Regulatory reform in Korea.

319 Pages·2000·3.679 MB·English

by  OECD

«
GOVERNANCE
OECD Reviews of Regulatory Reform
OECD Reviews of Regulatory Reform
Regulatory Reform in Korea
Regulatory
At the end of 1997, Korea suffered one of the worst economic crises ever experienced by an
OECD country. An ambitious programme of regulatory, financial, and structural reforms, Reform
among the most far-reaching efforts at reform of regulation undertaken in OECD countries,
was key to the strong economic recovery in 1999 and 2000. This programme not only
stabilised the crisis, but also helped recreate the foundations for future sustainable growth. The
in Korea
Korean experience can be useful to other countries seeking to boost market-led growth.
Reforms now are moving Korea from a highly interventionist and authoritarian model of economic
development to a market oriented and open model based on values of consumer choice,
democracy, and rule of law. Yet the job is far from finished. The web of government
intervention has been only partly reformed, and many important issues are still to be tackled.
GOVERNANCE
Consistent progress on regulatory reform will be crucial to sustainable growth in Korea for
several years to come.
Korea is among several OECD countries to request a broad review by the OECD of its national
regulatory practices and domestic regulatory reforms. This Review presents an integrated
assessment of regulatory reform in framework areas such as the quality of the public sector,
competition policy and enforcement, and market openness. It also contains chapters on
sectors such as electricity and telecommunications, and an assessment of the
macroeconomic context for reform. The policy recommendations present a balanced plan of
action for both short and longer-term based on best international regulatory practices.
In the same series:
Regulatory Reform in Japan
Regulatory Reform in the Netherlands
Regulatory Reform in Mexico
Regulatory Reform in the United States R
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Regulatory Reform in Hungary g
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Regulatory Reform in Spain l
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Regulatory Reform in Denmark t
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The general policy analysis which is the basis for these country reviews is presented in the R
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OECD Report on Regulatory Reform: Synthesis, and the supporting two-volume OECD Report f
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on Regulatory Reform: Sectoral and Thematic Studies, published in 1997. r
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www.oecd.org ISBN 92-64-17663-2
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OECD Reviews of Regulatory Reform
Regulatory Reform
in Korea
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
ORGANISATION FOR ECONOMIC CO-OPERATION
AND DEVELOPMENT
Pursuant to Article 1 of the Convention signed in Paris on 14th December 1960, and which came into
force on 30th September 1961, the Organisation for Economic Co-operation and Development (OECD)
shall promote policies designed:
– to achieve the highest sustainable economic growth and employment and a rising standard of
living in Member countries, while maintaining financial stability, and thus to contribute to the
development of the world economy;
– to contribute to sound economic expansion in Member as well as non-member countries in the
process of economic development; and
– to contribute to the expansion of world trade on a multilateral, non-discriminatory basis in
accordance with international obligations.
The original Member countries of the OECD are Austria, Belgium, Canada, Denmark, France,
Germany, Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain,
Sweden, Switzerland, Turkey, the United Kingdom and the United States. The following countries
became Members subsequently through accession at the dates indicated hereafter: Japan
(28thApril1964), Finland (28th January 1969), Australia (7th June 1971), New Zealand (29th May 1973),
Mexico (18th May 1994), the Czech Republic (21st December 1995), Hungary (7th May 1996), Poland
(22ndNovember 1996) and Korea (12th December 1996). The Commission of the European Communities
takes part in the work of the OECD (Article 13 of the OECD Convention).
Publié en français sous le titre:
LA RÉFORME DE LA RÉGLEMENTATION EN CORÉE
© OECD 2000
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FOREWORD
The OECD Review of Regulatory Reform in Korea is one of a series of country reports carried out
under the OECD’s Regulatory Reform Programme, launched in 1998 in response to a mandate by
OECDMinisters.
The Regulatory Reform Programme is aimed at helping governments improve regulatory quality
– that is, reforming regulations which raise unnecessary obstacles to competition, innovation and growth,
while ensuring that regulations efficiently serve important social objectives.
The Programme is part of a broader effort at the OECD to support sustained economic development,
job creation and good governance. It fits with other initiatives such as our annual country economic
surveys; the Jobs Strategy; the OECD Principles of Corporate Governance; and the fight against corrup-
tion, hard-core cartels and harmful tax competition.
Drawing on the analysis and recommendations of good regulatory practices contained in the 1997
OECD Report to Ministers on Regulatory Reform, the Regulatory Reform Programme is a multi-disciplinary
process of in-depth country reviews, based on self-assessment and on peer evaluation by several OECD
committees and members of the International Energy Agency (IEA).
The country Reviews are not comprehensive, but, rather, targeted at key reform areas. Each Review
has the same structure, including three thematic chapters on the quality of regulatory institutions and
government processes; competition policy and enforcement; and the enhancement of market openness
through regulatory reform. Each Review also contains chapters on sectors such as electricity and telecom-
munications, and an assessment of the macroeconomic context for reform in the country under review.
The country Reviews benefited from a process of extensive consultations with a wide range of
government officials (including elected officials) from the country reviewed, business and trade union
representatives, consumer groups, and academic experts from many backgrounds.
These Reviews demonstrate clearly that in many areas, a well-structured and implemented
programme of regulatory reform has brought lower prices and more choice for consumers, helped
stimulate innovation, investment, and new industries, and thereby aided in boosting economic growth
and overall job creation. Comprehensive regulatory reforms have produced results more quickly than
piece-meal approaches; and such reforms over the longer-term helped countries to adjust more quickly
and easily to changing circumstances and external shocks. At the same time, a balanced reform
programme must take into account important social concerns. Adjustment costs in some sectors have
been painful, although experience shows that these costs can be reduced if reform is accompanied by
supportive policies, including active labour market policies, to cushion adjustment.
While reducing and reforming regulations is a key element of a broad programme of regulatory
reform, country experience also shows that in a more competitive and efficient market, new regulations
and institutions are sometimes necessary to assure that private anticompetitive behaviour does not
delay or block the benefits of reform and that health, environmental and consumer protection is assured.
In countries pursuing reform, which is often difficult and opposed by vested interests, sustained and
consistent political leadership is an essential element of successful reform efforts, and transparent and
informed public dialogue on the benefits and costs of reform is necessary for building and maintaining
broad public support for reform. 3
© OECD 2000
Regulatory Reform in Korea
The policy options presented in the Reviews may pose challenges for each country concerned, but
they do not ignore wide differences between national cultures, legal and institutional traditions and
economic circumstances. The in-depth nature of the Reviews and the efforts made to consult with a wide
range of stakeholders reflect the emphasis placed by the OECD on ensuring that the policy options
presented are relevant and attainable within the specific context and policy priorities of each country
reviewed.
The OECD Reviews of Regulatory Reform are published under the responsibility of the Secretary-
General of the OECD, but their policy options and accompanying analysis reflect input and commentary
provided during peer review by all 29 OECD Member countries and the European Commission and
during consultations with other interested parties.
The Secretariat would like to express its gratitude for the support of the Government of Korea for the
OECD Regulatory Reform Programme and its consistent co-operation during the review process. It also
would like to thank the many OECD committee and country delegates, representatives from the OECD's
Trade Union Advisory Committee (TUAC) and Business and Industry Advisory Committee (BIAC), and
other experts whose comments and suggestions were essential to this report.
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© OECD 2000
ACKNOWLEDGEMENTS
This series of Reviews of Regulatory Reform in OECD countries was completed under the responsi-
bility of Deputy Secretary-General Seiichi Kondo. The Review of Korea reflects contributions from many
sources, including the Government of Korea, Committees of the OECD and the IEA, representatives of
Member governments, and members of the Business and Industry Advisory Committee (BIAC) and the
Trade Union Advisory Committee (TUAC), as well as other groups. This report was peer reviewed in
March2000 in the OECD’s Ad Hoc Multidisciplinary Group on Regulatory Reform.
In the OECD Secretariat, the following people contributed substantially to the review of Korea: Head
of Programme and lead drafter: Scott H. Jacobs; Document preparation: Jennifer Stein; Economics
Department: Chapter 1 was principally prepared by Randall Jones; Public Management Service:
RexDeighton-Smith; Trade Directorate: Keiya Iida, Sophie Bismut, DoHoon Kim, Anthony Kleitz;
Directorate for Financial, Fiscal and Enterprise Affairs: Patricia Heriard-Dubreuil, Bernard J. Phillips;
Sally Van Siclen, Michael Wise; Directorate for Science, Technology, and Industry: Wonki Min,
DimitriYpsilanti; General Secretariat: Daniel Blume. In the International Energy Agency: Peter Fraser,
JunggwanKim, Caroline Varley.
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© OECD 2000
TABLE OF CONTENTS
Part I
Executive Summary.......................................................................................................................................... 11
Chapter 1. Regulatory Reform in Korea......................................................................................................... 15
Chapter 2. Government Capacity to Assure High Quality Regulation....................................................... 49
Chapter 3. The Role of Competition Policy in Regulatory Reform............................................................. 59
Chapter 4. Enhancing Market Openness through Regulatory Reform....................................................... 69
Chapter 5. Regulatory Reform in the Electricity Industry............................................................................ 79
Chapter 6. Regulatory Reform in the Telecommunications Industry......................................................... 89
Chapter 7. Conclusions and Policy Options for Regulatory Reform in Korea........................................... 99
Notes.................................................................................................................................................................. 119
Bibliography...................................................................................................................................................... 123
Tables
1.1. Sectoral regulatory reform in Korea...................................................................................................... 28
1.2. Potential impact of sectoral regulatory reform in Korea..................................................................... 31
3.1. Korean industries with “market-dominant enterprises”.................................................................... 66
4.1. FDI as a share of GDP (%)....................................................................................................................... 71
5.1. Planned evolution of Korean electricity sector................................................................................... 83
6.1. Number of carriers participating in each market................................................................................. 92
Figures
3.1. Trends in control of horizontal restraints in Korea.............................................................................. 61
4.1. Share of trade in OECD Member countries' economies, 1997........................................................... 70
Boxes
1.1. What is regulation and regulatory reform?........................................................................................... 17
1.2. What are the chaebol?............................................................................................................................... 24
1.3. Measures to rehabilitate the financial sector in Korea....................................................................... 34
1.4. Measures to address the employment consequences of the crisis andeconomicrestructuring. 42
1.5. Korea’s Big Deals..................................................................................................................................... 44
2.1. Managing regulatory quality in Korea................................................................................................... 51
2.2. Controlling administrative guidance in Korea..................................................................................... 56
2.3. The rise of NGOs in Korea...................................................................................................................... 57
3.1. The “Big Deals” and competition policy............................................................................................... 65 7
© OECD 2000
Regulatory Reform in Korea
4.1. The OECD efficient regulation principles for market openness........................................................ 73
4.2. Avoiding unnecessary trade restrictiveness of regulations................................................................ 76
5.1. The Korean electricity sector.................................................................................................................. 80
6.1. Important events in the liberalisation of the telecommunications sector in Korea....................... 90
Part II
Background Report on Government Capacity to Assure High Quality Regulation................................... 127
Background Report on the Role of Competition Policy in Regulatory Reform......................................... 167
Background Report on Enhancing Market Openness through Regulatory Reform................................... 205
Background Report on Regulatory Reform in the Electricity Industry....................................................... 239
Background Report on Regulatory Reform in the Telecommunications Industry..................................... 283
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© OECD 2000
Part I
OECD REVIEW
OF REGULATORY REFORM
IN KOREA