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Korean regulations stifle innovation: report

Sept 13,2017
In 2013, Google set up a biotech company called Calico with the goal of combating diseases associated with aging and expanding life expectancy to 150. Ever since, it has been collecting and analyzing DNA from more than a million people, and its parent company, Alphabet, has embarked on similar ventures to bring medical care to remote areas using mobile apps.

But if Alphabet tried to pursue the same businesses in Korea, it would face considerable obstacles in the form of byzantine government regulations, according to a recent report by the Korea Economic Research Institute, a private think tank that supports free markets and free enterprise.

For one, Calico’s collection of DNA would violate Korea’s bioethics and privacy laws, and apps for remote medical care would be hampered by the country’s laws banning remote consultations, the report said.

The institute noted that another ambitious undertaking by Alphabet, dubbed Project Loon, in which the company hopes to provide internet service to remote corners of the world through a network of balloons, would be subject to Korea’s aircraft safety protection act that mandates the company pass rigorous inspections like pilot certification and proof of safety.

Project Wing, where the tech giant is developing a drone-based delivery system, would fall under laws that require drones heavier than 12 kilograms (26 pounds) to be registered with regional aviation authorities. A drone weighing more than 25 kilograms will have to be certified by the national Korea Transportation Safety Authority. Current regulations also prohibit night-time drone flights.

Waymo, the company’s self-driving car initiative, is another project that would be affected by Korean regulations, the report said, though the government has recently taken steps to ease legal requirements for autonomous vehicles.

Current laws require vehicle hardware to be approved by the Ministry of Trade, Industry and Energy, and software needs to be certified by the Ministry of Science and ICT. The National Police Agency has to approve test drives, and the Ministry of Land, Infrastructure and Transport needs to certify roads to operate such vehicles. This dispersal of regulatory approval will inevitably burden entrepreneurs who have to report to several different ministries, the report said.

The country’s complex web of regulations is hindering the emergence of new innovative technology and undermining Korea’s industry competitiveness at a time when other nations are rushing to create new IT-related industries, industry observers argue.

“It is not uncommon in Korea for new business ideas or a business itself to be prematurely branded illegal by authorities [because there are no laws governing it],” said Kwon Tae-shin, a director at the research institute. “To encourage and expand entrepreneurship both in quantity and quality in the country, we need to improve business regulations.”

Last year, the World Economic Forum ranked Korea’s regulatory burden 105th out of 138 surveyed countries, a drop from 98 in 2009 study.

On the other hand, the United Kingdom, which carried out extensive regulatory reforms in the wake of the 2008 financial crisis, climbed to 25 last year, a leap from 86th in 2009. The United States was ranked 29th and Japan 54th, far ahead of Korea.

Excessive regulatory burdens affect businesses beyond Google, the report said. Ride-hailing service Uber found its business model at odds with local laws on taxi services, and peer-to-peer rental platform Airbnb has been subject to Korea’s public health control law.

A July report titled “Startup Korea” conducted by McKinsey and commissioned by Google Campus Seoul and the Asan Nanum Foundation found that 13 of the world’s top 100 start-ups would not even able to launch their businesses in Korea because of legal incompatibility, while 44 of them would have to revise their business models to meet regulatory requirements.

Only 43 of the 100 companies would be able to operate in Korea with their business models intact, according to the report.

“We need to completely revise the current regulatory system to one that allows all technologies except for those outright banned by laws,” said Lee Kyoung-jun, a professor at Kyung Hee University’s School of Management.


BY SOHN HAE-YONG, KANG JIN-KYU [kang.jinkyu@joongang.co.kr]