Regulatory reforms: Korean experience

A view of the skyline in Seoul. South Korea has recently pulled through an economic storm that began in late 1997.

Republic of Korea, once known to be one of the world's poorest agro-based societies like us, has undertaken economic development in earnest since 1962.

In less than four decades, it achieved what has become known as the “Miracle on the Hangang (river)”- an incredible process that dramatically transformed the otherwise divided economy while marking a turning point in Korea's history.

South Korea recently pulled through an economic storm that began in late 1997. This crisis, which roiled markets all across Asia, has threatened Korea's remarkable economic achievements.

The Korean government's strong resolve for reform and successful negotiation of foreign debt restructuring with creditor-banks led to resumption of economic growth.

With introduction of reforms, the number of regulations in South Korea fell from 10,554 in 1998 to 7,812 in 2003, to 5,112 in 2007.

The cost of establishing and operating business has fallen drastically due to fewer administrative regulations. Simplified regulations have decreased the time and number of tasks necessary to establish a business by 40 percent and reduced administrative costs tenfold.

It was stated by Dr Gil Hong-Geun, director general at Prime Minister's Office of Korea, on January 7 this year to the Bangladesh Regulatory Reform Core Group that comprised of mid-level officials from different ministries, including Bangladesh Bank and Chamber representatives.

Strong support from the political circle, business and the public, well designed institutional setting and clear quantitative targets with whole of government approach are, among others, the success factors for the regulatory reforms in Korea, Gil pointed out.

The Bangladesh team visited Korea Regulatory Reform Office, Prime Minister's Office, Anti-corruption and Civil Rights Commission, Korea Customs Service, Korea Post, Hanjin (Shipping Service), Seoul Transport Operation and Operation Service offices to see reform process there.

The Bangladesh team was informed that in the backdrop of 1997 financial crisis leading to severe recession in 1998 with output falling by 7 percent, Korea initiated the regulatory reforms. The country constituted the Regulatory Reforms Committee (RRC) through enactment of law.

The Korea RRC sets the general direction of the regulatory reform and coordinates the overall regulatory reform activities. It controls the duplications of regulations and inconsistencies of policies between ministries by reviewing all draft regulations.

In Korea, a ministry has to make request to the RRC for regulatory review of a proposal for regulation with the opinion of stakeholders, Regulatory Impact Assessment (RIA) and self-review results. Citizens and NGOs can submit their comments. RRC also invites stakeholders during the review process. Decisions made by RRC have been decisive (binding for all). After having cleared by RRC, the proposal is, then, subject to review by Cabinet Council and National Assembly, where necessary. RRC is not, however, involved in minor issues. Even RIA is not required for all cases.

The RRC makes public the bills it reviews, the review results and other regulatory process through the homepage. Also it is compulsory to make public a white paper on the status of regulatory reform every year. The current laws and policies of each ministry can be found at the Ministry of Government Legislation homepage (http://www.moleg.go.kr) or the respective ministry homepage. Also, each ministry has to register with RRC the name, details, legal basis and processing body regarding the regulation of its responsibility.

RIA, introduced in Korea in 1998 by enactment of law, enables the public officials in charge of designing regulations to take informed decisions on how to make regulations viable, sound and effective.

Assessment areas and factors for RIA include: overview of regulation in question, identifying regulated entities and stakeholders, lifetime of regulation, short description of both the existing regulation being reviewed and the new regulation being developed and regulation mapping, i.e., the mapping of relationship between the regulatory proposal in question and the existing regulations relating to it, cost-benefit-analysis of alternatives to the regulation in question. The ministry concerned must gather public opinions during the stipulated 20-day notice and comment period and report the results of its review to those who provided inputs on the relevant regulatory proposals.

After having reduced the number of regulations to a substantial level, the recent goal of the Korean government for the regulatory reform is achieving regulatory quality and national competitiveness at the level of advanced countries, said Prof Chin Seung Chung of Korea Development Institute. He said after successful early stage Quantitative Approach, they are now moving to Qualitative Approach. It is a shift from regulator-oriented regulation to user-oriented regulation and shift from government-only effort to joint government-private effort.

The Korea RRC has conducted surveys every year to hear the public and experts' opinions on the regulatory reform. The results of survey have been used as feedbacks in setting future policy directions every year. The results over the last three years have shown consistency, most of the respondents expressed positive, but not satisfactory views on the government's strong commitment to reform.

Media are also very vigilant. In a recent review, The Korea Herald wrote: regulations often lack clear standards, procedures and outcomes, and there is too much discretion given during their execution. They often have ambiguous standards and complex procedures, which leads to unreliable outcomes. Many regulations are unrealistic. They are difficult to execute and create an environment in which they end up either being absent or failing to serve their original purpose.

Prof Chin Seung Chung, a former vice-minister, stressed the need for regulatory transparency. He said government officials want to retain regulations to enjoy more power. Prof Chin criticised the involvement of the bureaucrats in the key events of reform process. He even questioned why the RRO is in Prime Minister's office.

Now let us look back to the regulatory reform process in our country. Reform is a continued process. It was initiated earlier in the banking sector. It is a success story. There are also reforms in other sectors. Though there exists Law Commission etc in our country, the immediate past caretaker government actually made ignition by constituting the Regulatory Reforms Commission (RRC) headed by Dr Akbar Ali Khan. The 17-member RRC was formed by a notification, not by an ordinance. Five of all part-time members are from private sector. It is presently a recommending body.

There are two things we need to address immediately. One is to introduce RIA process for new rule/regulation at the ministry/agency level. Another is to give RRC an institutional and permanent shape, preferably through enactment of law. All the country's primary and secondary laws, including the proposed one, should be required to be cleared by the RRC, whatever name we shall call the body. This will definitely improve governance standard in our country. With better international credibility and improved regulatory consistency and predictability, we can become one of the most attractive investment hubs in Asia.

The writer is a member of the Regulatory Reform Core Group representing Bangladesh Bank.