Understanding Agency, Distribution and Franchise Regulation in Korea

by Brendon Carr

This comes up from time to time in our practice, but infrequently enough (maybe once a year for me, as I do inbound FDI/M&A work and employment law mostly) that when a colleague in Europe asked if we had a throwaway overview memorandum to give, I had to confess that no, we did not. So this weekend my associate Sun-Hee Kim and I polished off the sort of stock memorandum that most law firms should have ready to hand on standard topics, but few Korean firms do. Anyone who is interested in the scintillating subject of agency, distribution, and franchise relationships in Korea may download our paper (Adobe Acrobat PDF, 88Kb download).

Oops! They Did It Again

by Brendon Carr

Law firm mergers seem to be coming on a daily basis, or at least as often as the Law Times turns up on my desk (twice weekly).

This time it’s Kim Chang & Lee ("Korea’s oldest law firm") and Kim & Company who are merging to form a 40-something mid-sized firm, also with ambition to double its mass in the next two years. All of these mergers have the ambition to double their headcount in an impossibly short time, it seems. (Of course, this begs the question—if such hyper-growth is so easy to come by, why weren’t you growing at that rate before? Guess this means the new firm will remain prowling for further merger candidates.)

Kim & Company is a banking and finance-focused practice formed from a team which left Lee & Ko in 2001.

KIm Chang & Lee has been through the merger process before. In 2005 or 2006—I don’t remember—the firm attempted to merge with acquisitive Barun Law, moving most of its lawyers from Kim Chang & Lee’s Insa-dong offices down to Barun’s Samsung-dong (near COEX) offices (at least the biographies disappeared from Kim Chang & Lee’s website and appeared on Barun’s) before reappearing in 2007 in an apparent unwinding of the merger.

The two firms will operate under the Korean name Yang-Heon (양헌). The English name hasn’t been announced yet; both firms’ websites are irregularly updated (you can get news from 1995 on the Kim Chang & Lee website, but nothing past 2002). Of course, our firm’s website is no treat either—Korean firms haven’t caught on to the power of the Internet for marketing purposes.

That’s Right: When You’re in a Hole, Keep Digging

by Brendon Carr

Business-friendly Pres. Lee Myung-bak has surrendered to the street protestors, and it looks like they’ll get their wish for autarky. What makes me say this?

Foreign investment interest in Korea has all but evaporated, and your international reputation for rule of law has been made a joke by your continued legal harassment of Lone Star Funds? Trying to convince foreign investors with the Big Lie that everything’s okay, and Korea welcomes foreign capital to its “level playing field”?

Although I am sure this will get me in trouble with Korea Law Blog reader H. Chang, I’ve got just the ticket for the Korean government: Even though you’ve lost your attempt to pin criminal liability on the foreign capitalists where no crime occurred (at least one of the Lone Star-related cases), and can’t sandbag anymore on the sale of Korea Exchange Bank to HSBC, go ahead and resuscitate past (failed) attempts to characterize Lone Star Korea as a permanent establishment of Lone Star Funds in the U.S.

That way, you can be seen to be attempting to ignore principles of law to “inevitably” seize US$1.2 billion dollars from a foreign investor you’ve tormented and unnecessarily demonized for years, just as the whole sorry affair was fading into the rear-view mirror!

While you’re at it, be sure to declare that foreign capital won’t be welcome, because of “negative public sentiment” when you privatize state-owned companies. That’s sure to help—if what you want is to chase away foreign investors.

Working as a Lawyer in Pyongyang

by Brendon Carr

I must admit: Part of me hungers for the adventure aspect of being out on a barren frontier, where life is desolate and hard. For this reason, I’ve always been more attracted to by the prospect of a smelly-sock train ride across Mongolia, Manchuria, Siberia, Crapistan or Trashcanistan than hitting the five-star resorts of Bali or Singapore. But then I’m also a weenie when it comes to scary food—your Uncle B wants to boldly go to parts unknown, then find the McDonald’s there. (Did I mention that Singapore is awesome? They have Long John Silver’s!)

Anyway, because of this buccaneering spirit, the prospect of working as a foreign lawyer in Pyongyang has been on my list since I’ve been a lawyer.

Michael Hay, a foreign legal consultant in Seoul since 1990, actually did this—striking out from “Big Four” firm Bae Kim & Lee in 2001 to focus on being a full-time North Korea consultant. He established KoreaStrategic Inc. as a consultancy (its domain lapsed in June 2006, though), then with a splash announced the formation of Hay, Kalb & Associates as the first foreign/North Korean joint venture law firm in Pyongyang. The Hay, Kalb website, too, disappeared sometime in 2005, and I lost touch with Mike Hay around the same time. I remain curious to know about his adventure up North; I’m sure it’s been fascinating. However, he was always extremely tight-lipped about what he was doing there. Other than that he was focusing on North Korea “full-time, all the time” it was hard to get any specifics out of him.

There are two other law firms advertising their services and office presence in North Korea: Italy’s Birindelli e Associati (now Chiomenti after being acquired) and Singapore’s Kelvin Chia Partnership. 

But today I found that the International Financial Law Review’s IFLR Legalwire, to which I hadn’t previously subscribed, recently (May 2008) reported on Birindelli partner Sara Marchetta’s experiences in Pyongyang. It’s fascinating stuff, published in two parts—go read Part 1 and Part 2. The article gave the impression that Hay, Kalb was still trading, which is promising, but Marchetta says that Birindelli kept no expatriate lawyer there year-round, because there were only four or five clients a year needing legal services, mostly in resource-extraction and processing ventures.

That’s a pretty discouraging level of business; I hope the rent for those offices in Pyongyang is inexpensive. No wonder there’s no McDonald’s in Pyongyang yet! Looks like it may be Singapore for me just yet.

Law Firms’ Urge to Merge Continues

by Brendon Carr

It’s been a hot summer for the legal market, with firms merging and combining all over. On Friday I noticed the trade newspaper Law Times reporting that Korean law firms continue seeking critical mass:

A three-way merger between Hanbit Law Group, Saegil Patent & Law Firm, and Law Offices of Ha-Yeon Cha, which brings into being a new, 46-member mid-sized firm (with just two foreign legal consultants, so far as I can see, so job-hunters, hint hint...) which expressly states its objective of joining the “100 Club”. Since organic growth is hard to come by, the 100 Club ambition points to this combined firm continuing to seek acquisitions or to be acquired, even as they work on the difficult chore of integration.

Additionally, the paper reports another three-way combination—albeit one short of a merger at this point, instead being a “close cooperation” pledge—was just announced involving Evergreen Law Group (34 attorneys, mostly Shin & Kim alumni), 13-strong SiGong Law P.C., and the eight-member SanGyung Law Firm (also calling itself Law Firm Kim & Kim). Since the firms have only slightly different practice areas and specialties, my guess is a formal merger didn’t happen because of different levels of profitability and expectations for profit-sharing, but that they’re trying to work things out for a fuller integration in the future. Otherwise, given the nature of Korean law firms, I can’t imagine how their cooperation would work.

(P.S.—For reference, the grinning gentleman on the right-hand side of the three-way grip-and-grin is Mr. Yong-Seok Park, the partner who supervised and trained my partner Doil Son and me when we worked under him at Shin & Kim eight years ago. He’s one of the very best teachers and supervisors available to an international lawyer in Seoul, offering encouragement, a gentle but rigorous Socratic method, and benign neglect provided you don’t fuck things up. Young lawyers looking for work, hint hint...)

(P.P.S.—SiGong Law’s Hoon Lee seems to be in the same kind of funk as I’ve fallen into. He’s not updating KoreaLaw.com that often, just like Korea Law Blog this last month. But just like Korea Law Blog—at least I hope you think so—there’s stuff to be learned from reading Hoon’s blog. Check out KoreaLaw.com...)

Leftists’ Fakery Highlights Importance of Translations and “Official Language”

by Brendon Carr

A frequently-asked question put to me from time to time is Are we required to make this contract in the Korean language? The answer to this question, in almost all cases, is NO. As a general rule, Korean statutes and regulations are completely silent on the question of official language, seemingly because whoever’s drafting the statutes presumes that all parties to a transaction are Koreans capable of using the local language. Homogeneity does have certain advantages, you know. One of them is a certainty that there is a common language shared between the parties.

Formation of a contract requires only that the terms and conditions of agreement between the parties be mutually understood. If both parties read and understand Russian well enough to know what they’re agreeing, then Russian is a language suitable for making a contract.

It seems that in other Asian countries there may be some regulation or local rule (maybe a municipal regulation in some Chinese cities, I really couldn’t say), and that foreign businesspeople are inspired by their experiences elsewhere. Or it could be that crafty locals like to tell credulous foreigners that It’s The Law™ to make the contract in Korean, so that the locals retain control of things through the opacity of their language, which is—to put it mildly—as much a world language as Norwegian, or perhaps Faeroese.

But because there’s no official-language requirement for contracts in Korea, you’re free as a bird to transact in English. In fact, English is a better language for contracting, since its vocabulary is so rich and lends itself to clarity.

(That said, it’s important to remember that for virtually all of the Koreans with whom you’re doing business, English is their second language, one which is of little daily utility, and therefore they’re also working at a disadvantage when transaction with you in English.)

In this regard, I am reminded of recent events in the neverending US beef import protests, whereby Amnesty International inspectors here to investigate allegations of police brutality against protestors (it’s interesting how there are no investigations when it’s the other way around) were hoodwinked by their lying, manipulative local staff who prepared false English-language translations of local-language materials for release to the world. (Remember, for leftists it’s not so much about the truth, but about the Truthiness. Fake but accurate is okay with them.) There is a lesson here for foreign businesses.

The Korean Amnesty staff were working to accomplish a goal: Gaining sympathy for their cause from the “court of international opinion.” The language of that court is English—if materials are in the Korean language, the court of international opinion will be ignorant of anything recorded in that language. In other words, evidence must be in English when presented to the court of international opinion, as if it were a rule of civil procedure. And in general, English speakers are not well-equipped to check the accuracy of the translation.

As it happens, there is an official-language requirement in one place in Korea: The courtroom. Evidence submitted to the court must be in the Korean language. Anything that originally comes from a foreign language must be translated by a party into the Korean language. And here’s where we often see misconduct—parties to litigation often deliver to the court Korean-language translations of foreign-language evidentiary materials which are deliberately (I guess if you want to give the benefit of the doubt you could say with gross negligence) inaccurate and misleading to the judge. That puts the party responding to the evidence at a profound disadvantage, because once translated evidence is offered by one party, it’s natural to suspect the other party’s response is self-servingly fake.

Far better, I say, to have agreed Korean-language translations prepared and existing, as an insurance policy (as well as a simple aid to understanding), at the start of your commercial relationship than to leave the job of rendering a Korean-language version to a party seeking to gain advantage in the court. Contract in English, yes, but spend a little extra money on good translations while the sun is shining.

As a practice point, I note that if you’re going to have two versions of a contract extant, the one which is simply a translation prepared for reference should be clearly marked as such, and both versions should contain a clause indicating which version shall control in the event of conflict or error in terms. And for God’s sake, don’t sign both versions! This has caused too many problems to count.

(Tip o’ the hat to the Marmot’s Hole for linking the original story.)

Korea’s Own Coming Mortgage Crisis

by Brendon Carr

While I don’t usually rely on the Korea Times as a source of information, because it’s crappy and there is a self-censorship going on over there, it is in English and that means a link to the story doesn’t require ol’ Brendon to undertake a translation job in order to write about something on this blog. And that has some value in and of itself.

Over the weekend a story appeared on the Korea Times website about the risks associated with Korea’s housing prices and home loans, a topic near and dear to my heart. It seems Korea’s housing finance system puts borrowers at risk in a manner similar to the sub-prime meltdown and coming adjustable-rate mortgage tsunami in the States.

You see, virtually all (90%, according to the Korea Times story) of Korea’s home loans are adjustable-rate mortgages, the kind which are now roiling the US housing market as they reset. Foreign bankers at HSBC, KEB, and Citibank have tried to interest Korean borrowers in fixed-rate loan products, but the market has heretofore been wholly uninterested in such loans. Korean borrowers prefer, and therefore the banks provide, adjustable-rate mortgages. When we bought our apartment, although I specifically instructed my wife (since Korean banks refuse to lend to foreigners, even those with a good job and 12 years’ continuous residency) to get a long-term, fixed rate product, she brought back an adjustable-rate loan—and then argued with me about how stupid the long-term, fixed rate product was. (Why my wife refuses all finance advice from me may be another story.)

But Koreans do Southern California one better. Korean housing loans, in general, are also not “fully-amortizing” loans—instead, borrowers take out an interest-only loan with a term of one to three years, during which time they pay only the interest and none of the principal (although, like my family, they might save separately and pay down the principal that way). At the expiration of the term they roll the note over. Why don’t they pay any of the principal during the term of the loan? Well, for starters, just like the fools in the US housing bubble, nearly all Koreans are convinced that “Real estate only goes up. They’re not making any more land, you know.” But also, the principal balances—even on 50% LTV loans—usually exceed six or seven times the borrowers’ annual income. As a result, the interest expense is too great to add principal repayment to the burden.

Besides, because property always goes up, and lately has gone up like wildfire, only a sucker would pay principal now. You can take care of that when you sell the property, from all the capital appreciation that’s guaranteed to occur! After all, real estate only goes up. They’re not making anymore land, you know.

Now we add the risk factor of the variable-rate loans. Because of the wild property bubble inflation of the last few years, a lot of Koreans have stretched themselves by buying into properties on which they can barely afford the interest-only payments. Interest rates have been quite low of late, with housing loans in the high 5% range available (again, not to you, Mr. Good-Job Foreigner, but any Korean on the street could get one).

But what happens when the interest rate increases, say, to the high 7% range? That interest-only payment, which the homeowner could barely afford in the first place, is now almost 40% greater than it was before. A W1,000,000 payment (which would comprise half the after-tax monthly income of the average Korean wage earner) is now almost W1,400,000. It becomes that much harder to pay the interest. (Remember, most borrowers don’t touch the principal.) Also, since local banks are now required to examine the borrower’s ability to continue to service the loan, by comparing the payment burden to the disposable income of the borrower, many Korean homeowners may find it hard to roll those notes over.

And that means lots of foreclosure sales, or short sales, coming soon. But those tend to depress prices. So mark my words, Korea’s property is entering a deflationary phase. In Japan, Hong Kong, and Singapore, at least, past experience with property bubbles has shown us losses of up to 70% are possible.

Here’s where the 50% loan-to-value ratio hurts the Korean homeowner more heinously than the Americans who’ve lost their homes in the sub-prime crisis: The price decline eats up equity first—the bank’s loan gets paid off in the repossession sale, with the homeowner getting what’s left. This means in the coming bubble deflation, years and years of hard-earned cash savings are about to be lost. In the States, people get dinged on their credit scores and lose a few thousand dollars on the down payment (and no-money-down buyers just lose the imaginary bubble gains)—in Korea, people are going to lose real, hard-to-replace cash.

We’ve been through this kind of thing before—in 1998, interest rates spiked and asset values dropped slightly, putting a lot of apartments into foreclosures and auction sales. What’s different about now and 1998 is that the world economic conditions are different, as well as local ones. In 2009 there will be no American foreign investors galloping to the rescue, that’s for sure. This is going to be ugly.

More Law-Firm Merger Talk

by Brendon Carr

Yes, Dad—I’m still alive. Just been busy. (And disgusted, a bit.)

Seoul’s law-firm merger rumor mill is in high gear, putting one of the “Big Four” law firms at which I used to work in talks with mid-sized Korean law firm KCL (formerly Kim, Choi, and Lim) about bringing the 61 KCL professionals onboard, cementing (only for the moment, I would presume, as this would trigger a cascade effect) the acquiring firm’s position as “Number 2” after Kim & Chang with close to 300 professionals. It seems as if all of the mid-sized law firms which had proven their ability to do some form of corporate work are in play as the Big Four, plus two, continue expanding.

Korean law-firm headcounts are difficult to reckon, because websites are updated very infrequently and some firms also seem to report differently to regional trade media like Asia Law & Business or Korea’s own local Law Times. Some of them don’t include foreign legal consultants or patent attorneys, who are licensed separately, while others—eager to inflate their apparent size, by counting every fee-earner—do.

Since law students at foreign institutions seem to comprise many of Korea Law Blog’s readers, let me offer this: Consolidation in Korean law firms, in my opinion, will paradoxically increase demand for foreign-licensed attorneys, as the larger the firms get the more likely they are to attract domestically-originated international work as well as inbound work from multinationals.

UPDATE 8/8—Word on the street is that KCL and its prospective counterparty were unable to agree on merger terms, with the large firm’s partnership voting down the proposal from KCL. Probably this would be due to different levels of revenue and profitability, as is the case around the world.

Two More Korean Law Firms Merge

by Brendon Carr

On the heels of last month’s merger between Horizon Law Group and Jisung Law Group, today I get news that two more mid-sized Korean law firms have decided their hope for survival and prosperity in the marketplace lies in achieving greater mass. DeRyook International Law Firm and AJU International Law Group have announced their own mergers as well.

DeRyook and Aju in total have 90 attorneys, plus a few dozen allied professionals including foreign legal consultants, patent attorneys, and advisors (former government officials). Thus, this can be seen as part of the larger trend in the marketplace toward size. For several years now, it’s been obvious that 100 has become the smallest size firm considered credible by Korean business, the Korean power elite, and many foreign investors. So 100 has been the target toward which so many firms have built their merger activity.

But as more firms achieve the century mark, not all of whose members can actually do the kind of sophisticated business work which used to be the exclusive province of the 100 Club (but I’m not commenting here on the skill levels at Horizon, Jisung, DeRyook, or AJU), one can expect that size will continue to stand as a proxy for quality—with the new cutoff falling somewhere around the 200 level.

And smart consumers of legal services know that size doesn’t guarantee quality at all. Sadly, very few Korean enterprises are smart consumers of legal services, although it is definitely much better now than when I started my career in 1997. But that’s for another day.

Seoul Housing Bubble Deflating: Hope For Soft Landing

by Brendon Carr

It looks as if the bubble is popping, or at least deflating somewhat, in the Seoul housing market. I don’t know if that’s a good thing or a bad thing. Prices are definitely too high, but of course as a homeowner (thankfully, not a highly-leveraged homeowner) I’d rather the prices remained steady.

The Maeil Kyungjae reports that while I’ve been bleating about Korean apartment prices being too high, they’ve started falling. At least, in neighborhoods better than mine.

Here’s some select bits I’ve translated from Korean to English for the benefit of Korea Law Blog readers:

Where is the “Floor” for Expensive Apartment Prices in the “Bubble Seven”?
Medium- to Large-Size Kangnam Apartments Projected to Drop Another 10-20%

Chart:

[Prices compared Nov. 2006 to June 2008]

Daechi-dong Mido 2-cha Apts (181.8 sq. m.): W3.05 billion -> W2.45 billion (-W600 million)

Daechi-dong Gaepo Woosung 1-cha Apts (214.8 sq. m.): W3.7 billion -> W3.15 billion (-W550 million)

Bundang Geumgok-dong Athena Rex (218 sq. m.): W1.55 billion -> W1.29 billion (-W260 million)

Mok-dong Shinshi Gaji #4 Complex (181.8 sq. m.): W2.05 billion -> W1.625 billion (-W420 million)

“It is difficult to foresee price increases unless there is some striking news like a change to the debt-to-income ratio regulations,” said UNR Consulting Representative Director Sang-Eon Park. “Shrinking demand means an additional 10-20% price decline seems possible for medium- to large-sized apartments.”

I have to believe that eight-buck-a-gallon gas (W2000 per liter)—and Koreans’ inexplicable preference for bloated black sedans that get 15 mpg—has something to do with these falling housing prices. The “Bubble Seven” story reports that satellite-city apartments in Bundang and Yongin are off 15-20% in June. My law partner Doil and I have had a project that has required us to drive out to the Kyeonggi Province city of Kwangju, and the roads have been oddly clear—Doil says it’s like being Will Smith in “I Am Legend” (except that we’re in an Equus—blech).

The Doctor Housing Bubble blog has already examined how gas prices and the stark increase of commuting cost has ravaged California’s exurbs. And that’s at just four bucks a gallon. It’s my belief that the Korean housing bust will be felt most acutely in Bundang, Yongin, Ilsan, Pangyo, and the other satellite cities of Kyeonggi Province, whose residents must commute to Seoul.

Anyway, back to Seoul… Strangely, though, while the prices of these “large” (which is, of course, a relative term—181.8 sq. m. probably yields only 1500 sq. ft. of usable living space, assuming a 75% ratio) apartments apparently drop by such large amounts, the cost of renting in Kangnam—and other areas perceived to have good “neighborhood facilities” (i.e., cram schools)—is going up:

In particular, in the Kangnam’s Daechi-dong and Dogok-dong, which are swimming in hagwon, there has been a rush of inquiries from apartment hunters in advance of the summer school holidays.

Chonsei lease price for a 112 sq. m. apartment in the Daechi-dong Mido 1-cha apartments has gone up by W10 million to the W305-375 million range, while an 85 sq. m. “A"-type apartment at Dogok-dong’s Dogok Rexle has gone up by W5 million to between W325 million and W340 million.

It’s much the same in Nowon-gu’s Chunggye-dong, which is said to be the “Daechi-dong” of the Kangbuk area.

The Konyeong 2-cha apartments, where the neighborhood is chockablock with hagwon, the popular 92 sq. m. apartment lease price has advanced by W22 million to reach the W155 million level.

Furthermore, the 105 sq. m. apartments, which share popularity with the 92 sq. m. size, are also transacting W15 million higher, at W170 million.

Summer “vacation”, what a cruel, cruel lie that is! In Korea, it’s just eight extra hours of cram school education.

I don’t send my children to hagwons (other than a taekwondo class, which is mainly just for health) because I think Korea’s cram school environment is cruel to children. Also, since I spend so much on tuition at the Yongsan International School of Seoul, I don’t actually have any money left over to send them to hagwon even if I wanted to do so.

Still, based on this weekend’s reports, I know what to do to help maintain or increase the price of my own (thankfully close-in) apartment: Open a hagwon—or, better yet, open two of them right next door to each other.

Korea Left Out of Condi’s List of American Allies in Pacific

by Brendon Carr

American media may have missed it, but you can bet your sweet bippy the Korean press—particularly the conservative press like the Chosun Ilbo—noticed the subtle way Secretary of State Condoleezza Rice described the Republic of Korea as somewhat less of an ally to the United States than Asia-Pacific stalwarts Japan and Australia:

U.S. Secretary of State Condoleezza Rice calls South Korea a “global partner” but Japan and Australia “allies” in an article in the July-August issue of bimonthly journal Foreign Affairs, in what appears the latest manifestation of a subtle shift in America’s regional focus.

In a cover story entitled, “Rethinking the National Interest, American Realism for a New World,” Rice writes, “Democratization is also deepening across the Asia-Pacific region… This is expanding our circle of allies and advancing the goals we share.”

“We enjoy a strong, democratic alliance with Australia, with key states in Southeast Asia… and with Japan—an economic giant that is emerging as a ‘normal’ state, capable of working to secure and spread our values both in Asia and beyond.”

As for South Korea, it “too, has become a global partner whose history can boast an inspiring journey from poverty and dictatorship to democracy and prosperity,” she adds.

America’s great friends Russia and China are usually described as US “partners” in this kind of diplospeak, so Rice’s description ought to send a chill down the spine of everyone in Korea who cherishes the “alliance forged in blood” and the special treatment—in military affairs and in trade affairs too—that Korea has received for 50 years as a result.

I wonder how the latest beef protests may figure into US policymakers’ evaluation of the relationship. I don’t think Rice would have been writing for Foreign Affairs with knowledge of the late May events in Seoul. Yes, the Korea-US Free Trade Agreement is dead, dead, dead (good job, guys!), but is the dysfunctional ROK-US “alliance” also dead? Korea is in a bad neighborhood with China, Russia, and North Korea. If the US is ready to wash its hands of the Republic of Korea as an ally, the tax burden for Korean taxpayers is about to spike higher—because the free US defense umbrella is worth a hell of a lot to this country.

A factor leading up to the Korean War was Secretary of State Dean Acheson’s January 1950 speech where he left Korea out of the description of the American defense perimeter in Asia—his list of Asia-Pacific allies, if you will. These are interesting times indeed.

Angry Car Critic Reads Kia the Riot Act

by Brendon Carr

Apparently not everyone is as pleased with their consumer experience as I am. Just got finished reading UK motor critic Jeremy Clarkson (Top Gear)’s scathing review of the Kia Sedona. I wonder if the guy has a drinking problem or something. I got halfway through the meandering article before coming to anything to do with the Sedona.

A Decent Economy Class Experience on Korean Air—Go Figure

by Brendon Carr

On this latest trip to San Francisco, since I’m working against my own marketing-expense budget, I booked economy class and used accrued frequent-flyer mileage (30,000) to upgrade to business (on Korean Air, “Prestige Class”) for the SEL-SFO leg. Coming back today, I flew economy because it’s “high season” in the States and they wanted 45,000 miles for the upgrade. I’ve got a lot of miles accrued, but that’s rich for my blood.

Anyway, as it turns out my experience in economy class was surprisingly better. The airframe for both legs of the flight was the Boeing 777-200. The seats in business are excellent, allowing full recline for sleep. Ordinarily I need the legroom, and find economy to be way too cramped—especially given that Koreans generally are not that tall. Take a knee-knocking ride on a Korean inter-city bus sometime and see what I mean.

On the Korean Air 777-200, they’ve adopted a seat pitch that leaves enough legroom for a 6’ 1” American male like me. Each seat has its own video screen in the seat-back, and—and—a power port for laptop power adapters as well as an Ethernet port. (Sedgwick, if you read this, you’re right—I wasted W50,000 on that MacBook airline power adapter.) Internet service was not active on my flight, but the existence of the Ethernet port points to a future welcome development. (Will Internet be free on KAL? Korea is the “world’s most wired” country, after all.)

The business class flight from Seoul to San Francisco last week was made miserable by the fact that I was seated next to a gassy Korean businessman whose ceaseless farts were eye-wateringly foul. Twelve hours turned away from that dude with my palm cupped over my nose and I was in no shape for my meetings. He also took his shoes off, and those socks were no treat either.

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 you 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 (his stay on the waiting list sure was short...), 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!

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