KOREA’S NEW PRESIDENT YOON SUK-YEOL: A REGULATORY PRIMER
Concise outlook for Korean government policy and agenda under the new Administration
Yoon Suk-yeol’s victory in South Korea’s presidential election on March 9, 2022 marks a rightward turn in the country’s leadership, to succeed the liberal administration of outgoing President Moon Jae-in. Yoon, a former chief prosecutor under Moon, had resigned in early 2021 under pressure for investigations into a key Moon ally. Mainly on the strength of his profile ensuing from that controversy, and despite zero political experience, he was named standard bearer of the main conservative opposition party, the “People Power Party”.
At the end of the long and often acrimonious contest, Yoon won with 48.6% of the vote, a razor-thin margin over the ruling Democratic Party candidate Lee Jae-myung. The result is seen as reflecting, among other things, broad discontent over sky-high housing costs and inflation all around. Evidently pivotal, also, was an endorsement of Yoon in the final week from a center-right candidate who had been running third. Yoon Suk-yeol, 61, lawyer and ex-prosecutor, newcomer to politics, will serve as President of Korea through 2026.
As the leading conservative candidate, Yoon mostly embraced a range of orthodox policy views and campaign promises for Korea. These can be aptly summed up in key words and phrases such as: Deregulation. Pro-business policies. Market-led approaches. Lower taxes. Private sector-led job growth. Building on Korea-US ties. Yoon’s platform, in the form of his party’s exhaustive (180+ page) “Policy Pledges” manual, is also punctuated throughout by references to government support for growth and innovation, and characteristically this is framed in terms of improving government organizational and regulatory infrastructure – coupled with tax breaks, assistance for R&D and education, facilitation of various kinds – to ease the way for private initiative and investment.
What does the change in administration signal for business, investment and finance in Korea? The Presidency in context: For the time being, Yoon’s election is unlikely to spell much of a change in direction, in terms of domestic legislation and policy, given that the liberal Democratic Party, of outgoing President Moon, enjoys iron-clad control – an absolutely majority of the seats – in the National Assembly. This will remain so at least until the next general election, in April 2024. Consequently, till around mid-2024 at least, Yoon will have little or no power to push forward new legislation without bipartisan support. (At the same time, the liberals do not, by themselves, have the numbers to override a Yoon veto of their own legislative efforts.) In short, for the time being Korea should see no major new legislation or domestic policy that hews to a uniquely conservative agenda, though it happens that both main parties largely concur on a number of issues of looming importance, such as technology regulation. (The one big exception is foreign relations, where the new President will wield much wider discretion than in domestic policy, and Yoon, decidedly pro-US and hawkish toward North Korea, contrasts sharply with his predecessor.)
As head of the executive branch, at any rate, Yoon will have considerable room to reshape the direction of regulation and agency level policy and enforcement. In general, businesses and investors in Korea can expect to witness a degree of shifting in priorities at the Ministry and agency levels of the government in many areas of regulation (along with a distinct re-set of agenda and tone in foreign policy). His agency appointments will certainly impact on the shape of specific regulations, and on policy and enforcement. So, even while many of the main changes outlined in his party’s Policy Pledges may be futile in the near term, Yoon can effect, and observers widely anticipate, meaningful shifts in areas including financial services regulation, tax, labor and employment, and fair competition. Also a factor in this is center-right candidate, Ahn Cheol-soo, who allied with Yoon near the end: Ahn’s platform did not differ much from Yoon’s, but he will have a substantial role under Yoon and this could prove important in at least one area (see Technology, media & telecom below).
Set out below, for a number of key areas of interest, is a concise summary of Yoon’s policy indications, together with a list-up of main or noteworthy concrete proposals that have been set out in his platform. For certain areas, we venture predictions for some trends that may emerge in Yoon’s first 6 to 12 months. Given the often vague or tentative nature of his stated position on many matters, not to mention the multitude of contingencies that can intervene, any forecast of specific proposals to issue from the Blue House, in the coming years, is mostly guesswork. However, consistent indications from his team, coupled with distinct circumstances in Korea today, suggest certain trends that might bear on assessment and planning in key industries.
Economic policy: deregulation, pro-business policies, government facilitation-type support for growth, technology sector as priority
Yoon’s campaign pledges included a slate of what were framed as steps to free up business and bolster “growth through innovation”, including areas viewed in Korea as drivers of the “4th Industrial Revolution” such as AI, cloud computing, semiconductors, robotics, digital services and assets, digital healthcare, advanced mobility, and so on. Deregulation and tax breaks, and government in a facilitation role, are recurring themes throughout. To sum it up, in contrast to his predecessor Moon’s “income-led growth” philosophy, which was largely a set of redistributive policies, the President-Elect’s agenda centers on a drive to reinvigorate market-led innovation mainly by curbing what are seen as regulatory sources of drag and inefficiency.
Steps outlined include:
● regulatory reform – basically cutting red tape – to assist business in all phases, from start-ups to SMEs and the conglomerates. Among other things, this is to ease the way for new business models and technological advances, including platform services, metaverse and cyber, AI, mobility and digital healthcare.
● set up a deregulation body to review and help shepherd along the regulatory reform.
● pursue reform of the national pension structure – this will need bipartisan support but is widely acknowledged as essential.
● provide tax incentives, and government services support (consultation and so on), toward job creation.
● take steps to improve transparency and fairness in the capital market – please also see Financial Industry below.
● in the energy sector, cancel Moon’s program to phase out nuclear energy. (The Democrats as well were already backing away from Moon’s original plan.)
● in the area of corporate control and governance, allow for differential voting rights (such as “supervoting” shares) to enhance management retention of control in venture companies. Such an initiative (like others) would require amendment of Korean company law, but could garner bipartisan backing.
Labor and employment: balancing of interests, flexibility in work hours and arrangements, expanding some types of support
Yoon and his party, emphasizing private sector-driven job creation, has promised to ease regulations and offer tax breaks, at all strata of industry, from start-ups on up. In a country known for powerful and militant labor unions, Yoon’s stated philosophy is to achieve balance and compromise between labor and management, and to respect the need for dialogue with labor, but his administration will take a harder line in response to unauthorized collective action. (His strategy in that regard, however, as in others, will have to contend with need of liberal party backing for any legislation on Yoon’s agenda.) By far the biggest employment law development under President Moon, the country’s adoption of a strict 52 hour work week limit (phased in from 2020), remains a source of frustration for the conservative base, and one of Yoon’s campaign pledges – though one that he will be hard pressed to fulfill, while the liberals control the legislature – is to re-introduce “flexibility” into the system. Meanwhile Yoon has acknowledged the need for better childcare support and childbirth incentives, no small issue for a country that has hit population decline.
Yoon’s noteworthy campaign promises include these:
● introduce options into the 52-hour work week system, by, among other things, easing conditions for flexitime and adding white collar worker exemptions.
● extend minimum periods for maternity and paternity leave, and increase childbirth incentives.
● provide support (impliedly tax breaks) for further education and training of workers.
● protect the “right to work” of platform workers (such as delivery riders) and other “vulnerable” worker groups.
● improve the functioning of labor-management institutions such as the Labor Relations Commission, in its coordination role, and worker participation in company labor-management councils.
● with regard to collective action, strictly enforce laws against unauthorized sit-down strikes, violent conduct and other unlawful activity.
Fair Competition: emphasis on reasonable, balanced enforcement
Yoon’s policy statements do not suggest he will pursue any sharp change in direction for the Korea Fair Trade Commission, but the new administration is likely to moderate the agency’s activity in some respects, with an emphasis on “reasonable” enforcement, and a lean toward self-regulation in certain sectors. The KFTC’s focus under the Moon administration was to aid and protect the weaker party, in a variety of situations typified by imbalances in bargaining power and information. Under Yoon, this is very likely to remain a large part of the agency’s enforcement activities. Yoon has also advocated some degree of constraint on the KFTC’s discretion to pursue criminal penalties. At the same time his agenda would include greater reliance on alternative dispute resolution for competition law disputes, rather than formal agency involvement.
Some of Yoon’s notable campaign promises are these:
● require the KFTC to pursue criminal prosecutions (that is, exercise its exclusive right to file criminal complaints for violation of the fair competition laws) in a strictly fair, objective manner, consistent with that of other agencies.
● push for legislation that would set up an integrated system for mediation of competition law disputes, along with a system to help prevent technology theft and provide relief for damages.
● introduce a price sliding scale system, to link unit prices to production costs, so that subcontractors are less exposed to raw materials cost fluctuations, which is in line with the overarching aim of protecting the weaker party in business relationships.
● in the digital platform sector, rely primarily on self-regulation, so as to minimize the regulatory burden on such businesses, and promote market dynamics and foster innovation.
● revisit and modify the currently very broad scope of familial relations included in “related parties” for the purposes of fair competition law restrictions and reporting/clearance requirements, with the aim of reducing the regulatory burden on conglomerates.
Financial industry: paving the way for New Economy assets and trading; building competitiveness
Yoon has advocated deregulation of the financial industry, as a matter of national competitiveness. His platform points to a “negative” regulatory approach (permissive in general of any sort of transactions not specifically barred) under the new administration, especially to accommodate innovative investment and trading methods. His stated agenda includes legislation to better recognize digital assets, for example. In similar spirit, his campaign also promised specific measures to enhance transparency and fairness in the capital markets, including introduction of short-sale circuit breakers and a lender disclosure requirement. As with the other domestic agenda points outlined during his campaign, these proposed regulatory changes for the financial sector would mean amending laws, or passing new legislation. While some of the underlying aims and concerns enjoy wide acceptance, the question is whether Yoon can build bipartisan consensus for his wider agenda in the National Assembly.
For the moment, the President-Elect’s campaign promises include:
● implement a loan-to-deposit rate gap disclosure system, which could spell an effort at direct intervention in interest rates offered by financial companies.
● introduce short-sell circuit breakers.
● add to tax breaks for individual investors.
● adopt certain safeguards for retail investors in the stock market (particularly in the wake of recent controversy over the aftermath of KakaoPay’s listing), including restrictions on listing of corporate divisions spun off in new sectors, limits on post-IPO sell-down by insiders, and improvements to the short-selling system.
● prepare and enact a Framework Act for Digital Assets, which would be a major item of legislation, and also set up a Digital Industry Promotion Agency.
● take a permissive regulatory approach to digital financial services and transactions. Yoon has indicated he will, in a first stage, allow initial exchange offerings (IEOs), and later permit initial coin offerings (ICOs), as well as offer tax breaks for a portion of coin investment earnings.
Tax: expand tax support for newly evolving industries; reform real estate tax scheme
Yoon’s campaign pledges included expanding tax support for investments in leading edge industry sectors, including advanced automobiles, battery technology, and bio-industry. As stimulus for broader individual investment on the stock market, the President-Elect has pledged to abolish the capital gains tax on stock trades. He has also promised to enhance tax breaks for equity incentive offerings to people at venture companies, although, like many of his announced plans, modification of the tax code will depend on bipartisan support. Having won the election in no small part thanks to discontent with skyrocketing home prices, Yoon will doubtless try to wrestle with the tax laws and policies, adopted under Moon, that are almost unanimously seen as the cause, and a main target will be the comprehensive real estate tax: Yoon has pledged to abolish the heavy tax on multiple property ownership, as part of his drive to reinvigorate property trading and stabilize the market.
A short list of Yoon’s main tax proposals would include:
● abolish the capital gains tax for individuals in their stock investments.
● raise the tax exemption limit on stock options granted to executives and employees of venture companies.
● provide a partial exemption for earnings on virtual asset investments.
● eliminate the comprehensive real estate tax, integrating it with the (pre-existing) property tax system, and revise the real estate capital gains tax; also reduce the acquisition tax.
Technology, media, telecom: general emphasis on need for rapid, wide-spectrum innovation in leading-edge sectors
Yoon’s policy statements have espoused the common view in Korea of a pressing need to support and bolster innovation and R&D in the sectors typically cited as key drivers of growth, such as artificial intelligence (AI), digital infrastructure (cloud computing etc.), cyber security, robotics, mobility, and so on. His camp came out with few details of proposed policy changes or initiatives that would pose an acute contrast with the Moon administration (or rival presidential candidate Lee Jae-myung’s platform), other than to omit any promises of massive subsidies. Roughly speaking, all sides agree on the cardinal need of upgrading and boosting innovation in this era, at all levels of industry, and taking advantage of the scope of cutting edge service on offer, while implementing safeguards for fairness (such as to curb misuse of data, or abuse of marketplace or market power), though obviously they differ on the government’s proper role. As compared to outgoing President Moon, the Yoon administration will no doubt be more receptive to free market-oriented proposals and arguments, for possible new directions in regulation, policy and enforcement. Potentially this may mean a noticeable shift in regulatory setting for diverse areas of technology, data regulation and digital services, although any major legislative initiative will entail bipartisan work.
Two particular circumstances are worth noting. First, Yoon’s conservative party and the rival Democratic Party see eye-to-eye, for the most part, on many primary aspects of technology and data regulation, including data privacy, network regulation and online services regulation. The two leading parties have not, so far, appeared to differ greatly, for example, on main aspects of the in-app payments legislation (or “Anti-Google Law”), one of the most important pieces of legislation in recent years for the online sector, or on main features of impending, important amendments to Korea’s data privacy statute.
Secondly, center-right candidate Ahn Cheol-soo, without whose 11th hour support Yoon would probably have lost, will have a significant role in the administration, and Ahn is a former IT entrepreneur, founder of leading Korean vaccine maker AhnLab. Whether or not he is appointed to head the key agency for this sector, the Ministry of Science & ICT, in any case Ahn seems set to exercise a significant voice on regulation and policy for the IT and software industries (and perhaps technology more broadly), which will tend to work to the advantage of app developers and tech companies.
In summary, Yoon’s notable campaign promises in relation to technology include:
● provide support (details to be worked out) for private sector investment and R&D in fields such as AI, software, digital infrastructure (5G and 6G, cloud computing and so on), and cyber security network.
● push for deregulation, generally, to ease the way for cutting edge technology and business models, but also enhance tax breaks for innovative businesses.
● ensure “fair and proper” compensation for software developers, and eradicate “unfair” practices – a promise that probably echoes the conservatives’ backing for the Anti-Google Law.
● set up or expand government digital platforms to better provide state-of-the-art services and coordination.
● integrate certain government offices involved in media industry regulation.
● institute flexible work week rules or policies (see also Labor and employment above) as a measure to help venture companies and innovative businesses.
● expand tax exemptions for stock option grants at venture companies (see also Tax above).
Environmental (or ESG): favoring market-led approaches
The President-Elect, new to politics, has readily embraced a conservative stance on environmental issues, emphasizing a pragmatic approach and seeking to avoid disruption of perceived market forces. He has committed to undoing the Moon administration’s policy (which was already in trouble) of phasing out Korea’s nuclear power plants. Restoring nuclear energy reliance is likely to be part of the country’s agenda in the coming years. Yoon has advocated a milder pace for transition to carbon neutrality, and, as he has specifically opposed introduction of carbon taxes, the new administration is likely to proceed warily and without hurry, if that system becomes law in Korea. Instead he has spoken up for tax incentives, and mentioned subsidies, for development of greener technology.
Thus, main features of Yoon’s plans on the environmental front include:
● adopt “feasible” goals such as milestone reductions in greenhouse gas emissions by 2030, and carbon neutrality by 2050 – which would mark a significant adjustment to the plan under Moon.
● reverse the Moon administration’s nuclear phase-out program .
● oppose introduction of carbon taxes, and instead favor transition in step with market forces. As part of this, offer some scope of subsidies, and tax deductions, for development and adoption of carbon reducing technology.