Archives for September 2007
More on Liability in Auto Accidents
by Brendon Carr
Today’s Korea Times has a short piece reporting another odd traffic-accident judgment, yet another reason why I don’t drive in Korea and you shouldn’t either. But now according to the piece in the paper you have to also be careful who you ride with:
The Seoul High Court has ruled that if a drowsy driver is the major cause of a car accident, then the people in the car also will be held accountable, saying it is the responsibility of the passengers to prevent the driver from falling asleep.
The rules here concerning liability are different enough that it’s not worth it to get behind the wheel of a car. Or in the passenger seat either, it seems.
Tip of the hat to the Lost Nomad blog, where I saw his entry on the same topic—good comments over there too.
DJ: Kim Jong Il Says US Troops Can Stay After Roh Surrenders Next Week
by Brendon Carr
Kim Dae Jung offers another odd utterance in the Korea Herald today:
North Korean leader Kim Jong-il would allow U.S. troops to be stationed on the Korean Peninsula even after the reunification of the two Koreas, former President Kim Dae-jung said.
During an address at the Korea Society forum in New York on Tuesday, Kim said the North Korean leader had agreed to the idea during their summit in 2000.
North Korea has repeatedly criticized the U.S. troop presence in South Korea and demanded its withdrawal. Some 29,000 U.S. troops are stationed on the peninsula as a deterrent against the North’s 1.17 million troops.
What input into the future of the Korean Peninsula does Kim Jong Il think that he’s going to have? In other words, nearly every realistic scenario for the unification of Korea is based on Kim Jong Il being gone from the scene—from an aneurysm in his old age, dying in the saddle with the Pleasure Team (that’s how I’d want to go), or a Ceaucescu Moment one glorious day in Pyongyang resulting in Kim Jong Il’s lifeless carcass strung up from the fingers of his Dad’s statute at Mansudae (that’s how I’d want him to go)—and therefore presumably Kim Jong Il’s opinion on US forces remaining in post-unification Korea would be rather unimportant. I wonder what unification scenario Kim Dae Jung and Roh Moo-Hyun have in mind?
(Personally, I think the future of US forces in Northeast Asia is probably in a more northward deployment anyway. A post-Communist, but still politically-separate North Korea might see some benefit from a US garrison and air force base; so too might the Russian Far East after Putin.)
Where Have I Been? Marriott Exec Apartments on Yeoido
by Brendon Carr
Just before Chuseok Doil and I finished (more or less, as no big and complex project is ever truly finished) the project that’s been consuming so much of our time since the last part of July. The Marriott Executive Apartments at Yeoido Park Centre have been sold and the apartments and marvelous fitness club are now open for business.
We represented Marriott, the manager of the facility, in the US$100m deal. The buyer, Japanese real-estate firm Re-Plus, was represented by attorneys Mr. Sang-Jin Ahn and Mr. Heung-Suk Oh of Kim & Chang, while original developer and seller Lee & Lee was represented by Mr. J C Seo of Leaders Law Group.
One of the things about working for the hospitality industry is the great people you meet. They just tend to be nicer than in other industries—it’s in the definition of “hospitality”. MEA General Manager Ty Collins has to be one of the most patient, nicest people we’ve ever met. Yet we’re sure that he maintains high standards because the property Ty oversees is truly best in class. I wish I were living at the MEA, but unfortunately with a family of four I think even the MEA apartments might be tad cramped for us.
This deal should have been pretty straightforward, but was made complicated by the financial distress of the developer (these are splendid, high-priced apartments coming on line at a time of market softening), the need to separate parts of a property which had been developed as a single entity, and the fact that the apartments property had not yet opened for business at the time of the sale. A sale and opening at the same time raises a lot of interesting legal issues. Marriott’s Washington D.C. team of Vic Fernandez and counsel Aron Friedman were superb—among the best clients we’ve ever had. Thanks also to the Re-Plus side, who were easy to work with.
When I mention separating parts of the property, I refer to carving out certain floors of the building containing the Marriott Executive Apartments and registering them separately; Korea has a system of “strata title” by which different floors of the same building could belong to different parties. The MEA occupies floors 2-14 of one of two towers at Yeoido Park Centre, plus certain ancillary areas of the below-ground structure related to the operation of the MEA. Originally these were to belong to the same owner, but Lee & Lee needed to offload some of the property now. So there was a rather complex business of separating out the parts of the building necessary for the MEA, to be sold to Re-Plus.
A lot of Korea’s serviced-apartment properties were developed in the same way as this property: Two towers of “officetel” buildings go up, with one tower containing a serviced-apartment/hotel property, and the other tower full of officetel units which are essentially “free riders” on the reputation and services that follow the serviced-apartment/hotel. The Somerset Palace over by Kwanghwamun, and the Ramada Seoul Central Apartments next to our offices appear to share this basic concept with the MEA at Yeoido Park Centre.
With different owners, having what could become competing interests, the buildings’ “condominium association” by-laws become an important bit of glue holding everything together. So we spent a fair bit of time on that too.
Blogging should return to a more rapid pace now that this deal is complete.
Service of Process on Korean-Resident Defendants
by Brendon Carr
A complementary issue to enforcement of foreign judgments, which I blogged about a few months back here on Korea Law Blog, is service of process on Korean-resident defendants. See, I do read the server logs.
Korea has acceded to the Hague Service Convention, an international treaty on the dispatch and delivery of judicial papers in civil litigation. That should make service of process easy. Except that in joining the Hague Service Convention, Korea objected to all of the elements of the treaty which would tend to make service easier—namely, service of process through postal mail, personal service, through consular officers of the litigant’s home country embassy, or service by publication. So what’s left? Well, the same means by which service is effected on Korean defendants in normal domestic litigation.
In Korea, the only party authorized to effect service of process on a defendant is the court. Service is dispatched to the defendant’s registered address by content-certified mail, by which both the fact of dispatch and the content of what’s been delivered is maintained by the post office.
So the Hague Service Convention essentially signs Korea up to a regime by which this country notifies the international community of an official address (the “Central Authority") through which papers should be routed, together with an official form (downloadable PDF), so that the Korean court could put the papers into the mails here. That address, kids, is:
Ministry of Court Administration
Attn.: Director of International Affairs
967 Seocho-dong, Seocho-gu
SEOUL 137-750, SOUTH KOREA
(Actually, the official address is “Republic of Korea” but I’ve found a lot of my own mail takes a side detour to Pyongyang in the ”Democratic People’s Republic of Korea” if it’s labelled that way. I hope the Dear Leader has enjoyed my ABA Journals. Better to use “South Korea” for something this important.)
American attorneys can dispatch service requests directly to the Ministry of Court Administration, because America designated “any attorney” as Central Authority when ratifying the treaty. Other countries’ designated Central Authorities may—probably will—be different, so it’s best to review the treaty before doing anything.
The Ministry of Court Administration directs that service be done through the Justice Department, or perhaps the Justice Department’s designated agent Process Forwarders International. But American lawyers should be aware that even if direct dispatch to MCA has worked for them in the past, the proper procedure is to go through Justice, at the state-to-state level.
There’s one wrinkle: The Hague Service Convention allows a receiving state to require that the complaint and instructions for response be translated into the official language of that state. Korea requires all judicial papers to be in the Korean language, which means you’ll be preparing a Korean-language translation for all Korean residents, even those who don’t speak Korean. An American resident in Korea who receives service of process through Hague Service Convention will receive a complaint in the Korean language.
Here’s the inevitable pitch for work: My office can make the translation for anyone serving process on a Korean-resident defendant. We also can make a pre-judgment attachment on any assets which may be found here belonging to the Korean-resident defendant, and enforce any foreign judgment which may result from the litigation outside Korea.
Watch the Construction Companies: Korea’s Canary in the Mine
by Brendon Carr
Construction accounts for about 6% of Korea’s national GDP, which is down significantly since its greater-than-15% share before the IMF Crisis. But when compared to the approximately 3.7% share that construction takes of American GDP, and the widespread impact of a slowdown in US housing starts and mortgage defaults, we can see that the Korea exposure to construction-industry difficulty is relatively pronounced.
That’s why we should sit up and take notice when Korea’s construction companies start going under en masse (see “Korea’s Construction Companies Going Under En Masse” at the Dong-A Ilbo on September 13).
On September 11, Dongdo Construction, developer of the “Miso Dream” apartment complexes, defaulted on W5.1 billion (about US$5.5 million) worth of promissory notes and will be thrown into bankruptcy. According to the paper, Dongdo joined Sechang, Samick, Shinil, Sejong Construction, and three other smaller construction companies that have gone bankrupt lately.
Never heard of them? (I must admit most of the names are unfamiliar to me. Other than Samick and Shinil, I’d not known of these other construction companies.) Perhaps this is because they are regional enterprises whose activities take place outside of Seoul. Dongdo is reported to be “representative of North Cholla Province” (Konglish for “leading construction company in North Cholla Province"), and the others are cited by the paper as leaders in their respective regions.
Could there be a connection between the disastrous Roh housing policy and the large quantity of unsold apartments in the provinces? And what will this mean for “The Economy”?
Gosh, I’m no economist, but it seems that if the construction companies build apartments they can’t sell, they may have trouble paying for the stuff they bought to make those apartments. This has knock-on effects for the creditors of the construction companies: The people who sold the stuff that went into building the apartments, the workers who labored to build the apartments, the banks which lent them the project-finance money, and the families who put up their life’s savings in order to afford the deposit on the few apartments which were pre-sold at median prices which may be unprecedented in the world when compared to income. Perhaps most worrisome—what will happen to the lawyers?!
The pain is just starting. If things start spreading to Seoul there’s a strong possibility the next President of the Republic of Korea will take office in the midst of a real crisis.
So what happens when a Korean company goes bankrupt? If you’re an unsecured creditor, generally you lose everything. Our experience with bankruptcy practice in Korea says that a really lucky unsecured creditor might recover 2-3% of the credit, but even for that paltry recovery there is a long wait. Court reorganizations typically adopt a 10-year payout plan.
UPDATE 9/16: Uh oh. The government denies that construction-company bankruptcies pose any kind of risk to the financial sector, and promises to take “appropriate steps, if necessary” to remediate problems. No thank you! It’s the remedial steps (to cool down property-price increases) that got us in this situation. At first I wasn’t sure that I was right about the trouble brewing, but now that the government denies a problem I know that it’s really quite serious already.
UPDATE 9/17: Today I spoke to a friend in investment banking who says his firm has already started seeing inquiries about funding for Korean construction companies. As his bank is one of the large ones I would imagine these are larger Korean construction companies, and not the Dongdos of the world. But the Chosun Ilbo’s English edition blames it all on the US sub-prime housing loan market and a global credit crunch.
UPDATE 9/28: Hey! This topic made the Financial Times. On the 21st, just before Chuseok, the FT carried a story entitled “S Korea fears construction collapse” which carried much of the same detail as above (public sources, and all that) plus some questions put to the Home Builders’ Association. As Anna Fifield is one of the best reporters covering Seoul, it’s nice to see that what I think is important may also be of interest to FT readers as well.
My Secret is Out
by Brendon Carr
Now you know the real reason I was invited to join Hwang Mok Park.
Attention Drug Fools: Your Scam is Well-Known!
by Brendon Carr
I just got off the phone with my friend Jeff Harrison of Pusan Pacific Law Offices, the pre-eminent (only?) American lawyer in Pusan, and author of two excellent blogs Ruminations in Korea and Blues Got a Hold on Me. It’s always great fun when I have the occasion to speak with Jeff.
Today’s fun involves a type of case I’ve been seeing a lot of lately: English teachers who “mistakenly” receive a package full of marijuana through the post. The package is sent to their address, but to a different name. If the occupant of the apartment is “Joe Jones” (hi, Joe!), the package might be addressed to “Joe Johnson”. Apparently this is to provide some deniability—Jeez, officer, I just don’t know who would play this kind of trick on me. But I’m Joe Jones, see, not Joe Johnson. What a crazy mixup! This year I’ve heard from four English teachers with the same mixup. Jeff’s been getting a lot of these same calls down in Pusan. We’ve heard it enough that we know the punchline to the joke before the setup is complete.
Jeff’s down in Pusan, and the latest “potential client” is in Incheon. So Jeff isn’t going to handle the case. Neither am I, really. I’m in the car on my way to a meeting that should be done around 9:00 p.m. tonight—if my secretary doesn’t give out my cell phone number I should be able to avoid the call from the English teacher who’s working his way down a list from the Embassy.
(UPDATE 12/25: No matter how many times I call or write the Embassy asking to be taken off that damned list, they will not delete my name and phone number. Years ago, I thought it was cool to be on the Embassy’s lawyers’ list, but now I know it’s a source of unending nuisance calls. Please don’t call me with your drug-arrest problem!)
The police, prosecutors, and judges aren’t fools. If Jeff and I can see through this thin cover, do you imagine that official Korea hasn’t been able to figure it out? I think there must be some Hophead Central Internet forum for English teachers to give each other shitty advice on how to pull off some scam or another. Another recent criminal inquiry—please, no more criminal inquiries!—had me listening to some guy ask whether shaving off all his body hair would help him beat a drug test. He had heard that it would, no doubt from the same brain trust that came up with the “Oops! Wrong Name!” cover story. I don’t know, dude—this question is a bit outside my area of expertise. But I say go for it. The airflow is probably refreshing and you might also enjoy the extra ”Optical Inch”.
My most sincere advice? Don’t smoke pot in Korea. But if you must (I’ve been a lawyer long enough to know that these idiots can’t lay off the weed even if they know the danger of arrest and jail time is very high), when you’re caught, just admit it. Especially when talking to your lawyer or some guy you think you might sucker into being your lawyer. We already know you’re lying so you might as well give it up.
UPDATE 9/13: A commenter on the Marmot’s Hole helpfully offered up the story of Cullen Thomas, “Brother One Cell”, who spent 3-1/2 years in Korean prison after his own clever implementation of the “Oops! Wrong Name!” scam. In 1993, Thomas shipped himself two kilos of hashish from the Philippines via general-delivery post restante to a fake name at the Central Post Office. There’s a book titled “Brother One Cell” on Amazon and probably at Korean bookstores (I bet purchasing this book in Korea gets you put on a watchlist—better shave off your eyebrows just to be safe!), and you can read a GQ story with an excerpt from Thomas’ book on the author’s own website.
He shipped himself the hash in cocoa tins. Where have I heard that one before?
Understanding Korean Evidence in the Korea Herald Law Talk Column
by Brendon Carr
Our firm Hwang Mok Park dragoons its members into publishing short law-related pieces in the Korea Herald English-language daily newspaper every week, ostensibly as a public service but we all know there is the hope of marketing benefit. For the same reason I keep this blog, in fact: If you learn something from the material published, the author hopes you’ll think favorably of using his services in the future.
This week’s Law Talk column was written by my partner Mr. Doil Son. Doil and I have a long history together, as we were paired associates at Shin & Kim in the very intense years 1999 and 2000, before I left that firm. In 2005 we had the occasion to get back together as SEOUL Law Group, a small firm we operated for a year before Hwang Mok Park invited acquisition of our entire practice and all employees. At HMP we continue to work together closely. Because of that early experience in our formative years as attorneys, Doil and I now think the same way—we analyze problems from the same perspective, basically because he and I taught each other how to do this job. That shared history and mutual trust level makes working together a lot easier. In fact, I can’t imagine being in law practice in Korea without Doil Son. If he decided to do something else—like run for President, become a private-equity grandee, or open a tattoo parlor—I’d hang it up and find another gig myself.
Anyway, these articles are alloted the space of something like 550 words—very tight space constraints. Lawyers tend to be wordier than that ordinarily, which makes it very challenging to turn out something good within the space alloted. However, I think Doil succeeded this week. I hope this is helpful to someone:
Korea Herald, September 12, 2007, page 8
Understanding Evidence Shortcomings in Civil Trials
by Doil Son
One of the most challenging aspects of the Korean justice system when viewed through the eyes of Western clients - especially those from common-law jurisdictions - is the production and preservation of evidence in civil proceedings.
Put simply, it is hard to compel non-cooperative parties to provide evidence through the civil court. Parties must therefore always be conscious of the preservation of documents and ancillary materials that may be useful in the event of future disputes, because the court cannot force the other party to provide evidence. Korea’s is very much a “come as you are” litigation system.
The reason for this often shocking and disappointing fact is that the Korean civil court does not exercise its full authority in an aggressive manner on three judicial instruments that have been adopted and actively used for civil proceedings in many other jurisdictions:
Discovery System. Particularly in American litigation, there is a concept that in order to find the truth, the parties are obligated to produce all evidence relevant to the dispute. This “discovery” process is characterized by the advance production of evidence through mandatory questioning, or deposition, of the parties and witnesses and any documentary evidence held by a party must also delivered to the opponent for review.
Lacking an effective discovery system (a system exists on paper, but lacks teeth), there is no advance deposition of parties or witnesses or mandatory production of documents. Evidence is only discovered through the trial itself, usually as a surprise.
Subpoena Power. Sometimes witnesses to the facts of a dispute are not parties to the dispute, but rather are bystanders. Still, their testimony concerning facts is often required to find the truth. For this reason, in most advanced justice systems the court has the power to compel third-party witnesses to attend and testify in court.
The Korean justice system has a concept of subpoena, or summons to testify, but lacks any effectively compulsory power. If a subpoenaed witness refuses to participate, there is no material sanction. Not surprisingly, most third-party witnesses stay away from court.
Contempt of Court. In Western countries, the judge has fearsome and intimidating power to sanction witnesses or litigants for misconduct or defiance of the court’s authority in the process of litigation - for example by hiding or destroying evidence.
This is called “contempt of court.” It is not at all uncommon for a judge to throw someone in jail in order to adjust the person’s attitude toward cooperating with the court.
However, in Korea there is no equivalent concept of contempt of court. The civil judge generally does not exercise the power to sanction witnesses or parties who refuse to follow court orders - or even where a party is caught lying or fabricating evidence.
Because of the foregoing limitations of the civil court’s ability to find the truth, the importance of criminal process and the role of state prosecutors are greatly enhanced. Prosecutors have the power to compel witnesses to appear and give testimony, and to confiscate evidence wherever it might be found. The investigation record is available to be introduced as evidence in civil proceedings upon the request of a party subject to several limitations.
Thus, when planning litigation strategy, it is very important to consider whether crimes under the Criminal Code or the penal provisions of any subject-specific statute may have been committed, so that the power of the state may be invoked to make up for the shortcomings of the civil system.
Korean Criminal Justice for Tycoons: Overheard at the Seoul Court of Appeals
by Brendon Carr
I don’t have a position on whether Chung Mong-koo is the victim of a political use of the prosecution to oppress a particular businessman, nor do I have a position on whether Chung Mong-koo is or is not fit to lead Hyundai Motor Company. Actually, I rather think he’s done a good job as Hyundai makes very good cars and has emerged as a globally-competitive business under his watch. But I do think the Korean tendency to go easy on chaebol leaders found guilty of crime “for the good of the economy” is unhealthy—especially when you consider the treatment foreigners accused of crimes get.
This is what I imagine the judge said to Mr. Chung at sentencing:
“Defendant Chung Mong-koo, chairman of Hyundai Motor Company, please rise and accept the court’s sentence. You are a bad man, very bad. This court upholds your earlier conviction for embezzling over W120 billion (US$130 million) from the company, which money ended up in a slush fund you say (but can’t prove) you used to pay bribes to politicians. What? No, the names of the politicians are not important and this court will NOT tolerate any further questions about that. This is very bad corporate-governance practice, as that money belongs to the shareholders of your publicly-traded company. You have been stealing from your shareholders for your own purposes. This cannot go unpunished. Korea follows global standards of corporate-governance excellence, and we are very harsh on crime.
“However, the lower court did not take account of your stature as a leading businessman. You are hereby sentenced to appropriate another W1 trillion from your shareholders and ‘donate it to society’ over the next ten years. I will of course give you credit for the money you already embezzled and ‘donated to society’ while you were initially under investigation. You are also ordered to get together with CEOs from other Korean companies for a minimum of two hours—TWO hours, mister, and not a minute less!—and snicker with them about this country’s lax corporate-governance standards, and double standards of justice for rich people and ordinary working people. (And foreign investors? Fuck them. Ha ha. Am I right? Heh.) Okay, this is the part where I’m supposed to say I can’t stand to look at you any more. Now get out out here and go back to your office. But I’ll be calling you once I get into the National Assembly (wink wink).
“Next defendant—Lone Star Funds. Bailiff, bring me my endoscope.”
Fair Trade Commission to Regulate “Appropriate” Profit
by Brendon Carr
Apparently not content trying to control the price of housing, the Roh administration also intends to reserve to the government the power to control prices across the economy. Today I noticed this item in the Dong-A Ilbo’s English edition, reporting that from November the Fair Trade Commission will implement a revision of the Monopoly Regulation and Fair Trade Act (MRFTA) defining two new kinds of market abuses by dominant players: “[P]roduct prices that are excessively higher than supply costs, and product prices or margin of profits that are excessively higher than those of other companies in the same industry”.
Yikes. This is pretty intriguing economic theory, and could hit a lot of foreign companies pretty hard. For example, a certain foreign software company has maintained—and even raised—the price of its market-dominating operating system while the price of all other computer components have fallen through the floor. Could not this software maker be said to enjoy a profit margin higher than those of other companies in the same industry?
There is a foreign consumer-electronics company whose portable media players and personal computers enjoy profit margins that are well above the equivalent margins that its Korean competitors—whose shabby design and lack of purchasing power impair their margins—cannot match. Yet this consumer-electronics company’s products are priced lower than the “equivalent” products of the Korean competitors, which raises an interesting question about remedy: If the foreign consumer-electronics maker is ordered to cut prices to match the margins the Korean competitors get, it would accelerate the speed with which the Korean companies are being driven out of the market. So what to do? Market quotas?
KFTC can be very creative in its market definitions, too. Luxury carmakers are currently under investigation for their practices dominating the market for “cars priced over W100 million”. What’s that you say? There are no Korean carmakers offering cars priced over W100 million? So only foreign imported carmakers, who collectively have less than 2% of the overall Korean auto market, are accused of market dominance? Go figure.
I’m all for an effective Fair Trade Commission enforcing laws against bona fide market abuse—namely, the cartels that plague the Korean economy—but setting “appropriate” profit rates based on supply costs seems like a quest for equality of outcome and punishment of innovation and success. It makes me hanker for a fresh, hot Wendy’s cheeseburger:
Is There Really a “Glut” of Housing in Korea?
by Brendon Carr
As a follow-up to my earlier blog entry ”Housing Policy and the Korean Dream” (which, incidentally, has been the most popular Korea Law Blog entry so far—and by a large margin), a story in the JoongAng Daily last week seemed like a mild rebuttal. It seems while the bubble in Seoul has ballooned up large, a housing “glut” of unsold apartments has developed across the country. Apparently there are more unsold apartments now than at any other time since the so-called IMF Crisis.
But, Brendon, you told us that the problem was a shortage of housing. Are you full of it?
Well, sure I am, but still… The JoongAng gives us two hints what’s going on, both of them predictable consequences of Roh administration policy choices:
First, at the same time the government was tightening up on development (and especially re-development) in Seoul, development of apartments in provincial cities was encouraged in order to “revive the regional economy”. This development seems to have outstripped the demand for apartments in these areas, or the ability of relatively less-prosperous provincial residents to buy apartments. And this even though the prices of apartments in these regions tend to be below five million Korean won (W5,000,000) per pyong (3.3 sq. m., or 36.4 sq. ft.) as opposed to the average price of 16 million Korean won for the same space in Seoul.
The apartment glut seems to be worst in Taegu, whose regional economy continues to be hit hard by the collapse of light industrial manufacturing in Korea, especially the textile industry (12,489 apartment units unsold); Pusan (9,212 units unsold); and South Kyungsang Province, which surrounds Taegu and Pusan and includes the city of Ulsan where Hyundai has its heavy manufacturing (12,072 units unsold). The other area named in the JoongAng story is South Chungcheong Province, which includes Taejon and (coincidentally, I’m sure) Kongju, the site of the future “capital” of Korea (11,245 units unsold). Together, these places outside of Seoul have 45,018 units unsold, or over half the nationwide total. According to a related story in the Dong-A Ilbo’s English edition, 94% of the unsold inventory is outside Seoul, where there is little demand.
The other factor driving the spike in unsold apartments is the result of pure idiocy. In an attempt to control short-term increases in property prices, the Roh government reinstated the bad old policy of price controls to take effect from September 2007, with the predictable effect:
“Construction companies tried to get rid of a large number of new apartments to get around state-imposed limits on apartment prices, even though there were already many apartments unsold,” Kim Sun-dock, the head of the Construction and Economy Research Institute of Korea, said yesterday.
The Roh administration has implemented a “price ceiling” on new apartments for sale after September 2007. This price ceiling in Seoul is, I understand, W600 million—after September no new apartments may be offered at a price higher than this. In the provinces it will be lower, but still not matched to market reality. So the construction companies dumped their inventory-in-progress onto the market while they could still freely set prices. Paradoxically this sudden oversupply makes it more likely prices will fall.
The price-control policy is bad for two reasons. First, controlling the price and enforcing artificial limits on profits (construction companies are now required to disclose their costs, and may only take a “reasonable profit” dictated by their local government) tends to enforce a uniformly low quality level.
Anyone who compares the Soviet-style quality level of apartments constructed before 1999, when the price ceiling system was abolished, and the quality of apartments constructed lately can see the difference in style, fit and finish. Newer apartments are a lot better—the free market encouraged competition on the basis of quality, and the construction companies which promised and delivered a “quality” experience were able to command higher profit margins. The Roh gang of crypto-Communists abhors this outcome. They prefer us all to be poor together, huddled together in small, unimaginative and shoddy apartments sold for an “appropriate” profit margin by construction companies doing the bidding of the government—so that nobody feels left out.
But there is another, more-serious side effect of controlling prices of a shortage good: It encourages corruption, and creates windfall profits for persons with connections and a few lucky others. Allocation of housing used to be done by a “lottery” system (there still is an element of this, but it used to be quite pronounced) where people hoped against hope to get their apartment application chosen. Why? Because with the price control, “winning” a new apartment guaranteed a windfall profit when the apartment could be sold onto the secondary market at the real market price.
Predictably, relatives and friends of government officials ("lending their names” as proxy for officials) would “win” the lotteries for the shortage good with distressing regularity, and were able to line their pockets in this way. An extreme modern example of this is Robert Mugabe’s Zimbabwe, where government officials can buy US dollars at the official exchange rate and then swap them on the black market for a quick, and insane, windfall. Now, I’m not suggesting that Roh is going to throw the economy into a Zimbabwe-style disaster, but just as a practical question—since there is zero chance Roh and his gang can get re-elected, why would they reinstitute a system like price controls and housing rationing?
As for whether Korea Law Blog is off-target with its prescriptions for how to solve the housing issue for the benefit of Korea’s citizens, which are to build more housing in the areas where Koreans want to live (namely, Seoul, and in particular the Kangnam area), and of the quality standard in which Koreans want to live (apartments larger than a shoebox with nice appliances and wood flooring), according to a report I found today it seems the rest of the OECD agrees with me. But perhaps their bourgeois sensibilities are interfering with class consciousness.
Stars and Stripes on Auto Accidents in Korea
by Brendon Carr
The Stars and Stripes, the military’s hometown paper where the motto is “Yesterday’s News Tomorrow”, finally got around to running its piece on automobile accidents—”A crash course on crashing in South Korea”. Korea Law Blog wrote on this in same topic a few weeks ago. Your friend Brendon, although really a corporate lawyer and not a specialist in auto accidents, because he can speak English about Korean legal topics is quoted in Stripes thus (and I humbly think it’s great advice):
“Stop trying to think about situations in which the outcome would be what it is in America. You can think about a million different scenarios, but in all of them, this is Korea,” said Brendon Carr, an American attorney working in Seoul. “I believe it’s unjust, but what can you do? It is what it is.”
Basically, the reporter was wearing me out asking different fact patterns (“Well, what if the other guy was so drunk he let his pet monkey drive for him? How about if the monkey didn’t have a chauffeur’s license?”) to try to find one where I might think the GI driver would be found blameless that I finally cut him off, and cut to the chase. Here is Korea is some of the best advice once can get from a lawyer. The rules, they’s different here. Accept that they’s different and you’ll get along much easier. I think this goes for any other legal topic as well—whether you’re buying a commercial bank for $6 billion or trying to set up a kebab stand.
I’m always glad to talk to Stripes because I feel like I can be of service to the military community by highlighting for them some of the cultural and legal-system differences which they might otherwise miss. And as a former Navy petty officer stationed here in Korea my own dang self, these are my people!
In the sidebar, Air Force Master Sergeant Joseph Pond is quoted that he “got hit by a car once” here in Korea. Unless I’m mistaken, this MSgt Joe Pond of the 303d Intelligence Squadron is the same guy I knew 15 years ago as SSgt Joe Pond of the 6903d Electronic Security Group (Skivvy Nine). 303d IS is the same unit as the old Skivvy Nine, isn’t it? Hi Joe! Sorry to hear you got hit by a car but very glad to read that you weren’t hurt.
Seminar Announcement: Using Structured Interviews to Avoid Hiring Mistakes
by Brendon Carr
That’s not the title of the seminar, by the way—but it does look like the topic of the seminar.
Just now I received a (paid) announcement (you can download it from Korea Law Blog here as a 182K PowerPoint file) from AmCham for a free HR seminar to be held the afternoon (13:30-17:30, by the schedule) of Wednesday, September 12. The host is HR consultant Profiles International and a featured speaker is Mr. J S Choe (long-serving expats would recognize his moustache, as very few Korean businessmen sport a ‘stache), formerly executive-search consultant at Heidrick & Struggles and UNICO Search. Korea Law Blog and Hwang Mok Park, P.C. are not organizing this one.
This seminar is being held in the Kwanghwamun area at the SC First Bank Building. The seminar is free, but it’s nice to ask for an invitation: Call Profiles Korea’s CEO Mr. Andrew Lee at (02) 2076 8251 or e-mail them at the address in the invitation.
With fake credentials being the topic du jour, anything that can help avoid hiring mistakes sounds like a very good idea.
Foreign Investors Coming Back?
by Brendon Carr
With the Korean presidential election coming up December 19, just three and a half months away, and the impending departure of President Roh Moo Hyun and his market-hating, anti-foreign investment Ship of Fools, foreign investor interest seems to be perking up. For the last five years Korea has been a bad place to do business—and it has turned positively horrible the last two years, with the government whipping up xenophobic backlash against Lone Star—but the probable December election of Lee Myung-bak promises some relief.
The UK’s Sunday Telegraph newspaper reports today that Britain’s largest buyout firm Permira is sniffing around the Korean market as a possible destination for its new £7.4 billion fund (about US$15 billion). As the Telegraph relates, Roh has done a hell of a job chasing away foreign investment:
The timing of Permira’s possible move into Korea may surprise people given sentiment towards overseas private-equity investors in Asia’s third-largest economy....
The furore over foreign investors has been partly responsible for some, including Texas Pacific Group, deciding to close their Seoul offices, although TPG remains keen to invest in the country. New York-based Warburg Pincus has also had difficulties in Korea, having been fined over a case relating to trading in shares in LG Card, the country’s top credit card issuer.
Permira seems to be a leveraged buyout (LBO) specialist looking for large deals. My guess is they’ll have to dip down into the mid-market, as Korean corporations’ valuations (unless they’re going to make a play for a POSCO or Samsung or something) tend to be lower than one would expect. The “mid-market” in the LBO arena is deals in the US$1 billion range, which for Korea would be a very big deal indeed. Except for the major commercial banks like Korea Exchange Bank and the aforementioned POSCO and Samsung, there aren’t a lot of billion-dollar companies available here.
Anyway, the run-up to the election promises a lot more of this kind of interest. It takes several months to a year to bring a Korean deal to a conclusion, so potential investors can still cut bait and run if somehow Chung Dong-Young or Kwon Young Ghil get themselves elected.
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