Use-It-Or-Lose-It Annual Leave in Korea

by Brendon Carr

A common question I get from time to time is whether employee leave not used during the year may be forfeited. Prior to the September 2002 Amendment of the Labor Standards Act introducing the 40-hour workweek, the answer had been “no”. Supreme Court precedents overturned the language of the LSA then in effect concerning leave, because there were so many instances where employers had interfered with the employee’s right to use leave.

But part of the Amendment’s objective was to regularize Korea’s working hours and leave system in line with standards in effect in most other countries around the world, and also to spur a leisure culture. Korea’s previous system had encouraged employees to “bank” their annual leave and request payment therefor, instead of using the leave.

So now under the Amendment use-it-or-lose-it leave is part of Korean law. So long as the Amendment is applicable to the workplace, and the employee is notified of the possibility of loss of leave, the leave may be forfeited.

The rule is the employer must notify the employee of leave forfeiture “two months” before forfeiture of the unused leave, after the employee has failed to designate dates for use of leave in response to the employer’s prior written recommendation of dates to use unused leave. If the employee knows of the loss of leave and still doesn’t take leave, that’s his problem.

The timing of the employer’s notice is not later than 10 days into the third month before the leave would lapse; the employee shall be afforded 10 days from receipt of the employer’s notice to respond in writing with a designation of leave dates. This means the first 20 days of the third month before leave lapses are the key days.

Leave in your company probably is calculated on an annual basis according to the calendar year ending Dec. 31, which is customary for most Korean companies. That means October 1-10 is the window to notify employees they may lose annual leave if they don’t use it. HR should send written reminders with suggested dates to use the unused leave during that period, and require employees to revert within 10 days with written confirmation of what dates they will take leave. Anyone who doesn’t respond shall be deemed to have forfeited the leave. This would all be worked out by the 20th and you could then generate letters (or e-mails—e-mail is written communication) to the affected employees.

As this takes place 60 days out, it seems a little short-fused and possibly heartless and an employer could adopt any softer practice you want to give employees more time to confirm their schedules, so long as the employer gives notice in the proper window.

Among its several changes, the Amendment also changed the accrual of annual leave, changing the base entitlement from 10 days to 15 days per year. And the rate of increase has changed, too—from one (1) day per year of service to a maximum of 20 days, to one (1) day per two (2) years of service after the first year to a maximum of 25 days.

From July 1, 2008 the Amendment is mandatory on all workplaces in Korea with 20 or more employees. Employers choosing to adopt the 2002 Amendment in their workplaces smaller than 20 employees shall need to amend their Work Rules, by agreement of the employees, or wait until the Ministry of Labor announces an implementation date for smaller workplaces. But for foreign investors getting set up in Korea the first time, it’s preferable simply to adopt the Amendment’s more employer-friendly provisions on working hours and annual leave entitlement from the get-go.

Somehow I Don’t Think This is Going to Help

by Brendon Carr

Against the backdrop of plummeting foreign investment and the flight of Korean capital to better investment destinations, Strategy and Finance Vice Minister Choi Joong-kyung told the Korea Times that Pres. Lee Myung-bak’s “business-friendly” face doesn’t necessarily mean that Korea’s getting over its xenophobic attitude toward foreign investment:

“A friendly investor should walk hand in hand with the Korean economy for win-win results, but private equities are not such investors,” he added, suggesting that foreign PEFs are not in the friendly investors’ zone.

PEFs, including Lone Star, have been criticized here for using legal loopholes to avoid paying taxes on their capital gains. Lone Star, the largest shareholder of the Korea Exchange Bank (KEB), was recently found guilty of stock price manipulation involving its acquisition of KEB’s credit card unit.

The Lone Star case is one which is well-documented and known by all who follow Korean business. The “hand-in-hand with the Korean economy” bit is especially ridiculous when one consider’s Lone Star’s barely-majority stake in the bank. Who held the other shares? Why, Korea’s state-owned and government-controlled “policy banks” (Bank of Korea, the local equivalent of the Federal Reserve; and Korea Export-Import Bank) and some other individual investors. When Lone Star rescued the failing KEB and saved its share price, those government and individual shareholders who held the other half of capital benefitted as well. And since the bank didn’t go under, all those thousands of jobs were saved too. You can’t get much more “hand-in-hand” than that. Yet this point is persistently distorted for political gain.

As for the tax angle, this too is a red herring and the constant kvetching is not good for Korea’s reputation with investors. Tax structuring is done by lawyers and accountants who read and understand the applicable tax laws and put together the investment vehicles to comply with laws. That Korea hates its own laws and constantly grouses about foreigners who follow the laws does not help the perception of “rule of law”.

On question regarding Korea’s reputation for xenophobia, the policymaker said, “What we don’t like is speculative investors, such as those pursuing only short-term speculative gains in the currency markets.”

“We welcome all the foreign investors coming to seek long-term investment gains,” he added.

Choi doesn’t seem to get that all investment is speculative. Investors make an educated guess about how their investments will perform based on market conditions and the investor’s expected management input. Being against speculators is anti-business. Oh, and how to parse this guy’s last statement? Just so long as you don’t try to take your profits home, Mr. Foreign Investor.

Is this really the way things are going to go? I was hopeful for the LMB government, but the more things progress (with guys like Choi flapping their gums) the more it appears the plan is not globalization of the Korean economy and a fair marketplace, but merely an end to some of the more overt and egregious harassment of Korean tycoons while harassment of unlucky foreign capital continues.

What a disappointment. Koreans really deserve better than this—their leading companies can and do successfully compete in a global marketplace outside Korea. More Korean companies ought to have the opportunity to sharpen their game against the best fair competition even in their home market.

Korea Gets Serious About Child Support Order Enforcement

by Brendon Carr

It’s not business law, but I think this is an interesting tidbit. Today’s Law Times, Korea’s legal-industry newspaper, carries an article headlined “Child Support Orders Ineffective”—over a story telling us, well, how ineffective are the child-support orders issued by the Korean court in divorce cases. But there is good news: Legal reforms being proposed by the government will strengthen (commence) enforcement of these orders, which previously were widely disregarded. According to the Law Times, almost 2/3 of spouses weren’t paying properly:

현행 가사소송법은 부부가 재판상 이혼을 하면서 조정이나 판결에 의해 양육비 지급의무를 부담하고서도 이를 제대로 이행하지 않을 경우 법원이 당사자의 신청에 의해 ‘이행명령’을 내릴 수 있도록 하고 있다. 또 당사자가 이행명령에 정당한 이유없이 불응하면서 양육비를 계속 지급하지 않는 경우에는 100만원 이하의 과태료를 부과하고, 3기 이상 의무를 이행하지 않는 경우에는 30일의 범위 안에서 감치에 처하도록 하고 있다.

Now where a party subject to a child-support obligation pursuant to a divorce decree or agreement does not pay support as required, the other party may request the court to issue an “enforcement order”. If a party fails to respond to a court enforcement order without justifiable reasons, and persistently does not pay support, an administrative penalty of up to W1 million (about US$1025) may by imposed. In the case of three or more failures, detention of up to 30 days may be imposed.

그러나 이혼한 여성 상당수는 전 남편으로부터 자녀양육비를 제대로 받지 못하고 있는 것으로 나타났다. 지난 2001년 가정법률상담소가 실시한 설문조사에서 이혼하고 자녀를 혼자 양육하고 있는 여성 91명의 41.9%가 약정이나 판결대로 양육비를 지급받지 못하고 있으며, 19.4%가 불규칙하게 지급받고 있다고 응답했다. 응답자의 61.3%가 양육비를 제대로 지급받지 못하고 있는 셈이다.

It’s emerging that divorced women don’t receive proper child-support payments from their former husbands. According to a 2001 survey by the Family Law Counseling Center of 91 divorced women raising children along, 41.9% weren’t receiving the child support payments according to their divorce decree or support agreement; 19.4% responded that they received payments irregularly. This means that 61.3% of respondents reported not receiving proper support payments.

The 30 days’ detention looks interesting, as ordinarily the court hasn’t had a contempt power. Now it appears some form of contempt power is being implemented.

This is a proposal currently being raised to solicit public comment. The statute would be passed in the autumn for effectiveness probably in the new year, if not killed during the comment period.

Foreign Schools in Korea: Book Early to Avoid Disappointment

by Brendon Carr

Not being able to enroll your kids in an English-speaking school is a worry for every parent, but this story in the JoongAng Ilbo’s English edition made me smile:

Korea’s notorious lack of convenient services for foreigners has claimed another. The latest victim in the long list of displeased expatriates is none other than the former chairman of the American Chamber of Commerce in Korea.

The problem, which has traveled by word-of-mouth among foreign business professionals here, began when Jeffrey Jones, 56, a current attorney at Kim and Chang, attempted to enroll his two sons at a popular local foreign school.

As one of the most influential business professionals in Korea, he didn’t think he’d have any problems gaining his sons a spot in school. After all, he was the first foreigner to work on a committee for deregulation of the Korean government, and he’s been credited for attracting a large amount of foreign investment here.

But then the school put Jones’ sons on a waiting list, saying they currently had no openings for new students. Jones was not available for comment at press time.

Why am I pleased to see this? It doesn’t have anything to do with the subject of the story, but I am a populist. The fact that Jeffrey Jones is or is not a powerful figure—whether he’s “attracted a large amount of foreign investment” (and that voodoo power appears to be fading), or works for a large law firm or the Korean government—should be of no relevance to the admission of his children to a wait-listed foreign school. There are published rules and everyone on the list should get the same fair shake. That Jeff’s kids got stiffed indicates that whichever school stiffed them is concerned about such fairness. Since this sort of egalitarianism is not how Korea usually operates, it’s heartening news to a populist.

However, there is the other question, which is Why on Earth is this in the newspaper? My kid got blanked by Seoul Foreign School at kindergarten time, and we simply enrolled at Early Childhood Learning Centre, a fine Montessori school. But for some reason, we didn’t make the paper. Now, my kids are enrolled at Yongsan International School and we love it there. That’s not news either.

For those of you coming to Seoul, note this lesson: No matter who you are, contact the admissions offices of the foreign schools as early as possible, and get onto the waiting list.

UPDATE 5/9—Now the Chosun gets in on the action. The Koreans are chasing foreign investment away by Jeff shock! It’s all anyone can talk about. They’ll rue the day they treated Jeff Jones like an ordinary person…

For those of losing sleep over the issue, the Chosun reports that Jones’ older, seven year-old son has been granted a place in one of the foreign schools, leaving only the little one out in the barren wilderness. Whew. That is a big relief.

Foreign Investment in Korea Continues to Plummet

by Brendon Carr

The Korea Times has a must-read article describing how foreign investors have had enough of Korean double-talk on foreign-investment friendliness and are withdrawing their investments from Korea. Net FDI—that is, the amount of incoming foreign direct investment as against foreign investments cashed out and withdrawn from Korea—has fallen steadily from almost $10 billion in 2004, to negative $670 million for the first quarter of 2008.

Asia’s most widely-quoted economist Andy Xie offers the following insight why:

“Korea has become less friendly to foreign investment in the past five years as it recovered from the financial crisis,” Andy Xie, an analyst of the Shenzen Development Bank (SDB) in China, who is the former Morgan Stanley chief economist overseeing the Korean economy and financial markets, told The Korea Times.

“Koreans may disagree but this view is widely shared in the international community,” he added.

“Korea’s development model is based on developing indigenous firms to conquer foreign markets, very similar to the Japanese model,” he added. “The opening to FDI during and after the crisis was out of necessity. Korea was down and needed the money. When Korea recovered, it reverted.”

This is the Lone Star Effect in action. Lone Star bought, at the government’s urging, a failing Korean bank and rescued the bank. But nobody told Korea that Lone Star would be doing it for a profit! Profit by a foreign investor is a difficult pill to swallow.

The [Bank of Korea] said that for investment promotion, the government needs to relax more regulations.

“Reforming regulations is the most urgent task for Korea to attract more foreign investment,” [BOK senior economist Lee Won-joon] said.

“If Korea is to become a major FDI destination, it should create a more foreign-friendly business environment by removing red tape and tackling its key competitive disadvantages, such as labor market rigidity,” he added.

Well, sure. But these are the exact same prescriptions which have been bandied about for the 11 years I’ve been working here as a lawyer, and if anything, in the labor aspect things have gotten worse. Labor-market rigidity will never be addressed, not until the economy has completely melted down. It’s like the third rail of Korean politics.

And i don’t think mere deregulation will be enough to draw new foreign investments. A real social change will be necessary. I’m reversing the order in the story, but I think Andy Xie nails it:

“I don’t think Korea can change in the near future to reverse the poor FDI trend,’’ Xie said.

“Korea may be unwilling to make the changes to attract FDI,” he added. “Korea may never become a truly open economy. The mere fact that people always talk about foreign versus local means that the economy cannot be truly open.”

As a signal of which direction things are going, the government apparently plans to renegotiate its just-concluded “deal” on re-opening the Korean market to US beef. Still optimistic that Congress will approve the KORUS Free Trade Agreement?

Now, the Lone Star case was a little bit special in that it involved purchase of Korea Exchange Bank, a large commercial bank occupying one of the commanding heights of the Korean economy—and a sector which is highly unionized. Korean trade unions are nests of Marxist xenophobes, which made the Lone Star KEB investment sure to attract all the worst responses this country can muster.

And Korea responds differently to foreign investment when it comes with “meddling” in management. Foreign portfolio investors generally have a great time of things, so long as they’re willing to sit down and shut up. When a foreign investor takes a 5% stake in a listed company, for example, the investor must publicly declare whether or not the investor intends to interfere with management.

But the government and legal system are supposed to moderate such instincts, not exacerbate and validate them. That’s the reason why foreign investors have lost interest in Korea. Most of them do just fine. But all of them fear having a target painted on their back by a reckless government, and then finding the courts more eager to appease public feeling than uphold the rule of law. L’affaire Lone Star has done considerable damage to foreign confidence in this country, and it will take many years for people to forget.

Thanks, Roh Moo Hyun!

To be honest, though, the damage done by Roh’s 386 gang of crypto-Communists is not the only factor. As BOK economist Lee Won-joon noted, and Pres. Lee Myung-bak echoed in his earliest public statements as President-elect and President, the general attitude of the government and its employees toward doing their jobs is appalling. Government in Korea is a severe cramp on productivity, and urgent deregulation is a necessity to reverse not just the foreign investment decline, but the flight of Korean corporations to better investment destinations. There is simply too much hassle on investors of all nationalities. Fix that, and one day the foreign investors might come back.

UPDATE 5/7: Over at the Marmot’s Hole, a California-based Korean-American asset manager banker posting under the name “WangKon936” offers up some counter-points—Warren Buffett says good things about Korea and invests his money here (hmm), and some website recommends Korea as a contrarian play because, as the article notes, the government is so “anti-business, which has scared investors off”.

Korea, Land of 10,000 Lawyers

by Brendon Carr

It’s good to have friends who know what I like. While I’ve been swamped today (for three weeks running, really, since I foolishly took a few days to attend a short conference in China) working on a securities-law matter, Korea Law Blog readers have been forwarding interesting law-related tidbits. (I also got a complaint from an old Navy buddy who says it figures that your Uncle B would have a “Korea Law Blog” with little law-related content. So this comes just in time!)

The Chosun Ilbo English edition reports that Korea now has 10,000 private-practice attorneys:

Nation’s Lawyers Top 10,000 Mark

In 1906, Korea produced its first three lawyers. Now, 102 years later, the number of lawyers in the nation has topped 10,000.

According to the Korea Bar Association, the number of registered lawyers in the country reached the 10,000 mark as of April 1 and totaled 10,127 on Monday. This is 27 years after the figure reached 1,000 in 1981, and six years after it reached 5,000 in 2002.

Korea’s new American-style law schools will begin producing about 2,000 graduates every year from 2012, so the nation’s army of lawyers will likely exceed the 20,000 mark by 2015.

The country produced its first female lawyer in 1954. The number of women lawyers in Korea crossed the 100 mark in 1999, and the figure is expected to reach 1,000 this year, the KBA said.

The prevailing trend in the legal industry is toward large firms with multiple attorneys working together in the same office. In 2003 there were just 250 law firms in the country; that figure topped 400 this year. In fact some 55 to 60 percent of all lawyers in the country work in firms.

But experts point out that there still aren’t enough lawyers to meet Korea’s demand for quality legal services. Even with 10,000 lawyers there’s just one for every 4,800 people. The OECD average as of 2006 was one for every 1,482 people.

Another chronic problem is the excessive concentration of lawyers in the Seoul metropolitan area. Of the nation’s 10,000 lawyers, about 6,200 belong to the Seoul Bar Association. It is estimated that about 50 percent of local administrative regions nationwide have no lawyers at all.

No kidding. Lawyers don’t want to get far from Seoul. Sixty-two hundred in the Seoul Bar Association—how many in the Incheon and Kyonggi Province Bar Associations? These are basically the outskirts of Seoul. I’d bet those two have another 2500 members.

Proximity to Seoul makes it easier to line them up against the wall when the revolution comes.

It’s important to note that these figures do not include judges and public prosecutors as “lawyers”—this is a private-practice headcount only. And foreign-admitted legal consultants certainly aren’t included either. Still, the number 10,000 is still just a drop in the bucket. My Washington State Bar Association number, from 1997, is 27252—and Washington has only about 4.5 million people.

The bar admission number has been increasing by 1000 a year the last five years (not all of them went into private practice, though; some become judges and prosecutors). Before that it had climbed to 1000 from a level of only 300 per year. So the bar association skews quite young—or at least new. What this means is that the population of experienced lawyers, to say nothing of English-speaking experienced lawyers, is still extremely constrained—there is still a need for Uncle B and also for opening of the Korean market to foreign law firms.

Why No Scientology Center in Korea?

by Brendon Carr

I am not a member of the Church of Scientology, nor do I believe I ever will be interested in joining simply because of Tom Cruise’s membership. (I’m still angry he married Katie Holmes, a project I had been reserving to myself. Plus, they’re crazy.)

But I find it interesting and a bit disturbing that the Republic of Korea (South Korea) shares with the Democratic People’s Republic of Korea (North Korea) and the People’s Republic of China a complete absence of Scientology Centers—you can verify this at the Scientology website. (Don’t ask—I can’t remember how I got there.) Scientology appears to be big in Taiwan, and also present in Japan and the Russian Far East. The ridiculously overproduced Scientology website helpfully offered driving directions from Seoul to the Vladivostok center. (Step one: Fly to Vladivostok. Step two: Buy a car.)

I feel like I have a connection to the Church of Scientology, because one of my favorite University of Washington School of Law professors, Meade Emory, in the 1980s apparently helped craft the legal framework for the Scientologists to control their assets and incidentally to harass dissenters with copyright claims. Prof. Emory was a real colorful character when I knew him in law school and a great teacher (he made tax tolerable for goodness’ sake, and we all could tell he loved the subject). I don’t know if he is, or was, a Scientologist, or whether Prof. Emory is still part of their power structure, but a lot of the dark conspiracy stuff you can find from a Google search for the name “Meade Emory” is amusing.

So, if anyone knows, why aren’t the Scientologists in this country? At the very least there should be a Scientology Center. A free society like Korea’s ought to be able to accommodate these characters too. All manner of non-mainstream (okay, nutjob) religious groups are active in Korea, including the Raelians and, of course, the Unification Church. Creepy or not, it is and always should be people’s free choice to join or not to join any religious group they want. If the conduct of the group is wrongful, the conduct can and should be sanctioned. But they should all be allowed to exist in free countries.

Balanced Regional Development Proving A Real Menace to Economy

by Brendon Carr

There are 19,948 unsold apartments now on the market (18,770 of which are in provincial areas outside Seoul), according to this Dong-A Ilbo story I noticed over the weekend. (You may be noticing how the residential real estate bubble is a hot issue in my mind. This is because it affects every citizen.)

An apartment complex was constructed a year ago in Suseong-gu, which had been considered Daegu’’s wealthy district. But few residents have moved into the apartment as many lots have not been sold. Until recently, an apartment resident had worked as the head of the apartment complex control office. He decided to lead the control office by himself since a series of problems had appeared due to the large number of unoccupied homes.

“Tens of millions of won of electrical and water fees are overdue since this apartment complex is not full of residents who can share the burden,” he said. “Relevant authorities even informed us that they would not supply electricity and water any longer. It’’s helpless.”

“Ghost town” apartment complexes seem to be a source of social problems like the foreclosure-wracked suburbs emerging in the United States.

Chillingly, the Dong-A story reports that there are another 110,000 units in the pipeline also expected to fail to find buyers. That’s almost six times the current inventory overhang—with no word as to how many of those units are in Seoul.

These apartment complexes are the fruit of Roh Moo Hyun’s “balanced regional development” plans, whereby it was much easier to redevelop apartments outside Seoul than in Seoul. This is because Roh wanted to improve living conditions in the provinces—without understanding the role that jobs, and, therefore, local income potential plays in how much house people can afford. It turns out that people in the provinces are so brokety broke that they need smaller apartments than have been built (which makes sense, because they have fewer children and their kids all move away to Seoul).

In a related vein, Good Schools Have Ripple Effects is an editorial I saw in the Chosun today. It reports how the Ministry of Education has identified the lesser opportunities for 24/7 cramming as a cause of poorer economic development and depopulation in the provinces, and will be investing $5 million in each of 88 public boarding schools in the provinces so that those students never get a moment’s respite. (See this thread at Marmot’s Hole for more—New York Times article is discussed and prompts scathing comments from foreign teachers at Korean elite preparatory institutions.)

More Notice of South Korea’s Jury Experiment

by Brendon Carr

A little bird tipped me to a short piece in the National Law Journal by University of Dayton law professor Thaddeus Hoffmeister, concerning the Republic of Korea’s tentative first steps toward trial by jury. NLJ is one of the most widely-read professional publications for the legal industry, which means that most of the American legal profession (at least its ruling class of corporate lawyers) now knows about Korea’s jury-trial innovations.

Interestingly, Prof. Hoffmeister notes Japan is also reintroducing trial by jury after an absence of 65 years—Since 1943? Guess it was suspended by Japan’s military government during the war—raising the possibility that these two outposts of American imperial power are being seduced by Yankee TV, but also points out that the wisdom of lay participation in criminal justice is also spreading to China and Russia:

Another explanation is that authoritarian countries or those with fledgling democracies see juries as a way to foster stronger democratic values. Besides voting, few rights are more essential to maintaining or creating a democracy than that of individuals, rather than the government, sitting in judgment of citizens. Juries serve as a check on governmental power and build trust in legal institutions. Also, public input into the legal process results in greater transparency and increases the likelihood that society will better understand and accept the verdict regardless of how the case is ultimately decided.

I agree with his conclusion about the difference between rule of law and mob rule, too:

However, the biggest hurdle will be educating and preparing the country as a whole for those occasional verdicts that run contrary to the values and beliefs of Korean society. For it is only after the public accepts those verdicts will we know whether South Korea’s grand experiment has worked.

Good stuff—I recommend the whole article. Apparently Prof. Hoffmeister concentrates his research on juries—my guess is, although I don’t know, the guy is attracted to the democratic elegance of the idea, despite the occasional grotesque outcome. I remain convinced that fear of being beaten up in the parking lot—China style—was a key motivating factor for the judges in the first Lone Star trial to render a guilty verdict and punt the thing to the next trial level.

Average Seoul Apartment Price Exceeds W500 million

by Brendon Carr

Paging Doctor Housing Bubble! Is Dr. Bubble in the house?

Thanks to the Roh housing policy, the average price of 900 square-foot Seoul apartments (pitifully small, hardly large enough for Battlestar Galactica’s Rekha Sharma to lounge around in nude) now exceeds W500 million, less than two years after the price for similar apartments passed the W400 million level, the Maeil Kyungjae reports today:

30-pyong Seoul Apartments Pass W500 Million

The average price of a 30-pyong apartment in Seoul has surpassed W500,000,000.

According to real estate advisory firm Budongsan Bank on the 20th, the average price of an 85m² apartment has broken through the W500 million level to reach W511,800,000. It’s been only a year and 10 months since the price passed W400 million on June 4, 2006.

By district, Kangnam-gu and Seocho-gu were in first and second place with average prices of W1,477,100,000 and W983,970,000, respectively; other districts came in at W773,910,000 in Songpa-gu; W744,140,000 in Yongsan-gu; W629,580,000 in Kwangjin-gu; W531,600,000 in Chung-gu; W525,130,000 in Seongdong-gu; W521,670,000 in Mapo-gu. Nowon-gu, after its recent sharp spike in apartment prices, remains below the W500 million level at W429,330,000.

Here’s the original Korean text, if you’re interested:

서울 30평대 아파트, 평균 5억 넘어

서울 30평대 아파트 평균 매매값이 5억원대를 넘어섰다.

20일 부동산정보업체 부동산뱅크에 따르면 서울에서 전용면적 85m² 아파트 평균 매매가는 5억118만원으로 5억원대를 돌파했다. 2006년 6월 4억원을 넘어선 지 1년10개월 만이다.

권역별로는 강남구와 서초구, 송파구 등 강남권이 9억2112만원으로 5억원을 훨씬 넘어선 데 비해 비강남권은 4억3088만원에 불과했다.

구별로는 강남구가 10억4771만원, 서초구는 9억8397만원으로 1ㆍ2위를 기록했다. 이어 송파구 7억7391만원, 용산구 7억4414만원, 광진구 6억2958만원, 중구 5억3160만원, 성동구 5억2513만원, 마포구 5억2167만원 순이었다. 노원구는 최근 집값이 큰 폭으로 상승했으나 4억2933만원으로 5억원을 밑돌았다.

The foregoing reported prices are average prices across Seoul, pulled up quite a bit, as you can see, by extremely high average prices in the nouveau riche areas of Kangnam-gu and Seocho-gu, followed by up-and-coming Songpa-gu and Yongsan-gu. Elsewhere in the Maekyung I stumbled across an article describing how the Myong-dong corner location where the Pascucci Coffee is located is Korea’s most expensive plot of commercial real estate at W200 million per square meter. Let’s take a look at the dizzying heights of Korea’s most expensive bubble residential neighborhoods:

The most expensive residential neighborhood is Dongbu Centreville apartments at 670 Daechi-dong. At W12,100,000 per square meter (W39,300,000 per pyong), it approaches the level of W40,000,000 per pyong, an increase of 15.2% over last year’s price (W10,500,000 per square meter).

The second most expensive residential neighborhood was i-Park at 87 Samsung-dong, priced at W11,800,000 per square meter (W38,940,000 per pyong), and Dogok Rexle Apartments at 527 Dogok-dong was third at W11,000,000 per square meter (W36,300,000 per pyong). These two were also up over last year—12.4% and 10.4%, respectively.

Tower Palace at 467 Dogok-dong, despite being valued at W19,700,000 per square meter (W65,010,000 per pyong), is an “officetel” (jusang bok-hap) building zoned for commercial use, and so is not included in the rankings of residential areas.

Recall that the original Maekyung piece concerned a hypothetical 30-pyong spread in Seoul—915 square feet, with two or usually three bedrooms. If we take those average prices, the Dongbu Centreville comes in at W1,179,000,000; i-Park at W1,168,200,000; Dogok Rexle at W1,089,000,000; and the Tower Palace an alluring W1,950,300,000. So cheap, let’s buy two.

And again, here is the original Korean language:

주거지역 중에서 가장 비싼 곳은 대치동 670 동부센트레빌이었다. m²당 1210만원(3.3m²당 3993만원)으로 3.3m²당 4000만원 선에 바짝 다가섰다. 지난해 공시지가(m²당 1050만원)보다 15.2%나 상승했다. 동부센트레빌은 5년 연속으로 가장 비싼 주거용지 자리를 이어갔다.

두 번째로 비싼 주거지역은 삼성동 87 아이파크로 m²당 1180만원(3.3m²당 3894만원)이었고 도곡동 527 도곡렉슬이 ㎡당 1100만원(3.3m²당 3630만원)으로 3위를 기록했다. 이들 단지도 지난해보다 12.4%, 10.4%가량 올랐다.

주상복합 건물인 도곡동 467 타워팰리스는 m²당 1970만원(3.3m²당 6501만원)이었지만 상업지역에 들어선 건물이어서 주거지역 순위에는 포함되지 못했다.

UPDATE 4/25: Welcome Korea Beat readers. You might also be interested by the following Korea Law Blog posts on this topic:

Home Prices Actually Sink in Songpa! Let’s Buy Two
In Which I Advise the Minister of Construction
Korea’s Own “Sub-Prime” Housing Crash in Sight?
It’s a Housing Crash All Right
More Property Craziness Under MBnomics
900 Sq. Ft. Korean Apartment Construction Cost $150K
More on Land-Use Regulation and Housing Prices, Plus News From Seattle
Housing Bubble: Home Supply Down 30% in 2008
More Property Fallout: Kwangju Regional Construction Group Foundering
Builders Having Trouble Moving Apartments in Seoul
Yikes! Unsold/Unsaleable Housing Problem Spreading to Seoul
Watch the Construction Companies: Korea’s Canary in the Mine
Is There Really a “Glut” of Housing in Korea?
Housing Policy and the Korean Dream

China Law Blog on How to Maintain Control of Korean Joint Venture

by Brendon Carr

Okay, not really. But Seattle-based Harris & Moure, through its excellent China Law Blog, once again offers another one of those warnings that could be applicable to Korea after a find-and-replace job: Chinese Joint Ventures—The Information The Chinese Government Does Not Want You to Know.

Dan Harris writes about his partner Steve Dickinson’s short piece in the AmCham Beijing China Brief magazine entitled Avoiding Mistakes in Chinese Joint Ventures (Adobe Acrobat PDF; 376Kb), wherein Steve warns on the cost of foreign investors mistakenly assuming their 51% share ownership gives them control over a joint venture company, and suggests that foreign investors must bargain to hold onto the following three powers:

The power to appoint and remove the JV’s representative. The side that appoints the representative director will have significant control over operations. The usual practice of conceding the power to appoint a key officer or director to another investor is a mistake.

The power to appoint and remove the general manager of the joint venture company. It must be made clear that the general manager is an employee of the joint venture company who is employed entirely at the discretion of the representative director. The common practice of appointing the same person as both representative director and general manager is a mistake.

Control over the company seal, or “chop.” The person who controls the registered company seal has the power to make binding contracts on behalf of the joint venture company and to deal with the company’s banks and other key service providers. The power over that seal should be carefully guarded. Ceding control over it as a matter of convenience is a mistake. There is a long, documented history of this seemingly minor consideration dooming EJVs.

The Korean story is almost identical, except that in the usual Korean practice there is no separation between the “Representative Director”, who is a member of the Board of Directors, and the day-to-day general manager of the company. They are for all intents and purposes the same person. While there is no legal bar to the Representative Director of a Korean corporation being a non-resident (or non-citizen), as a practical matter it is unwieldy to have a non-resident Representative Director and there will be a power vacuum in the local company that results from such a choice.

In all cases where a foreign investor wants to maintain control, or even have knowledge, of what’s going on in the local business, it’s essential to retain control over the company seal. The company seal in Korea is a totem which gives its holder all the powers of the Representative Director—including “signatory” authority over bank accounts and the power to make any contract or commitment on behalf of the company. Leave the seal in a secretary’s desk, and run the risk of being surprised by a legally-binding “contract” guaranteeing the secretary 20 years of employment, for example, or promising five years’ salary upon resignation. 

I second China Law Blog’s advice: If you’re a foreign investor and you let go of the company seal, might as well write off your investment. It’s that serious an issue. And yet so many foreign investors let themselves get buffaloed by objections from local staff.

Battlestar Galactica! Holy Cow It’s Good

by Brendon Carr

Via the magic of the Internet, I’m able to see Battlestar Galactica almost immediately after it airs in the United States. Holy cow, this is a good show. After watching the emergence of the formerly-nondescript background character Tory Foster in the last two Galactica episodes, I’m really curious to know how many visitors will find Korea Law Blog via the keyword search “Rekha Sharma nude”.

Galactica‘s in its fourth and final season on SciFi. There are 19 episodes left. The three seasons of Galactica thus far make one wonder what we might have gotten had Firefly not been on Fox.

If you’re not such a nerd that you’re home watching the SciFi Channel on Friday nights, you should be. But you probably wouldn’t be searching for “Rekha Sharma nude”.

UPDATE 4/20: It appears not too many pages on the Internet contain the keywords “Rekha Sharma nude”, which is borne out by the fact that this page has risen to the #1 Google search result for those keywords. To those of you who have come to Korea Law Blog due to that search, my apologies. Suckers!

Franchise Disclosure Statement Registration Starts in August

by Brendon Carr

Last year the Franchise Act was amended, introducing, among other things, an obligation for franchisors to register their disclosure statements with the Korea Fair Trade Commission, which would make the disclosure publicly available. Previously, although there was a recommended form promulgated for use by franchisors, its use was not mandatory. For international franchisors appointing a single franchisee or licensee in the Korean market, whom they reasonably believed could read and understand English, it was lawful to use their already-prepared disclosure statements from the home market.

The Franchise Act amendment became effective February 4, 2008. But because the KFTC’s computer systems and internal processes were not ready to accommodate the new legal obligation to store and publicize franchise disclosure statements, the agency has postponed the effectiveness of the disclosure-registration requirement until August 4, 2008.

This month I’ve received five incoming franchise-agreement matters (thank you, referral sources!), and all of them have been concerned about compliance with the registration requirement. So we’ve been doing some checking and double-checking with regulators concerning the interpretation of the August 4 deadline. Do franchisors have to conclude the entire franchise agreement on or before August 3, or is it sufficient that disclosure shall have been made by that date?

The answer is: So long as disclosure is made by August 3, 2008, the franchisor has no obligation to register the disclosure statement with KFTC. On or after August 4, the disclosure must be registered—which means it must be prepared in the Korean language in accordance with a format yet to be promulgated by KFTC. That will be more expensive for foreign franchisors, so we recommend that any international franchisor considering a Korea franchise get their disclosure out by August 3.

For ease of understanding by the franchisee, we do recommend a Korean-language “wrap letter” as a roadmap to content in the English-language disclosure statement. Still, this is optional, and franchisors concerned about costs (and willing to leave themselves open to arguments that there was no mutual understanding between the parties, since the legalese in the disclosure statement and franchise agreement were so dense) are free not to do so. At least until August 4.

Remember, the execution of the franchise agreement—and, more importantly, acceptance of any franchise fee including “holding fees” for discussions—must be delayed at least 14 days from delivery of franchise disclosure (or seven (7) days in the case the franchisee appoints an attorney to receive disclosure).

UPDATE 4/23—English translation of the revised list of required disclosure elements is now available for download (69Kb Adobe Acrobat PDF). This is something we’ve put together in the last three days; hopefully the language is clear and artful, but we may need to revise later. If you have any suggestions or comments please let us have them.

Korea’s Odd Price Differentials: What, Me Worry?

by Brendon Carr

So I spent the last few days in Beijing, where I was scheduled to speak at the American Bar Association International Labor Committee’s mid-year meeting. Alas, events conspired to make my participation less than I’d hoped; one of the bad things about travelling to conferences in the same or similar time zone to where you normally work is that the same people who’d normally be hectoring you at the office can still find you.

Anyway, while I was there I noticed the incredible array of reasonably-priced consumer goods, both Chinese and foreign brands. In the diplomatic districts there are a number of supermarkets catering to the foreign residents of Beijing and the weird things—like cheeses—that foreigners like to eat. Strangely, the prices of imported foodstuffs in Beijing are nowhere near the punishing levels found here in Seoul. And the local produce is really quite cheap, assuming you have a first-world income. I’m sure for Chinese who make $300 a month things seem more dear.

The local press here in Seoul is starting to highlight how the citizens of Korea are being ripped off every day by their leading companies. Yesterday, a Korea Law Blog reader forwarded a Korea Times article (Gap in Local, Export Prices of Automobiles Troubles Automakers) in which the lower US pricing of the Hyundai Genesis is again discussed. I wrote about this on Korea Law Blog a few days ago when this was first reported.

The Chosun Ilbo today comes very, very close to explaining why this is—see Why Koreans Pay More for Electronics Than Americans. But note how the blinders of Korean nationalism make the Chosun pull up shy of the real conclusion one ought to draw from this kind of story:

But the fundamental reason behind the price gap is the difference in the size of the markets. In the U.S., the world’s largest electronics market, numerous companies compete fiercely to secure a foothold. However, the Korean market is well out of the top 10 in the world, and is dominated by the two domestic giants, LG and Samsung. Without threats from other companies, there is thus no reason for the two firms to lower their prices. [emphasis added]

Where, oh where would “threats from other companies” come from? For the life of me, I just can’t figure it out…

The premise offered at the beginning of this paragraph also bothers me. I’ve travelled to other, smaller markets, and haven’t noticed the inevitable oligarchy that the Chosun seems to find natural for Korea. The Netherlands is a small market, for example. Has anyone noticed a dearth of competition there?

One might say that the Netherlands is a bad example, because although it’s a small country the Netherlands is part of a large common market in the European Union. But there are other countries to look at too. For example, in 2002 the International Bar Association conference was held in Durban, South Africa. South Africa is a middle-income country (US$4000 GDP or something like that), poorer than Korea, with a population size similar to Korea’s.

It also has its own car industry. But unlike Korea, where two carmakers (Hyundai/Kia with 70%, and GM Daewoo with 28%) have been permitted to acquire and maintain a duopoly, the roads in South Africa are brimming with the brands of every major carmaker in the world—including Koreans Hyundai, Kia, and Daewoo. Why is it that consumers here put up with this kind of exploitation?

Personally, I think it’s also because most Koreans can’t speak or read English, and are therefore cut off from information flows from around the world. They depend on news outlets like the Chosun to relay information—and thanks to the blinders of nationalism, the Korean press soft-pedals messages like “open markets and foreign competition are good for consumers”.

Still think Lee Myung-bak’s government is going to fundamentally improve English education? Somehow, I don’t believe Korea Inc. really wants that.

English Teachers in Korea: Where To Go For Legal Help

by Brendon Carr

It’s no secret within the Korea blogosphere that your Uncle B, a corporate lawyer, doesn’t welcome phone calls and inquiries from English teachers. It’s not because I am a cold-hearted bastard—it’s because a top Korean commercial law firm serving Fortune 500 clients is not really the right tool for the job.

Rotten hagwon cram school operators, like most smaller Korean employers, are generally lawless snakes. And like any lower-order reptilian creature, hagwon owners really aren’t cowed by an attorney’s demand letter, as the law operates on a different level from the snakes. Snakes don’t read letters and aren’t persuaded by rhetoric. They do, however, respond to being struck with a sharp implement, like a hoe or rake or something.

That sharp implement is the District Labor Office of the National Labor Relations Commission (NLRC). NLRC has two powers: (i) an administrative tribunal to adjudicate employment-related disputes, such as disputes over severance pay; and (ii) police power to conduct investigations and refer charges for criminal violations of the Labor Standards Act (LSA) to public prosecutors. While the snakes don’t fear some civil law firm’s call, they really are afraid of NLRC and the public prosecutors.

Unfortunately, as any Korean government agency, the NLRC is sometimes reluctant to do its job and needs a nudge. Plus, there is the question of exactly what the English teacher needs to illustrate, as a matter of law, to satisfy the NLRC investigators. And since this is Korea, one had better be able to write it all up in Korean. That’s a real burden, and a lot of English-teacher plaintiffs are discouraged by the burden of doing this alone.

Well, a few days ago I went to a restaurant frequented by expats, and picked up a copy of Eloquence magazine—kind of a “What’s On Seoul” for a market where global brands have a hard time. On page 40 of April’s Eloquence (maybe it’s been there all along, and I just don’t read the magazine often enough) I noticed a column entitled “Korean Law and You” by one Gerald Staruiala, a Canadian who apparently is working as a nonlawyer legal assistant in a nomu-sa (labor advocate) office called Kangnam Labor Law Firm.

I happen to know Kangnam Labor Law Firm and its principal nomu-sa Mr. Bong-Soo Jung. First of all, Mr. Jung has successfully represented, in labor-tribunal proceedings, at least two foreign lawyers I know of who have had severance-pay disputes with the Korean law firms at which they worked. Both lawyers spoke very highly of Mr. Jung, and the results he achieved for them as plaintiffs. He’ll definitely be getting my business if Hwang Mok Park tries to get funny with me in the case I were to leave this firm. (Point of clarification: There’s no plan, so far as I know, for me to be leaving or for HMP to cheat me out of severance pay.) So, foreign lawyers in Seoul use and recommend the guy.

Additionally, Mr. Jung has authored a bilingual English-Korean reference on employment and labor law. It’s a great reference, and has gotten better with each of the two editions I’ve seen. Some of the language is a little clumsy, of course, because Mr. Jung writes first in Korean and then translates to English—and there are very few good copy editors in this country.

And now, with a native English-speaking assistant to screen matters, Mr. Jung’s firm has even more ability to serve an English-speaking community of angry plaintiffs. There are over 40,000 of you just on E-2 visas alone—that must mean 10,000 of you have legal claims.

So Korea Law Blog’s advice to English teachers is this: Stop trying to “sue” your scummy hagwon owner with a $500/hour big law firm. Talk your case over with Gerald Staruiala, then pay Mr. Bong-Soo Jung his fee to file your complaint with the District Labor Office. This starts a process of administrative tribunal backed by criminal prosecution (i.e., the power of the State)—the most effective implement to deal with a snake.

This is not a solution to your criminal problems, landlord-tenant disputes, or your need to get divorced. Nomu-sa labor advocates are licensed to represent clients in administrative proceedings before the NLRC only—they cannot appear in court or meet with prosecutors on behalf of defendants. So if you have those other problems, don’t take advice from any nomu-sa, including the good Mr. Jung.

Where to Find Kangnam Labor Law Firm: Champs Elysee Center, 11th Floor (Seollung Station, Exit 1) - Tel (02) 539 0078 0098.

“I Don’t Care What You Charge; Whatever It Is, It’s 15% Too Much”

by Brendon Carr

Today we got an inquiry (through a referral from their New York lawyers, actually) from one of the peculiar breed of corporate clients who has demanded a 15% across-the-board discount.

Problem is, this new client hasn’t asked for our normal fee structure. Without knowing our rates, fee structure alternatives (such as fixed pricing), general staffing habits (i.e., do we “gang-bang” the client with a bunch of lawyers, or are we generally pretty lean?), the client already knows our prices are too high and that a 15% discount is what ought to be granted by our firm.

Over more than a decade in Korea I’ve run across this kind of client from time to time. Usually, they are bad clients who bully with the promise (undelivered, in almost all cases) of future volumes of work. Or they think their brand name is so awesome that I get some kind of value out of association with their awesome company. In respect of this latter point, they’re onto something—hey, how about a limited trademark license agreement, so I can use your Awesome Corp. logo on my “representative clients” list?

The last time was a large computer systems-integration firm with a strong global brand, the kind of client with whom I’d like to work, actually. I like computers, know their industry pretty well, and thought I’d deliver good value. But I refused the discount in the end, suggesting instead that we work on a fixed-price basis for specific projects—if the fixed price was acceptable to them, they could hire us knowing exactly what the cost (and value) would be. Isn’t that better than a 15% discount on an untold number of hours?

Unfortunately, the systems integrator’s contact attorney was a relatively junior corporate counsel in an Asia-Pacific branch office, and that meant she had no discretion to do anything other than robotically repeat her department’s “But you must give us a 15% discount” demand. Plus she had no authority to pass me along to a more senior counsel who could make a value-based decision.

The idiotic “across-the-board 15%” demand merely promotes gamesmanship, posturing, and an unhealthy confrontational attitude—right from the outset of the relationship between the law firm and the client. If you think I’m a crook, why are you hiring me? And the solution, for some law firms (especially many Korean firms, for whom the request for “lean staffing” is laugh-out-loud funny), is easy: You want me to cut the rate? Fine, choke on these hours, cheapskate!

Or, Sure, you can have a 15% discount. Let me mark up the rate 25% first.

Life is too short for that kind of nonsense. It presumes, and encourages dishonesty on the part of the lawyer. And I’m fundamentally an honest guy, so I choose not to roll that way.

Meanwhile, I’ve got other client relationships which have gone as long as my time here in Korea—over 10 years. For one of those dear, cherished clients (a top global brand name which knocks everyone’s socks off), I haven’t raised my rate for six years—not because they demand blood from the turnip, but because we are in a deep and (hopefully mutually) satisfying partnership together.

By the way, Discount Demanders, the client I’ve just described now pays exactly 50% less for my time than new clients (yes, our partnership has noticed this discrepancy and complained to me about it). But I love the client: They don’t treat me like an anonymous, disposable vendor, and I treat them like family.

So, what to do about this new potential client? Well, although I am ashamed to say this—I am going to accept the demand for discount, do this initial bit of work, and then evaluate whether it’s worthwhile. The referring party says that “time is of the essence” and advice is necessary tomorrow. This makes me reckon if I were to refuse, my referral source—a friend from the IBA whom I wouldn’t want to put in a jam—would be disadvantaged for having made the referral. And I value his friendship and professional reputation enough not to want that.

But I’m not all that optimistic about the new client.

Dear Reader: As this is a topic of interest to lawyers here in Korea, to clients here and abroad, and especially to the new crop of young lawyers-to-be, I’d love it if you’d leave a comment below. The discussion would do us all some good.

Home Prices Actually Sink in Songpa! Let’s Buy Two

by Brendon Carr

A Korea Law Blog reader forwarded a story from the JoongAng Ilbo’s English edition about the super bargains coming available in the Songpa-gu area, one of the burgeoning eastern fringe regions of the Seocho-Kangnam-Songpa-Seongnam bulge belt preferred by affluent or striving residents of Seoul.

The headline has it “Home prices actually sink in Songpa”, but upon closer review we learn that the newly-constructed 33-pyong (1100 gross sq. ft.—remember, the yield is about 70% usable space) apartments in Songpa are a bargain at W800-900 million won, while the same size in Kangnam goes for W1.1 billion to W1.4 billion. So cheap, let’s buy two!

The top 10% richest urban households in Korea have an annual income of W107 million per year, according to a recent story in the Korea Times. So that tiny apartment in Songpa still costs the top 10% of wage earners about eight times their annual income—before money is wasted on things like taxes, or food.

We also learn that the average Korean household earns W44 million. Even if we use the metric eight years’ salary for the average family, that makes the average apartment price W350 million. What does that buy you in Seoul? A box down by the river.

Speaking of which, I highly recommend the Dr. Housing Bubble blog, focusing on the sagging Southern California real estate market. The Real Homes of Genius™ feature is sobering.

Save 20% on Hyundai Genesis: Ship It Back From America

by Brendon Carr

On Wednesday I had a long-standing client and friend come into town for a meeting, and we met up at the Hyatt Hotel for sodas in the lobby before he had to shuffle off to the airport. Before meeting my friend, I noticed that Hyundai Motor was holding a US dealership conference in the bowels of the hotel.

Perhaps you’ve heard of this new Hyundai “luxury” car they’re calling Genesis—the one that’s just as smashed-up in a head-on collision as an Audi A8. I’ve had occasion to crawl around one at my local Hyundai dealership, and it seems to be a very “Korean” sedan aimed at the kind of guy who always rides in the back seat, or at least prefers to think of himself that way. And I say “he” because this car has almost zero chick appeal: Genesis is definitely a car aimed squarely at members of the Lucky Penis Club.

Personally, I think Hyundai Motor America is going to have a hard time moving the Genesis, especially while gas is five bucks a gallon because while its styling has a high ajeosshi quotient, the car is not all that fuel-efficient either.

But there’s good news: The unsold inventory of Genesis won’t pile up in America, because these cars will be reimported to Korea. It seems that the Genesis 3.8L V6 model which sells for the knock-down price of W52,800,000 here in Korea (US$54,090) will be sold for only US$32,000 (plus tax and registration) to American consumers. A parallel importer has done the math and found that even with Korea’s punitive car-import duties and engine-displacement taxes, he can roll them back onto the car-carrier and sell Genesis here for W10,000,000 less than Hyundai has set the Korean price.

Together with its Kia subsidiary, Hyundai has a 70% share of the local market and a habit of pricing its cars much higher in Korea than in the United States. But hey—look at it this way: The price difference is only in the 20% range? Things are looking up! It sure is great to be a Korean consumer.

With those kind of fat margins to extort from Hyundai, it’s no wonder the Hyundai Motor labor union desperately opposes open markets and the Korea-US Free Trade Agreement.

Why You Can’t Buy Anything On-Line in Korea, Mr. Foreigner

by Brendon Carr

Feeling frisky after my success fixing the housing policy problem, I contributed this piece to my firm’s “Law Talk” series in the Korea Herald today.

I’m not completely happy with the final piece, after the “editorial process”, nor the headline supplied by editors—which I think misuses the word “crimp”—but within the 550-word limit allowed by the paper, it’s not all that bad.

Encryption standards crimp Korean internet from globalizing
Korea Herald, March 26, 2008

President Lee Myung-bak’s new administration promises deregulation to improve transparency and the harmonization of Korean practices to so-called global standards. He has his work cut out for him as regulatory choices made around 10 years ago have resulted in Korea’s IT environment being isolated from practices used in the rest of the world. Rather than leading the global community, Korea’s government-led choices have often erected barriers and stagnated development.

Web browsers offer a fine example. In 1998 it was recognized that 40-bit Secure Sockets Layer encryption was insufficient security for internet-based financial transactions. More bits make codes harder to crack. But the United States at that time barred the export of encryption algorithms using more than 40 bits.

In other countries, the U.S. ban on the export of strong encryption created market opportunities. South African entrepreneur Mark Shuttleworth became a billionaire offering the rest of the world 128-bit SSL encryption from Cape Town, outside the reach of U.S. law.

Rather than leave this function to the market, the Korean government instead led the development of official 128-bit encryption based on a homegrown standard called SEED, which uses digital signature certificates issued by a Korean government-approved institute and requires users to install a downloadable ActiveX control into the Windows Internet Explorer browser.

Ten years later, we’re stuck with it. Under the Electronic Financial Transactions Act, SEED encryption is required for most credit-card transactions, despite the fact that all other banks around the world find 128-bit SSL security strong enough.

Korea’s SEED does not work on Apple’s Mac OS X (nobody in Korea has developed a SEED implementation that doesn’t require Windows), nor does it work on the Mozilla Firefox and Opera browsers. Neither does SEED work on Linux.

Only Microsoft Windows users may use the Korean-standard security system for internet transactions. Macintosh and Linux users are cut off from such transactions—by official government policy.

Many of the SEED implementations are sloppy. Programmers assume that whoever downloads SEED must be using a Korean version of Windows, and therefore don’t need any instructions in other languages. English Windows versions also display the Korean-font download controls as gibberish, thereby preventing installation.

In 1999, the U.S. government allowed export of strong encryption. But by that point it was too late for Korea. Since 1999, government officers charged with enforcement of the only-in-Korea SEED standard have not relented and accepted the global dominance of SSL, which is built into all browsers.

SEED locks foreigners and users of other computer operating systems and non-Microsoft browsers out of the Korean market. It prevents Korean online merchants from selling to nonresidents of the country, who are not likely to have obtained Korean government digital signature certificates or to run a Korean-language version of Windows.

Outside Korea, Mac OS X and Linux comprise nearly 10 percent of the worldwide operating system market. Non-Microsoft Web browsers approach 45 percent of the worldwide market. The SEED encryption requirement locks Koreans out of wider trends and forces them to use Microsoft Windows and Microsoft Internet Explorer.

Both are fine software programs, but the government should not be in the practice of forcing users to choose them by the Electronic Financial Transactions Act, especially when equivalent functions are available.

If President Lee’s team wants to move Korea closer to global standards and internationalize Korean practices, amending the Electronic Financial Transactions Act to dump SEED in favor of the already-existing SSL standard would be a good start.

There are, of course, other reasons you can’t buy anything on-line, Mr. Foreigner. They include the ubiquitous foreigners’ registration number, which doesn’t work with most of the ID-checking algorithms in use, and sloppy coding practices for the HTML to be displayed in your browser. A lot of Korean websites simply won’t show anything to a Firefox or Safari user, which tends to keep us away from the payment-processing stage where SEED would be required.

UPDATE: A Korea Herald reader wrote me this morning with the following comment:

Congratulations on a finely argued piece. I’d add just one other point - it is not in Korea’s national interests (or any other small country’s) to promote a foreign monopoly in a key component of technological infrastructure.

Good point. Five hundred words precludes a writer from getting every point into the newspaper—which is why the availability of unlimited Internet space, and the interactive opportunities of blog comments, makes this the place to add more. To the reader (and all readers): If you think other points are important, leave a comment here at Korea Law Blog.

In Which I Advise the Minister of Construction

by Brendon Carr

Okay, not really. But in actual fact, a number of Korean think-tanks apparently follow my posts on housing (according to my referrer logs), and now we have the Ministry of Construction and Transportation looking here. The Dong-A Ilbo English edition today reports the Lee Myung-bak government’s response to the housing crisis: Do what Korea Law Blog recommends.

In my blog entries on this topic, I’ve urged the government to deregulate land-use restrictions to increase the supply of developable land:

The government decided to lift regulations on farmlands and mountain lands in suburban areas to expand the ratio of the urban land to the entire territory from 6.2 percent to 9.2 percent by 2020. This widens the urban area by 1.5 folds nationwide. The expanded area is five times larger than Seoul....

The government will also drastically reduce some 390 overlapping regulations in land usage.

And to allow more intensive use of existing land in the areas where there is high demand:

Under the draft plan, the ministry will expand the supply of houses in areas near subway stations in cities by raising the floor space index, and allow the construction of skyscrapers in which hotels and apartments coexist in special economic zones.

The article is interesting, in that it also reports the government making government-owned land available for housing development, in order that the land-cost component of new housing might be reduced. Because the Ministry of Construction and Transportation also plans for transportation, the article reports plans to extend bus-only lanes in the densely-populated Seoul-Suwon-Pyongtaek urbanized corridor down the Seoul-Pusan Expressway.

Since I suspect transport grandees might also be reading Korea Law Blog, at this time I’d like to highlight another infrastructure-investment suggestion for The Bulldozer to consider: Express trains on the subway, to make longer-distance commuting more bearable for the folks who live in Seoul and commute across the city. Currently, all the existing subway lines (Lines 1-8) have just two tracks, which means that no express service is possible. Line 9, currently under construction, is being built to accommodate express services. Why not dig up the existing subways and make express service possible on the key lines? Line 1 and Line 2 would be a great start.

Korea’s Own “Sub-Prime” Housing Crash in Sight?

by Brendon Carr

A faithful reader forwards this story of ominous portent—construction companies are going bankrupt, while unsold apartments are mounting even in Seoul (the unsold inventory leaped 50% in a month!) because buyers are taking a wait-and-see attitude toward purchase:

Non-Banks Suffer From Housing Market Slump
Korea Times, March 24, 2008

The ongoing housing market slump could hit construction firms and the non-banking financial sector hard, creating a crisis that may resemble the unfolding sub-prime mortgage debacle in the U.S, a state-run research institute warned Sunday.

The Korea Institute of Finance (KIF) said in a report that the country’s construction industry is grappling with a large number of unsold apartments, as potential homebuyers have taken a wait-and-see attitude since early last year on expectations that housing prices will fall.

It said if the housing market remains stagnant, many builders, particularly smaller ones based in provincial areas, could go bankrupt. “Paired with surging prices of cement and other construction materials in recent months, the sluggish housing market has worsened the bottom line of construction companies,” KIF researcher Shin Yong-sang said.

He also said savings banks, credit cooperatives and other non-banking institutions could face increasing risks of insolvency as they have extended long-term loans to builders in project financing (PF) deals.

Non-banking financial institutions have extended loans to builders for housing construction over the past few years. But the housing market slump is hitting construction firms hard, weakening their ability to meet interest payments and pay back principals.

“Savings banks exposed to unprofitable PF deals need to secure enough liquidity through the issuance of subordinated bonds and other methods. They also need to diversify revenue streams by focusing more on retail lending businesses, including credit-based loans and asset management,” Shin suggested.

The number of unsold apartments has reached its highest rate in 11 years. According to the Ministry of Land, Transport and Maritime Affairs, the number of unsold apartments nationwide totaled 123,371 in January, up 9.9 percent from a month earlier. The figure was the highest since July 1996 when the figure stood at 127,573.

Construction companies increased the supply of new apartments last year to bypass the apartment price cap. They preferred to sell a few homes at high prices earlier than selling cheaper homes later, in the belief that even the expensive ones will eventually be sold as the prices of neighboring ones go up.

But prospective homebuyers have delayed purchases on expectations that they could buy houses at a cheaper price because of a range of government regulations, resulting in a record number of unsold new apartments.

Not only in provincial areas, but also in Seoul and its adjacent areas, the number of unsold apartments has rapidly increased.

The Seoul metropolitan area had 21,724 unsold apartments in January, up 7,100 from the previous month, while the number of unsold homes in provincial areas increased by 4,017 over the one-month period.

With mounting unsold apartments, many small construction firms have gone bankrupt. The number of builders that went bankrupt totaled 57 during the first two months of the year, up 50 percent from the same period last year.

The smaller construction companies tend to be the ones building “villas” or off-brand smaller apartment complexes with 10-50 units. Demand for that product is less than the demand for larger “tombstone” high-rise apartment complexes.

Make no mistake, the housing market is overvalued. My own crummy little (1150 sq. ft.) apartment at the edge of the central business district is worth, according to the local realtors, W650,000,000. (And it feels worth less than half that.) The question is how to bring prices more in line with incomes—or incomes more in line with prices. Bringing incomes more in line with prices is the preferable method because it involves less pain, but there is a large gap to cover: For Seoul to have a median multiple of just the 7 which is considered insane in London (instead of the 19.8 reported last year), the average household income will have to reach W100 million.

As I previously reported, we bought in November 2003 for W370,000,000. In August 2007 the local realtors had signs up saying similar 43-pyong properties in our complex could be had for W500,000,000. Imagine my surprise to see them telling me I could buy for W650,000,000 just eight months later—a jump of 36%! There are some other factors driving prices in our neighborhood, like the construction of a new complex opening May 2009 whose 43-pyong units sell for W770,000,000 (so they say) which will bring a general improvement in ancillary neighborhood facilities like shopping and hagwon cram schools.

I still think the Seoul unsold inventory problem is primarily one of Roh Moo Hyun’s making, as is the 30% decline in new supply forecast for 2008. But ultimately, if families cannot afford to purchase at the prevailing prices, prices will have to come down or the inventory will remain unsold. If the market thinks that prices will decline on a sustained basis, buyers will hold off. These construction companies are holding inventory, waiting to see who will blink first. But the market never blinks. It is relentless and remorseless.

Anyway, with the local housing bubble showing signs of strain, and North Korea possibly at the brink of collapse (you do read One Free Korea, don’t you?), Korea faces chill economic winds indeed—and without the benefit of a US expansion into which to dump exports. No wonder the Korean won is so volatile!

Global Warming Has Stopped?

by Brendon Carr

So says this article in The Australian. But if our evil industrialized lifestyle, and carbon emissions, was solely responsible for global warming, and emissions are up—wouldn’t the warming trend have continued past 1998?

The Australian columnist Christopher Pearson reported on an interview involving the co-host of Counterpoint, Michael Duffy and Jennifer Marohasy, a biologist and senior fellow of Melbourne-based think tank the Institute of Public Affairs in which it was discussed how new satellite data doesn’t fit the global-warming orthodox opinion. As Pearson notes, “Anyone in public life who takes a position on the greenhouse gas hypothesis will ignore it at their peril”. Here we go:

Duffy: “The climate is actually, in one way anyway, more robust than was assumed in the climate models?”

Marohasy: “That’s right ... These findings actually aren’t being disputed by the meteorological community. They’re having trouble digesting the findings, they’re acknowledging the findings, they’re acknowledging that the data from NASA’s Aqua satellite is not how the models predict, and I think they’re about to recognise that the models really do need to be overhauled and that when they are overhauled they will probably show greatly reduced future warming projected as a consequence of carbon dioxide.”

Duffy: “From what you’re saying, it sounds like the implications of this could beconsiderable ...”

Marohasy: “That’s right, very much so. The policy implications are enormous. The meteorological community at the moment is really just coming to terms with the output from this NASA Aqua satellite and (climate scientist) Roy Spencer’s interpretation of them. His work is published, his work is accepted, but I think people are still in shock at this point.”

What will become of all the people who make their living telling us about global warming? The Nobel Prize winning liars, the jet-setting NGOs trying to force the rest of us back 500 years, the carbon-trading hustlers, the government regulators, the schoolteachers filling children’s heads with lies—boy, talk about an inconvenient truth!

“Easing Environmental Regulations” Not A Surrender to Pollution

by Brendon Carr

I saw an interesting piece in the Dong-A Ilbo and dug up the English edition. Pres. Lee Myung-bak’s “business-friendly” government is easing environmental regulations to allow expansion of factories near water sources. This is part of a massive wave of deregulation and rationalization of government activity forecast to take place under LMB.

Right now, factories cannot be constructed within 20km of upstream water sources, while there is no similar restriction on non-factory construction. The Environment Ministry intends to shrink the factory exclusion zone to 7km, so long as waste water is not discharged. In other words, the Environment Ministry in the past assumed that all factories were going to dump pollution, but because the Ministry—like most Korean government agencies—does very little actual monitoring of industry, the only way to reduce harm was to bar all factory establishments in areas where the discharge was likely to get into water sources.

LMB’s Environment Ministry signals a different approach, one in which government regulators are going to have to actively inspect and monitor industrial sites on a regular basis. This is the way that most industrial states operate, and will be a welcome improvement.