Presidential Council on National Competitiveness

1. Presidential Council on National Competitiveness

2. Background Technical Regulations - Status and Problems Measures to Enhance Technical Regulations Measures to Improve Technical Regulations by Case Planned Measures for the Future

3. Background

4. Background Ⅰ. Background Progress Attained Market-friendly efforts by the current government has led to substantial progress in regulatory reform. * Number of regulations registered with the Regulatory Reform Committee: 10,185(’98)  8,084 (’06)  5,088(Aug.’09) However, the need for improvement of technical regulations remains a thorny issue due to difficulties in dealing with specialties. Need for Improvement It is imperative to give a boost to companies by identifying and overhauling direct and indirect technical regulations hampering technological development and corporate activity. Particularly, there is a growing demand for improvement of regulations lagging behind technological convergence and growth. 4

5. Background Ⅰ. Background Concept of Technical Regulations Encompasses technology-related statutory and para-statutory regulations governing business innovation activities undertaken by companies ranging from technology development, product manufacturing to sales & marketing → Triggers economic losses resulting from delays in commercialization and market entry Technical Regulations Technical Regulations Input of Funds Delay in Commercialization Delay in Market Entry Technical Regulations Sales/Marketing Technology Development Product Manufacturing Process of Corporate Activity Location Qualifications/prices Regulations on establishment of research centers Examples Business start-up Certification, testing/analysis Clinical tests Technology introduction Public purchasing system Technology finance Imports/exports Production/item permits 5

6. Technical Regulations – Status and Problems

7. 1. Overview of the Assessment of Technical Regulations Ⅱ. Technical Regulations - Status and Problems First complete enumeration of major laws related to technical regulations with corporate surveys and corresponding interviews : March ’09~August ’09(6 months) Period Items : Assessment of status by stage of corporate activities/type and purpose of technical regulations Target Laws : 18 government agencies and 94 laws related to technical regulations : August 17, ’09~August 28, ’09 Period : Large enterprises, enterprises of middle standing, SMEs and venture businesses(480 in total) Participants Items : Experience, intensity, burden, cost, grievances, recommendations, etc. regarding technical regulations : August 14, ’09~September 4, ’09 Period : 19 corporate CTOs(3 from large enterprises, 6 from enterprises of middle standing, 10 from SMEs and venture businesses) Targets Details : Actual grievances from companies arising from technical regulations 7

8. 2. Status of Technical Regulations Ⅱ. Technical Regulations - Status and Problems Findings from Complete Enumeration of Laws About 4,000 provisions presumed to be technical regulations were identified: - 1,643 Acts, 982 Enforcement Decrees, 1,838 Enforcement Rules Distribution of Technical Regulations Among different stages of corporate activity, “product manufacturing” accounts for about 60% of all technical regulations. - In terms of a breakdown of technical regulations by type, production/item permits (37.1%), business start-up’s (20.3%) and certifications (17.6%) comprise a large portion. (Unit: number of cases, %) Production/Item Permits 37.1%(1,658) Business Start-up’s 20.3%(907) Certifications 17.6% (784) Product Manufacturing 59.7% (2,663) Sales & Marketing39.0% (1,742) Technology Development 1.3% (58) 8

9. 3. Problems Inherent in Technical Regulations Ⅱ. Technical Regulations - Status and Problems Excessive Invisible Technical Regulations and Discretionary Authority Among the central government, local governments and managerial authorities, respondents selected the managerial authorities as the most common enforcer of technical regulations. - According to survey results, 33.4% of the 480 companies experienced such regulations(STEPI, Aug.’09). A distinct possibility exists for unclear standards of technical regulations to allow a party with executive authority to arbitrarily implement such regulations. There exist overlapping/conflicting regulations on a single item according to different purposes such as quality control, efficiency, safety, environmental protection and distribution. Failure to Reflect Unique Features and Cope with Environmental Changes Regulations not taking into account unique characteristics of different companies and industries impede activities related to corporate innovation. There has been a delay in formulation of new regulations required to adequately respond to rapid changes in the global environment. - (Example) Although it is the world’s second largest developer of nano products (114), second only to the US (426) (Nanotechnology Oversight, 2008), Korea lacks a safety and hazard verification system. 9

10. 3. Problems Inherent in Technical Regulations Ⅱ. Technical Regulations - Status and Problems Dampened Enthusiasm for Technology Development and Entrepreneurship Overlapping competent regulatory authorities and procedures push up costs. * According to the survey results, large-sized companies and enterprises of middle standing respectively disburse KRW24.6 billion and KRW1.9 billion as compliance costs on average. In addition, it take 17.7 months on average to respond to technical regulations. The larger a company is, the more acutely it feels that Korea’s technical regulations are more stringent than those of industrialized nations. High Entry Barrier and Market Fixation Korea imposes a heavier regulatory burden than industrialized countries, with its regulatory level in business start-up gradually decreasing. - Its ranking in business environment assessment (business start-up category): 110('07)→126('08) →53('09) Comparison of Business Start-up Costs and Procedures (Source: World Bank“Doing Business in 2010” ,183 countries in total) Korea 8stages 14days 14.7% OECD Average ` 5.7stages 13days 4.7% Start-up Period Start-up Costs vs Per Capita GDP Start-up Procedures Even a developer of a new product finds it difficult to enter the market owing to monolithic technical standards, etc. - (Example) Commercialization in no-power multi-person escape apparatus for high-rise buildings has been delayed as a result of a lack of pertinent regulations in fire service laws.(amendment underway). Overbearing technical regulations raise corporate costs and compromise corporate competitiveness. 10

11. Measures to Enhance Technical Regulations

12. Action Plan Ⅲ. Measures to Enhance Technical Regulations Detecting Invisible Regulations and Incorporating Technical Regulations into a Database 1 Detecting Invisible Regulations Incorporating Technical Regulations into a Database Targets Over 4,000 regulations already detected+ regulations additionally identified Methodology Establishment of a database by newly inserting “technical regulations” in the Regulatory Reform Committee’s classification system by agency/nature. Targets 1. Subordinate regulations including directives, established rules, and public announcements/ notification 2. Municipal ordinances of local governments 3. Internal standards, regulations, guidelines, terms and conditions, etc. of public corporations 12

13. Action Plan Ⅲ. Measures to Enhance Technical Regulations Integrating and Enhancing Similar Technical Regulations and Managing Relevant Schemes in Reflection of Unique Characteristics 2 Integrating/abolishing similar regulations based on sub-classification of technical regulations incorporated into a database- Simplifying overlapping administrative procedures stemming from an excessive emphasis on documentation and lack of coordination between the government agencies concerned Operating systems reflecting unique features by industry/company size - Preferential treatment for green growth industries and new growth engines, support for enterprises of middle standing differentiated from that for large companies, etc. 3 Producing a Blueprint for Technical Regulations Formulating short, mid and long-term plans for organized /phased improvement of technical regulations - Ascertaining regulations inconsistent with the pace of technical development in planning R&D technology roadmaps for the government and putting forward a blueprint for enhancement of regulations Presenting guidelines for areas in need of technical regulations including nano technology - Setting market-friendly guidelines for technical regulations governing daily life including infant protection, health, sanitation, food and housing 13

14. Action Plan Ⅲ. Measures to Enhance Technical Regulations Setting Standards for Establishment of New Technical Regulations 4 • Presenting principles for establishment of new technical regulations • -(Example) Clarity, timeliness, absence of substitutions, appropriateness of level, adaptability, etc. • Operating a “sunset law” scheme whereby the effective period of newly established technical regulations is explicitly stipulated - (Example) Exceptional acknowledgment based on a rigorous verification process of extension of any • technical regulations subject to the sunset law scheme after five year’s application Other Action Plans 5 Diversifying the channels for receipt of grievances, etc. related to technical regulations - (At present) Government agencies including each ministry and the Regulatory Reform Committee - (After diversification) Installation and operation of channels at technology-related institutions including KIAT and NRF Preparing a manual on technical regulations - Presenting clear principles for establishment and enhancement of technical regulations by formulating standardized criteria Publishing white papers on technical regulations - Providing information on newly established regulations and disclosing the status of regulations and enhancements 14

15. Measures to Improve Technical Regulations by Case

16. 1. Integrating and Upgrading Similar Schemes Ⅳ. Measures to Improve Technical Regulations by Case Integrating New Technology Certification Systems 1 Current Upgraded • 7 certification systems of 5 government ministries integrated into NET (Jan. ’06) and integrated certification methods jointly announced Integrate certification systems regarding new technology in electricity (Ministry of Knowledge Economy) and in health (Ministry for Health, Welfare & Family Affairs)into NET • * NET: New Excellent Technology • * Ministry of Knowledge Economy (product manufacturing), Ministry of Environment (environmental applications) and Ministry of Land, Transport & Maritime Affairs • (construction methods) • - Amend applicable laws and integrated new technology certification methods Revamp the certification support system by organizing an inter-ministerial “New Technology Utilization Promotion Council” • New technology certification in electricity and health being operated separately, triggering public confusion Promote public and corporate convenience by enhancing trust in certification process

17. 1. Integrating and Upgrading Similar Schemes Ⅳ. Measures to Improve Technical Regulations by Case Preventing Duplicate Fuel Cell Certification 2 Current Upgraded • Fuel cells required to undergo product inspection (statutory; KGS)and equipment certification (discretionary; KEMCO) • 42 overlapping items among 70 (design review) and 51(equipment certification) examination items Ensure sharing of findings from a single examination concerning items of overlapping inspections Minimize overlapping inspections by reclassifying items of such inspections • Equipment • Certification • Overlaps • Product Inspection 27 43 8 Reduce corporate costs (by KRW12 mil. to 14 mil. per case) by eliminating overlapping inspection items regarding fuel cells

18. 1. Integrating and Upgrading Similar Schemes Ⅳ. Measures to Improve Technical Regulations by Case Integrating Certification Standards for Venture and Innobiz Companies 3 Current Upgraded • Different R&D cost calculation standards applied to venture/innobiz certification Integrate the venture business and innobiz certification schemes * Venture business: In-house/commissioned technology development costs, costs of compensation for in-service inventions, trademark development costs, etc. (based on preceding 4 quarters) * Innobiz: Increased development costs on balance sheet, ordinary development costs on statement on the cost of goods manufactured, etc. (based on closing of accounts during the past 2 years) • - Formulate integrated calculation standards from a • short-term perspective Stage 2 Stage 1 • Innobiz • Inconvenience stemming from duplicate preparation of materials in obtaining/renewing certifications • Integration • of Schemes Integration of Calculation Standards • Venture Reduce corporate administrative expenses and redress inconvenience arising from dual standards

19. 2. . Redressing Regulations that Fail to Reflect Unique Characteristics of Technology Development Ⅳ. Measures to Improve Technical Regulations by Case Providing Preferential Treatment to Green Industries in Allocating Personnel Subject to Alternative Military Service (Enrolled Technical Research Personnel) 1 Current Upgraded • Surplus of persons on alternative military service despite expansion of their allocation to SMEs • Preferentially allocate surplus personnel among those allotted to SMEs to green growth industries regardless of company size Non-exhausted rate: 57.4% • 3Q, ’09 • * Pursuit by the Military Manpower Administration of • proposed standards established by related government • ministries regarding companies that have obtained green • credentials 1,156 persons Non-exhausted rate: 12.7% 492 persons 299 persons 261 persons Planned Actual • Planned Actual Large Companies SMEs Bolster urgent/important R&D competences of green growth industries

20. 2. . Redressing Regulations that Fail to Reflect Unique Characteristics of Technology Development Ⅳ. Measures to Improve Technical Regulations by Case Reducing Duties for Imported Raw Materials for New Technology Products 2 Current Upgraded • Simplified Fixed Duty Drawback : Raw material import duty drawback on the basis of average drawback amount during the previous year by item Simplified Fixed Duty Drawback : Formulate and expand measures to reduce duties imposed on special fields including reduction of duties on appliances and materials related to new renewable energy  Disadvantageous to companies with a high ratio of imported raw materials including photovoltaic businesses • Individual Drawback : Complicated application process and documents Individual Drawback : Install and operate a dedicated team at customs offices to support individual drawback by small- and medium-sized exporters • Some companies relinquishing right to drawbacks Ease the burden of duties on export-oriented SMEs that import substantial raw materials

21. 2. . Redressing Regulations that Fail to Reflect Unique Characteristics of Technology Development Ⅳ. Measures to Improve Technical Regulations by Case Improving the Corporate Matching System Concerning National R&D Projects 3 Current Upgraded Uniform standards applied based on categorization of companies into two groups: SMEs and large-sized enterprises • Eliminate any disadvantage arising from company size by specifying the scope of middle-standing firms • - Placing the ratio of burden for enterprises of middle standing • in the range of 35~40% • - Illustrative standards for enterprises of middle • standing: 300~999 employees, KRW100 billion to • KRW1 trillion in revenue - Burden: no more than 50% for large companies and no more than 25% for SMEs • Enterprises of middle standing required to shoulder a burden on par with large-sized companies without no separate regulations implemented Expand benefits available to middle-standing enterprises participating in national R&D projects (over 1,100 enterprises in ’07)

22. 2. . Redressing Regulations that Fail to Reflect Unique Characteristics of Technology Development Ⅳ. Measures to Improve Technical Regulations by Case Increasing Autonomy Regarding Lab Safety Control Costs 4 Current Upgraded Uniformly limited to no more than 2% of labor costs in budgeting a research task • Expand lab safety and maintenance costs from 2% to 5% of labor costs • * Accidents at research institute labs during the past 5 years: • 70 accidents at 21 institutes Before 2% • Failures to consider unique features of toxic materials, danger of explosion, etc. 5% After Create a safe lab environment for high-risk experiments

23. 3. Detecting and Improving Invisible Regulations Ⅳ. Measures to Improve Technical Regulations by Case 1 1 Increasing Participation in Public Purchasing of New Product Technologies Current Upgraded • Time-consuming process to have a certificate issued notwithstanding that acquisition of certification has been finalized • Introduce a preferred review system for new companies and small and mid-sized venture businesses to shorten the period for issuance of official certificate • * KRW63 trillion, out of KRW92 trillion in total public purchasing in • 2007, spent in purchasing SME products (68.4%) 소요시간 • Disadvantage imposed on newcomers because of • restrictions on their participation in bidding for • public purchasing during the said period Increase opportunities for small and mid-sized venture businesses to participate in the public purchasing process

24. 3. Detecting and Improving Invisible Regulations Ⅳ. Measures to Improve Technical Regulations by Case 2 Providing Support for Failed Venture Entrepreneurs toward Recovery Current Upgraded • Invest venture capital from a fund-of-funds (Small and Medium Business Administration) in failed venture entrepreneurs • Restructure existing debts through the Credit Counseling and Recovery Service • Guarantee opportunities for corporate objection in issuing guarantees for recovery of failed venture businesses • Unsatisfactory progress in operation of the “system to render a second chance to failed venture entrepreneurs” which has been in effect since May 2005, which is ascribed to negative views on their ethics, reliability, etc. • *Support companies founded within 3 years • (Organize 11 associations and KRW 1,100 billion in ’09) •  Applications from 12 companies and provision of support for • 2 companies during the past 5 years • * System to render a second chance: Issuance of guarantees • for companies with technological prowess managed by failed • venture entrepreneurs who have undergone an ethics • assessment and credit recovery process Grant opportunities for a takeoff to failed venture entrepreneurs

25. 3. Detecting and Improving Invisible Regulations Ⅳ. Measures to Improve Technical Regulations by Case Improving Regulations Governing Research Staff at Company-Affiliated Research Institutes 3 Current Upgraded • Qualifications of dedicated research staff restricted to at least college degree holders in science and engineering • Ease qualifications regarding the knowledge service industry • - Qualifications: science & engineering major •  ordinary department majors •  Impossible to acknowledge them as dedicated research staff in the • knowledge service industry driven by non-science and engineering • majors • Complicated procedures in reporting changes in research staff • Simplify the procedures to change research staff • - Acknowledgement system registration system • - Substantially reduce reporting documents • (19types of documents currently required) •  Limitations on effectively utilizing professional researchers Foster the knowledge service industry and ease the administrative burden on company-affiliated research institutes (18,551institutes in 2009)

26. 3. Detecting and Improving Invisible Regulations Ⅳ. Measures to Improve Technical Regulations by Case Easing Regulations on the Scope of Participation in Cooperative Technology Development by Industrial/Academic/Research Institutes 4 Current Upgraded Targets of cooperation limited to colleges in the administrative district of the local government concerned in the event of an SME’s participation in a joint technology development project by industrial/academic/research entities Make gradual improvements to enable industrial/ academic/research entities to engage in collaborative research with colleges in other areas • * Ratio of permitted selection of colleges in other areas 10% ’10 • Pursuit of such cooperative projects rendered impossible if a local college deemed suitable by a company is located in the administrative district of another local government 50% ’11 100% ’12 Induce and expedite substantive cooperation by SMEs, colleges and research centers

27. 4. Setting New Guidelines Reflecting Market Needs Ⅳ. Measures to Improve Technical Regulations by Case Establishing Essential Systems Including a Certification System to Promote Nano Product Technology Development 1 Current Upgraded • Lack of a system to test stability/performance of nano technology-applied products Organize and operate the Nano Technology Stability Committee (first half of ’10) • * Plan to develop a program to assess impact of nanomaterials • to health and the environment announced by the OECD (’08) • - Jointly administered by the Ministry of Knowledge Economy, • Ministry for Health, Welfare & Family Affairs, and the Ministry • of Environment • Concern that companies making inroads • into overseas markets may face disadvantages • Formulate “Safety Guidelines for the Development and Production of Nano Technology-Applied Products” and introduce a certification system (second half of ’10) Enhance consumer safety and stability concerning nano technology-applied products and facilitate the tapping of overseas markets

28. 4. Setting New Guidelines Reflecting Market Needs Ⅳ. Measures to Improve Technical Regulations by Case Reducing Burden Arising from Hazardous Substance Testing & Analysis 2 Current Upgraded • Finished product makers frequently request suppliers to submit analysis and test reports regarding hazardous substances including RoHS certificates without clear standards on their effective period: Monitor whether finished product makers frequently request renewal of component testing reports • Pursue consultation with related government ministries regarding designation of an effective period for test reports on hazardous substances • * RoHS (Restriction of Hazardous Substances Directive) : • Restrict six major hazardous substances including cadmium, • lead, mercury, chromium VI, PBB and PBDE. Reduce unnecessary testing/analysis costs incurred by component suppliers

29. Planned Measures for the Future

30. Planned Measures for the Future Ⅴ. Planned Measures for the Future Pursue Constant Enhancement of (over 4,000) Regulations Identified Build a database of regulatory provisions already detected and continue to push for the easing of regulations with the Regulatory Reform Committeeunder the Prime Minister’s Office at the lead (year-round) Expand investigation into technical regulations concerning para-statutory regulations and guidelines of related government agencies (first half of 2010) Presentation of Guidelines for New Regulations Devise principles for formulation of new technical regulations governing nano technology-applied products, containment of hazardous substances, etc. (1st quarter of 2010) Prepare a technical regulation roadmap and manual (first half of 2010) Diversify Channels that Receive Grievances, etc. Related to Technical Regulations Install and operate such channels at technology-related institutions including KIAT and NRF (first half of 2010) Systematic Follow-Up Management Conduct periodic inspections/control of implementation of technical regulations by each government ministry (year-round) (Report to the PCNC and Regulatory Reform Committee)