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Oct 31, 2009

Why are the Chinese Focused So much on Food and How this Affects your Business in China

The Chinese have a traditional way of greeting each other.  They say “chi fan le mei you?”  This means, “have you eaten?”  I heard from Sean Hayes of our Korea Law Practice team that Koreans do the same thing.

They also say hello and how are you and long time no see and stuff like that, but, the traditional way to greet someone is by asking if they have eaten yet.  This is unusual to say the least and often misunderstood by foreigners in China.  There are many theories of where the greeting began and I won’t go into those – the most important thing is to understand how important eating is in the Chinese culture and psyche.

Many years ago, when I had been here for about a year and thought I knew a lot about China, I was driving through a district of Shenzhen (a city with 12 million + people) and it came to me why eating was everything in China.

It was about noon and we were weaving our way through the throngs of people leaving their offices/factories, and the cars, taxi’s, buses, three wheeled gasoline powered tricycle things, and every other contraption known to mankind.  Now, I wasn’t driving but I was in the passenger seat and my driver was in 5th gear going 30km per hour and the car was shaking and I kept wanting to reach over and down shift for him but I refrained and gritted my teeth until they started to disintegrate.

It didn’t help that I hadn’t had anything to eat since that awful cup of Chinese hotel coffee and greasy fried bread stick that I had earlier that morning.   So, I tried to get into that Zen state that has gotten me through some of the most uncomfortable situations and I looked out the window at the chaos that was unfolding around me.

Right when I was concentrating on my breathing, I looked down the road and thought I saw what looked like a buck naked caveman eating a coconut.  ”I have taken this Zen thing to a completely new level” I thought to myself and looked away.  "Can’t be a naked caveman, surely someone would have taken him away or thrown a shawl around him or given him a fig leaf.”

I looked back in the same direction just to see if I might have not imagined this and there he was, a completely naked caveman eating a coconut.  He looked exactly like Tom Hanks in that movie where he is stranded on the island with the volleyball – not the fat Tom Hanks but the one after he had been there for a few years.

As we approached, he was on the area that in most countries would be a sidewalk, but in China is actually a labyrinth of open manholes, electric scooters carrying propane, rickshaws loaded down with styrofoam, dangling high tension wires and an assortment of other wonders and dangers. He was indeed naked and brown, obviously from not wearing any clothes, and his hair was matted and dreadlocked, obviously from not having a haircut, and he was eating what looked like a coconut or some other thing with a hemplike exterior.  Now in Borneo or Sumatra I wouldn’t have been surprised to see this phenomenon, but in Shenzhen China at noon on a busy work day – I was shocked.

The caveman walked through the crowd and no one even paid any attention to him.  He just leisurely strolled along and the Chinese purposefully moved on their way to somewhere without noticing him.  I wondered what they were thinking: “naked man – hmm,” "naked man – gotta get back to work,” "naked man – time to eat,”  "that coconut looks good – I’m hungry,” oe “what’s a caveman?”

I asked the driver, in Chinsese, about the man and he said, “what naked man?”  I said, “that one right there in front of the car” and he said oh, and I’ll never forget what he said next and you shouldn’t either because it’s the moral of this story, he said “where do you want to eat?”

Well, I was hungry and I have been to many of the big cities in the world, but I have never seen a naked caveman walking down the street eating a coconut and I just couldn’t think about food right now.  I said, “that man is naked, won’t the police or someone come to take him away?”  He responded, “maybe he is crazy, now do you want Chinese food or McDonalds?”

I couldn’t let it go that quickly so I called a Chinese friend and told him what I had just seen, he said “he’s probably crazy, do you want to eat hotpot tonight?”  Unbelievable is all I could think and I said I would think about it and call him later.  We had passed the caveman and were rolling along in 5th gear when it hit me.

They are obsessed with eating.  Now I don’t know where it came from and don’t really concern myself with the roots of their hunger obsession, but I just, then, realized that eating consumes their mind and probably gets in the way of otherwise productive thought.

Having been in China for a decade, it’s no longer a surprise to me when someone asks “have you eaten?”  I now respond with a yes or no and ask them if they have eaten.

I like to eat, especially big old Texas hamburgers and a good pizza and even some Chinese food, but it doesn’t consume most of my waking thoughts.  So I started to think about other things like productivity and creativity and rationality and how they apply in China and I keep coming back to the caveman and the people around him that were singly focused on something other than his being naked walking down the city street.  It has to be food.  They are always thinking about food.

I haven’t done any research with focus groups or control groups or any groups for that matter, but I have looked around and observed and I have reached the non scientific conclusion that the Chinese are more concerned about eating than anything else.  Even their obsession with money and saving face and smoking is far outweighed by eating.  For those of us China veterans we know that trying to accomplish anything from 11:00 a.m. until 2 is next to impossible.  I have even suggested that if anyone thinks about attacking China, they ought to do it during lunch because the Chinese will probably think, “look at that we are being attacked and overrun by aliens, where do you want to eat?”  Note to aliens, I have given you this pearl of wisdom without sending you a bill, please wait until I am out of the country.

So, if you are thinking about doing business in this huge and burgeoning China market or have done business here for years, you should understand the customs and psyche of the people who are and control this market.

While they can do good work and are industrious and hard working and entrepreneurial and lots of other things that I won’t mention here, they are often distracted by some genetically coded obsession with eating.

Plan your meetings accordingly, schedule factory/supplier/partner meetings first thing in the morning or mid afternoon (after they have eaten and slept).   Bring candy and pass it out if you see their blood sugar meters dropping into the “your head looks like a bowl of noodles” zone.  Don’t get frustrated, instead try and understand the things that make them tick and adapt to their ways, which you will never change in 5,000 years and i believe you will be more successful in doing business in China.

You won’t believe this part, but several weeks later we were driving through a completely different district in Shenzhen and i had reached another conclusion that the other gears didn’t actually work and that’s why we were in 5th all the time and who did we see – yes, the caveman.

Naked as a newborn (with brown skin and pubic hair and dreadlocks) and this time he was eating a banana! A banana!!  Even Hollywood couldn’t script this.

Scene 2. Naked caveman walking down the street in Borneo, no let’s make it Shenzhen and he’s eating dumplings or noodles, no a banana this way it looks like he pulled it right off the tree.  You’d think I wouldn’t be shocked but I was and I got excited and said to the driver, “look at that naked man he is the same one we saw two weeks ago isn’t he?”  He said, “what naked man, we never saw a naked man . . . are you hungry, where do you want to eat?”

The post was writtent by Frank Caruso.  Frank is the head of the China Law Practice at IPG.  He has lived in Shenzhen for over a decade.

Oct 28, 2009

Promoting Economic Freedom

Korea Times

October 23, 2009
by Sean C. Hayes (Host of this blog)

Two roads diverged in Korean yellow woods. Will Korea remain on the road less traveled and maintain its cumbersome regulatory framework governed by an inefficient, illogically burdensome and self-interested bureaucracy or will Korea free itself from its autocratic regulatory regime and bureaucracy and choose the other road?

In a country with a notorious Sybil-type personality, only the most arrogant of pontificators will take a stab at predicting the future of Korea.

What is definitely known about it, however, is that most economists and business professionals nearly unanimously opine that we must free ourselves from autocratic, authoritarian and government-focused regulatory regimes in order for the people of nations to prosper.

In short, we must respect and foster economic freedom. The leading indicator of economic freedom is the Index of Economic Freedom.

The index was developed by the Wall Street Journal and the Heritage Foundation and has empirically established, over its 15-year history that those nations that have increased scores year-on-year have nearly universally increased their economic prosperity and those nations with high scores are the most prosperous of nations.

Korea ranks in the ``moderately free'' category behind regional rivals Hong Kong, Singapore, Australia, New Zealand, Japan, Macau and Taiwan.

The seven economies ranked free are Hong Kong, Singapore, Australia, Ireland, New Zealand, the U.S. and Canada. Twenty-three nations are ranked ``mostly free" and include the United Kingdom, Iceland, Japan, Austria, the Netherlands, Germany, Sweden, Norway and Spain.

Nations ranked ``free'' had per capita GDP average of $40,253; ``mostly free,'' $33,428; ``moderately free,'' $15, 541; ``mostly unfree,'' $4,359; and ``repressed,'' $3,926.

Also, higher ranked nations receive higher scores in the Human Development Index, Pollution Control Index, Democracy Index and other prosperity related rankings.

The Index of Economic Freedom has also shown that nations that decrease their score year-on-year decrease their overall prosperity, while nations that increase their score year-on-year increase their overall prosperity.

Korea in many areas ranks as a ``mostly free'' nation. It has respectable rankings in business and monetary freedom and less than ``mostly free'' scores in financial, trade and investment freedom, government size and property rights, and of course dismal scores in freedom from corruption and labor freedom.

The good news is that the Lee Myung-bak government has made significant regulatory reforms during its administration.

The most significant reforms have been in the area of tax, zoning and industrial complex procurement and development, environment and capital markets, but many of the reforms have been thwarted by the efforts of a vocal radical liberal super minority that is highly capable of manipulating the population into believing in their anti-American, anti-free trade, anti-foreign capital and pro-militant labor policies.

Another great development under the Lee administration has been the Regulatory Reform Committee. The committee is headed by one of Korea's great scholars, Choi Byung-sun.

Choi has been a lifetime advocate of economic freedom and has taken a prominent role in the administration and his committee has taken a prominent role in fighting what he has noted on the committee's Web site as ``nonsense'' regulations.

The future of Korea may be in hands of the mainstream if the mainstream can be motivated to act. If the mainstream is willing to stand up against the minority it is likely that Korea will head down the path to joining the ranks of the most developed nations.

The question remains whether the Lee administration or other political leaders can motivate this mainstream to stand up against the minority or will major reforms be stymied again by this politically powerful, yet, small minority.

This post can be found in Korean here.


Learn from Lee Administration

Korea Times

October 2, 2009
by Sean C. Hayes (Host of this blog)

The Lee Myung-bak administration and local governments have been pumping money into the economy through infrastructure spending. The administration has also lessened the regulatory burden on builders and provided funds for infrastructure and other building improvements.
U.S. President Barack Obama, on the other hand, created a stimulus package that overwhelmingly has been used by states to pay for social program promises by politicians and feed the folks that put the Obama administration into office.

For example, a group backed by Al Gore received a $600-million grant to develop an electric car; numerous charities that promoted liberal democratic causes received a stimulus fund; $30 million went to a train station that was abandoned for over 30 years; and $1 billion is going to a ``FutureGen" power plant that seems likely to be never put into operation.

Of course, if the Republicans were in office this same type of cronyism would have occurred, but in a time of such need the political powers should have left politics at the back door.
Many Republicans and Blue Dog Democrats are beginning to question and realize that this stimulus package did little-to-nothing to improve the ailing American economy and will simply lead to a larger deficit, higher taxes and potentially a longer recession.

The stimulus, thus, seems to be failing us.

Obama's promise that the unemployment rate would stabilize at around 7.9 percent if the stimulus bill was passed is off by 2 percentage points, and the argument that the rate of increase in unemployment has decreased is backed by no evidence.

Furthermore, economies such as Brazil, China and Germany, that implemented smaller stimulus packages and maintain low debt as a percentage of GDP have fared much better in this economy than countries such as the U.K. and the U.S., which implemented massive packages and maintain high debt as a percentage of GDP.

This may indicate, but no comprehensive studies with large data sets have yet been completed, that the stimulus programs may not accomplish the pump-priming Keynesian effects envisioned, and that lower taxes and a natural decrease in the asset bubbles would have done the trick.

If this is the case or not, the Lee administration approach to the stimulus should have been the path taken by America. These programs will have a lasting effect on the economy, since infrastructure spending has been shown, in numerous studies, to increase a nation's efficiency and growth rates.

The Lee administration, realizing the value in infrastructure improvements, has implemented a plan to expand Incheon International Airport, update transportation to the airport, build and/or remodel new local and national government buildings, while lessening the regulatory burden on builders.

The Lee administration has additionally created a Green Initiative Fund and vowed to spend 50 trillion won for these green projects.

America's economy may not have been benefited by the stimulus package, but would have been benefited and is in need of a drastic overhaul of its infrastructure.

According to the president of the American Society of Civil Engineers, the U.S. has ``been operating on a patch-and-pray system." The ASCE has published a report giving America a "D" in infrastructure and claimed that America would need to spend $2.2 trillion in order to get to a "B."

There is some good news on the horizon. Obama seems to realize the problems with America's infrastructure and has vowed in campaign and non-campaign speeches to improve the ailing American infrastructure. Hopefully, this infrastructure package will not be linked with wasteful cronyism like the first stimulus bill.


Oct 1, 2009

Protecting your Intellectual Property in Korea

Korea Times

October 2, 2009
by Sean C. Hayes (Host of this blog)

A popular song regularly played on the radio proclaims that in the summer of 1989 the songwriter was ``trying different things and smoking funny things.''

If you have any exposure to the Korean market, do your business a favor and don't be like the songwriter.

All business with any exposure to the Korean market must have a plan in place to protect their intellectual property.

Thus, for the sake of your company, at a bare minimum, you should follow these simple recommendations prior to entering Korea.

Every public company and most private companies have valuable intellectual property. In Korea, and most of the world, this basic plan will assist in protecting and also fostering your company's intellectual property.

We should not forget that often intellectual property is the most valuable asset that your company possesses and thus if you have refused to have a protection plan in place, you should question whether in the fall of 2009 you to have been ``trying different things and smoking funny things.''

Therefore, first have your business do a complete inventory of your intellectual property.

Form a team to audit all your intellectual property including your patents, trademarks, service marks, books, manuals, videos, software, know-how, and trade secrets.

The team should include, at a minimum, a senior manager experienced in the internal workings of the company and an outside consultant (attorney or intellectual property consultant) who is experienced in creating inventories.

The team should send a tailored questionnaire to the heads of all your company's departments.

From the questionnaire and other ascertained information, the team should produce a complete intellectual property inventory that details what intellectual property the company possesses and evidences how much the intellectual property is worth to the company.

Second, as in the words of the U.S. Commercial Services in Korea, ``protection of intellectual property and the laws governing enforcement of these protections exist but are not necessarily extra-territorial. What is understood and practiced in the United States is not always practiced in Korea.

``U.S. companies wishing to sell their products or services in Korea should first and foremost register their intellectual property rights (copyrights, trademarks or patents) in Korea.''

Call a lawyer and get your intellectual property registered. The cost of registration is minimal.

Thirdly, have a plan in place to deal with intellectual property violations.

The plan should include an internal monitoring and worldwide registration and licensing scheme; an action plan to deal with intellectual property violators and patent trolls; formating of a team that is responsible for maintaining and fostering intellectual property rights and making sure that intellectual property is properly reflected in the company's financials.

Fourthly, have a law firm, in Korea, on retainer. A monthly retainer, in Korea, with prepaid hours is inexpensive.

Direct the firm to investigate, contact violators, draft license and distribution agreements, regularly review your intellectual property invoice and take an active role in further developing an appropriate scheme.

Additionally, keep the firm in the loop on all new intellectual property developments.

Lastly, integrate the home office with the Korean entity. All too often the Korean branch is totally out of the loop and hence unaware of developments at the home office. The Korean branch, in not only intellectual property, but in other company areas should at least be near the loop.

This basic plan will not only help to protect your intellectual property in Korea, but also assist U.S. public companies in avoiding the long arm of Sarbanes-Oxley.

For the sake of your company and the sake of not being labeled by your board as potentially ``trying different things and smoking funny things,'' implement this basic plan.


Sep 24, 2009

Back to Park Chun-Hee

Korea Times

September 18, 2009
by Sean C. Hayes (Host of this blog)

This past week, Korea and my practice group lost a large multinational company to Hong Kong.

The client, who first hired a business consultant to conduct research on where to establish a regional headquarters, chose Hong Kong primarily based on the Index of Economic Freedom and its mention of Korea's: ``burdensome labor regulations'' and ``non-transparent rule making and law formulation; exclusionary social, political and business structures; and insufficient institutional checks and balances.''

Other negative implications included ``piracy of copyrighted works''; ``contracts … considered a matter of consensus''; and a ``justice system [that] can be inefficient and slow.''

These were contrasted, by the consultant, with Hong Kong's: ``flexible labor regulations''; ``foreign firms not seeing corruption as an obstacle to investment''; ``strongly protected'' contracts; a ``legal system [that] is transparent''; and the emphatic mention that ``foreign capital receives domestic treatment, and foreign investment is strongly encouraged.''

The consultant, based in the United Kingdom, advised the company to establish the regional headquarters in Hong Kong and forgo Korea and Japan. I don't agree with the consultant's conclusion, but most of his and the indexes comments are sound.

The company, surprised by the ``labor inflexibility'' and ``anti-foreign capital sentiment,'' requested an overview of Korean labor law and basic investment climate. The conference call led to a mention of the Ssangyong Motors fiasco ― an embarrassment that will have a lasting impact on investment sentiment for years to come.

Koreans and long-time foreign residents are tired of being held hostage by a radical liberal minority that is dedicated to returning Korea to its pre-industrialized past.

The present administration has proposed a bold step forward for Korea, but it is shackled by an effective, yet very small, radical liberal minority that seems more dedicated to moving Korea back to the ages where it was a sleepy backwater agricultural-based society envious of the wealth of the Philippines.

Back to the time when Korean construction companies were not world leaders, but were so lacking in skills that most major construction projects domestically were performed by foreign laborers and contractors. Back to the time when the largest Korean exports were not electrical equipment and autos, but humans and wigs.

Back to the time when the nation's traditional liquor soju was bought not by the bottle, but by the shot. Back to the time when sleeping on the street was not a Friday pastime, but a necessity.

Many of us that are at the forefront of this fight for foreign direct investment (FDI) are dismayed when we see this radical liberal minority's ability to manipulate the population into believing their anti-American, anti-free trade, anti-foreign capital, and pro-militant labor policies and often wish for a return to the time when the Park Chung-hee administration was not so willing to consider this as a mere sign of a vibrant democracy, but a sign, as it may be, of infiltration by North Korea into these radical liberal parties.


Sep 19, 2009

Koreans Saved Wall Street

Korea Times
September 18, 2009
by Sean C. Hayes (Host of this blog)

Ok, maybe not, but foreign direct investment (FDI) and other investments by domestic and foreign businesses have contributed to saving the American economy.

Woori Finance Private Equity Fund and Kumho Investment Bank led a consortium that bought the AIG Building, the largest building in lower Manhattan and the fifth largest in New York City.

The building, which at the height of the real estate boom was valued at $1 billion, is presently valued, according to industry sources, at around $400 million. The 66-floor-tall Gothic behemoth completed in 1932 is destined to be a profitable lower Manhattan landmark for years to come.

Korean companies have also invested heavily in the U.S. auto and electronics markets through manufacturing and distribution outlets. These and other investments by foreign businesses are stimulated by the business friendly American micro- and macro-economic environment.

This environment is well reflected in most noted economic freedom indexes and the fact that year-after-year America is the number one destination for FDI.

America's economy will be saved by this business friendly environment that motivates the international and domestic community of investors to consider America as a healthy destination for their capital.

Korean companies big and small have changed their mindset with regard to outbound FDI. Korean companies, since WWII have looked abroad for destinations for their products.

In recent years, however, many Korean conglomerates and even small and medium enterprises (SMEs) have shunned Korea investment opportunities in favor of foreign investment, thus, diverting their focus from export destinations to FDI destinations. Many of these Korean businesses have chosen the U.S. and other business-friendly destinations.

Foreign investors have also decreased their exposure to the Korean economy in favor of more business-friendly, lower-cost, and higher-growth economies.

The present astute Korean administration has realized this phenomenon and, thus, has vowed to increase FDI and stimulate growth through business and foreign capital friendly initiatives, but because of a vocal and powerful radical-liberal minority most of the reform efforts have either stalled or been amended to the point of uselessness.

All that is left is an administration hell-bent on stimulating growth through infrastructure spending and exports.

The administration must return to its bold roots and cut taxes, streamline government, decrease the regulatory burden on businesses, and implement its other noted progressive initiates that will allow this nation to grow through local and foreign investment.

However, the only way for this administration to get its initiatives off the ground is to motivate the mainstream to fight this radical liberal minority.

It's a minority, we all realize, that is mobilized by Marxist radicalism and is determined not to work within the political system, but to destroy the very system that created our present prosperity.

America is being saved by the world and American investors; I fear that if Korea doesn't change to become friendlier to foreign and domestic capital no one will be left to save this once proud and vibrant Asian Tiger.


Sep 2, 2009

IPR Protection in Korea

I recently was directed to an excellent source for information on intellectual property rights under Korean law. The U.S. Commercial Service Korea, a part of the U.S. Department of Commerce, has created and "IPR Toolkit" for Korea.

The Toolkit contains the best basic explanation, in English, available on Korean IPR. The pages can be found HERE.

The U.S. Commercial Services, correctly empathically states that "registering your IPR is your best strategy" and notes that "[f]oreign applicants are required to retain a licensed local attorney in order to prepare applications in Korean and to conduct necessary follow-up correspondence locally."

Word to the wise, checkout the site and contact an attorney (preferably my firm) to register your IPR and if you are engaged in a Joint Venture make sure your attorney also contractually protects your IPR within the JVC.


Aug 10, 2009

Koreans Hold Unique View on Foreign Firms by Tom Coyner

For many years, the Korean market has been synonymous with protectionism in many foreign marketers' minds.
However, with the advent of a strong middle class and its successful struggle to gain a genuine democracy during the past two decades, many of the trade barriers have fallen. As more foreign products and services have become integrated into the Korean economy, a wider acceptance of foreign corporations has taken place.

However, it would be a mistake to say this is a trend.  A number of counter factors remain -- some of which are even strengthening.

Foreign companies, especially from the major countries, are regarded with mixed feelings.

While high technology and advanced products are admired and coveted, they are at the same time somewhat feared by Korean businessmen who perceive the possibility of having to depend on them.

When using foreign IT products and services, Koreans sometimes feel they themselves are not up to snuff in some way.

When work-arounds are devised using Korean solutions, many Koreans take pride in "getting smarter" -- no matter what may be the real costs, and often despite a lack of design for long-term flexibility.

In recent years, however, Korea has generally become more accommodating to foreign business, perhaps not by choice, but by necessity as its trade and investment overseas are expanding rapidly.

Even though most Koreans acknowledge that Korea's economy is highly trade-dependent, in 2004 it took seven months of deliberations and three failed attempts for the National Assembly to ratify its first ever free trade pact with another nation, Chile, because of the overzealous and nationalistic agrarian interest groups.

Nonetheless, the trend is evident in relaxing regulations on imports and foreign investments -- though most foreign chambers of commerce would say the pace of deregulation is still too slow.

In relations with major trading partners, Korea tends to have a "poor country mentality."

Just four decades ago, it was regarded as one of the poorest in the world, requiring much relief aid from advanced countries. Even after attaining their present prosperity, Koreans still regard themselves as poor, needing preferential treatment from trading partners.

Until fairly recently, the United States had been looked upon as a generous big brother with unlimited affluence and resources, while Japan continues to be regarded as a country that should eternally compensate Korea for its colonial exploitation.

Today, younger Koreans look upon the U.S. in less favorable terms -- partially out of concern that America seems at times an economic bully, and partially because a large number of younger Koreans blame the US for being an obstacle to unification of the country. In dealing with the ever-growing trade frictions with these two major trading partners, Koreans have maintained these attitudes.

The readjustment of past relationships, along with the recognition of a new relationship with China, increasingly recognized as an economic giant at Korea's doorstep, seems to take a long time, often to the detriment of cooperation.

Even after becoming an OECD member in December 1996, South Korea feels a bit disadvantaged. Korea's 2002 gross domestic product, at $898.7 billion, was 10th among the 30 member countries.

The average GDP of the OECD members was $962.4 billion. Perhaps by other developing countries' standards, Korea with its high tech strengths may be viewed as a "poor little rich country." Yet Koreans measure themselves by the standards of Japan, the US and Western Europe.

And from that perspective, they feel relatively impoverished.

Another factor in relation to foreign business is the growing sense of nationalism, especially among the younger generation.

As the nation's economy becomes healthier and stronger, there is a growing sense of nationalism, which may also be a latent legacy of past President Park Chung Hee's infusion of positive thinking and somewhat chauvinistic sentiments. More recently, under the Kim Dae Jung, and even more so the Roh Moo Hyun governments, populism has become a key element in the population's thinking.

This includes a strong element of "minjok-jui" which literally means "racism," but actually means something more akin to the Spanish "la raza," or prideful recognition of a common ethnicity. A natural, if unfortunate, side effect is a kind of generally benign racism that resents foreign influences on the fate of the nation.

These sensitive and idealistic young students who did not experience the hardships of war or poverty are inclined to more independent and nationalistic ideals.

The collective, younger generation's voice in the last presidential election was temporarily loud enough to win the acceptance of the majority of student voters and of the general public. With a nationalist, populist government in power, however, many of the weaknesses of this philosophy have become self-evident.

As a result, today there is an emerging moderate and practical _-- and at times even conservative -- body of young people. In any event, nationalism remains a very strong, emotional factor in the daily lives of Koreans, and foreigners have no choice but to handle the matter sensitively.

Koreans generally associate foreign-origin brands with quality and durability.

That's why many manufacturers and marketers like to give even truly local products western brand names or western graphics, even if the products are exclusively for local buyers.

Though nationalistic sentiment may indicate otherwise, nowhere is prejudice for foreign goods more evident than in buyer behavior or buying habits.

Buyer preference for quality seems to transcend ideology everywhere. In reaction to this trend, some consumer activists have attempted to discourage the purchase of foreign-brand products, alleging that high royalties have to be paid to foreign licensers for using their brands on local products with the same quality as foreign brands.

This kind of propaganda can seep into corporate buyers' thinking, sometimes convincing them that purchasing foreign goods represents a "loss" to Korea as money is remitted overseas as earned profits.

Still, the general perception of foreign companies among most Korean buyers is rather favorable, again relating to their quality goods and services as well as the impression that foreign corporations provide better working conditions for national employees.

This is counterbalanced by an overall anxiety as to whether foreign companies can provide the same level of apparently unconditional after sales support offered by local companies. While production quality assurance (QA) is greatly improving, too often in the past, the quality seemed to go in after the product was installed rather than during manufacture.

Consequently, 24x7x365 technical support has become standard in many information technology (IT) sectors.

This article appeared in the Korea Times.

Tom Coyner is President of Soft Landing Consulting(, a sales and business development consultancy, and serves as senior commercial advisor to J & S Law Firm's International Practice Group. His professional involvement with Korea began in 1975.

Jul 6, 2009

Asia Risk: KIKO in Korea

Quote from the Cover Story of the May 2009 issue of Asia Risk Magazine KO-ed in Korea
Sean Hayes, foreign legal consultant with Seoul-based Ahnse Law - which is representing around 50 plaintiffs - says that the firm's key arguments will all be around mis-selling. Hayes makes a point of saying that Ahnse is not a typical plaintiffs' lawyer - the firm's clients are often foreign companies or large banks that need to defend themselves in Korea - and he himself had misgivings about the cases when Ahnse accepted them. "When I first looked at this, my general attitude was that these are private contracts and I felt it was not the kind of case that a business law firm should be taking. But then when you start to look into it and find out what was happening here, you start to get a feeling that the banks were taking advantage of people," he says.

In some cases, Hayes adds, clients were asked to sign English-language contracts, despite being unable to speak English. He recalls sitting down with one plaintiff: "He pointed at a word and asked what it meant. The word was 'buyer'. He didn't even know what 'buyer' meant."
In other cases, no contract was sent - the only documentation the client received was the trade confirmation. Some companies apparently felt that getting loans in the future was conditional on buying the kiko. Others were rushed into the decision on the basis of a quick, five-minute sales pitch. Most of the companies were too small to have a derivatives governance structure - typically, the authority to go ahead with the trade rested with one person, who was the business owner or the person looking after the company's finances, he says.
Generally speaking, Hayes says banks failed to understand their clients' needs or to fully explain the downside risk the company was taking: "A lot of people are presenting this as an arm's-length contract between a buyer and a seller. But a bank is not just a seller - more than that, they are supposed to be selling you products you need. In these cases, clients were told that the product was going to make their company safer. That's what they were sold. But it's not what they bought. What they bought was a very, very risky product.


Mar 28, 2009

Testing the Con. Court Tests

By Sean Hayes (Korea Times 3/26/09)

In my column, last week, I discussed a case at the Constitutional Court of Korea considering the ban on night protests. The article detailed the test used for time, place, and manner regulation of speech and assembly in the United States.

As I mentioned in the column, in the United States, a law concerning assembly will be upheld if it is a reasonable time, place and manner regulation.A reasonable time, place, and manner regulation is content-neutral, has an important government interest, is narrowly tailored to achieve the interest, and provides viable alternative channels for communication.

The test was developed in the United States and has been adopted, in part, by many non-American courts.The regulation, in Korea, would likely meet the American test.

However, in Korea, the law may be analyzed in a different manner because of notable differences in the text of the Korean Constitution.All too often, Korean scholars fail to give credence to the text of the Constitution and blindly hammer American, German, Japanese, and French legal tests into a uniquely Korean document with a uniquely Korean history behind the text.

This not only leads to a lack of understanding of the historically developed freedoms and rights evident through interpretation of the text of the Korean Constitution, but also creates a situation that leads to the destruction of the institutional integrity of courts. Courts receive power to interpret and declare laws unconstitutional through the Constitution.

If we allow courts to adopt foreign constitutional law, with no foundation within the text of the Korean Constitution, we are then simply allowing courts to have powers not granted through the Constitution, and thus usurp powers from other branches or the people. To begin our analyses we should look to the text of the Korean Constitution.

The Constitution guarantees the freedom of assembly by noting in Article 21 (1) that: ``All citizens shall enjoy freedom of speech and the press, and freedom of assembly and association.'' The clause creates the freedom of speech, press, assembly and association in terms that resemble the U.S. Constitution.

The Korean Constitution provides additional protection of these freedoms by noting in Article 21 (2) that:  ``Licensing or censorship of speech and the press, and licensing of assembly and association shall not be recognized.'' The Korean word that was translated into the English word ``licensing'' refers to the act of allowing one to do an act only after the act is authorized by a controlling authority.If literally interpreted, the clause may be considered unique when considering the freedom of assembly in other nations.

Does the clause mean that the government can't require the application for a permit prior to an assembly? If so, Korea would be the only country that I know of, that doesn't have a permit system for at least some assemblies.Thus, I think it is reasonable to conclude that the term assembly, must not mean simply assembly, but must mean a particular type of assembly. The word in Korean that is used for the English word ``assembly'' refers more exactly to a gathering or meeting.

The word, in of itself, may refer to a ``peaceful gathering,'' since the word naturally is used only for gatherings that are peaceful. Thus, a possible interpretation of the Article 21 (2) is that all peaceful gatherings are absolutely protected and thus no prior authorization can be required for peaceful gatherings.

Article 21 (4) also limits the scope of protected assemblies. The article notes that: ``Neither speech nor the press shall violate the honor or rights of other persons nor undermine public morals or social ethics.'' An assembly, naturally has elements of speech as part of the assembly, therefore a logical reading would be that assemblies can not ``violate the honor or rights of other persons nor undermine public morals or social ethics.''

Therefore, a reasonable reading is that all ``peaceful gathering'' that don't ``violate the honor or rights of other persons nor undermine public morals or social ethics'' are absolutely protected.The key problem that the Constitution still doesn't seem to answer is whether the government has the power, prior to the action of holding an assembly to require a permit and whether certain blanket prohibitions of assemblies at certain times and places is permitted under the Constitution.

It seems in all likelihood from the history of the Korean Constitution and Constitutional Court case law that ``prior restraint'' of speech and assembly that may damage the rights and freedoms may be allowed when appropriate alternative channels are available.

It will be interesting to see if the Constitutional Court will apply to this case the American ``clear and present danger test,'' other tests, or choose to rely, as is often the case, on the overly used and under-analyzed Article 37 (2) catchall balance to either declare the law banning night protests constitutional or unconstitutional.


New York attorney Sean Hayes leads the International Practice Group (IPG) at J & S Law Firm. Sean Hayes formerly worked for the Constitutional Court of Korea and as a professor of constitutional and contract law. Sean Hayes may be contacted at: or

Mar 23, 2009

Ban on Night Protests

By Sean Hayes (Korea Times 03/20/09)

The Constitutional Court heard oral arguments, last week, in a landmark case concerning the right to assembly. The case will have a lasting impact on the government's ability to handle serious difficulties ― violence, disturbance of the peace and the destruction of property by an oft-violent liberal radical minority.

The case concerns a Korean law prohibiting protests at night. Some protesters during last summer's rallies against the importation of U.S. beef and other demonstrations were prosecuted under the law.

The law allows violators to receive a sentence of up to one year in jail or a 1-million-won fine. The facial purpose of the law is to prevent protests from causing injuries and damage to property. As most of us know, many peaceful protests in Korea have turned violent at night.

In the not so distant past, protests over the importation of U.S. beef led to, amongst other things, numerous injuries to police officers, the destruction of public property, Seoul-wide traffic congestion and lost revenues for businesses.

Based on the request of a liberal political activist, the Seoul Central District Court referred a case concerning a prosecution, under the law, to the Constitutional Court for adjudication. The district court, in its petition to the Constitutional Court, stated that: ``The Constitution basically guarantees outdoor protests without time restrictions.

Therefore, the law banning nighttime rallies should have been applied to cases that can apparently destabilize society. But it is now being too generally applied.'' The Korean Constitution declares in Article 21 (1) that: ``All citizens shall enjoy freedom of speech and the press, and freedom of assembly and association.'' Article 21 (2) follows by noting that: ``Licensing or censorship of speech and the press and licensing of assembly and association shall not be recognized.''

The language of the Constitution seems to absolutely guarantee that ``licensing of assembly and association'' is banned. However, as with the First Amendment to the U.S. Constitution, absolute language doesn't necessarily guarantee that courts would not impose limits on rights and freedoms.

For example, in the United States, ``reasonable time, place, and manner'' regulations on speech, assembly, and association are upheld by the courts.

For a law to be considered a reasonable time, place and manner, regulation of speech and assembly, first the law must be ``content-neutral.'' A content-neutral law is one that doesn't regulate a specific message. The night protest ban, in the United States, would be considered content-neutral. It prohibits facially and in practice all protests at night.

Secondly, the law must serve an ``important government interest.'' In this case, the government would contend and would likely prevail, in the United States, with the contention that the important government interest is maintaining peace and security. Laws that prohibited loud noise at night, focused residential picketing, protesting with close proximity to abortion clinics, and completely blocking roads or sidewalks were upheld.

Thirdly, the law must be ``narrowly tailored'' to serve the important government interest. This may pose a difficulty for the government in the United States. The law may be successfully labeled overbroad, since many night protests are peaceful and it may be possible to determine which protests will be violent. Thus, it may be successfully contended that only those protests that may damage the peace and security that will be held at night may be prohibited, thus an absolute ban on night protests is an overbroad burden on the freedom of assembly and hence not narrowly tailored.

The government, however, may successfully argue the reality that it is necessary to absolutely ban night protests because of the scale of the protests at night, the high likelihood of violence and the ready availability of numerous viable alternative channels.

Lastly, there must be viable alternative channels of communication. Daytime protests, weekend protests and the numerous other forms of protest in the United States would be likely held to provide ample alternative channels for communication.

This law in Korea hopefully is analyzed through a similar-type test and not the overused and under-analyzed Article 37 (2). The article states that: ``The freedoms and rights of citizens may be restricted by act only when necessary for national security, the maintenance of law and order, or for public welfare. Even when such restriction is imposed, no essential aspect of the freedom or right shall be violated.''

The article is too often used as a tool to balance away rights and freedoms with no more than a cursory explanation for the reason, with little basis in the application of logically applied and developed legal tests and principles based on the text of the Korean Constitution.


Mar 5, 2009

Opening Door to Legal Change

By Sean Hayes (Korea Times 03/05/2009)

On Monday, the National Assembly passed a bill that permits law firms from countries with free trade agreements with Korea to operate ``foreign law consultancy businesses'' and individuals from these countries to be registered as ``foreign legal consultants.''

At present, the best estimate is that over 400 foreign attorneys work and reside in Korea. The vast majority are Koreans. These attorneys work for law firms, accounting firms, and corporations. Many of these attorneys play lead and/or vital roles in representing Korean and non-Korean clients in a vast array of matters concerning Korean and international legal matters.

These attorneys are not technically ``attorneys,'' can't be paid directly by clients, normally don't sign work product, and can't appear in court.But they do play vital functions for clients and Korean firms by bridging the gap between the high expectations of clients and the often low client service skills of Korean attorneys, adding needed specialization to firms, and improving, overall, the quality of work products.

Korea, prior to this bill, had no formal regulation governing these attorneys with the exception of the Attorney-at-Law Act that prohibits the unauthorized practice of law. To my knowledge, no foreign attorney has been prosecuted for the unauthorized practice of law.This bill, passed on Monday, is part of the three-stage process for the opening of the Korean legal services market. The three-stages were formulated and incorporated into the Korea-U.S. Free Trade Agreement (KORUS FTA).

In the first-stage foreign firms are permitted to operate foreign legal consultancy businesses, but are not permitted to hire or partner with Korean attorneys, CPAs, patent attorneys or other like professionals. These ``consultancy businesses'' may only advise clients on issues concerning international law and the laws of the nation the business is from. The bill also permits and potentially mandates foreign attorneys to be registered as ``foreign legal consultants.''

These attorneys must have worked in a foreign jurisdiction for three years. If the attorney has already been employed in Korea for over two years the attorney is only required to have worked in a foreign jurisdiction for one year. A large percentage of foreign attorneys, presently working in Korea, don't meet this requirement.

The first-stage will lead to no noticeable change in the legal market in Korea. The stage is only intended to give Korean firms and attorneys the needed push toward improved competitiveness and few foreign attorneys and firms will choose to register, since there is no noticeable benefit to registration.In the second-stage, which is scheduled for 2011, foreign law firms are permitted to enter into agreements with Korean law firms and in the third-stage, which is scheduled for 2016, foreign law firms could establish joint-ventures with Korean law firms and hire Korean attorneys.

Korea is a dynamic nation with a future that is hard to predict. The third-stage of this plan will likely meet fierce resistance from the Korean bar. If Korea wishes to truly become a part of the global community it must shed the blanket of protectionism and open its service sectors and all other sectors to competition from abroad.


Feb 28, 2009

Protect Yourself from Bad Lawyers in Korea

By Sean Hayes (Korea Times 2/27/09)

Too many Korean and foreign attorneys working in Korea are performing legal work that is often to a level so low in quality that it must be considered the work of incompetent attorneys. Many of the biggest and most respected Korean law firms even have attorney competency issues.

Throughout much of the world, clients believe the reputation of the firm is the deciding factor in the quality of representation, since the top graduates choose to work for firms with the best reputation.

In Korea, many of the best attorneys have little interest in working for the largest and most respected law firms and many of the top firms hire attorneys that are far from the top of their trade.

Therefore, when hiring attorneys, choose attorneys, not firms. Many of the most “respected” firms amongst non-Korean clients, don’t have the best attorneys and even hire and retain incompetent attorneys, partners, management and staff, and many of the best don’t work for large firms.

I have seen my share of competency and professionalism issues while working within the legal community in Korea. In the past seven years, I have had the pleasure to work with some of the world’s best attorneys, and also many attorneys that should not been practicing law.

For example, one Korean managing partner at one of the largest law firms advised that a client who was facing significant time in jail to pray to God for assistance.

A foreign attorney working for one of the most respected law firms was caught plagiarizing nearly an entire opinion letter from a fellow attorney’s Web site.

One of the major Korean law firm’s corporate team staff member was appointed as a team leader, while he only had experience with litigation issues.

And one noted partner at a respected medium-size firm was caught frequently sleeping during $550-per-hour billed conference calls.

These and numerous other examples should lead clients to be very careful when retaining attorneys.

In Korea, attorney competency comes from high-level experience - not education. Nearly universally, the best attorneys in Korea are attorneys with this quality, and those with the most have usually worked for the government.

The majority of the top graduates from the Judicial Research and Training Institute are selected and choose to become judges, prosecutors or public servants. These experiences in government allow them to garner top-level work experience at a young age, obtain significant personal contacts in government and earn high respect among their peers.

Normally, these attorneys, when they leave government, will not choose to work for Korea’s largest law firms, and those who do are often not given prominent roles at the firm, or roles that include assisting non- Korean clients.

The same experience issues may be found among many foreign attorneys. Many working in Korea have only a rudimentary understanding of many of the unique aspects of the Korean legal system and the manner in which Koreans do business because of the experience of only working within law firms.

Few foreign attorneys have garnered the experience necessary to do anything more than proofread opinion letters, draft English contracts and advise on the most basic aspects of Korean legal issues.

Any legal team that you retain, therefore, should include an attorney who has significant experience working for government and a foreign attorney with a profound understanding of the uniqueness of the Korean legal system garnered from more than just law firm experience.


Feb 25, 2009

Buy American Dance Goes On

by Sean Hayes (Korea Times 2/21/09)

The American stimulus bill is to be signed into law with a ``buy-American'' provision mandating that stimulus-funded programs only fund those that utilize U.S. manufactured goods.

Additionally, it makes it more difficult for banks, which received funds under the Troubled Assets Relief Program (TARP), to hire immigrants.

In order to appease free-trade Republicans, President Barack Obama pushed for language noting that the United States will honor its international agreements. The language doesn't change the effect this bill will have on the superpower and the world.

The United States is a country built on the notion of political and economic freedom. With vibrant and robust free market capitalism and a political system able to react quickly to changing dynamics, it has maintained one of the most prosperous societies the world has ever known.

Because of our financial crisis, opponents of free trade were able to successfully fight to include in the stimulus bill the buy-American principle and other similar provisions in order to ensure the protection of jobs in industries that are unable to compete with external competitors. The opponents may ``save'' a few jobs, but the costs far outweigh the benefits.First, Brazil, China, India and the rest of the developing world have numerous public works and other projects that often are awarded to U.S. firms.

American companies like Caterpillar and GE strongly opposed the buy-American language, since they realize that these provisions put America at a competitive disadvantage. Will these countries, and the rest of the world, use this as an opportunity to not purchase U.S. aircraft, tractors, financial services, reactors and high-tech electronics?

If history is a prediction of the future, the Great Depression is a useful lesson. The Smoot-Hawley Tariff, according to the vast majority of mainstream economists, set off a trade war with Europe that led to a deepening of the Great Depression, the deterioration of U.S. industries, and a deepening resentment in Europe to the United States' reactionary response to a worldwide depression.Secondly, free trade benefits all buyers and sellers, while trade barriers benefit certain sellers at the expense of other sellers and all buyers.

The elimination of ``outside'' competition, as history has shown, leads to an increase in cost. An increase in cost leads to the inability to buy other services from other buyers.For example, in Korea, the same Hyundai car bought in the United States will cost a considerable amount less.

The U.S. consumer, thus, buys the Hyundai and has a gain over the Korean purchaser of the car. This causes the Korean consumer to have less disposable income and thus less power to purchase additional products.Who loses? Of course consumers lose, but let's not forget that other sellers lose. The other sellers, because of the reduction in purchasing power of the Korean consumer, lose the opportunity to sell.

Lastly, the world needs a champion for economic freedom. The United States has taken the lead in most of the last century, but it seems no other nation is capable or willing to champion the benefits of political and economic freedom. If the United States doesn't take the lead, who will?Korean President Lee Myung-bak has an opportunity to show Asia the benefits of economic freedom. He has vowed to reform the way Korea operates, but a great deal of his measures adopt the same top-down regulatory approach advocated by his predecessors.

The world has seen the benefits of free trade and economic liberties. Hopefully, it will not regress and lose sight of the benefits trade and economic liberties has garnered for customers and sellers.


Jan 1, 2009

Financial Arms of Mass Destruction

Financial Arms of Mass Destruction (1)
By Sean Hayes (Korea Times 1/1/2009)

Warren Buffett, who used to utilize credit-default swaps (CDS), called them ``financial weapons of mass destruction (WMDs)."

I love Warren Buffett and was a student of his every word during my pre-attorney stockbroker days, but blaming CDS for our present financial difficulties is as logical as blaming the Iraq War on oil or skin cancer on the sun.

The $55 billion CDS market is certain to be regulated, since they are perceived by the vast majority of the public as the very epicenter of our problems and the cause for the spread of U.S. difficulties overseas.

This perception is far from the truth and probably originated from a fear and anathema, in America and throughout much of the world, of everything even remotely considered ``complex.''The CDS derivative market, however, is not the heart of the problem and if we leave the math out of it, is even not so complex.

For us to learn from our mistakes we need to put the credit where the credit is due and not vilify poorly understood financial tools.

The blame must be placed on our government; a government that was determined to facilitate the extension of every imaginable type of home loan to the most unqualified of borrowers.CDS, in essence, are nothing more than insurance policies on bonds and securities. CDS are not, as often noted, ``some kind of speculative wager by people who are betting money they don't have, it's an orderly process that provides a credit insurance to a market that uses it and needs it'' as stated by Prof. Roy Smith from NYU Stern School of Business to Reuters at the end of last month.

For example, at the end of 1997, JP Morgan pooled over 300 loans worth over $9.5 billion and cut the loans into different slices (tranches).

JP Morgan then sold the riskiest 10 percent tranche to investors. The tranche was entitled the Broad Index Securitization Trust Offering (Bistro).Most of the underlying loans were to financially secure companies such as IBM and Wal-Mart. Therefore, even Bistro was considered, by most, a safe investment.

The reason for the creation of this financial instrument was to increase liquidity in the credit market. Banks, because of government regulations, were mandated to reserve a percentage of their capital.Banks wishing to free up this reserve capital created CDS. These CDS were sold to investors, thus the third party investor would assume the risk of default, in exchange for regular payments from the banks.

The banks were able to free their books and thus were able to lend more.The problems in the CDS markets began when mortgages went south, not by ``complex'' financial instruments such as derivatives and securities, but the same bone-headed government that intends to fix these troubles with more regulation.

The government, hell-bent on distorting our markets, created distortions that motivated all to ignore market realities, which led to loans to credit unworthy borrowers.These market distortions were caused by the Federal Reserve, the unmitigated backing by Congress of Fannie Mae and Freddie Mac, the Federal Housing Administration loosening of down-payment requirements, the strengthening of the Community Reinvestment Act, and the Department of Housing asserting pressure on lenders to lend.

Without the government's hand in the markets few would have ever known, or even questioned, the soundness of these financial tools.