The 19th Meeting of the Council for National Competitiveness

1. The 19th Meeting of the Council for National Competitiveness 2009 Status Report for Activities to Alleviate On-site Corporate Issues 2009. 12. 9

2. Table of Contents The 19th Meeting of the Council for National Competitiveness 2009 Status Report 2009 Activity Overview 2009 Outcome Major Measures Taken for Nov. 2009 Evaluation and Future Plans

3. The 19th Meeting of the Council for National Competitiveness 2009 Status Report 2009 Activity Overview

4. Public-Private Deregulatory Taskforce Jointly established by the Nat’l Competitiveness Council and ·KCCI (Apr. 2008) On-site Issue Collection Consultation with Relevant Authorities Report to the Nat'l Competitiveness Council Implementation Progress Check-up 1. Public-Private Deregulatory Reform System with a Business Focus Strengthen Corporate Competitiveness for Investment and New Jobs Public-private cooperative system for fostering a business-friendly environment Resolving On-site Raised Issues • Collect regulations deemed unreasonable • Receive complaints from businesses • Attend to support request • Exchange Information with the applicant company in the consultation process • Consider global standards for reference • Report on a monthly basisSpeed up reform process • Check-up every month & every six months • Enhance Satisfaction level 1

5. Resolution of facility expansion issues coming from fragmentation of control zones Support for replacement of old water pipes Changwon Daejeon Andong Cheongju Taebaek Yeosu Incheon Gwangju Jeonju Icheon Busan Ulsan Pocheon New facility expansion to be allowed within natural environment conservation zones Reduction in charge increase plan for waste disposal Order Placement performance not to be the only judgment criteria for public work bids Reasonable improvement in the fuel use regulation Improvement in acquisition tax system for oligopolistic shareholders Extension of temporary construction use period More opportunities for local companies in the Saemangeum Project Establishment of export support center for shipbuilding materials at the new port Elimination of employer payment after medical treatment of industrial accident victims More direct public procurement on construction materials Change in the green area ratio at the Yeosu Industrial Complex 2. On-site Checkup Region • Visited 30 regions • - including 6 metropolitan cities, Pocheon, Taebaek, Icheon Cheongju, Andong, Jeonju, Yeosu and Changwon • Visited 37 local companies • Found the following characteristics in issues raised by local companies: • Companies in the metropolitan region typically asked for relaxed regulations on site location and environment control • Companies outside the metropolitan region asked for systematic measures to improve vitality of local economies and policy support 2

6. 2. On-site Checkup Industry Economic Organizations Individual Companies • Received issues raised directly to the Taskforce or via relevant authorities • Received issues pertaining to individual companies as well as overall system improvement request for business sectors • Issues related to market access restrictions on new and renewable energy • factory-use permits for farmland • parking and taxing restrictions for courier vehicles • Held meetings with 19 industries (59 roundtables) including shipbuilding, biotechnology and textile • Companies asked for system & procedure improvements particular to the specific industry needs • Petroleum sector asked for longer intervals to inspection of LPG pressure vessels • Shipbuilding industry asked for exemption of temporary sail inspection for pilot-operation vessels • Biotechnology sector asked for simplified approval procedure with regards to medicine and medical equipment combined products • Collected System improvement proposals and corporate issues raised via economic organizations (KITA, FKI & KFSB) • KITA: Improvement of import and export systems & infrastructure support • FKI: Relaxation of regulations on big businesses, land and financing • KFSB: Reduction in corporate burden related to environment and employment • Received input from 71 regional chambers on regional corporate issues 3

7. The 19th Meeting of the Council for National Competitiveness 2009 Status Report 2009 Outcome

8. Consultation with Relevant Authorities Improvement Measures 785Cases 559 Cases 1. Improvement Status (Unit: Case, %) 4

9. were made in the order of location, housing & construction, finance & tax were taken in the order of location, housing & construction and environment Improvement by Sector Improvement Status by Sector 1. Improvement Status Recommendations Improvement measures 5

10. By Relevant Authorities MLTM MKE MOE MOL SMBA MOST MAF MOHW KFDA MOPAS KFDA MAF SMBA MKE MOHW ME NEMA MOL MLTM FSC 131 85 60 52 39 37 23 18 16 13 94.1 85.2 81.3 72.6 69.2 69.0 68.8 65.0 64.7 59.1 1. Improvement Status Improvement measures were made in the order of MLTM,MKE,and MOE turned out to be highest in the order of KFDA,MAF andSMBA Acceptance rate Improvement(cases) Acceptance Rate(%) (Authorities with more than 10 cases) 6

11. Before After Visits by Local Public Servants On-site Issues Agricultural Development Area Agricultural Development Area Improvement Factory Site Agricultural Development Area within the Factory Site 2. Major Examples Use of Farmland -“S“ Company, Located in Goyang City • The refrigerator manufacturer was expecting more orders from Sweden and thus needed to expand its facility ASAP.Expansion was disallowed, however, as the site was located next to an agricultural development area. • Company "S" was also prohibited from setting up a temporary construction on its product storage area within the site, for it was designated as an agricultural development area. • Company "S" was given the go-ahead sign to set up a temporary construction on the said site. • A proposal will be made for amendment of either the Act on Special Measures for Corporate Activities or the Farmland Act before the end of 2009. • ※ Company "S" site now serves as a OJT site for local public servants. 7

12. Small Factories Jumbled Up Narrow Roads Illegal Parking • Semi-Industrial Park System was introduced to improve infrastructure and business environment of stand-alone factory sites. (2007) • Local companies in Hwasung and other regions wish to benefit from the system, but are unable to do so because of strict infrastructure requirements. Companies request for semi-industrial parks to be applied the same infrastructure facility requirements of industrial parks. Hwasung-Yulam Region 2. Major Examples Selection Criteria for Semi-industrial Parks - Companies Located in the Hwasung, Gimhae Region • To foster semi-industrial parks, the same infrastructure rate will be applied. • Road ratio: 10∼20% → 8∼10% • Green area ratio: 15∼20% → 5∼13% • Designation criteria will be relaxed for semi-industrial parks • Current factory space: Over 50% → 40% Improvement On-Site Issues Progress • 104 companies in Hwasung region applied for designation of 7 semi-industrial parks. • 2 of the 7 parks will begin construction in 1H 2010. 8

13. Improvement Measures Issues Progress Status Company “M” Located in Gwangju Company “S” Located in Hwasung 2. Major Examples Restriction on New Construction and Facility Expansion of Factories • The Enforcement Decree of the National Land Planning and Utilization Actwas amended in Jul. 2009. • Company “M” requested for a change in the building coverage ratio to the Urban Development Plan Review Committee. • When there are no environmental degradation issues, the building coverage ratio will be raised for existing plants in green areas and other environment conservation zones from 20→40%. • Company “M” needs to expand its facility, but in doing so it will exceed facility expansion green area limit for building coverage ratio of 20%. • 100 billion KRW will be needed for relocation to a new site. • The Enforcement Decree of the National Land Planning and Utilization Act was amended to eliminate combined summation method in Jul. 2009. • - Additional improvement measures will be sought before Jun. 2010. • Combined summation no longer applies to factories established before 2003. Also, additional improvement measures will be devised. • To process more orders, Company “S” needs to expand its facility. • Combined development makes expansion difficult for the company. 9

14. Issues Improvement Measures Progress Status Civil Engineering Company“C” Non-Metropolitan Area Nationwide Metropolitan Area 1,385 478 907 Electronic Parts Maker “S” 2. Major Examples Public Works & Construction • Efforts will be made to amend the Framework Act on the Construction Industry before June 2010. <List of Failed Companies> • Company “C” has to meet an order placement-based performance criteria, of a yearly average of 250 million in previous two years. Non-compliance results in business suspension or surcharge. • Because performance for one year was 70 million KRW, business operation of Company “C” was suspended for 4 months. • The order placement-based performance criteria was eliminated as a support measure to construction SMES • If deemed necessary (given the industry characteristics), local autonomous bodies will make a review to relax regulations for application of fire-resistance treatment. • The Enforcement Decree of the Building Act will be amended in Dec. 2009. • The amendment will reduce 20 billion KRW in construction coast and shorten new product release interval to 3~4 months for Company “S” • Because Company “S” manufacture high-tech products that typically have a short lifespan, product release is important. • Company “S” is required 3~4 months to undergo a fire-resistance treatment of the new factory. Vis-à-vis foreign companies that have no such obligations, Company “S” suffers a serious competition challenge. 10

15. Issues Improvement Measures Progress Status Public Procurement Vendor “G” 2. Major Examples Improved Convenience in Corporate Activities • Submission of a local tax payment certificate whenever Company “G” makes a bid or receives payment for government procurement deals. • With branch offices all over Korea, it takes from 2~10 days for the local tax service network to load payment details → which brings inconvenience to Company “G” in bid participation or receiving payments from the government. • Integrated Payment Processing System will be established in Dec. 2009 • Local taxes will be paid via e-payment system in June 2010. • Tax payment system and local tax network will be improved to ensure real-time checking. Semiconductor Maker “A” 13 • Registration requirement will not apply to special gas containers that will be returned after use, regardless of how long they stay in Korea. • The Enforcement Regulation of the High-Pressure Gas Safety Control Act was amended in Nov. 2009. • Companies can now save registration fee of20~30 million KRW. • Company “A” needs to import a special gas tanks for semiconductor manufacturing purposes, as they are not domestically-manufactured. • Company “A” is exempted from manufacturer registration requirement only when the containers are returned in less than one year after import. • - Registration fee is high (20~30 million KRW)- Company “A” sometimes returns containers filled with unused gas, in order to avoid the registration requirement. 11

16. The 19th Meeting of the Council for National Competitiveness 2009 Status Report Major Measures Taken for Nov. 2009

17. Improvement Measures Consultation with Relevant Authorities 129 Cases 105 Cases 1. On-Site Issue Improvement for Nov. 2009 A total of 35 cases including eligibility requirement for regional credit guarantee foundations Resolved SME Issues Relieved Burden of Housing Constructors & Developers A total of 26 cases including payment of housing site development cost A total of 24 cases including exemption of employer payment at the end of medical treatment for industrial accident victims Rationalized Safety & Health Regulations Alleviated Corporate Burden and Improved Procedures A total of 20 cases including seeds plantation approval for sea cucumber exports 12

18. As-Is Now Gyonggi CGF Busan CGF 2. Major Examples Eligibility Requirement for Regional Credit Guarantee Foundations Improvement Measures • Regional credit guarantee foundations(CGFs) offer services only to businesses registered in their jurisdiction. Many trucking transporters operates outside their registered region. Thus, they have to make application to a CGF located far away from their business operations. • Eligibility requirement is improved, so that companies can use services of regional CGFs close to their operations. • - Regional CGF are improved so that they can delegate services between themselves for documentation and site due diligence • A special measure will be implemented so that companies can utilize CGFs located in regions outside their business operation addresses. (SMBA, 1H 2010) • [Contract Trucker“S”] • Registered Address : Paju, Gyonggi Province • Business Operation Address: Busan • Company “S” spends extra time and money for having to travel to the CGF in Gyonggi Province. Case 13

19. As-Is Now Improvement Measures 2. Major Examples Payment Method for Housing Site Development • As for public housing sites, developers (KLC etc.) operated under a pre-construction sales system, under which they receive payment in advance from housing constructors, after securing more than 25% ownership of the planned site. • - Generally, it takes from 20 to 40 months to use, after sales agreement is signed. Advance-payment is financially burdensome for housing constructors • For Housing constructors are required to follow a fixed payment schedule, even if construction is delayed by unexpected excavation orders for tangible cultural assets, • Pre-construction salesis now allowed only after the project developer secured more than 50% of land ownership. • The Guideline for Housing site Development Works was revised.(MLTM, Aug. 2009) • For project delays incurred by cultural asset excavations, etc., payment schedule will be deferred accordingly. • Enforcement Decree for Integrated Instruction on Land will be amended (LH Corporation,1H 2010) Company “A” financed 23.9 billion in pre-construction sales cost for construction of apartments in Incheon. Company “B” was burdened by an additional financial cost incurred from excavation of a Koryo dynasty village remains in Daejeon. Cases 14

20. As-Is Now Improvement Measures 2. Major Examples Employer Payment Obligation Following Medical Treatment of Industrial Accidents Victims • If an industrial accident victim has to take convalescence from an aftereffect after completion of medical treatment covered by the Industrial Accidents Compensation Insurance, then the cost needs to be paid by the employer. The National Health Insurance Corporation will pay first and file a lawsuit to the employer to recover the cost. • - In principle, if the victim has to take convalescence because of the industrial accident, then the Industrial Accidents Compensation Insurance is responsible for payment. If it is not the case, than the National Health Insurance Corporation has to pick up the bill. • This matter is between national insurance services, namely, the Korea Workers' Compensation & Welfare Service and theNational Health Insurance Cooperation. However, they are delegating this problem to the employer. • The two national insurance services are made to follow a consultation procedure, so that they can decide between themselves on who is to pay for the post-treatment convalescence cost, based on medical opinion, overseas cases and claim handling principle, without involving employers. • New guideline on cost handling was given to the National Health Insurance Corporation, effective immediately. • Work guideline for the National Health Insurance Corporation will be amended in March 2010. Company “A” spent unnecessary cost and time because of a legal claim related to an employee who completed medical treatment covered by the Industrial Accidents Compensation Insurance. Case 15

21. Seed Plantation Approval for Sea Cucumber Export Products 수출용 sea cucumber products seeds plantation approval 허용 Case 2. Major Examples As-Is Now Improvement Measures • Review is underway to allow plantation for sea cucumber seeds that will be exported as a final product. • Plantation approval for sea cucumber import seeds (MAF & NFRDI, 1H 2010) • Facilitation measures for sea cucumber farming will be sought • Sea cucumber farming will be promoted (MAF, 2H 2010) • * Special measures include sea cucumber farming effect survey, facility support fund and mud flat farmland projects. • Currently, import of sea cucumber seeds for plantation is disallowed. • Companies cannot utilize the Chinese seeds, competitive both in supply volume and price • Companies cannot realize the full potential of sea cucumber products as a strategic industry export item. • *Current sea cucumber production volume: 1.5% of China - Korea (2,900 tons) vs. China (200,000 tons) • * Korean seeds are 5 times more expensive than Chinese seeds. • - Korea (750 KRW) vs. China (150 KRW) Company “H” located in the Jeonnam region plans for a large-scale sea cucumber farming to export to the Greater China region. However, sea cucumber seeds are short in supply. 16

22. 3. Other Improvement Measures Major Examples include • For a single individual that lost the bid: 25% → 35% of the basic design cost • For more than two individuals that lost the bid: 30% → 40% of the basic design cost (cascading down by 10% per each rank) Increasing proposal cost compensation for private investment projects Reducing In-door performance test frequency of a multi-purpose geo-thermal heal pump unit system Performance test frequency will be reduced from the current 9 times to 1 (Mar. 2010) Relaxing visa permit restriction as a penalty to employing illegal migrant workers • Visa permit restriction period will be reduced for companies found to have employed illegal migrant workers. (Measures already taken on ’09.11.20) • Segments of the farmland in Ulju-gun that are utilized as a de-factor industrial zone will be reclassified as planned control zone (Feb. 2010) Changing land zoning for lawfully developed farmlands The scope will be reduced from “accidents that require more than 4 days of medical treatment” to “a serious accident”(Opinions will be gathered for an improvement measure before Jun. 2010) Adjusting reporting scope for industrial accidents • The inspection scope will be minimized to ensure the ship’s sale capacity and site inspection will be exempted when the shipbuilding company presents a self-test result. (Measures already taken on’09.11.24) Improving temporary sail inspection system 17

23. 3. Other Improvement Measures Major Examples include • The confirmation cost incurred in import and export will be reassessed (Currently 2 KRW per every dollar) and maximum ceiling will be reduced (Currently 3 million KRW) (Feb. 2010) Reducing export-import requirement confirmation cost for radiation equipments Residential common facility space will not be included in floor space ratio calculation for residential-commercial apartments with less than 300 residential units. (1H 2010) Excluding residential common facilities in assessing floor space ratio for residential-commercial apartments. Improving assessment method for defect-repair cost deposit in apartment housingprojects • In apartment housing projects, indirect cost from the total cost in calculating the deficit-repair cost deposit. (Measures already taken on ’09.11.15) • Urban-style housing projects will be relieved of school site cost burden (1H 2010) and National Housing Fund support will be given (Measures already taken on ’09.11.4) Relaxing regulations on urban-style housing • Private developers can carry out a joint housing site development with public agencies, irrespective of its land ownership ratio (Currently 50% or above is required) (Proposal was submitted on ’09.11.16) Easing bid requirement for housing site development projects • When a business city project developer takes up a certain amount in the infrastructure facility establishment cost, the developer will be designated as the provider of the said infrastructure facility(1H 2010) Reviewing integrated project for business city development and infrastructure provision 18

24. The 19th Meeting of the Council for National Competitiveness 2009 Status Report Evaluation and Future Plans

25. Respondents are Satisfied with Deregulatory Reform Satisfaction Survey shows a 4 times improvement from 5 years ago KCCIsurvey: (Nov. 2004) 9.1% -> (Oct. 2009) 38.9% • The Government’s strong commitment to deregulatory reform • Active efforts to identify issues by means of site visitations, etc. • Fast responses enabled by speedy consultation with relevant authorities Deregulatory ReformSatisfaction survey 38.9% (’09.Oct. KCCI) Respondents wish for 26.8% (’09.Apr. KCCI) 27.1% (’09.Mar. FKI) • Further improvements in public servants’ attitude to deregulatory reform • Speedy follow-up measures • Continued identification and resolution of on-site issues 16.9% (’05.Nov. FKI) 9.1% (’04.Nov. KCCI) 1. Evaluation from Businesses 19

26. Strengthen on-site monitoring activities including site visits and roundtables (36 occasions for 2010 or 3 events per month is planned) • Continue efforts to resole industry issues (60 cases for 2010 or 5 cases per month is planned) • With a special focus in new growth engine industries (energy & biotech) and regional industries (textile and shipbuilding) Strengthened On-Site Monitoring • Measure and evaluate the follow-up response time by relevant authorities measures (1H 2010) • Promote communication with issue-raising companies and check their satisfaction level (Occasionally) Diversified Progress Checkup Method • Review relief measures for individual regulatory damages on • Promote best cases of deregulatory reform, identify and award exemplary public servants. Improved Quality of Deregulation 2. Future Plans 20