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5 Business Organizations Local Chambers Industrial Associations

1. Deregulation Taskforce: Introduction. Strengthening of Corporate Competitiveness. 5 Business Organizations Local Chambers Industrial Associations. Government Ministries and Agencies Local Governments. National Competitiveness Council. KCCI. Private-Public Joint Taskforce on

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5 Business Organizations Local Chambers Industrial Associations

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  1. 1. Deregulation Taskforce: Introduction Strengthening of Corporate Competitiveness • 5 Business Organizations • Local Chambers • Industrial Associations • Government Ministries and Agencies • Local Governments National Competitiveness Council KCCI Private-Public Joint Taskforce on Deregulation (Since Apr. 1, 2008) On-Site Issue Identification Speedy Resolution Companies 1/ 23

  2. 2. Deregulation Taskforce: Activities(April, ’08~ Present) On-Site Inspection Activities • On-Site issue identification (Inchon, Ansan, Guro, Daegu, Jeonju) • A total of 65 issues were found. • 127 issues are currently under review by 23 ministries & agencies. • Participation came from companies, business organizations, Corporate Issue Support Center, industry associations. Issue Raising • 3 surveys were conducted among 1750 companies nationwide • 1500 companies in both metropolitan and non-metropolitan areas were surveyed on regulatory issues(May, 2008) • 150 Manufacturing SMEs were surveyed on business issues (June 2008) Survey 2/ 23

  3. 3. 실태조사 결과 Manufacturing SME Survey on Business Issues (Nationwide Results from 150 Companies, June 2008) Transportation/Logistics - Environment Facilities - Industrial Complex Management - Outdated Facility Status Environment - Labor - Diagnosis/Inspection - Administrative Procedures Raw Material - Financing - Hiring - Sales Industrial Complex Issues (as a tenant) Regulatory Issues Managerial Issues Needs countermeasures to combat rising raw material price (ex. Extending tax cut period for energy facilities) Needs to strengthen support service to tenant companies Needs “real” regulatory reform measures for SMEs 3/ 23

  4. Monolithic, rigid regulation • Companies are required to follow standards that are easily breakable & go thru unnecessary inspections • Regulation procedures are inclined more towards administrator convenience • Fragmented support services • Difficulties in expanding factory due to strict rules on Green Space Ratio Industrial Complex Management Service Environmental Regulation On-site Issues for Manufacturing SMEs Diagnosis/Inspection & Compulsory Training Foreign Labor Utilization • Delays in foreign workforce replacement • Complicated hiring procedures • Time limitations on foreign workforce hired by foreign-based companies • Inconsiderate and unchangeable interval terms • Excessive obligation on the part of companies • Shortage of training institutes & Inspection authorities 4/ 23

  5. 1. Industrial Complex - Management · Operation Current Status & Issues Identified Significance of Industrial Complexes in Korea <Site Selection for New Companies> Contribution of Industrial Complexes to the National Economy Stand-alone Sites Stand-alone Sites 71% Industrial Complexes • 56% of Total Production • 79% of Total Exports • 44% of Total Employment 36% 29% 64% Industrial Complexes 2001 2007 Lack of Infrastructure Support 1. Fragmented Support Services Issues Identified 2. Close-to-Full Occupancy Rate Difficulties in Securing Factory Sites 3. Manufacturing-centered Services Excessive Regulations on Distribution Function 5/ 23

  6. 1. Industrial Complex - Management · Operation Measures for Improvement # 1 Industrial Complex-related Issues Measures for Improvement Current Status • Meetings among Corporate Support Institutions for Industrial Complex Complaint • Dispersed Management Function • To produce an institutional framework for managing Industrial Complex • To collectively eliminate corporate difficulties • Local Gov'ts : Main Roads, Trunk Roads & Public Sewage • NPA: Traffic Signs • KEPCO: Electricity • KICOX: Other Support Functions • Review measures for effective management of Industrial Complex * NPA: National Police Agency * KICOX: Korea Industrial Complex Corp. • There are not enough communication channels for unhappy companies. • To establish one-stop complaints handling system for tenant companies Maintenance and repair expense for road, parks & electricity connection in Industrial Complexis passed on to tenant companies case Under review of MKE, Oct. 2008 * MKE: Ministry of Knowledge Economy 6/ 23

  7. 1. Industrial Complex - Management · Operation Measures for Improvement # 2 Flexible Application of Regulation on Tenant Companies in Urban Industrial Complex Current Status Measures for Improvement • Tenant companies of the apartment-type factory can only sell what they produce within that building • Expand the range of saleable products within the apartment-type factory • Allowing sales would benefit the producer as well • Space for supporting facilities (ex. sales space) within the apartment-type factory is limited to 20% of the total building space • More space for supporting facilities within apartment-type factories • Frequent dispute between tenant companies and the management over violations like the sale of non-tenant company products • Allow a variety of industries to move into the Industrial Complex • Survey result on 3,879 of the Seoul Digital Complex tenant companies suggests that 1470(37.9%) tenant companies have violated aforementioned regulation(2003~2007). Under review of MKE, Oct. 2008 * MKE: Ministry of Knowledge Economy 7/ 23

  8. 1. Industrial Complex - Management · Operation Measures for Improvement # 3 Resolution of Difficulties in Expanding Factory Current Status Measures for Improvement • Flexible application of “Green Space Ratio” • Close-to-full occupancy rate - Expansion is not easy • Where on-site expansion is absolutely necessary given the unique industry requirements, the ratio will be brought down by 2% <Industrial Complex Vacancy Ratio > Through Consultation with MLTM, ME and Local Governments * MLTM: Ministry of Land Transport and Maritime Affairs ME: Ministry of Environment • Establishment in another location will incur massive additional cost <Exceptions for Application of Green Space Ratio> • “Green Space Ratio” can be reduced, but authorities are passive towards changing it (on the grounds of “Collective Instruction for Industrial Location Development Projects”). • Where public green space is located within 200m from the complex • Where green space is deemed necessary given Industrial Complex characteristics and location policy 8/ 23

  9. 1. Industrial Complex - Management · Operation Measures for Improvement # 4 Tax Cuts on the Reconstruction or Repair of factory Current Status Measures for Improvement • In case of new factory construction or extension : Exemption of registration and acquisition taxes • In case of factory reconstruction or repair : Imposition of registration and acquisition taxes • Reconstruction or repair : no tax MOPAS, 2008 * MOPAS: Ministry of Public Administration & Security No Obligation for “Management Master Plan in Single-Location Industrial Complexes” Current Status Measures for Improvement • No obligation on establishment of the Management Master Plan • A single company is not required to establish a master plan, but some local governments require its submission. Authoritative interpretation will be delivered to the relevant local governments MKE, Effective Immediately 9/ 23

  10. 70.0 52.5 35.0 17.5 0 2001 2006 2. Environmental Regulation Current Status & Issues Identified Why We Need Environmental Regulation Corporate Spending on Environmental Protection Increased Environmental Awareness (Unit: 1 Trillion) 6.1 3.9 • Global Warming • Quality of Life • Environmental Pollutants Expansion is prohibited regardless of pollution treatment capability 1. Monolithic Regulation Issues Identified 2. Regulation for Administrative Convenience Authorities are more interested in violation detection and improving their raid results. Administrative cost incurred in the process is passed on to companies. 10/ 23

  11. 2. Environmental Regulation Measures for Improvement # 1 Factory Expansion and Relocation Allowed to Environment-Impacting Industries, Under Special Conditions Current Status Measures for Improvement • Monolithic regulation is imposed on environment-related industries • Allow companies to set up or expand factories in Industrial Complex when pollutant emission level is within the permissible range has impeccable treatment technology, but is not allowed to expand or relocate its factory facility. Company A • KCCI & MKE,local gov’tswill carry out ”Corporate Demand Survey” • MLTM & ME will help developing sites purchased land for factory expansion, but is prohibited from utilizing the lot, even for storage purposes. Company B * MLTM: Ministry of Land Transport and Maritime Affairs ME: Ministry of Environment <Industries Not Allowed in Industrial Complexes> • Establish new Industrial Complexes that are dedicated to serve environment-related industries • MKE & ME will review the requests. 11/ 23

  12. 2. Environmental Regulation Measures for Improvement # 2 Integrated Approach for Environmental Guidance & Inspection Current Status Measures for Improvement • Integrated approach is desired for environmental guidance and violation detection. • Integrate inspection approach • - Allocate more points to integrated inspection approach when evaluating the local gov’ts. • Violation detection is carried out independently, by central government, local autonomous bodies, prosecution and police. • ME-designated Environmentally Friendly Companies are subject to guidance and violation detection activities by local governments. • Provide more information to local gov’ts • Publicize best practices • Authorities are more interested in violation detection and improving their raid results. Relevant Regulation will be revised (ME 2008) • Activities do not necessarily lead to a positive impact on environment itself. 12/ 23

  13. 2. Environmental Regulation Measures for Improvement # 3 Telemonitering System (TMS) - Relief Measures for Installation and Operational Cost Burden Current Status Measures for Improvement • SMES feel excessive cost burden. • Share the cost needed to install and operate TMS with between gov’t and SMEs • Installation Cost : 200~300 million Won (per unit) • Annual Operation Cost : 20 million Won (per unit) • Exempt the Basic Emission Fee on facilities with TMS installed(ME, 2009) • It is not reasonable to pass admin. monitoring cost onto companies. • In comparison, car speed detectors are purchased by NPS. * NPA: National Police Agency <Telemonitering System (TMS)> ㅇ Objective : To monitor air polluting activities 24/7, and use the results for administrative data for administrative disposition, etc. ㅇ Target : 1,123 chimneystacks in 462 business sites, of which SMEs account for 200 chimneystacks in 130 sites. 13/ 23

  14. 3. Foreign Employment Current Status & Issues Identified Why SME Sector Needs Foreign Labor • Shortage of domestic labor in 3D sectors can be resolved by foreign workforce. • Labor cost burden will be relieved. • Reduced cost will help put a break to manufacturing exodus to overseas locations. • Reduced cost will help companies maintain their competitiveness. 1. Jobs are not filled immediately when a foreign laborer leaves the company to be replaced by another. 2. Hiring process is complicated. 3. Time constraint is imposed to overseas-hired foreign workers when they have to receive training in Korea. Issues Identified 14/ 23

  15. 3. Foreign Employment Measures for Improvement # 1 Minimization of a Gap in Foreign Labor Replacements Current Status Measures for Improvement • Companies are not allowed to hire a new laborer before the current worker leaves Korea. • Reschedule work permit application period (Current Schedule) '3 months before‘ the existing worker departs Korea (Changed to) '4 months before' • Job handover is interrupted. • Not enough time can be allocated to training the new foreign laborer. The new schedule allows one month’s overlapped hiring period between outgoing and incoming workers. • Companies are restricted from hiring as many foreigners as they would like. hired 9 foreign workers, but 3 left Korea before replacement arrived. Company A Revision of Employment Permit Administrative Guidelines(MOLAB, Aug. 2008) The adverse impact led to work stoppage and further delay in production and exports. 15/ 23

  16. 3. Foreign Employment Measures for Improvement # 2 Improvement of Foreign Labor Hiring Procedure Current Status Measures for Improvement • Centralize the Admin. Channels(Foreign Labor Hiring Support Center (MOLAB)) • Dispersed Hiring Administration ⇒ Complicated Procedures - Electronic systems between MOLAB and MOJ will be linked together. • Foreign Labor Hiring Support Center (MOLAB) • Immigration Office (MOJ) • Number of gov’t agencies to visit: 3 -> 1 • Number of days: 30 -> 14 • Use of Intermediary Service ⇒ Additional Cost MOLAB and MOJ(Dec. 2008) Company to make efforts to hire a Korean Worker Company to apply for work permit of a foreigner Authority to select a foreign laborer and issue permit Company to sign a labor contract with the worker and apply for visa Job training Company to takeover the laborer (certificate will be issued) Company to oversee the laborer’s employment and stay in Korea MOLAB MOJ Training Institute MOJ MOLAB ·MOJ 16/ 23

  17. 3. Foreign Employment Measures for Improvement # 3 Relaxation of Training Schedule for Foreign Workers in Korea Current Status Measures for Improvement • Required period for foreign workers to enter Korea • - For those hired by Korea-invested foreign companies: 6 months after the foreign companies’ normal operation began • - When entering Korea for job training: 6 month of previous work experience • Requirements for Job Trainee: cut 3 month • - normalized operation: 6 -> 3 months • - work experience: 6 -> 3 months • Period needed to finish procedure to enter Korea: cut 3 months • Allow entry into Korea for job training after 6 months from the date the Korea-invested foreign company is incorporated • Period needed to finish procedure to enter Korea for job training: 6 months • A year is needed for foreign workers to enter Korea after the Korea-invested foreign company is incorporated Suffered from delays in normalized operation of its foreign entity due to difficulties in securing trainees at an early phase. Company A MOJ 17/ 23

  18. 4. Diagnosis, Inspection & Compulsory Training Current Status & Issues Identified Improvements in Various Diagnosis, Inspection and Training Systems • Social regulations that are deemed absolutely necessary for public livelihood and industrial safety. • The diagnosis, inspection and training obligations are putting too much burden on SMEs • Survey on the Compulsory Training System • (Results from 129 manufacturers, Jun. 2008) • 62.8% of the respondents : compulsory training is too much of a burden • Areas that need improvement: safety(52.1%), fire safety(12.6%), electricity(8.8%) Increased burden on the part of SMEs 1. Excessive Diagnosis/inspection Issues Identified 2. Fixed educational curriculum Unable to reflect what each company needs to know 3. Monopolized services by training and inspection authorities Unable to address the needs of the recipient companies 18/ 23

  19. MKE, Aug. 2008 MKE, Sep. 2008 4. Diagnosis, Inspection & Compulsory Training Measures for Improvement # 1 Fixed Inspection Schedule for Boilers Current Status Measures for Improvement • Exemplary workplaces will receive an extended inspection schedule • Companies are required to undergo inspection once a year, irrespective of their safety maintenance status. (1 year 4 years) • When undergoing the inspection, companies have to stop operating for a week. Short Grace Period Granted to Companies that Change Safety Standards for their Electric Equipments Current Status Measures for Improvement • Grace period will be extended, subject to equipment characteristics. • Grace period is limited to only 6 months for all electric equipment items (6 months 1~3 years) • In case of companies in U.S. and Europe: 1~3 year grace period is granted depending on the equipment type. 19/ 23

  20. SMBA, 2008 4. Diagnosis, Inspection & Compulsory Training Measures for Improvement # 2 Structural Safety Diagnosis Obligation for Venture Accumulation Facilities Current Status Measures for Improvement • Even IT companies without large-scale facilities are required to undergo Structural Safety Diagnosis • Factories that have low impact on structural safety will be exempted of Structural Safety Diagnosis • For example, a factory with less than 10 pyong (33 ㎡) in space is obligated to receive Structural Safety Diagnosis for the whole floor (Fee = 80 million Won) * SMBA: Small and Medium Business Administration Energy Diagnosis Obligation Current Status Measures for Improvement • Workplaces with more than 2,000 TOE in yearly energy consumption are required to undergo Energy Diagnosis. • Increase gov’t budget for SMEs’ Energy Diagnosis (currently 70% -> 90% by 2009) (Once every 5 years) MKE, 2008 20/ 23

  21. Under review of MOLAB, 2008 4. Diagnosis, Inspection & Compulsory Training Measures for Improvement # 3 Monolithic Occupational Health and Safety Education Program Current Status Measures for Improvement • Fixed set of education program is provided to all workplaces, irrespective of specifics of work and hazards. • Review measures to reflect different job specific characteristics into the Occupational Health and Safety Training • A newly-hired worker needs to receive 8 hours of safety training and 16 hours of special training, regardless of his/her job responsibility. Shortage of Training Institutes & Inspection Authorities Current Status Measures for Improvement • Review measures to lessen the inconvenience caused by limited number of training & inspection authorities • Limited number of training & inspection authorities leads to increased cost and inconvenience on the part of recipient companies. under review of NEMA, 2008 * NEMA: Nat’l Emergency Management Agency 21/ 23

  22. 5. Expected Results • Expected benefits for reducing Green Space Ratio in Industrial Complexes: 0.5 Trillion won (2009~2016) Investment Increase • Expected benefits for allowing factory expansion within environment industry complexes: 70 billion won • Expected benefits for minimizing loss in foreign workforce replacements: 12.4 billion won • Expected benefits for relaxing compulsory occupational health and safety training: 40.8 billion won • Expected benefits for extending inspection schedule: 5.6 billion won (Co. A) Production Increase • When simplifying hiring procedures for foreign workers: 3.4 billion won • When extending financial support the Energy Diagnosis fee for SMEs(70%->90%): 3.1 billion won (for 5 yrs) Cost Reduction 22/ 23

  23. Strengthening of On-site Inspection Sectoral Deregulation Approach • Identify sectoral(ex. Construction, IT, Finance etc.) deregulatory issues and review improvement measures(quaterly) • Establish sectoral deregulatory committee and continue performing the onsite inspection On-site Inspection Annual Plan Deregulation Progress Monitoring & Evaluation Deregulation Evaluation Team • Measures Confirmed at this meeting will be followed up and progress will be reported thru out the whole implementation process. • Company representatives & business organizations, and team heads of research institutes. Member • Web-based Evaluation System will be introduced for user-oriented evaluation of deregulatory measures. • The team will evaluate challenges, monitor outcomes and assess needs with regards to deregulation Roles 23/ 23

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