Foreign companies concerned about rising compliance costs

Foreign companies are facing growing difficulties in doing business in Korea because the government’s “inconsistent” policies raise compliance costs, the leaders of foreign chambers of commerce said Monday.

American Chamber of Commerce in Korea (AMCHAM) Chairman James Kim and European Chamber of Commerce in Korea President Christoph Heider made the remarks at a foreign firms’ seminar held by the Korea Economic Research Institute in Seoul.

The two echoed that Korea remains an attractive investment destination, but faces challenges from other Asia Pacific nations such as Singapore, Japan, China and Hong Kong, due to such difficulties.

Kim pointed out that numerous foreign firms are complaining about Korea’s high compliance costs, which refer to expenses that a firm incurs to comply with regulations. To address this, Kim said predictability and transparency in the government’s audits or investigations should be enhanced.

As an example of high compliance costs, Kim cited Korea’s new law of prohibiting workplace bullying, which took effect in July but faced doubts over its ambiguous definition and effectiveness.

“In particular, the CEO in many cases can be personally liable for wrongdoing outside of their control,” Kim said.

“AMCHAM fully supports the anti-bullying legislation’s goal of improving the working environment and eliminating bullying, but under the law, if retaliatory or discriminatory measures are taken against victims or those who report abusive conduct, CEOs could face a maximum three-year jail term and a fine of up to 30 million won ($2,555),” he said. “The law, however, does not stipulate the punishment for the perpetrator of the bullying.

Heider said the government’s current policies display a lack of “consistency, predictability, reliability and transparency” and need improvements in these aspects to retain the country’s attractiveness for foreign investors. Both Kim and Heider also noted difficulties in the country’s labor market structure and related issues.

“The considerable rise of the minimum wage in 2018 and 2019 ethically was a good thing,” Heider said. “Business wise, I rather see an evolution or a development over time as the better approach. You need to give companies time to adjust to a changing environment.”

The country’s minimum wage showed sharp rises in the wake of the Moon Jae-in administration. In 2018, the statutory minimum wage was 7,530 won per hour, up 16.4 percent from a year earlier, and rose 10.9 percent to 8,350 won per hour for this year. The minimum wage had been rising 6.4 percent on average before the Moon administration.

Kim said, “Korea’s rigid labor market makes companies hesitant to create new jobs.” On regulations, the two leaders stressed Korea-specific regulations are seriously undermining its attractiveness. Korea ranked 30th out of 34 OECD countries surveyed in the 2018 OECD Product Market Regulation, which measures a country’s regulatory barriers to firm entry and to competition.

“Even if certain Korean laws are based on international law, there are many changes or local amendments made which makes it difficult for not only foreign companies to import but also for Korean companies to export,” Heider said.

Kim also said: “When Korea’s regulations are out of alignment with global standards, it creates an uneven playing field for global companies, which ultimately makes it harder for global companies to expand their investments in Korea.”