Korea ranked 8th in World Bank`s `ease of doing biz` list

Korea ranks eighth in the World Bank’s 2011 Ease of Doing Business Index, the first time the country has broken the top 10.

Korea`s place in the index rose from 30th in 2007 to 23rd in 2008, 19th in 2009, and 16th last year.

The country is also third among East Asian economies on the list after Singapore and Hong Kong and sixth among member economies of the Organization for Economic Cooperation and Development.

A high ranking on the index indicates a better regulatory environment for business. The World Bank measures regulations directly affecting business in 10 sub-indexes including access to a stable power supply, starting a business, protecting investors, and dealing with construction permits. A nation`s rank is based on the average of the sub-indexes.

Korea’s strong status showing in this year’s index is thanks to significant improvements in the “starting a business” and “paying taxes” sub-indexes.

For example, the government established an online home-based business startup system in February last year. Before the system was introduced, those starting a business had to visit seven organizations, such as banks and municipal government offices, registry and tax offices and social insurance agencies.

Under the new system, however, people visit only a stamp store and a labor office and it takes only seven days to start a business, down from 14 days.

The World Bank also recognized Korea’s eased tax payment system, citing simplified local taxation and the combined payment of four major social insurance premiums –- national pension, health, employment and industrial disaster compensation.

The Korea Customs Service’s UNI-PASS, an electronics customs clearance system, was also hailed as a benchmark in deregulatory efforts for other countries. The system has significantly simplified customs clearance for imports and exports.

“The Lee Myung-bak administration’s steady efforts to improve the business environment have been recognized by the international community,” said Yoo Bok-hwan, director of the policy coordination bureau of the Strategy and Finance Ministry. “Deregulation is the most effective way to enhance the country’s competitiveness that costs no money. The government will continue its deregulation drive.”

On the other hand, Korea`s corporate transparency ranked 79th in this year’s index, down five notches from last year. The country scored just 5.3 out of 10 points in the “protecting investors” sub-index, which measures the extent of disclosure, degree of director liability, and ease of shareholder suits. Hong Kong had a score of nine and the U.S. 8.3.

The World Bank also found Korea’s procedures for property rights registration complicated and costly. It takes an average of 11 days for a business to register real estate in the country, compared with just five for Singapore and Australia. While the latter two countries allow businesses to go through the registration procedure via the Internet, Korea requires them to visit courts and pay a hefty acquisition tax.

Despite Korea`s heightened ranking in the “starting a business” sub-index, startup costs remain high. Such costs accounted for 14.6 percent of per capita income in Korea, far higher than 1.9 percent in Hong Kong and 0.7 percent in the U.S.

Korea imposes 3 million won (2,627 U.S. dollars) in corporate registration tax on business startups in Seoul or Gyeonggi Province, three times higher than in other areas.

Whereas a higher ranking suggests easier conditions to do business, it does not necessarily mean a good business environment. Among BRICs -– Brazil, Russia, India and China, China is the only one among the top 100 at 91st.

“Companies from all around the world are rushing to countries with plentiful natural resources and a large market like BRICs, even if they have strong regulations,” Yoo said. “For a small open economy like Korea, however, deregulation can be a national competitiveness.”

january@donga.com