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[Editorial] Too Much Red Tape

Posted June. 23, 2006 04:06,   


Deputy Prime Minister and Minister of Economy and Finance Han Duck-soo recently announced, “All policies will be decided and pursued in line with job creation.” He might be well aware that the right jobs are created by businesses. To establish a company in Korea, however, it takes 9.6 times more documents and almost twice the costs than in the United States. Without properly removing such regulations that make it difficult to start business, the Roh Moo-hyun administration always blows its own horn about how it overhauled regulations and innovated on the government.

The Korea Institute for Industrial Economics and Trade (KIET) announced 48 documents are needed to set up a business corporation. Only five and seven documents are needed in America and Canada, respectively. In Korea, the procedure to establish a business includes 16 phases, such as promoter invitation, authentication, bond purchase, registration and establishment reporting. The U.S. and Canada have 13 phases, but the phases after the sixth one require reporting alone. In Korea, establishing a stock company capitalized at 50 million won costs 995,000 won: 100,000 won for document authentication, 240,000 won in registration tax and 530,000 won in agency commission for a judicial scrivener. It takes only 565,000 won and 574,000 won in the U.S. and Canada, respectively.

Documentation or company name selection is not easy, either. A survey showed that one third of the startups surveyed had to change their company names during registration on the grounds that their names were the same as or similar to others. Documents for business establishment are not standardized and no samples are suggested, so 90% of the businesses had to consult to judicial scriveners in all documentation procedures. According to the Korea Small Business Institute (KOSBI), a whopping 328 regulations are involved in establishing a manufacturing factory. You need to get some 700 seals put on your documents to set up a single golf course. In a business environment ranking 97th in the world, it is hard to address youth unemployment.

To create jobs, regulations on startups should have been the first to be relieved. The government says it will begin revising relevant laws starting next month, but it is still not credible enough. Rather than boasting itself as an e-government or innovative government, it should have drastically streamlined administrative procedures at least, such as various applications for getting confirmation and permission. The government needs to loosen regulations on factory sites in the Seoul metropolitan area in order to deliver on its promise to create more jobs. It should also remove total equity investment limits promptly. It should realize which reform is more important.