industries."