Archives for October 2008

Korea All Over This Week’s Forbes (in Asia, at least)

by Brendon Carr

My copy of Forbes Asia, dated October 27, 2008 turned up on Friday (no doubt having taken a detour somewhere around the office), but I only got around to looking at it over lunch. There are two good Korea-related pieces in this issue.

First up, Don Kirk took a trip to North Korea to visit the site of renewed construction at Pyongyang’s Ryugyong Hotel, the ghostly unfinished shell of a 102-storey hotel the construction of which was abandoned in 1992 after the collapse of worldwide communism left North Korea in a pinch—the markets for its odd industrial products, itchy blankets and ill-fitting suits having been lost when the Soviet Union finally gave up the ghost.

The Ryugyong is a favorite of journalists and tourists worldwide, due to the building neatly encapsulating everything freaky about North Korea’s autarky.

This is a story I missed over the summer, but North Korea Economy Watch’s been following it since February.

Kirk follows Egyptian engineer Mahmoud Fawzi of Orascom Telecom, which is working to finish off construction on the hotel. Orascom, as long-term Korea Law Blog readers might recall, is one of North Korea’s biggest recent investors. Why Orascom Telecom, instead of its sister company Orascom Construction Industries? Well, it seems that Orascom Telecom provides a 3G mobile-phone network for the use of the elite, and a 105-storey communications tower would provide great line-of-sight to nearly everywhere in the capital.

Methinks the project of “finishing” the hotel involves the installation of cladding over the bare top floors, and fake windows—maybe to include interior lighting, maybe not—over the rooms.

Orascom, by the way, can also provide those North Korean cadres with roaming service in Zimbabwe. They seem to have a long-term vision over there at Orascom.

Next up, South Korean portal champion NHN, operator of the nigh-unstoppable Naver. Its Chinese strategy is discussed, along with a story that reminds me, no matter how difficult it seems to do business in Korea, we’ve come a long way baby:

NHN sent Lee to China in 2003 to start a joint venture that planned to bid for the right to sell the tickets for the Beijing Olympics. But the Chinese partner stole hundreds of thousands of dollars from the venture and hired thugs to break into the office and steal more assets. He got into a fight with the thugs, fled by car and was chased through the city before escaping and going into hiding for ten days. Says Lee, sourly: “Those were fun days.”

October 27, 2008 | Filed Under Hub of Hubs | 1 comments

Dominance of SKY Universities Nearly Complete in Legal Profession

by Brendon Carr

Anyone who’s had contact with Korean society for any period of time will be familiar with the importance of school networks, and, thus, the university entrance examination. An unholy triumvirate of three universities in the capital—Seoul National University (“S”), Korea University (“K”), and Yonsei University (“Y”)—has such a hammerlock on influence and power that teenagers will sit out a year and try again on the test rather than go to a “lesser” university, or commit suicide out of hopelessness over their lot in life without a SKY diploma.

As it happens, SKY schools also have a firm grip on the legal profession—especially the judiciary and prosecution.

Earlier in the week, a reader (thanks, reader!) forwarded a link to the execrable Korea Times (yeah, thanks a lot, reader…) piece describing findings announced by National Assemblyman Lee Chun-seok. However, I got a little busy and didn’t get around to posting it. Plus, even though the execrable Korea Times is in English and therefore more accessible to the Korea Law Blog’s primarily English-speaking readership, I don’t like the paper and dislike linking to it so much.

So I was delighted to see that the guys at the estimable Korea Beat weblog (recommended by your Uncle B!) had gone to the bother of translating a slightly better Yonhap News piece on the same topic. Korea Beat editorializes “the situation in South Korea appears to be almost ludicrous”.

According to the Yonhap story, of the 5919 new lawyers admitted in the six years from 2002 to 2007, SKY graduates comprised 3662—almost 62%. Three other Seoul universities—Hanyang University, Ewha Womans University, and Sungkyunkwan University—added nearly 1000 more new lawyers to the mix in that period, making the “top 6” Korean universities the source of 78% of new lawyers minted in that six-year period.

Note the diminishing returns, and see how your chances of grabbing the brass ring fall even within the “top three” schools, according to Yonhap:

The so-called SKY schools, SNU, KU, and YU, accounted for 2,010, 990, and 662 successful applicants respectively, 61.9% of the total.

Hanyang, Ewha, and SKKU accounted for 332, 263, and 361 successful applicants respectively.

In particular, the selection of new judges (in Korea, judge is a first legal job for fresh admittees to the bar) and prosecutors seems to be at least partly driven by school ties. The winners at the Judicial Research and Training Institute go into government service, while the “losers” (mind you, still fantastically talented people having survived the Korean bar examination) have to work for clients. Quoth the Korea Times:

Of 1,205 new judges appointed between 2003 and 2008, nearly 80 percent or 964 graduated from the “SKY” universities…said Rep. Lee…citing data from the Ministry of Justice.

Of 780 prosecutors designated during the same period, 546 were from these schools, accounting for 70 percent in total. The lawmaker added that roughly 60 percent of the 1,000 people who pass the Korean bar exam each year are also SKY certificate holders.

Clearly, if you’re a Korean kid aspiring to the legal profession, which itself is protected by a massive barrier to entry in the bar examination (which only about 2% of applicants pass), admission to a top Korean university is much more critical than it is for aspirants in other legal markets. But it ain’t just for future lawyers, says the Korea Times:

Such a “SKY-take-most” phenomenon is not confined to the legal circle. It has also played out in the field of business, the administration and journalism.

For instance, of 285 top government officials including ministers, vice ministers, and presidential secretaries, 61 percent or 175 are SKY graduates. Seven out of ten chief executive officers of top 100 Korean companies by market value in 2007 graduated from one of the three colleges.

So as you can see, getting into a SKY school is like being tapped for the Mob. You’d think that once in, and having passed the bar examination, and been selected to join the court, a young lawyer could breathe easy. You’d be wrong:

Such SKY-dominant atmosphere invites invisible discrimination against those with what they call “inferior academic background.”

A former judge from a non-SKY university said, “School of origin appears to be playing a minor role in choosing those to be promoted in judicature. However, it’s very, very important indeed.”

Of 14 Supreme Court judges here, Kim Ji-hyung is the only one with a non-SKY academic background. His alma mater is Wonkwang University in Iksan, North Jeolla Province.

Another former judge added, “Competition among SKY graduates is also very intense. Some form an unofficial alliance with colleagues with identical backgrounds to take an upper hand in promotion.”

This means the Seoul National University guys gang up on the Korea and Yonsei guys, who in turn would gladly knife the others to get ahead.

Despite the selectivity, or perhaps because of the selectivity, it doesn’t appear that the judicial system comports itself in accordance with the high standards supposedly advanced by keeping the hoi polloi away.

October 26, 2008 | Filed Under Legal Market | 12 comments

Korean Youth Losing Grip on Traditional Morality

by Brendon Carr

The Korean branch of Transparency International announced the stunning results of a survey of 1100 middle and high-school students where the students were posed questions of morality and ethics, according to the JoongAng Ilbo English edition.

Shockingly, more than half of the students disapproved of excusing criminal activity by leaders who have contributed to the people’s well-being. Further, one out of five said they would use bribery to get things done (although another one out of five wasn’t sure). These results clearly show that Korea’s traditional public order faces complete breakdown. What are the schools doing? Where will the next generation of crook-coddling judges and crooked corporate chieftains come from? Even worse:

Some teenagers were willing to spend time in jail for money. Asked whether they would spend 10 years in jail in return for 1 billion won ($732,600), 18 percent said “yes” while 65 percent said they would not.

That one of out five figure is great comfort to employers trusting staff with money, I’m sure. The remaining 17 percent correctly identified this one as a trick question: Everybody knows that stealing or embezzling a billion won usually gets the criminal a suspended sentence.

October 23, 2008 | Filed Under Criminal Law, Economic News | 2 comments

Blind Candidate Passes Bar Exam for First Time

by Brendon Carr

The Korea Times, taking a break from its riveting 467-part series on “national branding”, caught up to other media outlets including the Law Times and the Chosun Ilbo in reporting the achievement of 27 year-old Choi Young in passing the bar examination’s two-stage written portion. If he passes the oral interview part of the qualification process, Choi will enroll in the Judicial Research and Training Institute (JRTI) to receive two years of official practical tutoring in how to operate the nation’s judicial apparatuses.

Choi is the first blind person in the history of the bar examination to pass the written test. After petitioning the Ministry of Justice for accommodations for his disability—and offering the precedent of Japan having allowed non-sighted candidates to receive extra time and audio assistance (since they can’t read)—Choi was allowed to take the examination. Previously, non-sighted candidates operated under the disadvantage of not being able to see the examination papers.

Here the Korea Times gets a little ahead of itself, saying that Choi will be a lawyer if he passes the interview. That’s not correct—the two-year JRTI course, which is admittedly pretty hard to fail, given that the students are all extremely talented—is a prerequisite to admission to the bar. So if he passes the oral interview (results will be known on Tuesday the 28th, and are sure to be reported) Choi will be looking for work as a lawyer around December 2010.

Korea has heretofore not been a particularly disability-friendly society. Last year, a proposed anti-discrimination law stumbled over its inclusion of homosexuality as a protected class, and so there’s still no express anti-discrimination statute here, and no analogue to the Americans with Disabilities Act (ADA) requiring reasonable accommodations for disabled persons like Choi.

What’s interesting to me is that the Korean legal profession, because it pays well while not being particularly physically-demanding, has traditionally always had an overrepresentation of people with physical deformities (club foot, strawberry mark on the face, etc.). The amount of time, and intense focus, required to adequately prepare for the bar examination has tended to select for nerd and/or klutz qualities (ask me about my two years playing tee-ball!)—getting bullied or excluded, and wanting to “get even” (success is the best revenge) or to “be somebody”, has prompted a lot of young Koreans to really study hard for that exam. It’s surprising to me that until now, there hasn’t been any blind guy.

One detail of the story that’s not in the Korea Times, but which I found in the Chosun version (good human-interest reporting!), is that Choi gets by with the help of friends (you know there’s a good woman among those “friends”—or at least there will be in the movie version) and hard-working, self-sacrificing parents working as day laborers in a countryside town. It’s a poor-kid-overcoming-every-obstacle story, the kind everyone likes. As for me, I’m rooting for Choi and would look forward to working with him. I hope on the 28th to be noting his success at passing the oral interview.

October 23, 2008 | Filed Under Legal Market | 2 comments

What the Won’s Collapse Means for the Korean Legal Market

by Brendon Carr

Last week, the Korean won cratered against the US dollar, plumbing depths of weakness not seen since 1998. The won flirted with closing below 1400 to the dollar. The government, of course, after telling us everything’s okay, is now trying to talk the won back up to W1000 to the dollar.

Firms which had been dependent on finance and banking-related practice areas such as asset-backed securitizations (ABSes) and derivative products seem to be experiencing a profound lull in activity (duh!). Litigation over such products, however, appears to be a growth area.

Inbound mergers and acquisitions interest from foreign companies may pick up slightly; I think the cheap currency might spark some interest but the “Lone Star effect” will keep foreign investors wary of large acquisitions. Meanwhile, Korea’s small and medium enterprises’ outbound M&A interest will likely be greatly reduced. Offshore acquisitions will be so much more expensive, in won terms, for smaller Korean enterprises to finance. (On the other hand, whatever earnings they might make from the operations of the acquired foreign business would be correspondingly greater when denominated in won.)

It’s never been a better time to establish that greenfield Korean subsidiary, as your cost of dumping foreign capital into the market will be markedly lower than just a week ago. If the won recovers, the profits you’ll earn will have been bought with cheap won investment.

The big winner, however, of all this economic trouble will be the real estate practice area. Korean commercial real estate, although “expensive” (not so much, given the exchange rate now) also earns well due to high rents and minuscule vacancy rates. Additionally, real estate assets’ value can be properly assessed by transparent financial models—accounting fraud and manipulation of earnings is much harder with a commercial building. Rent reduced by the vacancy rate = cash flow. And current cash flow, plus prospects for capital appreciation, enables an investor to arrive at a price which can be similar to the value of the property. Try that with an industrial concern—good luck!

So here’s what I think we’ll see: Korea’s regulations concerning real estate investment trusts will be amended to lift the arbitrary five-year lifespan on so-called “corporate restructuring” REITs (CR-REITs), so as not to force a bunch of transactions on to the market at the same time. (Because a lot of those CR-REITs are now five years old.) Funds which had bought into properties during the W1100 days thus won’t face exchange-related losses from forced dispositions.

Pension funds who’ve taken a beating will be looking for investments with steady cash flow and capital-appreciation opportunities—like Korean real estate. So they’ll be back. Developers of commercial properties—not residential, mind you—will find that they alone will have access to finance.

October 12, 2008 | Filed Under Economic News, Legal Market | 2 comments

Dongwon Tuna Closes on Purchase of StarKist

by Brendon Carr

This one’s a little braggy, but my partner Doil Son and our fine team of associates worked so hard on this deal it merits mention on Korea Law Blog.

Recently, among other events, we’ve been lucky enough to work on one of the major outbound investment deals: Hwang Mok Park PC advised Korean fishery company Dongwon Enterprise Co., Ltd. on the cross-border acquisition and financing of Dongwon’s US$360 million acquisition of US tuna brand StarKist from Del Monte Foods. Transaction finance was supplied by a syndicate of Korean and international banks arranged by Korea’s Hana Bank; the closing took place at the beginning of October, in the teeth of the global credit crunch. HMP’s team was led by corporate and securities partner Doil Son. The Hong Kong office of Simpson Thacher & Bartlett LLP acted as international counsel to Dongwon.

Where we say that the closing took place in the teeth of the global credit crunch, we’re not fooling: This deal was due to close at the end of September, and from around the 20th things started to go pear-shaped with the syndicate arranged by Hana Bank. The scramble for replacement finance in the StarKist deal, due to nobody’s fault, meant very long days and nights for our team. But especially, my friend Doil worked like a dog and it bears mentioning: he did great work for Dongwon and I’m proud to work with a lawyer like him.

October 10, 2008 | Filed Under Deal Sheet | Leave a comment

Shutdown Allowances Under Korean Law

by Brendon Carr

This morning a client got in touch with what I fear may be an all-too-common issue: Headquarters wants all offices worldwide—including the client’s Korea branch office—to close up for a month, with staff on unpaid leave, as a cost-containment measure in response to the credit crunch. Previously, the company had done a week’s closure, during which employees were required to burn off their unused annual-leave balances.

The client asks: What does Korean law have to say about this? As the question seems to be of general interest, and this client may not be a good credit risk right now anyway (got to get those bills out!), I decided not to charge for the answer and to publish it here on Korea Law Blog. J., this one’s for you, buddy!

The first issue raised is whether Korea requires employers to pay some minimum “shutdown allowance.” The answer is yes: Art. 46 of the Labor Standards Act prescribes a shutdown allowance of 70% of the worker’s “average wage” during a period of business suspension due to “reasons attributable to the employer”. In general, this includes all cost-saving measures undertaken to save money. A smaller shutdown allowance is possible, but only by approval of the Ministry of Labor, after making a formal request explaining the business problems faced by the employer. We are advised that historically, MOLAB has been very hostile to employers making this request, but that currently the ministry is aware of global economic conditions and is prepared to be understanding about requests for a lower shutdown allowance.

In cases where the workforce needs to be restructured due to “urgent managerial necessity”, under Art. 24 of the Labor Standards Act an employer may terminate the employment of some workers without additional compensation, provided that certain procedures are followed in respect of worker consultation, number of and selection standards for workers to be made redundant, notice to Ministry of Labor, etc. But simply closing the business for a specific period of unpaid leave is not lawful except by permission of the Ministry of Labor.

As for mandatory use of accrued but unused annual leave entitlement, in principle the employee shall have complete freedom to choose the date and time of use of leave. But it is also possible to make agreements with the employees, individually or collectively through amendment of the Work Rules, in respect of when to use leave. Ministry of Labor is supposed to receive notices of amended Work Rules, but does not have the right to approve changes (well, to be frank, there is an informal “review” phenomenon where MOLAB may recommend or direct changes after receiving reports of changed Work Rules, but you get the idea…).

October 9, 2008 | Filed Under Economic News, Employment Law | Leave a comment

Major Overhaul of Korea’s Civil Code Forthcoming From 2009

by Brendon Carr

For the first time since the Korean Civil Code was last overhauled in 1958, the basic statute of Korean laws will be overhauled completely from 2009-2012, reported the Law Times yesterday. The scholarly effort will be similar to the epochal Restatements of the Law undertaken by the American Law Institute, in that the forthcoming changes to the Korean Civil Code will aim to reduce to clear, concise language principles of law already developed through case precedents since 1958 but not codified into law. However, unlike the Restatements, the new Korean Civil Code will be primary legal authority binding on all courts.

This is an important undertaking, as the Korea of 1958 would hardly be recognizable to the young Koreans of 2008. They will need a modern body of laws to take them forward.

A select body of Korean legal scholars intend to work their way through the Civil Code in four stages, addressing each year one of Part I to Part IV of the 1118-article statute.

Part I will be wholly amended and replaced in 2009. Currently, Part I of the Korean Civil Code contains general principles of law applicable to business organizations and relationships and juridical acts. Notably, Part I of the Civil Code also contains the articles concerning extinctive prescriptions, or Korea’s statutes of limitations on claims.

Part II is the keystone of the Civil Code, in my experience. This is where the articles defining real rights in property (and thus, as a consequence, security interests in property as well) are found. A key reform that would improve Korea’s economic foundation would be a formal legal recognition of security interests in non-real properties, so called “personalty”, and non-titled movables. Currently, small Korean businesses are starved for credit (I know, now is not the best time to be talking about a credit-based economy) by the fact that only land and buildings can be offered as security; if small businesses could, for example, pledge their inventory as security for credit, more small businesses could operate and grow. Security interests in intangible properties probably also merit consideration. From 2010, if the scholars working on the Civil Code are paying attention, this could breathe new life into the small and medium enterprise segment of the Korean economy.

Part III addresses claims in contract and tort. It contains Korea’s basic rules on formation and rescission of contracts of all types (including contracts for sale of goods, and contracts of employment), bailments of property, and a very thin chapter on torts. One of Korea’s legal failings, in my opinion, is poorly defined set of expectations and standards for a duty of care—i.e., negligence is really hard to prove, as the Civil Code doesn’t say all that much. After 2011, Korea’s doctors, dentists, accountants, and—yes—lawyers may have to take greater care with their services lest they be found negligent.

Part IV, scheduled for 2012, may be most momentous as this part of the Civil Code addresses family relationships, marriages and divorce, and inheritance law. It currently comprises almost 1/3 of the bulk of the Civil Code, spanning Arts. 767-1118. Might we even see—gasp!—gay marriage addressed in Korean laws?

October 9, 2008 | Filed Under Economic News | Leave a comment