1

On-Site Issue Identification (April~June)On-Site Issue Identification (April~June)

11 Regions

Metropolitan City Roundtables(Busan, Gwangju & Ulsan)

- Participants asked for relaxation of metropolitan city regulations (location, environment issues, etc.)

Local City Roundtables (Gumi, Iksan, Andong, Jinju, Hanam & Gwangju)

- Participants asked for alleviation of local companies’ difficulties (construction, employment, etc.)

Seoul City’s District Chamber Roundtables(Guro, Seocho & Gangnam)

- Participants asked for improvement in small shop owners’ difficulties (employee support, taxation, illegal parking control, etc.)

Relaxation of Rules on Factory Interior Landscaping Space

Relaxation of Noise Exhaust Standard for Factories in Industrial Complexes

Easing of Illegal Parking Control in Main Roads

Allowing of Factory Expansion within the

Nature Conservation Zone ASAP

Gwangju Jinju

Busan

Ulsan

Gumi

Andong

Seocho-Gu

Gangnam-Gu

Guro-Gu

Expansion of the Nursery Facility within

the Digital Industrial Complex

Relaxation of Corporate Regulations

within the Nature Conservation Zone

Hanam, Gwangju

Iksan

Easing of Difficulties Related to the NewDigital Tax Invoice

System

Allowing of Public Park Planned Sites to be Developed as Factory Sites

Adjustment in the VAT Payment Schedule

Inclusion of Haepyung Agri-Industrial Complex in the National Industrial Complex Classification

Elimination of Entry Barriers for Local Construction Co.s

2

1. On-Site Issue Identification (April~June)1. On-Site Issue Identification (April~June)

EconomicOrganizations

Individual Companies

Collection of issues raised by major economic organizations- KCCI, KITA, SMBA, & KEF

Identification of issues for individual companies- Issues related to relocation of construction structures within the Development

Restriction Areas, etc.

Industries

(22 Times)

Relaxation of location control on renewable energy facilities(wind farms, solar power generation, etc)

Relaxation of cross-over control for common carriers

Improvement of unreasonable practices in public informatization projects

Allowing of cross-linked products between tourism and medical industries

Introduction of mark-up refund for LPG use in the manufacturing sector

Expanded scope of tax benefits regarding automobiles purchased for testing or research purposes

Maintenance of discount rate for Wastewater Reclamation and Reusing System (display business); Improvement in business classification of the seller’s tax invoice system (Exhibition business), relaxation of entry regulations for recycling urban mining companies (non-ferrous metals), etc.

Renewable Energy

ICT

IT services

Tourism & Hospitality

Petrochemicals

Automobiles

Others

Improvements were made in 72 out of 85 cases that completed ministerial-level review (pass rate is 84.7%)

Improvements were made in 72 out of 85 cases that completed ministerial-level review (pass rate is 84.7%)

Location EnvironmentHousing

Construction Tax &

Accounting SME

Industry Issues

Local Issues

17 7 11 7 12 13 5

3

Outcome - On-site Improvement ActivitiesOutcome - On-site Improvement Activities

ㅊ

85 Cases

ReviewCompleted

Total No. of Recommendations : 388 Cases

Review Completed

(at the Govt. Ministerial Level) : 85 Cases

4

LocationLocation

EnvironmentEnvironment

HousingConstruction

HousingConstruction

17 Cases

improved

on-siteissues

19 Cases

Improvements were made on excessive approval & licensing standard and procedures

Resolution of facility expansion-related difficulties within the Nature Conservation Zone

Improvements - On-Site Corporate Issues Improvements - On-Site Corporate Issues

Mindset change in how a pro-environment business is defined

Resolution of issues related to pollutant emission control

Improvement in the construction sites regulations(to reflect the actual situation)

Creation of conflict management mechanism in the housing construction business

7 Cases

improved

on-siteissues

7 Cases

11 Cases

improved

on-siteissues

13 Cases

5

Tax &Accounting

Tax &Accounting

SMESME

Industry Issues

Industry Issues

Local IssuesLocal Issues

Improvements - On-Site Corporate Issues Improvements - On-Site Corporate Issues

Improvement in administrative procedures to reflect special characteristics of respective businesses

Introduction of measures to supplement the new global accounting system

Clearing of SMEs’ difficulties in participating at public procurement bids

Rationalization of the SME support system

Relaxation of regulations on fueling station business & crude oil unloading

System support provided to software and ICT industries

Improvement in business climate (infrastructure expansion, etc.)

Reasonable adjustment in the surcharge system

7 Casesimproved

on-siteissues

10 Cases

12 Casesimproved

on-siteissues

14 Cases

13 Casesimproved

on-siteissues

16 Cases

5 Casesimproved

on-siteissues

6 Cases

6

Expansion of Existing Construction Structures in the Nature Conservation Zone

Relaxed Regulations - Location Control, Approval & Licensing, etc.Relaxed Regulations - Location Control, Approval & Licensing, etc.

Before

Factory & training institute expansion in the Nature Conservation Zones within the Seoul metropolitan area is restricted.

- Factory: Expansion is only allowed to advanced industries and urban factories (within 1,000 3,000 m∼ 2)

- Training Institute: Expansion is allowed and limited to 10% to facilities constructed before April 1994

Example

Regulation fails to accommodate changes in the business climate

Factory A

In order to comply with the new GMP standard by 2012, Factory A needs to expand its facility from 70,000 to 77,000 m2.

Training Institute B

Established in 1997, the institute is facing serious competitiveness issues as it is unable to keep up with new changes by expanding its facility.

After

Expansion ceiling will be increased for existing factories

Revision of the Enforcement Decree of the Industrial Cluster Act (MKE, 2H 2010)

More training institutes will be allowed to expand facilities.

- Institutes established after April 1994 will also be included.

Revision of the Enforcement Decree of the Seoul Metropolitan Area Readjustment Planning Act (MLTM, 2H 2010)

7

Improved Procedures and Standards for Permit on Exclusive Use of Inter-Mountain Area

1. Relaxed Regulations - Location and Approval & Licensing 1. Relaxed Regulations - Location and Approval & Licensing

After

Review time for permit on exclusive use of inter-mountain area will be specified to be within 30 days after application.

Revision of the Enforcement Decree of the Management of Mountainous Districts Act (KFS, 2H 2010)

Guideline will be made to define the transport means for transmission tower materials.

Revision of the Enforcement Decree of the Management of Mountainous Districts Act (KFS, 2H 2010)

Before

In order to install a transmission tower for exclusive use in the inter-mountain area, one needs to obtain a permit from the head of Korea Forest Service(following an on-site inspection and review).

Projects often suffer delays as there is no time limit to the above-mentioned process.

15 out of 28 KEPCO projects since 2009 were delayed for more than 3 months to obtain the KFS permit

Example

Transportation cost to install a transmission tower is ￦ 128 million (helicopter transport) vs. ￦ 19 million (road transport)

Actual Cost

When a transmission tower is installed, the govt. official in charge makes an arbitrary decision on material delivery means as there is no guideline.

Sometimes, use of a helicopter is required even when there is an access road, thus increasing cost burden for developers.

Cableway HelicopterAccess Road

Transportation Means

8

1. Relaxed Regulations - Location and Approval & Licensing1. Relaxed Regulations - Location and Approval & Licensing

Reduced Scope for permit on exclusive use of inter-mountain area

Reduced scope for zone planning obligation and expanded size of allotted volume

Changes in the approval authority for land appropriation & use

Expanded approval & licensing scope for electric source development projects

Provided that the permit on exclusive use of inter-mountain area space is confined to less than 30,000 m2, the allowed space includes restored space after temporary use as construction access road, etc.

Recovered space after temporary use will not be a part of the permitted space under the exclusive use of inter-mountain area (2H 2010)

When a development project exceeds a certain size, the developer is required to establish zone planning in order to secure enough space for roads, etc. Zone planning can be adjusted within 30% limit under the basic urban plan at the city and district levels. Developers will be exempted of zone planning requirements when a large-size single factory has infrastructure facility in it. Adjustment of allotted volume under the city and district basic urban plan will be increased. (e.g. to 50%, 1H 2010)

When land needs to be appropriated and used for electric projects, authorization is made by either the central or local land appropriation committees depending on the project size. (Local autonomous governments may delay the approval process)By contrast, public water and road projects are approved at the central committee, irrespective of their project size. Land appropriation approval will be made at the central committee level (Dec. 2010)

When an electric source development project plan (including power generation facility construction) is approved, it does not include a public waters reclamation plan or a port master plan (both new and revised). Thus, construction runs a delay risk as they need to be approved at another time.

Agenda items for resolution will include new and revised public waters reclamation plan and port master plans( (Mar. 2011)

9

Measures to Improve Air Pollutant Emissions Control

Rationalization - Environment ControlRationalization - Environment Control

Before

Currently, air pollutant emissions standard is set by the type of air pollutants and emission facilities.

Biogas power generation facility is an economically feasible option as it reduces GHG emissions by utilizing landfill gas(LFG), but it needs to follow the same emission standard imposed to a fossil fuel-based energy development facility.

Example

Gimpo Metropolitan Landfill operates a biogas power generation.

Prevention facility for air pollutant emission is costly (equivalent to 10% of the total construction cost)

- When the facility exceeds the emission ceiling, it needs to pay an emissions charge.

After

Emissions standard will be improved to reflect varying conditions of the facilities. (MOE, 2H 2010)

- A different emissions standard will be applied to green energy generation facilities.

Biogas Power Generation Facility at the Gimpo Metropolitan Landfill

10

2. Rationalization - Environment Control2. Rationalization - Environment Control

New Incentives for Installation of HAPs Reduction Facility

Biogas Promotion Measures

Improvements in the Classification and Support Criteria

Pilot projects are underway in the petrochemical industry to reduce emission of HAPs (Emission control at the chimney-level →Facility-level control, to include chimneys, valves and pumps as emission points)

Participating companies pay for installation of the emission reduction facility.Companies will be provided with support for installed reduction facilities, such as tax exemption, etc. (Feb. 2011)

As a facilitation measure, bus operators are provided with subsidies for new purchase of CNG buses (bus purchase support, fuel subsidy, etc).

Although biogas-based business is also pro-environment in its nature, no support is given at the equivalent level

Biogas promotion measure will be established (Oct. 2011)

Fertilizer manufacturing process standard will re-classify by-product fertilizers from green compost to livestock compost and set different layers for support.

The new standard may discourage use of food wastes or animals & plants residues as a source of compost, restrict consumer choice and deteriorate the overall compost quality

Classification and support criteria for by-product fertilizers will be reviewed again (June 2011)

11

Calculation of Public Construction Cost to be Updated

Burden Alleviation - Housing & ConstructionBurden Alleviation - Housing & Construction

AfterBefore

[ Indirect Cost ] When delays are incurred by the government in public construction contracts (budget allocation, etc.) the developer’s indirect cost is not adequately compensated for losses because of the absence of payment guideline at the government side.

Non-payment of indirect cost occurs frequently

QA cost: 1% of the total construction cost

Reflected QA cost: 0.2% of the total construction cost

comparison

Payment standard will be made for indirect cost incurred by extension in the construction period.

Revision of contract execution standard for gov't bids (MOSF, Dec. 2010)

QC Cost will include labor cost of quality managers

Revision of Enforcement Regulations of the Construction Technology Management Act Enforcement Regulations (MLTM, July 2010)

[ Quality Assurance Cost ] When construction cost is calculated, QA cost includes testing and education costs but not labor cost of quality mangers involved.

Construction cost is often underestimated.

12

3. Burden Alleviation - Housing & Construction3. Burden Alleviation - Housing & Construction

Reduction in Response Period for Application of Urban Dev. Zone Designation

Reduction in Inspector Designation period for Housing Construction Projects

Extension of Tax Break Period of Unsold House Units Outside Seoul

Relaxation of Installation Depth for Underground Wiring Pipes

Development of Defect Classification for Multi-Residential Houses

Establishment of Conclusion Defect Repair Obligation for Multi-Residential House

When a developer submits an application for designation of an Urban Development Zone, the person in charge (mayor, etc.) has to respond within 3 months.

Response period will be reduced (from less than 90 to 60 days) (Dec 2010)

The mayors or governors in charge have to display and/or notice an application for construction inspector designation (for more than 5 days) and confirm and/or notice the receipt of an administrative appeal (no timeline given) Display and/or notice period will be reduced. Timeline for confirmation of the receipt of application will be specified (July 2010)

Temporary tax break period for unsold housing units outside Seoul will expire (planned). Temporary tax break period for transfer, acquisition, and registration will be extended (to April 30, 2011)

When an electric pipeline is installed in public roads, it needs to be at least 1.2 mbelow the ground level.

The minimum installation depth will be reduced (June 2011) * The requirement is 0.9m in the U.S., 0.6 m in the U.K. and 0.9m in Japan, respectively.

A manual which includes defect classification criteria will be developed (Dec. 2010).

There is no classification to determine the size of crack recognized as a defect that needs repair.

Legal grounds will be established (Advance notice of proposed rulemaking was made on April 14, 2010)

Agreement between constructor and housing unit owner on conclusion of defect repair obligation has a questionable effect, as there are no legal grounds

After

Incheon factory

Ulsan factory

Tax exemption to be provided when petroleum product is carried out of the Incheon site for sales

Tax exemption to be provided when petroleum product is carried out of the Incheon site for sales

Oil MixOil Mix

Tax is imposed when petroleum is carried out of the Ulsan site

Tax is imposed when petroleum is carried out of the Ulsan site

Time Consumed – Approx. 2 MonthsTime Consumed – Approx. 2 Months

13

Measures to improve special consumption tax obligation for transfer of petroleum within different sites of the same company

Improvement measures will be sought on imposition of special consumption tax for transfer of petroleum within different operation sites of the same company. (MOSF, Aug. 2010)

Improvement - Tax & Accounting SystemImprovement - Tax & Accounting System

Before

Special consumption tax is imposed when taxable good is transferred out of a business operation site.

- Special consumption tax needs to be prepaid even when petroleum of a factory is transferred to another factory operated by the same company.

Prepayment obligation incurs financial cost, thus discouraging petroleum transfer and subsequent utilization of petroleum for optimized use.

Example

Company S operates refineries in Ulsan and Incheon.

Existing legal restrictions discourage transfer of petroleum between the two refineries.

- Interest expense is incurred by prepayment of special consumption tax.

- In order to get credit for prepaid tax, the two factories need to present evidence for transferred volume at the mixing tank level.

14

4. Improvement - Tax & Accounting System4. Improvement - Tax & Accounting System

Provision of a Clear Definition in the K-GAAP (in Consideration of the Int’l Accounting Standards)

Filing of the Corporate Income Tax Return at the Headquarter Office Level

Simplified Application Documents for Refund of Transportation Energy Environment Tax Related to Use of Petroleum Goods

Increased Tax Exemption on Automobiles Purchased for Testing and Research

Current tax code recognizes financial statements based on K-GAAP when tax returns are made by corporations. The early introduction of the international accounting standard requires companies to compile financial statements based on K-GAAP as well as the international standard for filing of 2010 tax returns.

Tax Code will be revised to minimize corporate burdens (Nov. 2010)

A company that has business operation sites in many parts of Korea needs to file income tax return of each site separately to the respective local government.

A combined tax return report will be submitted to the local government where the headquarter office is based in. Tax revenue will be split afterwards between the local governments. (Sep. 2010)

When petroleum is sold to an outward-bounding vessel, the seller needs to make copy of and submit to the government all relevant refund certificates to get a refund of prepaid transportation energy environment tax.

Documentation burden will be reduced by joint pooling of administrative information at the government level. (Dec 2010)

Improvement will be made to reduce burden of companies without a research subsidiary. (Nov. 2011)

Special consumption tax is exempted when the research subsidiary uses automobiles made by the parent company for testing and research purposes. When the company has no research subsidiary, it needs to pay special consumption tax for research projects outsourced to an outside research institute.

15

Resolution of SME Difficulties in Public Procurement Bids

SME Support SME Support

Before

[Self-Production Verification for Competing SMEs in Awarding Bid Contracts]

- A public entity needs to confirm self-production capability of an SME before awarding a competing bid contract

- For example, verification of production facility for a gate valve product for piped water includes ‘power painting equipment,’ which is not part of a core process for the product.

SMEs suffer from excessive burden.

After

Powder painting equipment will be taken out of the self-production facility list

Verification standard for self-production of competing SMEs will be amended. (SMBA, Aug. 2010)

* Powder painting equipment is used to spray synthetic resin powder for coating purpose.

[Pre-Qualification Review for Construction Projects]

- One of the criteria for pre-qualification review grants full points to public sector-experienced construction companies (in the range of 120% to 200%, applicable for the same year of bid participation)

Inexperienced SME constructors have less chance of winning the bid.

PPS amended its pre-qualification evaluation standard for construction bidders. (PPS, measure was taken on June 7th, 2010)

Full point standard will be relaxed for experience evaluation criteria.

- Bidders will be given full points for construction experience of the same year within the range of 100% to 150%.

16

5. SME Support 5. SME Support

Relaxed Rules on Subsidy Provision for New Employment on Headcount-Keeping Target

Increased Support for SME’s Design Technology Development

Before receiving a government subsidy for new employment, the recipient company has to set a headcount-keep period (3 months before to 12 months after new employment) in order to prevent worker replacement.

If the company makes even one employee leave the company during the designated period, then the whole amount has to be paid back to the government.

If new employee is asked to leave the company during the designated period, irrespective of the subsidy amount, then the company will not be obligated to return the subsidy amount (2H 2010)

Marketing activities are difficult for smaller SMEs, as they have insufficient investment resources for design & technology developments.

MKE included design development & consulting cost in its technology innovation support fund in support of SMEs (The measure was taken on April 1, 2010). The ministry will also seek to expand its budget for design & technology development projects (2H 2010).

AfterBefore

Drive-In RestaurantsFireproof Wall of a Fueling Station

17

[Petroleum] Fueling Station Operation

Clearing – Industry IssuesClearing – Industry Issues

When a fueling station operator wants to use fireproof glass products, the total length of glass used should not exceed 10% of the fireproof wall as required by law.

Improvement in drivers visual disturbance and aesthetic effect is thus limited by this regulation.

Drive-in restaurants are not allowed in the fueling station site.

The ability of fueling stations to provide convenient service to incoming drivers is thus limited.

Allowed in the U.S. and EuropeOverseas Countries

Technical review and safety verification will be carried out before the use of more fireproof glass is allowed.

The Enforcement Regulation of the Safety Control of Dangerous Substances Act will be amended. (MEMA, Dec 2010)

Drive-in restaurants will be allowed

Operation Guideline for supplementary use of fueling station space will be revised.(MEMA, July 2010)

18

6. Clearing – Industry Issues6. Clearing – Industry Issues

Allowing of Emergency Tug Business (Tailing) to More Vessels

Allowing of In-House ICT Project Design

Abolition of Government Standard on S/W Project Fee Structure

Improvement in Public Sector S/W Project Proposal Guideline

Tug business is only allowed to registered companies. Tailing, which is one of tug business activities and mainly involves unloading of crude oil products, can be carried out by ordinary vessels. However, use of the ordinary vessel service is impossible when tug operators are on strike. In emergency situation incurred by general strike of tug operators, tailing business will be allowed for ordinary vessel operators. (July 2010)

KEPCO’s 6 subsidiaries (including KOMIPO) are obligated to outsource ICT construction design, although they have in-house capabilities. Outsourcing fee is a burden on the part of these subsidiaries.

KEPCO subsidiaries will be allowed to design their own ICT projects. (1H 2011)

MKE announces the government standard on payment of fees for public-sector software projects. The standard neither keeps up with industry and technological updates nor presents a reasonable payment structure.

The government standard will be abolished (before 2012) to encourage fee structure established at the private level.

RFP of public sector S/W projects are often unclear, and thus contract-awarded companies suffer from frequent changes in government instruction.

RFP guideline will be improved to use more clear and specific descriptions. (Guideline will be made before Dec 2010)

Petrol-eum

Petrol-eum

ICTICT

ICTICT

ICTICT

19

[Euijeongbu] Construction Allowed Near A Cultural Heritage Asset

Before

Euijeongbu LRT Line

Euijeongbu LRT Line

No Appearance Change

Clearing - Local Issues Clearing - Local Issues

After

Construction control will be eased to allow factory expansion around the Jeongmunbu General's Graveyard area.

Ordinance for Allowing of Appearance Change around the Jeongmunbu General's Graveyard will be announced (Euijeongbu-City, Gyunggi-Do, 2H 2010)

Overview of the Yonghyun Ind. Complex & Jeongmunbu General's Graveyard

A cultural asset (Jeongmunbu General's Graveyard) is located at the center of the Yonghyun Industrial Complex. Factories within a 300m range from the graveyard are not allowed to expand.

Gyunggi-Do ordinance was amended (2002) to impose building height & level restriction after the designation of this region as an industrial complex.

* 90% out of total industrial complex (346,000 m2) is restricted by the ordinance.

Construction Standardfor Yonghyun Complex

Subject to Cultural Asset Committee Review

Less than 2 Levels and 8m in Height

Less than 4 Levels and 14m in Height

Less than 5 Levels and 17m in Height

20

7. Clearing - Local Issues7. Clearing - Local Issues

HwasungHwasung

PajuPaju

Namyangju

Namyangju

Namyangju

Namyangju

Support for Expansion of Existing Research Centers Located in the New Town Area

Reassessment of Existing Facility Surcharge

Readjustment of Surcharge for Piped Water Installers

Improvement of SOC for factory-concentrated sites

New Town sites will be sold by lottery, which will make it difficult for research institutes already located in the area to secure land for expansion in a nearby location.

The government will provide assist efforts of the existing research centers to secure expansion sites in a nearby location (2H 2010)

According to the 2007 gov't announcement on existing facility surcharge, Korea Housing Corporation’s rate was double the rate of Korea Land Corporation. Afterwards, the surcharge calculation standards have been changed to be the same.

A special measure will be sought to eliminate the difference in the surcharge rates already imposed by the Korea Housing Corporation. (July 2010)

Some of the factories located in Namyangju are classified as other construction structures, thus being subjected to an excessive surcharge burden when piped water is installed in the site.

Surcharge imposition of piped water installers will be based on “factory standard” as opposed to “other construction structure standard.” (Effective Immediately)

Some 70 factories located in Jinbeol-Ri of Namyangju (200,000 m2) are in need of better infrastructure including access roads and sewage system.

Masterplan for Improvement Works of Sewer System will be amended (Sep. 2010) and access roads will be expanded (Dec. 2010).

21

Strengthened Efforts to Identify Corporate IssuesStrengthened Efforts to Identify Corporate Issues

Close Monitoring of ImplementationClose Monitoring of Implementation

Local On-Site Roundtables : Continued on-site visits will be made to check negative factors for regional development and local business growth.

- Yongin, Daegu, Jeju and Masan will be visited between June and July 2010.

Seoul Small Business Roundtables : Regulation related to livelihood issues of small shop owners and companies will be identified

- Active involvement of Seoul District Chambers will be encouraged. (Meetings will be held in Yongsan and Jungryang districts in June 2010)

Cooperation among Economic Organizations : Cooperative mechanism will be strengthened for effective identification of recommendation issues and monitoring of implemented measures.

Industry Roundtables : Industry-specific issues in retail, logistics and engineering will be identified (by cooperating with relevant industry associations).

Issues Reported to the Council for National Competitiveness : Monthly implementation status will be monitored and follow-up actions will be reported.

Other Issues : Monitoring will take place every half-year.