Entrenched Interests, Positive Bias, and Passive Administration: The 'Trap of Regulation'... Need for More Robust Deregulation than the US [Tech War, Birth of Advanced Nations]

3950 Legislator-Initiated Regulations During Moon Administration
Increased by 200.8% Compared to Park Administration
Introduced More Bold Regulatory Innovation Systems Than Advanced Countries
Representative Causes: Three Strikes Out and Prior Approval with Post Verification
Must Remove Major Barriers Restricting Large Corporations' Market Entry

Hairdresser A is the owner of a shared hair salon used by multiple people. Here, several hairdressers work as independent business operators while sharing dressing tables and beauty equipment. This significantly reduced the costs of starting a hair salon, such as deposits and operating expenses, allowing them to enter the business more quickly. Although the salon is gaining popularity with a growing number of regular customers, A has recently been feeling the fear of closure. This is because shared hair salons are illegal under current law. The Public Health Control Act (Enforcement Rule Article 2), established in the 1990s, restricts the joint use of business premises due to concerns about unsanitary management and fire hazards. However, the government and the Korea Chamber of Commerce and Industry have temporarily permitted this regulation through a regulatory sandbox. Once the permit period ends, the related business will no longer be allowed.

Office worker B recently received a notice that selling products on an online secondhand market, where they had listed contact lenses for sale, was illegal and deleted the post. This is because trading prescription glasses, sunglasses, and contact lenses is illegal under current law. In particular, lenses, including non-prescription circle lenses, are classified as medical devices, making online secondhand transactions impossible. According to Article 12 of the Medical Technician Act (Registration of Optical Shops, etc.), only opticians can sell lenses in Korea. However, in countries like the United States and the United Kingdom, online sales of glasses and lenses are thriving, with some companies rising to unicorn status. The ease of purchasing various products has led to an increase in overseas buyers in Korea. While the Korean market has become a battleground for leading global companies, ironically, Koreans themselves have not been able to properly enter this market.

Bold regulatory reform is cited as one of the key factors in boosting national competitiveness. The Yoon Seok-yeol administration has likened various regulations that hinder development to "sandbags" and is actively pursuing deregulation. The problem is that previous administrations have repeatedly made the same mistakes. To prevent regulatory reform efforts, emphasized at the beginning of each administration, from fizzling out, there are calls for identifying the causes of failure and implementing improvements first.

Obstacles to Regulatory Improvement: 'Entrenched Interests, Positive Regulation, Passive Administration'

According to a recent regulatory trend report published by the Korea Institute of Public Administration, the number of cost-benefit analysis verifications of regulatory impact analysis documents by ministries in the first quarter of this year totaled 76, with 73 new or strengthened regulations and 3 repealed or eased regulations. According to Article 2, Paragraph 1, Subparagraph 5 of the Framework Act on Administrative Regulations, "regulatory impact analysis" refers to the prior analysis of the effects of regulations on citizens' daily lives, society, and the economy to establish criteria for regulatory decisions. In other words, in just the first quarter, 73 new or strengthened regulations were examined for their costs and benefits. The number of new or strengthened regulations has steadily increased, with 54 in the second quarter of last year, 108 in the third quarter, and 67 in the fourth quarter. During the Moon Jae-in administration, the number of regulatory bills proposed by lawmakers was 3,950, an increase of about 200.8% compared to previous governments.

The biggest cause of this increase in regulations is the entrenched interests of stakeholders. "Tada," which started service in October 2018, is a representative example. Tada was a taxi service based on vans and was used by one million people within about a year, but the taxi industry claimed it was an "unauthorized transportation business," leading to the passage of the Tada Prohibition Act in March 2020. Frontline public officials responsible for permits are also part of the entrenched interests. Professor Choi Hyun-sun of Myongji University's Department of Public Administration pointed out, "If regulations are removed, public officials inevitably lose power," adding, "Public officials in charge of permits or certifications tend to engage in passive administration for the same reason."

The positive regulation approach is also cited as a cause of increased regulations. The positive system, which lists only permitted items in laws or policies and disallows anything not included, hinders entry into new businesses compared to the negative system, which allows everything except prohibited acts.

The Key is Regulatory System Overhaul

Experts agree that to prevent regulatory reform from becoming just a political slogan, Korea must introduce more bold regulatory innovation systems than advanced countries. A representative example is the "One in, Three out" system, benchmarked from the "One in, Two out" regulatory reduction system adopted by the UK and the US.

The introduction of a "prior approval, post verification" system is also worth considering. When COVID-19 spread rapidly in the second half of 2020, the US Food and Drug Administration (FDA) granted Emergency Use Authorization (EUA) for COVID-19 vaccines. In principle, vaccines must pass Phase 3 clinical trials, which involve the largest number of subjects and the strictest verification process, to confirm both efficacy and safety before approval. Even after clinical trials, the approval process can take about a year. In contrast, emergency use authorization simplifies procedures and may mean that some efficacy and safety aspects of the drug are not fully proven. However, even after emergency use authorization and the start of vaccinations, evaluations by regulatory authorities and external experts continue.

Excessive regulations on large corporations are also a major area for improvement. Restrictions on large supermarkets' operating hours, implemented since 2012, are a representative example. Under the Distribution Industry Development Act, large supermarkets must close twice a month, restrict late-night operations, and prohibit online delivery during restricted hours. The recommendation to delay the entry of large corporations like Hyundai Motor and Kia into the used car market by one year and limit sales volume until May 2025 is also criticized as excessive regulation. The dominance of Dyson in the premium small market for wireless fans and hair dryers is also a result of limiting domestic large corporations' entry due to small and medium-sized enterprise suitability sectors.

Yoo Jeong-ju, head of the Corporate System Team at the Federation of Korean Industries, pointed out, "To achieve results that citizens and companies can feel, it is also necessary to overhaul the operation systems of regulatory reviews and legislative proposals by lawmakers."