KOREAN EXPERIENCE IN DEREGULATION EFFORTS AND COURSE OF APEC DISCUSSION OF DEREGULATION
August 1996
Korea Fair Trade Commission
Introduction
Today, at a time in which the world is integrating into a single global village, strengthening national competitiveness, establishing an effective market economy, and building a small but effective government through liberalization and privatization has become a top priority worldwide.
In the international community as a whole, organizations such as the OECD and APEC are making a comprehensive study of the regulatory reform efforts in various countries, finding out and spreading the "Best Practices," assisting the reform efforts in various countries, and working to establish an international framework of reform.
- Even in APEC, a Report on deregulation was issued this year, showing APEC efforts to share information and cooperate among its members.
As for Korea, deregulation is being pursued steadily ever since the launch of the Kim Young Sam Administration in 1993.
Since the 1960's, when Korea began to implement its economic development plans, it has achieved successful economic growth.
- In the earlier stages of development, the government tried to strengthen industrial competitiveness by restricting new market entries and enforcing various export-promotion policies in order to protect infant industries and foster industries with forward and backward linkages.
However, today, the Korean economy has grown and become more diverse. Thus, the government-led development policies of protections and regulations by government are giving rise to economic concentration and unequal distribution of wealth, impeding maximization of economic efficiency and growth potential.
The Korean government is well aware of the need for such deregulation efforts and has recently placed policy priority on deregulation.
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The Concept and Need for Deregulation
Regulation or Government Regulation can be defined as a process in which the government limits or encourages certain activities of economic subjects, altering the natural activities and results of market mechanisms.
Generally, government regulations are classified into economic regulations and social regulations.
- Economic regulations are introduced to rectify monopolistic and oligopolistic market structures, enhance efficiency of resources, protect industries, maintain equity, and so on.
- Social regulations are introduced to protect diverse public interests such as environmental protection, industrial safety, welfare, consumer protection, and etc.
With respect to social regulations, it is not so much a matter of the need to regulate or legitimacy thereof as in the case of economic regulations, but rather a matter of how to enforce the regulations and to what extent.
- National expectations are growing and demands diversifying with economic development; thus, social regulations are expected to increase and their legitimacy recognized.
- As social regulations are not targeted at economic variables, which are essential elements of industrial activities, but at regulating social problems that stem from industrial activities, the target of social regulations fundamentally differs from that of economic regulations.
- However, often, social regulations and economic regulations are not clearly distinguished.
Although justified in terms of policy goals, regulations raise economic and social costs and inconvenience people.
- Economic regulations usually have competition-restraining effects which affect economic efficiency and weaken industries.
- Depending on the application scope of the regulations, methods and means of enforcement, and so on, even social regulations may inconvenience people and produce excessive social costs rather than make regulations more effective and useful.
According to public utility theory, most regulations were primarily introduced to provide a remedy for market failure; that is, to provide a cure for a situation in which resources are not being effectively distributed according to market functions.
- However, there are two reasons for deregulation : First, it may be possible that technological development and demand growth have removed the possibility of market failure. Second, government regulations may not be the best cure for market failures.
- As enterprises and consumers gained ability and problems associated with regulations such as high costs, regulation failures, and government failures began to emerge, regulations originally adopted to complement market failures lost legitimacy and the need for deregulation surface.
In every regulation, there are two aspects : the "internal restriction effect" which restricts foreign companies' investment and access to the local market; and the "external restriction effect" which limits exports and the free activities of local companies such as their joint ventures with foreign companies.
- However, deregulation alone resolves problems associated with both the internal and external restriction effects, making it more effective than any other liberalization and facilitation measures of trade and investment.
Discussions of deregulation in APEC should focus on economic deregulation in line with the spirit of "Liberalization and Facilitation of Trade and Investment", rather than a general discussion of the deregulation plans being implemented individually in each member economies.
As the levels of deregulation differ according to different member economies,
- Talks of deregulation and the level thereof shall be determined in consideration of all the different situations of individual member economies, and all member economies should actively participate in the talks and become aware of the significance and utility of deregulation efforts.
Relation between Deregulation and Competition Policy
Competition policy is a policy designed to stimulate competition and establish an efficient economic structure by eliminating rules as well as practices that regulate transaction in the market.
- The purpose of deregulation is to eliminate economic inefficiency by reducing the intensity of government regulation and enhancing efficiency through distribution of resources. Thus, such purpose is in line with the paramount principle of competition policies.
The need for deregulation surfaced as regulations adopted to prevent market failure lost legitimacy due to regulation failure, technological progress, and changes in market conditions.
- As deregulation is aimed at restoring market economic principles by correcting market failure stemming from government intervention, it may be considered a means of enforcing competition policies.
The subject of deregulation, as can be derived from its definition, is limited to government intervention in the market.
- However, competition policy includes both anticompetitive practices of private enterprises, the subject of regulation in the traditional Fair Trade Act for the establishment of fair competition, and government policies which can affect competition in the private sector.
Although competition policy is a part of economic policies and aims to enhance efficiency of the economy,
- Deregulation is different from competition policy in that covers a more comprehensive area including both the economic and the social aspect.
As can be deduced from the afore-mentioned facts, competition policies and deregulation are different in terms of both objective and area of coverage. Thus, in setting the course of the discussion within APEC, deregulation is a means for the complete execution of competition policies.
- Therefore, even if deregulation and competition policies are discussed together, the emphasis should be on competition policies. That is, deregulation should be discussed within the framework of competition policies, and should be enforced with the aim of spreading competition principles.
Korean Experience in Deregulation Efforts
Internally, deregulation ensures enterprises to freely engage in business activities and stimulates market functions, ultimately improving the quality of life. Externally, deregulation is a key national task for elevating Korea's economic status by actively coping with the world trend of liberalization and globalization.
Ever since the 1980's, Korea has set "Liberalization" as the basis of economic operation and has been steadily modifying and improving regulations toward the private sector.
- Accordingly, in 1981, the Fair Trade Act was enforced, financial transactions liberalized, markets opened, methods of price restrictions converted, and so on.
However, when export competitiveness began to weaken after 1989, macro competition policies aimed at strengthening industrial competitiveness began to show their limits.
- Upon realization that the limits stemmed from the fact that existing regulations were still being enforced in accordance with industry-related laws and government practices, the focus was shifted to micro economic approaches of pursuing industry-specific deregulation.
Ever since the launch of the civilian government in 1993, the government is pursuing deregulation both internally and externally : Internally, efforts are being made to guarantee enterprises to freely engage in business activities; externally, comprehensive and intense efforts are being exerted to keep abreast of the demands of the times such as liberalization and globalization.
- Deregulation plans are being carried out by the relevant ministries, and upon recognition that a consultative body needs to be set up in order to unify the scattered deregulation efforts and pursue it with consistency, the government established and is operating the Committee for Administrative Reform, the Committee for Administrative Deregulation, the Committee for Deregulation of Economic Administration under the Ministry of Finance and Economy (the Bureau of Regulation Reform as of July 1996), the Industrial Regulation Review Committee under the Ministry of Trade, Industry and Energy, and etc.
Taking the performance of the Committee for Deregulation of Economic Administration as an example, ever since its establishment in March 1993, deregulation measures for individual proposals from businesses as well as those for business-specific and function-specific major improvement tasks were implemented in three phases.
- Focusing on extending autonomy of business activities of enterprises, the committee accepted a total of 1,128 deregulation requests from private enterprises, and completed relevant measures for 1,078 individual issues as of the end of 1995.
- In 1994, the committee prepared improvement measures for issues raised by the private sector with respect to activities of public enterprises, tax payment procedure, distribution of agricultural, fishery, and livestock goods, fishery industry, construction, distribution, and etc. as well as those for 314 among 341 cases deemed necessary by the relevant ministries.
- In 1995, improvement measures were completed for 351 cases among 501 additional deregulation tasks in 9 major areas including land, finance, environment, type approval of industrial products, foreign investment, and anticompetitive provisions.
In addition, the Korea Fair Trade Commission �� the Korean competition authority �� is also actively participating in deregulation efforts from a competition-oriented perspective including abolition of regulations relating to market entry and elimination of unfair business practices such as abuse of market-dominating positions.
- To be more specific, the commission is enforcing a system under which government ministries revising or enacting laws, or issuing dispositions are to hold prior consultations with the commission in order to eliminate anticompetitive elements. In addition, the commission presents its opinion regarding anticompetitive provisions.
Despite such deregulation efforts and their results, the private sector is not fully satisfied.
- Such dissatisfaction may point to the fact that government efforts have been limited to procedural deregulation, failing to deal with the regulations which determine restriction to market access.
Thus, the government has currently stepped up its deregulation efforts to redefine its role in effectively implementing regulation reform.
- Instead of simple deregulation measures, the government is attempting new methods such as focusing on key economic policy areas and pooling opinions of relevant experts.
- The Vice Prime Minister of Economy is in charge of supervising and coordinating deregulation efforts, and the Bureau of Regulation Reform is in operation as a working-level body. The Bureau is mainly responsible for overhauling regulations pertaining to the financial sector and land utilization, and anticompetitive acts and decrees.
Should APEC members want to share Korea's experience regarding deregulation, Korea is more than willing to provide the necessary assistance.
Conclusion
The 18 APEC members range from advanced nations that have achieved liberalization throughout its industries to developing nations with diverse regulation measures. Among regulatory measures, there are many that are inevitable in certain nations due to the economic and non-economic circumstances.
- Therefore, in APEC, it is desirable that the member economies of APEC should focus on the strategic aspect of deregulation by setting the basic principles for the purpose, the course, and etc. of deregulation.
In this era of globalization where national borders are losing meaning, international cooperation constitute one of the most essential elements for maximizing the effect of deregulation.
(1) As a means of achieving the maximum effect, technical assistance in deregulation is necessary.
- Before providing technical assistance, APEC should conduct analysis of the current circumstance of the demand for technical assistance and the possibility of providing it.
- Training programs should be made based on the result of the survey, and the information should be shared by holding presentations of model cases of deregulation.
(2) Also, in each member economy, a Contact Point should be established through which the necessary information can be exchanged.
(3) And the Deregulation Report should be continuously issued.
Furthermore, APEC should share experiences with such international organizations as the OECD and the like in order to maintain a system of coordination and cooperation.
In the long term, a guideline according to which each nation can pursue deregulation should be established. To this end, joint discussions with relevant areas such as the standard and conformation areas as well as industry-specific studies need to be held; thus, we will need to discuss jointly with the relevant working-level groups.