Oct. 26, 2010

1. For a Fair Society Citizen-friendly Licensing System Based on Permission in Principle - For an advanced licensing system- Oct. 26, 2010 Ministry of Government Legislation 20 Ministries including MOPAS Presidential Council on National Competitiveness

2. Contents Ⅰ. Background Ⅱ. Results and constraints of reform Ⅲ. Basic principles and tasks for licensing system reform 1. Basic principles 2. Permission in Principle/Exceptional Prohibition 3. Reasonable and transparent licensing standards 4. Faster and simplified licensing procedures Ⅳ. Improvement of licensing commissions operations Ⅴ. Expected outcomes and future plans

3. Ⅰ. Background Advanced Nation Fair society Enhanced standing Carry out a fundamental and all-out reform of excessive/unreasonable licensing regulations At G20 Summit, promote Korea as one of the most favored countries for business • Ranked poorly in the “Inward FDI Performance Index”(130th of 141 countries)[UN World Investment Report] • Proactive revamping of the licensing system • Shift in how businesses and foreigners • view investment climate in Korea • 50.2% of all industries regulated ex-ante • 99% of licensingsubject to prohibition in principle/exceptional permission, hampering freedom and creativity • Licensing commissionslacking impartiality and transparency •  Need for advancedlicensing system and licensing commissions More foreign investment Self-regulation , fair opportunity, and new jobs 1

4. Ⅱ. Results and constraints of reform 2 1 Results Constraints Deregulation drive continues based on practicality Effects of deregulation felt by the public small due to remaining bulk regulations • Overcame financial crisisand realized sustained economic growth • ※ Positive economic growth rate for four consecutive quarters • Achieved higher level of satisfaction among businesses • ※ Big jump from 9.1% (2004) to 39.1% (2010) • Expanded sunset regulationsand resolved business grievances jointly with private sector • ※ Sunset provision applied to 1,602 of 6,876 registration regulations • 1,119 of 1,843 regulations improved • Licensing practices of prohibition in principle and exceptional permission unfit for rapidly changing society • Unnecessary licensing restrictions raising social costs • ※ 46% of regulations are strong ex ante restrictions for market entry • Excessiverestrictions in the service industryhampering creation of new jobs • ※ 58% of businessmen say licensing standards are unrealistic (2010. KORCHAM) 2

5. Ⅲ. Basic principles for licensing system reform 1. Move towards permission in principle ▣ From prohibition in principle/exceptional permission to permission in principle/exceptional prohibition, minimize regulations ▣ Unnecessary restrictions Abolishor replace with reporting/registration Less burden & Fair opportunity Self-regulation & Creativity Enhanced Public trust ▣Totally revamp unrealistic licensing standards ▣Establish fast and simple procedures by offering timelines 2. Align standards and procedures with market needs 3. Improve operations of licensing commissions ▣Enhance impartiality andtransparency in operations ▣Establish ground rules for ethical practice by commission members 3

6. Change to Permission in principle/Exceptional prohibition Ⅲ . Change to Permission in principle/Exceptional prohibition Status and problems • 99% of licensing regulations subject to prohibition in principle/exceptional permission (positive system) • Resulting in rigid, government official-centered regulations that only permit what’s on the list • 70% of businessmen in favor of negative system (60% of administrative agencies in favor of positive system) • Significantlyreduce discretion by administrative agencies • Guarantee full fundamental rights of the people • Respond quickly to rapid technological and social changes • Maximize creativityand • self-regulation in the market Proposal: Shift towards citizen-friendly regulations • Change to Permission in Principle/Exceptional Prohibition (negative system) • - Over 50% of legislation applicable (200 cases)for redesign by end of 2011 • Implement according to action plan detailing method, procedures, compliance check system, etcunder negative system • ※ Prohibited itemsto be included when necessary ; careful review to be given to the food, health care, security sectors Why negative? 4

7. Change to Permission in principle/Exceptional prohibition Ⅲ . Change to Permission in Principle/Exceptional Prohibition Sectors subject to rapid change where quick adaption to such change is critical Sectors marked by high competition and self-regulationwhere government discretion should be kept at minimum 왜 네거티브인가? Application of negative system Priority: Increase self-regulation in raising donation <Positive> <Negative> Prohibition in principle Developing a Culture of Sharing Permission in principle Only 3 prohibited Only 10 permitted • President honoring promise to the people by adopting negative system • Promote job creation and employment, secure public trust on public administration Expected effects 5

8. Key examples Change to Permission in principle/Exceptional prohibition Provide that authorization for private-run wholesale markets and for land transactions be granted by law Authorization decisions unclear even though all requirements are met • Too much discretion exercised when authorizing permission Now • List prohibited itemsonlyand ensure that authorizations be grantedby law • - 10 cases including authorization for technology trust management business, grassland creation, shipping vessel repair After Expected effects Stronger business base for small- and medium-sized merchants by promoting new private-run wholesale markets Protect expectations of authorization by allowing for freedom of property rights and land transactions 6 6

9. Change to Permission in principle/Exceptional prohibition Ⅲ. Abolish unreasonable licensing regulations • Multiple authorizations required for single business • operations, uniform authorization governing research activities • Hampers continuity of business operations and securing • creative generic technology Status and problems Standards and applications 7

10. Key examples Change to Permission in principle/Exceptional prohibition Type approval of R&D construction machinery to be abolished 2 1 Repetitive gauge approval to be abolished Gauge type approval required periodically every 10 years Type approval required for production of R&D construction machinery Development of original technology hampered Now Now Unnecessary costs incurred Abolish Type approval for R&D contruction machinery Abolish periodic type approval After After Expected effects Expected effects • Increased new technology development in construction machinery • Annual economic savings of a billion won achieved 8

11. Change to Permission in principle/Exceptional prohibition Ⅲ. Replace excessive requirements with reporting or registration • Excessive entry restrictions remain, permits are required for • minor changes • Hampering business start-ups and job creation and incurring • licensing costs and waste of administrative resources Status and problems Standards and applications 9

12. Key examples Change to Permission in principle/Exceptional prohibition Authorization to establish Logistics Terminal Business Association to be replaced with registration Authorization for trade name change or other minor changes to be replaced with reporting 1 2 Authorization required for trade names and other minor changes Authorization is required to establish the association Too much inconvenience for businesses Freedom of association restricted Now Now After After Replace with registration Replace with reporting Expected effects Expected effects • Businesses relieved of burden to meet excessive requirements • More benefits as a result of competition among multiple associations 10

13. Ⅲ. Establish reasonable and transparent licensing standards • Market entry blocked for small capital enterprises, standards unclear • and geared to administrative convenience • Limiting opportunities for small and medium entities to start • a new business • ※ 55.6%of SMEs ask for clarification of unclear laws, • 63.5% of businesses use professional licensing service providers Status and problems Standards and applications 11

14. Key examples Establish reasonable and transparent licensing standards Range of services offered by foreign patient agents to be expanded International conference facilities registration standards to be eased 1 2 Conference room with capacity of 600 seats required to register a semi conference facility Foreign patient agents can only connect patients to hospitals Restricted in offering air flight , accommodation , and other relevant services Unrealistic standard hampering activity in the industry Now Now ※ Conference for 600 + is less than 7.5% of total number After After Include air flight and accommodation services in the range of services Realign registration standards with business reality Expected effects Expected effects More business for the medical service industry with more foreign patients • Abolition of the 600-seat requirement to save 1.7 billion won in initial investment cost per investor 12

15. 절차 개선 기준 및 대상 Ⅲ. Set up faster and simplified licensing procedures • No timeline given for license application processing, • no deliberation councils held to discuss approval en bloc • Delayed handling, timely investment opportunities lost, business operations hampered Status and problems Standards and applications 13

16. Key examples Set up faster and simplified licensing procedures Creation of council for en bloc deliberation of approval for traditional market upgrade to be required by law Timeline for school facility building approval to be legally set andautomatic approval to be introduced 1 2 No timeline given for handling approval application Deliberation with 15 agencies needed to grant license Impossible to build in time and unnecessary costs incurred Process lengthened due to discussion with all relevant agencies Now Now After After Agencies to create deliberation council within three days for en bloc approval decision Limit approval period to 20 days, after which approval is granted automatically Expected effects Expected effects • Quick upgrade of traditional market • School building in time and cost savings 14

17. Ⅳ. Improvement of licensing commissions operations Backward practices hampering the development of commissions Deregulation failing to be felt throughout the real economy, and business costs and public inconvenience incurred due to inefficiency  Need to improve operations of licensing commissions so that deregulation can have a substantial effect ※ There are currently 1,075 licensing commissions in operation nationwide. (19 in central government, 1,056 in local governments) Necessity For improvement Problems 1. Unfair selection of members falling short of ethical standards Lack of objectivity in member selection, with no effective solution to prevent conflicts of interest ※ Members with track records of corruption are appointed due to lax screening. 2. Collusion as a result of reappointment for the long term Repeated appointments over an extended period of time enabling certain members to wield excessive power ※ Percentage of reappointed members in local gov’t A: 4years or more 60%, 10 years or more15% 15

18. Ⅳ. Improvement of licensing commissions operations 3. Failure to consistently apply reviewing standards Commission members demanding excessive detail and requesting excessive contributions ※ 49% of surveyed companies responded that commission members demanded excessive amounts of contributions 4. Consulative commissions serving as a decision-making body The commission practically serving as a decision-making body, defeating its original purpose asa consultative and reviewing body ※ This practice is being abused as an excuse for public officials to evade their responsibilities for decisions made or a justification for their action Problems 5. Unreasonabledecision-making process De facto unanimity system enabling minority to abuse authority and unnecessarily extending length of review period ※ 40% of surveyed companies were found to have undergone more than 6 months of review, which incurred substantial financial costs 6. Lack of transparency in operation The results of review meetings are closed to the public, Businesses are deprived of opportunities to submit their opinions or to make formal objections 16

19. Ⅳ. Improvement of licensing commissions operations Major Points 3 Securing fairness and integrity Curbing the abuse of authority 2 Making the operating system transparent 1 • Stipulating review criteria and • time frame •  Setting up clear-cut review criteria • Mandating the stipulation of reviewing time frame and the compliance of the opening date • Providing standards for recusal to avoid conflicts of interest •  Prohibiting commission members from engaging in private contracts (construction, services, etc.) with involved businesses • Achieving transparency in operations of commissions •  Specifying the period for notification of results, • Disclosing the participating • members’ list, minutes and • schedule • Reinforcing the protection of • rights and interests of individuals • concerned •  Setting up systems to submit • opinions or file an appeal • Adopting majority system and • establishing regulations for terms • of service •  Accepting the majority decision • and establishing the ground to • prevent members from serving • overly extended periods of time • Checking track records of members and setting up corruption prevention system •  Mandating the root-and-branch checkup of each commission candidate’s track record for fraud or corruption to ensure commission integrity 17

20. Expected outcomes and future plans Ⅴ. Expected Outcomes Improving licensing standards and administrative transparency Achieving greater social capital (social capital taking up 20% of GDP) • <Examples> • 27 licensing requirements abolished initial investment costs of 22.1 billion won reduced • Requirement for a 600-seat semi-conference-facility abolished direct costs of 1.7 billion won per business reduced • Licensing time frame for potable deep sea water reduced from 60 days to 20 days additional production reaching 200 million won per business(based on 2,000 tons per day) Drastic improvement of ex-ante regulations to create more jobs and increase employment Restored public trust in the operations of the commissions Sharp decrease in licensing and administrative costs 18

21. Expected outcomes and future plans Ⅴ. Future plans Revisions oflaws required to revamp licensing regulations MOLEG and other ministries working out a time frame to complete improvement plans by 2011 Pushing ahead with building “advanced legal systems” to realize a fair society for all, including the underprivileged • 1. Legislation Plan • Revisions ofenforcement ordinances, etc. to be completed by June 2011, and revisions of laws by the end of 2011 2. Proactive Support for the Legislation of Negative Regulatory System Time Frame • To put a high priority on areas requiring more room for competition or • autonomy or less wiggle room for the authorities • To select 200 market-entry restrictions among economic regulations and • reform them first 3. Steps for Improvement of Commissions • To identify present conditions and practices of commissions nationwide by June 2011: • initiated by the Prime Minister’s Office and the Ministry of Public Administration and Security • To revise pertinent laws and enforcement ordinances by June 2011: • involving commissions under local governments • To create guidelines for advanced operations of licensing commissionsby June 2011: • to come up with corruption detection devices 19

22. Reference. Major laws subject to revision & implementationtimeline (1/5) continued ⅰ

23. Reference. Major laws subject to revision & implementationtimeline (2/5) continued ⅱ

24. Reference. Major laws subject to revision & implementationtimeline (3/5) continued ⅲ

25. Reference. Major laws subject to revision & implementationtimeline (4/5) continued ⅳ

26. Reference. Major laws subject to revision & implementationtimeline (5/5) ⅴ

27. Byachieving a better legal system catering to individual needs, we will contribute to building a legally advanced country marked by fair practices and to achieving a higher standing in the international community. Thank you