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Dec 15, 2010

Facebook under Watch of the Korean Communications Commission

Facebook has received, in short, an order on December 10, 2010 from the Korean Communications Commission (KCC) to modify its site to comply with Article 22 of Korea's "Act on Promotion of Information and Communication Network Utilization and Information Protection" which states that: "If an information and communications service provider intends to gather user personal information, they shall obtain user consent."

The order requires Facebook to receive explicit consent from users before personal information is revealed to other users or utilized by third parties.

Facebook has 30-days to comply or challenge the order. We will see soon if Facebook will simply take down the Korean language site, challenge the order, comply with the order or simply ignore it. Facebook, as of posting, doesn't have a local office, thus, enforcement will be difficult for the KCC.

Facebook has almost two and half million Korean users and a Korean language version of its website. The largest Facebook-type site in Korea is Cyworld (25 million users). Cyworld has failed to expand past the Korean market and Facebook has been expanding market-share in recent years in Korea.

In a side note, the English website of the Korean Communications Commission has one of the oddest catch phrases: "The World that Imagination become a reality." The KCC should be ordered by the Administration to get someone to edit the English website. For Korea to become a Global IT powerhouse, the Commission dedicated to this mission, should create a professional English site.

"Broad castins," Telecmunnications," Conyergance Service" and the grammar errors throughout may be a little comical when done by the developing Chinese government, but not the developed Korean government. 

We also know that perfection is near impossible for a website. However, this site and most of the Korean government English language sites are an embarrassment to a nation that many native English speakers call home and promote to foreign investors on a daily basis. 

The scrutiny of Facebook will send many journalists to this site and send many more away with a sense that the FCC is incompetent or at best has little need for an English language site.

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SeanHayes@ipglegal.com

Dec 3, 2010

Law Firms in Shenzhen, China with International Legal Experience

When hiring an attorney in China, insure that your law firm has a foreign attorney (American, British, Australian etc.) that actively manages the local Chinese attorneys and staff.

The local law firms in Shenzhen and Guangzhou are far less experienced than law firms in Beijing.  However, refrain from hiring a Beijing firm for work in Shenzhen or Guangzhou.  Local experience and connections are needed to insure an easy entry into the region because of the power of the local government.  The locals know best.

The following firms have significant experience assisting foreign clients in Shenzhen, Guangzhou, and surroundings areas.  Yes, one of the firms is the firm that runs this blog. 

I am sorry if I didn't list your firm.  Please email me and I will consider listing it if it has significant experience assisting foreign clients.

The leading firms in Shenzhen assisting foreign clients in entering the Chinese market include:

1. IPG Legal (Frank Caruso: Chair, China Practice Team, IPG)
2. King & Wood (Wang Rongkang:Decent English Skills, M & A)
3. Grandall Law Firm (Yujin Fu:  Decent English Conversation Skills)
4. V & T (Zhang Zi, Proficient in English Conversation, Hong Kong educated)

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SeanHayes@ipglegal.com

Nov 23, 2010

Korea Rules of Employment Required When Employing Ten or More Workers in Korea

A few minutes ago, I was contacted by a new client that was advised by the  former counsel that they were not required to have employment rules.   In most cases, an employer that employs ten or more workers must have rules of employment and the rules must be filed with the Ministry of Employment and Labor.

LABOR STANDARDS ACT
CHAPTER Ⅸ RULES OF EMPLOYMENT

Article 93 (Preparation and Report of Rules of Employment)

An employer who ordinarily employs ten or more workers shall prepare the rules of employment regarding the matters falling under each of the following subparagraphs and report such rules to the Minister of Labor. The same shall also apply in case where he/she amends such rules:

1. Matters pertaining to the starting and ending time of work, recess hours, holidays, leaves, and shifts;

2. Matters pertaining to the determination, calculation and payment method of wages, the period for which wages are calculated, the time of paying wages, and pay raises;

3. Matters pertaining to the methods of calculation and payment of family allowances;

4. Matters pertaining to retirement;

5. Matters pertaining to retirement allowances under the provisions of Article 8 of the Guarantee of Workers’ Retirement Benefits Act, bonuses, and minimum wages;

6. Matters pertaining to the burden of workers’ meal allowances, expenses of operational tools or necessities and so forth;

7. Matters pertaining to educational facilities for workers;

8. Matters pertaining to the protection of workers’ maternity and work- family balance assistance, such as leaves before and after childbirth and child-care leaves;

9. Matters pertaining to safety and health;

9-2. Matters pertaining to the improvement of environment of a place of work according to characteristics of workers, such as sex, ages or physical conditions, etc.;

10. Matters pertaining to assistance with respect to occupational and non- occupational accidents;

11. Matters pertaining to award and punishment; and

12. Other matters applicable to all workers within the business or workplace concerned.

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SeanHayes@ipglegal.com

Nov 7, 2010

South Korea Snapshot

The Wall Street Journal website has a good graphic page that provides a decent snapshot of Korea.

Some of the statistics may be a little surprising.

The page notes that GDP per capita is less than the OECD average of USD 33,000.00; that Koreans work the most hours in the OECD; the largest trade partner is China; the number one vegetable grown by quantity is pepper; and the number one tourist destination is a Daecheon Beach (Mud Festival).

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SeanHayes@ipglegal.com

Nov 3, 2010

Audit Proof your Independent Contractor Expenses

I just read a great post on an even better blog entitled the New York Small Business Law Blog. The blog post - Tips on Making your Independent Contractors Audit Proof - notes that the feds are increasing their efforts to crack down on misclassified independent contractors.

They advise the attorney gave on how to avoid the scrutiny of the government would have also been useful for a client of ours that ran into an issue with the Korean National Tax Service and the Ministry of Labor a few years back. 

The client, who was working with a large ubiquitous Korean law firm, lost a costly battle with the Ministry of Labor and National Tax Service because of a naively drafted contractor agreement and poor advice given by a team that consideres itself the leading team in labor law.  Never believe those publications that rate law firms.  The blog post reawakened my memory of this incident. 

The practical advice noted in the New York Small Business Law Blog can also be useful for your independent contractor needs in Korea.
""•Pay your independent contractors per assignment or per project, not by the hour, and don't pay them a fixed weekly or monthly salary;
•Keep them away from your “real” employees and don’t dress and equip them like employees, i.e. don't give them company business cards, don't let them use your company letterhead, don't let them perform the exact same tasks that your employees perform.


•Keep the independent contractors on a long leash (give them their "independency"). They should be able to control when they can work and how they work; Avoid micro-managing their work.


•Don’t forbid them from working for other employers on similar projects. But you could require them to at least inform you when they do, to give you the option to limit their engagement at that time.


•Put all of the above into an independent contractor agreement, a.k.a. consultant agreement. ""

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SeanHayes@ipglegal.com

Basic Agreements for Doing Business in Korea

Below are the basic Korean start-up agreements, normally, necessary for doing business in Korea. The list is not exhaustive.

We will be writing on all of these agreements over the next couple of months. Please note we have articles about Korean shareholder (JVC), distributor, license and other agreements already posted.

 
Korean Stock Corporation (Chusikhaesa)
  • Shareholder Agreement/Joint Venture Agreement
  • Article of Incorporation
  • Intellectual Property Assignment/License Agreement
  • Confidentiality/Nondisclosure Agreement
Employees and Management in Korea
  • Employment/Contractor Agreements
  • Work Rules
  • Confidentiality Agreement
Korean Customers/Vendors
  • Service Agreement
  • License Agreement
  • Sales/Distributor Agreements
Landlord
  • Lease Agreement
Website
  • Terms of Use/Privacy Policy

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SeanHayes@ipglegal.com

Oct 31, 2010

Why do the Chinese Blow Car Horns So Much an Explanation by an American Lawyer in China

China must have the loudest horns in the world.  Now, I don’t know much about noise levels and decibals and other technical things like that, but, I do know what I hear – when I can hear.  I’ve been thinking about a topic for my next blawg post for quite awhile and while I have had a couple of great ideas, I just couldn’t figure it out.  You know that me  like to write about the law in China and other interesting stuff like that, but, if you read my blawg you also know that I like to write about China and the customs and habits which can help us all understand or tolerate the way things work over here.

So, I was thinking about horns in China and for those of you who have been here, you know that horns are not used in the same way as they are in the West.  In fact, if someone beeped their horn in the same angry, prolonged, and aggressive way as they do here in China, in Los Angles, they may be shot.

They don’t just give you a friendly toot to remind you that the light is now green, they lay on the mother like their life depended upon it which then starts a chain reaction of angry beepers all laying on the loudest horns on the planet.

I’m sure that when they design and build cars in China for sale on the Domestic Chinese market, whether it’s Ford, or Mercedes, or BMW, or Geely, they have a meeting to discuss horns and there is a typical Chinese automotive engineer type with the short sleeve white shirt, black pants with white socks and overly shiny black shoes that says:  ”we gotta make these horns extra loud so that they Chinese will hear them.”

The response inevitably is “how much louder” and the engineer says “what about 100% louder, because we are China and the Middle Kingdom and the biggest and best country in the world and we should have the loudest horns.”  The decision makers obviously not wanting to lose their jobs by allowing wimpy horns or lose face to the rest of the automotive industry all agree and the horn blowing torture begins.

So I was thinking, as they create their own traffic jams by all trying to jump ahead of each other on the roads, why the Chinese don’t just wait for the light to change, or the person rudely stopped in the middle of the road talking on their cell phone to move on, or the taxi letting off it’s passengers to complete their transaction (which usually only takes about 10 seconds), or any of the million other reasons why they beep their horns, “why do they really lay on the horn”.

It doesn’t seem that it works or the person whom is the brunt of the horn blowing cares, it only annoys the hell out of me.  I am sitting in my office on the 12th floor of a premium office building in the Shenzhen CBD and I hear a cacophony of the loudest horns ever invented and the same goes for my apartment on the 32nd floor.

Mosquitoes don’t even make it up to the 32nd floor, how the hell can the horns sound so loud and reach my ears while I am trying to sleep.  I guess the simple answer is they just don’t give a hoot about anything else other than what is impacting their little world at that time and I wholeheartedly believe that this mentality is prevalent in everything the Chinese do.  Now I am not talking about everyone, of course there are considerate and inconsiderate people all over the world, it just seems like with one and a half billion people that there are plenty here that just don’t give a hoot.

So just remember, when you are dealing with a factory owner in China or looking to invest in or acquire an existing business or conducting any other transaction and you believe that the person(s) you are dealing with “likes you” and “I can trust them” (we heard it all) see the the way they lay on that horn.

Frank Caruso is the head of the China Law Practice at IPG.  He has lived and worked in China for over a decade.
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SeanHayes@ipglegal.com

Oct 30, 2010

Doing Business in Korea (by Tom Coyner: IPG Legal's Senior Adviser)

IPG Legal's Senior Business Adviser - Tom L. Coyner has published the second edition of his book on Korean business. The book is entitled "Doing Business in Korea" and may be purchased through Amazon or at most books stores in Korea.

The book is highly recommended reading for anyone with business interests in Korea.  Sean Hayes has been noted as a contributor to the legal chapter of the book and considers the book a must-have for all doing business with Koreans.

For those not in Korea having difficulty obtaining the book (Amazon only carries a few copies), please contact IPG Legal and we will obtain you a copy.
REVIEWS
“Underscored with a deep and nuanced understanding of modern Korean culture, this is a ‘must read’ for any foreigner in Korea.   
    — Robert Fallon, Former Chairman of the Board of  Korea  Exchange Bank

“Examples and practical advice—it’s all here! This book will save you years on the learning curve.”      
    — Jack Lewis, Associate Dean of the Marshall School of Business at USC

Oct 26, 2010

The Green-Tea Party (Korea Times by Sean Hayes)

My grandfather was proud to be a Democrat and my father a Republican and I am proud not to vote.

My Italian grandfather lived through the Great Flu Epidemic of 1918 that took his father; the Great Depression that took his pride; World War II which took his thumb; the mass production of the automobile that took his pre-teen brother in a fatal accident; and heart disease that took his wife in the prime of her life.

My grandfather lived the life of the typical immigrant and accordingly was a Democrat. Republicans of this generation were rightly perceived to be a party that represented the rich and the democrats were the alternative, thus, representing the working-class.

My off-the-boat Irish father came to the U.S. and worked at odd jobs until my grandfather introduced him to the stability presented by the local utility company.

My father experienced similar hardships in Ireland as my grandfather, but was richly rewarded by the “golden opportunities” that presented themselves even to the off-the-boat Irishmen with the thick Kilkenny-Irish brogue and no high school education. Hey the guy didn’t even know the difference between a hurling stick and a baseball bat.

He rightly is unable to understand how so many people don’t have jobs and often proclaims how this has to do something with an unwillingness to get off one’s derrier ― in much less diplomatic terms and still in the thick Kilkenny brogue.

Of course my father is a proud Republican and now loves even coaching baseball. An Irishmen coaching baseball ― only in America.

My mother a lifetime social worker, and the first person in our direct family to graduate from college was brought up in generation fighting for equality of the sexes and opportunities for the socially disadvantaged.

She became part of this revolution and even made the revolution part of her working life. She, of course, is a proud member of the Democratic Party.

I, being brought up in a middle-class family came to admire, campaign for and even work for Republicans and the party.

After working in D.C. for a conservative senator, I became disgruntled with politics after realizing that Harold Lasswell’s “Who Gets What, When, How?” is not just a book, but the basics of this political game.

The game is well played in America and Korea by politicians that are more interested in political survival than ideology and the well-being of the nation.

I loved politics because of the ideological battles between conservatives and liberals. I came to respect the classical liberal (modern conservatives/libertarian) ideologies for their focus on the individual.

However, it becomes apparent that most liberal and conservative politicians care little for ideology and care more about self-preservation. If ideology is useful it is employed, if not it is maligned. The Hamilton and Jefferson ideological clashes are dead and simply political survival rules the day.

Today liberals in the U.S. and even more so in Korea are hell bent on preserving the status quo. A status quo that keeps certain provinces and occupations loyal to this liberal political elite ― a liberal political elite that lives off the backs of the loyalty given by these regions and occupations.

The conservatives are not much different. A hopeful seemingly ideology-based Korean president fell to “pragmatism” because of a realization that his reform of the service sector, healthcare system, education, politics and bureaucracy was impossible because of vested political elites in all camps that were entirely unwilling to risk political irrelevancy.

If politics is a mere “Who Gets What, When and How?” game and only the few are getting anything, then why do we even care.

The mid-term election in America and the state of political discord in Korea lends itself to a feeling of total political hopelessness for voters and a need for a new political movement.

The Tea Party is available in America with an ideology-based contract from America agenda that calls for: identifying the constitutionality of every new law; rejecting emissions trading; demanding a balanced federal budget; simplifying the tax system; auditing all federal government agencies; limiting annual growth in federal spending; repealing the health care legislation passed on March 23; passing an “all-of-the-above” energy policy; reducing earmarks; and reducing taxes.

Sure some of the “members” are nut-jobs, but at least they are standing up for more than their jobs.

Hopefully, something can brew in Korea other than the ubiquitous Starbucks coffee.

Appeared in the Korea Times on October 23, 2010.

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SeanHayes@ipglegal.com

Oct 21, 2010

American Law Firms in Korea

Things may be changing soon. Presently there are no U.S. law firms in Korea, but things will change if the Korea-U.S. FTA is passed. Presently numerous American law firms are interested in access to the market. I have been contacted by a few firms interested in building alliances. The doors will also open to British firms with the Korea-EU FTA.

The Korea Herald had an interesting interview with Gregory Nitzkowski the managing partner of Paul Hastings.

Gregory Nitzkowski noted in the article that:
"It is not the dominance in the Korean legal market that we seek, but rather a firmer connection to our global clients, many of whom are Korean-based international companies such as the Samsung or SK Group.   A market is usually in favor of the staus quo and changes for the unknown many come as a threat.  It is natural for Korean law firms to feel a certain degree of alarm and change themselves accordingly, but the global precedents show that they need not be intimidated by the upcoming challenges."
I have wrote numerous articles on how the introduction of competition will likely create better services for clients.  I assume, for business clients, fees may also be reduced and more transparent billing practices will be implemented by these firms.  Here are a few articles that appeared in the Korea Times and on this blog that may be of interest.


http://www.ipglegal.com/

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SeanHayes@ipglegal.com

Oct 20, 2010

KORUS FTA is Dead without a Push from Manufacturers and an Understanding of the Unions.

The National Association of Manufacturers Blog has a brief mention of the reasons why the U.S.-Korean Free Trade Agreement (KOR-US FTA) is a benefit to American manufacturers and will not lead to the outsouricng of more jobs as President Obama is now alleging.

The blog post notes that:
Not to belabor a point that has been raised by international economists and trade policy analysts across the political spectrum: Cutting tariffs and non-tariff barriers in foreign markets through preferential trade agreements does not reduce or outsource American factory jobs, it creates more of them. How? Our market is open, with tariffs averaging 2.5 percent. Most other markets (developing as well as some developed) in the world have tariff and non-tariff barriers that are far higher. When we sign a FTA with a country, its barriers come down, and as a result, our exports go up, both in volume and value, and more than our imports from that country.


Voilà, increased exports. Since manufactured goods are two-thirds of our exports, when we increase those exports, we boost manufacturing output, employment, and growth here at home. While we have a trade deficit overall in manufactured goods, we have a trade SURPLUS in manufacturing with our free trade agreement partners – more than $50 billion worth over the last two years.

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SeanHayes@ipglegal.com

Doing Business in Asia: Due Diligence, Agreements, Attorneys and Street Smarts

International attorneys mention in blogs, speeches, journal articles and in the press, frequently, that doing business in Asia is different and much more risky than in the West. Maybe we are not getting the word out clear enough.
Understand, we are not trying to sell you anything you don’t need ----LISTEN UP - Get someone who works locally to execute these deals, get a carefully drafted agreement and engage in a little due diligence. If not, we love litigation, winding-up joint ventures and filing criminal complaints. These are the things that require a good deal more time than drafting and negotiating agreements.

For example, a client involved in a USD 600,000 breach of contract/fraud case (option to purchase industrial machinery) with a Korean manufacturer recently contacted use with another issue in Korea.

The client (I know you are reading this and we love you guys) concluded a deal with a bare-bones PO and invoice. As I mentioned in a previous post, “[i]f you plan on just dealing through a purchase order (PO) in Korea, you are heading down a path that will invariably lead to a kick in the tail.” Korean Outsourcing: Legal Basics and other articles such as Korean Joint Ventures: Bare Essential of a JV in Korea


The client sent a substantial amount of money as a deposit on a piece of used industrial machinery and some spare parts. After sending the money, the Korean seller unilaterally changed the terms by making more demands. This is a common tactic. The seller now has your money and has the upper-hand in now renegotiating better terms for himself.

The Korean seller noted that some of the parts would cost more money, he required an additional 20% deposit, he can’t deliver the machinery FOB and a slew of other bull that all related to trying to obtain a better deal. The client already quoted the final sale price and terms to his final customer and thus was stuck between a customer and a jerk.

We settled the matter for the client after a good deal of time and long heated conversations with the Korean seller. The client gained a couple of more grey hairs, a sizeable legal bill, a smaller margin in his deal and another lesson in doing business with Koreans (the same risk applies to most Asian nations)

Please. Please. Listen.

First, Due Diligence. Due Diligence. Due Diligence. Due Diligence means at least doing an asset check before sending someone money. The Korean company proclaimed on its website that it was a medium-size corporation. However, the company was a sole-proprietorship without any assets. Don’t forward money to strangers.

Second, L/Cs add a degree of safety to a deal for buyers and sellers. A seller that doesn’t want to utilize a L/C is a seller that we must scrutinize. A solvent seller will normally be able to easily obtain credit on the L/C. In this case, the seller was unwilling to utilize an L/C for a variety of non-sense reasons relating to his total lack of commercial sense. Therefore, we established (will establish) a joint bank account with the power to release the funds in the hands of our law firm.

Thirdly, an agreement shouldn’t be only one page long. Numerous risks come-up in these types of deals. Get someone to assist that has partaken in litigation and has worked with international transactions in Korea. In Asia, a lawyer is recommended, since often the attorney awakens the fear in the belly of the beasts (my partner is a former Korean judge and he loves this part of his role) and the attorney will often understand better than anyone else the risks of doing business in Asia (my group has dozens of pending breach of contract cases based on agreements that left much to be desired- some were drafted by less-than qualified “international” and Korean attorneys).

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SeanHayes@ipglegal.com

Oct 10, 2010

A monkey on my back (Korea Times by Sean Hayes)

Korea ranks behind many of its developed and less developed Asian neighbors in many major economic freedoms and indices.

The major monkeys on the back of the Korean economy, according to some surveys, include restrictive trade policies, a bloated bureaucracy, high tax rates, and over regulation of credit, business, labor and whatever else the bureaucracy thinks it can get its hands on.

These indices are a useful guide for businesses considering entering the Korean market, however, they must never be viewed in isolation from other realities.

The indices never consider the inherent difficulties in doing business in the developing world. Many of these difficulties are not present or even considered in Korea. One of these difficulties was evident during my recent trip to one of the world’s favorite vacation destinations.

I awoke at about 8 a.m. to a fully developed adult monkey sitting on top of the TV feasting on a bowl of fruits. Awakening to a monkey in your hotel room is entertaining; trying to get a “five-star” hotel in a developing economy to remove a monkey from a hotel room is simply hysterical.

I sensed in my recent trip to one of Asia’s favorite banana republics that if my hotel is any reflection of the nation’s work force, Korea has little to fear from this emerging economy. The developing economy is often labeled as more economically freer than Korea in many major categories of these economic freedom indices and equal or only a little lower than Korea in many others.

Awakening to the monkey on your TV eating fruit from the hotel supplied fruit bowl, I thought it would be best to call the reception desk. I suspected that they wouldn’t check him into a different room, but would check him out of my room.

Calling to the reception desk, I proclaimed in what must have sounded like an excited voice “a monkey is on the TV.” Reception: “TV needed fixed. Transferred call to repair.” “No. No. A monkey is on top of the TV” I proclaimed. Reception: “Ok. Ok.” After a few choice words influenced by an Irish temper and Italian wit, I was transferred to a repair guy.

The repair guy, after having a good laugh and asking if the monkey was of any relation, advised that this is a matter that room service will take care of so. He quickly transferred me to room service.

I explained the situation to room service and explained how the monkey has now taken my swim shorts into the shower room. I suspect the shorts were a little too big for the monkey. I was a little concerned that I may have to choose between swimming in the buff or in Asian-sized swimwear.

The buff, I was sensing, may be a little more comfortable than the Asia-sized swimwear alternative. The room service man said sorry since they don’t handle these issues and he quickly transferred me back to the reception desk.

Of course, a who’s on first conversation ensued leading me to request a gun and two bullets. One of the bullets was intended for the monkey and none were intended for me. I learned quickly that monkeys seem to understand that loud profanity is a sign to leave and leave without my shorts.

I have had the pleasure of assisting clients in doing business in China, Korea, Cambodia, Vietnam, Thailand and a few other Asian nations. Yes Korea has many structural problems caused by its bloated bureaucracy and overregulation of everything; however, in Korea you are far more likely to find employees to handle your monkey problems.

Korea does need to get the figurative monkeys off of its back; however, investors should never consider, alone, these indicators as tools in choosing investment options.

For most companies establishing an office in a foreign nation, the most important consideration should be access to a quality labor pool. Korea may not have the world’s greatest labor pool, but you are sure to find employees to handle all of your monkey business.

Appeared in the Korea Times on October 9, 2010.
by Sean Hayes (Host of Blog)

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SeanHayes@ipglegal.com

Oct 6, 2010

Korea-EU FTA: Country of Origin under the Kor-EU FTA

In order for an importer/exporter to benefit from the lowered tariff rates under the Korean-European Union FTA, the product must be recognized as a product either from Korea or an EU member nation.

Article 2 of the Protocol to the Korea-EU (the “Protocol”) provides that in order for a product to be recognized as a product under the Protocol , the product must either:

  • “Wholly Obtained” within the territory of the Party; OR
  • Has undergone “substantial transformation” within the territory of the Party.

Protocol Article 4 notes that “wholly obtained” means, in summary,:

  1. Minerals extracted and vegetables grown and harvested in the territory of the Party;
  2. Seafood taken from the territorial waters of the Party;
  3. Products made from (2) seafood on “factory ships;”
  4. Scrape and Waste derived from the manufacturing or processing in the territory of the Party.
A "factory ship" "vessel" must be registered in the territory of the Party, sail under their flag and 50% of the shares must be owned by a national within the territory of the Party.

Protocol Article 6 notes that “insufficient” to classify as a “substantial transformation” includes, in summary, mere:

  1. Preservation techniques for transport;
  2. Painting and polishing;
  3. Husking of cereals and rice, peeling of fruits, removal of seeds;
  4. Sifting, screening, sorting, classifying, grading or matching of products;
  5. Slaughter of animals;
  6. Assemble and disassemble of products.

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SeanHayes@ipglegal.com

Korean Anti-trust Law: Defining the Relevant Market in Korea

The Seoul High Court (2009 NU 1930, May 19, 2010) has overruled the decision of the Korean Fair Trade Commission (KFTC) in a case concerning price-fixing by luxury car importers. The KFTC has appealed the decision.

The High Court ruled that a price-fixing arrangement (restriction on discounts from MSRP) between Lexus car dealers was not an “unfair collective act” under Monopoly Regulation and Fair Trade Act Art. 19 (1) thus overruling the decision of the KFTC that imposed a fine and ordered the dealers not to engage in the price-fixing arrangement. The KFTC has also imposed a fine on other luxury car importers.

The KFTC opined that the relevant market was the market for the particular car and not the entire car or luxury car market. Thus, the Commission ruled that the act restrained trade absolutely within the relevant particular car luxury market (Lexus market) and thus restrained 100% of trade within the market.

The Seoul High Court, in contrast, defined the relevant market as the entire market for imported automobiles and luxury domestic cars. Thus, the BMW car market accounted for “much less than 15%” of the relevant market and thus was not a significant restraint on trade and thus didn’t reduce competition in the relevant market.

I would be curious to hear what others feel about this case.

It seems like the Seoul High Court will now not rule per se that a price-fixing relationship is an unfair collect act (unfair restraint on trade) and will require a finding by the KFTC that the arrangement has a substantial effect on competition. The Seoul High Court will also likely define the markets very broadly.

As we all know in Korea, the courts are far less predictable than in Europe and the states this holding may be not followed in preceding cases, even by the same court.

Also, it is curious that the decision by the Supreme Court (2003 Du 9252, Aug. 19, 2005) seems to have been ignored by the Seoul High Court. The Supreme Court in the case opined that price-fixing is per se and unfair collective act “absent special circumstances.” What is the special circumstance in this case?

I am very interested to see what the Supreme Court does and if the Court will pick the obvious market middle-ground (why define all imported cars in the same category as luxury cars), uphold the decision or stand by its previous holding etc. I will update the reader HERE on the outcome of the Supreme Court case.

The Supreme Court case is 2010 DU 11757 and no hearing date, as of October 6, 2010, is scheduled. This would be great one for oral arguments. Expect no update soon.

Also of interest may be:

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SeanHayes@ipglegal.com

Oct 5, 2010

Korean Joint Ventures: Bare Essential of a JV in Korea

A client, a minority shareholder in a foreign-capital invested company in Korea is involved in litigation with other company shareholders over issues the client had with the majority and other shareholders.

The majority shareholder (controls the representative director) has been helping himself to the company profits through liberal expensing and interested transactions with the company and his personal company. The majority shareholder is also threatening to block distributions and is possibly increasing the stickiness of his fingers.

Like situations WILL occur in many cases where a JV is not completed through a carefully drafted shareholder agreement and articles of association.  A majority shareholding will not prevent this situation from occuring, because of the nature and power of representative directors.

I have said this numerous times, if you don’t want to support my extravagant lifestyle (actually I don’t have an extravagant lifestyle), get an experienced attorney to draft your Korean shareholder agreement and articles of association.  Make sure the attorney knows what the heck he is doing- many of the foreign and Korean attorneys - don’t.

Make sure the attorney is not merely going to give you form agreements. Every joint venture agreement in Korea is different and form agreements are a sign of a lack of care and trouble in the future.  Don’t skimp at this stage and thus don’t use form articles, form shareholder agreements, and form by-laws drafted by hacks, attorneys that quote the lowest price and only accountants and bubmusa (judicial scriveners).


Joint Venture Basics

  1. Due Diligence, Due Diligence, Due Diligence;
  2. Limit the Powers of the Representative Director;
  3. Retain the Power to Appoint and Remove the Representative Director;
  4. Maintain Control over the Company Seal;
  5. Retain Majority Control or include other Minority Protection Clauses;
  6. Hire an Independent Accountant and Utilize a Neutral REAL Statutory Auditor;
A few other articles I wrote may be also of interest:

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SeanHayes@ipglegal.com

Korea Licensing Agreements: The Slim Basics

We always advise our clients for every license agreement that there is a very high probability that at the end of the agreement license payment obligations will not be honored by the Korean licensee. The same holds true for our Chinese and Southeast Asian practices.

If a Korean licensee is not going to continue the relationship with the foreign licensor, many Korean companies simply choose to forego the obliged payments in favor of not responding to emails, phone calls and mail.

We represent many foreign companies that retain us to collect on overdue payments from the Korean licensees. We are often disappointed at seeing license agreements that are simply form agreements from U.S./European Law firms or agreements drafted by Korean law firms with Korean and foreign attorney hacks. Sorry to call fellow attorneys hacks, but after reading one of the license agreements from one of the "ubiquitous big firms," the term is even too kind, since the fee paid for a simple regergetated form was outrageous.

For you foreign attorneys in Korea reading this, don't just use an agreement given to you by a Korean attorney or borrowed from a license agreement from an inhouse form book (we all know that book), but use a little creativity and your legal education.

If the company is a large respected company with numerous executed license agreements, often the problem is resolved with a letter and a call, however, the less cash flush will often skip town and will require you to hire an attorney to attach assets.

Save you money and spend some time and resources on drafting a Korean-tailored license agreement.

Here are a few tips for those that wish to forego the use of an attorney (not advisable, but I do love giving free advice.)

  1. Front-load the payments and expect not to get the last few payments;
  2. Have clauses requiring the payment of expenses for collection etc.;
  3. Have fire prevention etc. clauses;
  4. Make the agreement compelling enough for the Korean company to continue with the agreement. Think up some unique teasers, while still maintaining your option not to renew;
  5. Use a Korean-tailored agreement and not just a form American or European license agreement;
  6. Translate the agreement into Korean in order to avoid misunderstandings;
  7. Do a background check on the company;
  8. If you smell a stinky fish, you found a stinky fish. Don’t be desperate; someone else will want what you have, unless you also have your own stinky fish to sell.
Other articles that may be of interest for those reading this article include:


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SeanHayes@ipglegal.com

Oct 1, 2010

Stock Purchase/M & A Due Diligence Check List for Korean Companies

A client called and asked if I would draft a due diligence check list in order to advise on due diligence necessaries.  The client intends to purchase the stocks of a distressed 700+ employee Korean company.

He noted that his staff would do the actual due diligence and all we should do is prepare the check list. I sent him this list for free and advised him to get someone to do the due diligence that knows what to look for. Hopefully, he will take my advice, since we see too many issues with clients looking to save a few bucks by using staff with no Korean experience.

Korean companies often are very poor at keeping accurate records, thus, knowing what and where to find the usual red flags is critically necessary. The paper trail that is produced by Korean companies is often poor and without a knowing eye and ear you are bound to be taken to the cleaners. Additionally, the issues that come up in U.S. due diligence are vastly different than those that arise in Korea.

Be forewarned, this list was meant for experienced attorneys with knowledge of numerous Korean peculiarities. The list is only our initial check list and intended to jar the memory only.

________________________________________________________________________
Initial Checklist
Stock Purchase/M & A
J & S Law Firm
(Seoul Office)

I. History
     A. Company History
     B. Founder & Family
     C. Historical Profitability
     D. Reason for Sale
     E. Primary Customer
     F. Stinky Fish

II. Financials
     A. Audit Documents
     B. Tax Returns, VAT filings etc.
     C. Government Filings, Notices and Communications
     D. Local Taxes
     E. Cash Flow, Current Financials, YE
     F. Distribution to shareholders

III. Company Docs
     A. Business Licenses
     B. Articles, By-laws, Amendments etc.
     C. Shareholder Agreements
     D. Government Approvals etc.
     E. Directors, Officers, Share Holdings
     F. Representative Director, Seal Authority
     G. Formation Docs
     H. Insurance

IV. Assets
     A. Receivables
     B. Real Property
     C. Moveable
     D. IP (trademark, patents, copyrights, licenses etc.)

V. Other Liabilities
     A. Lawsuits
     B. Government
     C. Loans
     D. Guarantees
     E. Licenses
     F. Contingents
     G. Liabilities to Shareholders, Directors, employees

VI. Employees
     A. Employee List
     B. Employment Contracts
     C. Government Obligations
     D. Severance Obligations
     E. Employment Related Tax Obligations
     F. Labor Union Representatives/Union

VII. Real Estate
     A. Title, Lease, Property Records
     B. Adjoining Landowners
     C. Mortgages, Liens etc.

VIII. Customers
     A. Major Customers
     B. Agreements
     C. Customer Relationship Issues
     D. Customer Relationship with Key Employees Leaving

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SeanHayes@ipglegal.com

Sep 30, 2010

Commentary on Korean Labor Standards Act

Retired Presiding Judge Jin-Gyeong CHEONG's "Commentary on the Labor Standards Act" was published this week by Pak Younga Sa Publishing. Attorney Cheong, the head of the Labor Law Team at IPG Legal was an editor for the publication and contributed an article concerning remedies for unfair dismissal.

The publication contains three volumes and is the only commentary on the Labor Standards Act of Korea.  The publication may be found at most Korean law firms, libraries and book stores (ISBN 978-89-6454-604-8).

Attorney Cheong holds a doctors degree in Labor Law from Seoul National University and an LL.M. from Duke University.  He retired from his position as a judge after serving on the bench for over 20 years.   His last position with the Korean court system was as the presiding judge at the Seoul Central District Court of a court panel handling Medical Malpractice cases.  His research interests include Labor Law, Medical Malpractice and Litigation Techniques.  A practitioner's guide to medical malpractice cases shall be published next week in a leading legal journal.  His profile may be found  be HERE.

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SeanHayes@ipglegal.com

Sep 27, 2010

Survey on Labor Law Violations

In July of 2010, a survey was published by Jungbu Employment and Labor office. The office conducted a survery on 207 companies in Incheon that hired foreigners (non-Koreans), minors and the handicap. I assume they combined the three groups, since they are perceived as the most abused individuals by employers.

The report concluded that:

1. 196 of the 207 employers violated labor law (94.7%);
2. 83 breached a labor law clause requiring a written employment agreement (40%);
3. 66 breached a clause of the labor law requiring employees to pay retirement allowance, wage arrears, yearly and monthly allowances, within 14 days of resignation (31.9%);
4. 36 didn't pay all wages or yearly allowancess (17.39%);
5. 4 paid wages below the minimum wage of KRW 4,110 per hour.

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SeanHayes@ipglegal.com

Aug 29, 2010

Sean Hayes quoted by Korea Times on D-8 Investment Visa

By Cathy Rose A. Garcia
Korea Times (August 27, 2010)

Foreign-owned restaurants and other businesses have been slowly popping up around Seoul in recent years. There have been a growing number of foreign entrepreneurs, who are living and doing business in Korea.

Foreign entrepreneurs typically carry a D-8 corporate investor visa, which is obtained after investing a minimum of 50 million won ($42,000).

But the government’s plan to double the minimum capital requirement for foreign direct investment (FDI) by October is expected to stifle the growth of foreign-owned small and medium enterprises (SME) in Korea.

The Ministry of Knowledge Economy announced last month it revised the Foreign Investment Promotion Act to raise the capital requirement for D-8 corporate investor visa holders to 100 million won ($84,000)

A spokesperson from the Ministry of Knowledge Economy said it was the right time to raise the minimum foreign investment requirement, considering the amount has remained stagnant for nearly 10 years. .

In 1991, the minimum foreign direct investment requirement was 25 million won per person, or a total of 50 million won. In 2001, it was revised to 50 million won per person.

``If you count the cost of doing business, cost of living, rent and price levels in the last 10 years, it is not too farfetched to be revising the capital requirement to 100 million won... The amount (50 million won) seems too small now,’’ the ministry spokesperson told The Korea Times.

However, there have been reports that the Ministry of Justice had requested the Ministry of Knowledge Economy to increase the investment requirement since it was too low. Some foreigners have allegedly taken advantage of this by availing of investor’s visas to enter the country and stay in Korea indefinitely, but not to do business.

But would a 100 percent increase in capital requirement be enough to prevent some foreigners from abusing it? Or would it just simply discourage foreigners from investing into Korea at a time when FDIs are already declining?

The D-8 corporate investor visa is issued to foreigners who start small and medium enterprises in Korea. There are no restrictions on what type of businesses can be started.

A representative from the Seoul Global Business Center, which provides consulting services for foreigners who want to establish businesses, said many foreigners are interested in opening restaurants or food businesses. Other types of businesses they are interested in include online shopping, trading and consulting.

``We have foreigners coming to the center, inquiring about how to start a business, the proper visa status needed, investments and how to register a company. We assist them with various things,’’ the representative said.

Foreigners need have at least 50 million won in foreign currency before they can establish a business in Korea. The funds have to be remitted from overseas to an account in Korea, as proof of it being a foreign direct investment. Once the company is registered and the funds are transferred, the foreigner can obtain a D-8 visa.

However, there has recently been an increase in the applications and issuance of D-8 visas, which raised alarm bells for the Ministry of Justice.

There have been instances of some individuals who do not have the required minimum capital and have resorted to paying so-called ``agents.’’ These agents will forward money from their overseas accounts to the applicants’ accounts. In return for loaning the amounts and helping complete the application, the agents will be paid exorbitant fees by the applicants.

Sean Hayes, a lawyer who co-leads the J&S Law Firm's International Practice Group, said the ministry’s plan to raise the foreign investment requirement will not discourage this small number of foreigners from abusing the D-8 visa.

``The Ministry's solution to the problem will likely never solve the problem ― these agents will simply charge higher fees and find other creative ways to get approval for applicants,’’ Hayes told The Korea Times.

Instead, the plan may further tarnish Korea’s image as an investment destination. ``Raising the capital requirement will lead to negative press and possible a feeling by potential investors that Korea is not a foreign-capital friendly destination. The attitude is already widespread and thus risking an increase in negative sentiment for the sake of not allowing entry of a small number of individuals is obviously an unwarranted risk,’’ Hayes said.

Many of the foreigners who are abusing the system are from less developed nations, so Hayes proposed changes in the immigration process.

``A two-tier approach to visa applicant screening and additional training for immigration officials on how to adequately scrutinize visa applications from countries that are less developed economically than Korea is a better approach. Also, Korea needs a total revamp of its immigration laws to allow needed skilled workers to be more easily employed by employers in need of these workers,’’ Hayes said.

There are already some prospective investors who are being turned off by the increase in capital requirement.

Some have approached the Seoul Global Business Center to ask for assistance in setting up their business in Seoul, but are now thinking of stalling their plans to be able to raise more funds.

``Some only have 50 million won as their maximum money right now. So it is becoming a problem for them to raise 100 million,’’ a representative from the center said.

If obtaining a D-8 corporate investor visa would be a problem, the Ministry of Knowledge Economy spokesperson suggested foreigners who want to do business here can try applying for a D-9 trade management visa or C-2 short-term business visa. The D-9 visa is for overseas traders who do import and export business, while the C-2 visa is issued for self-employed people, consultants for Korean companies and those involved in trading business.

However, it seems the government’s tightening of FDI requirements comes at a time when FDI has continued to decline. In the first half, only $4.33 billion in FDIs have been recorded, a 6.7 percent drop from $4.64 billion during the same period in 2009.

Government officials downplayed any possible effect of the new investment requirement on overall FDIs, since SMEs only make up a miniscule portion.

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SeanHayes@ipglegal.com

Aug 1, 2010

Korean Antitrust Laws' Evolution

Korea Times (07/30/2010)
by Sean C. Hayes

Over the past decade, Korea has fostered the development of a Fair Trade Commission (FTC) with the power to actively fight to eliminate anticompetitive forces in the market.  This admirable evolution is welcomed by most domestic consumers.

However, in many cases, anticompetitive practices may actually be a benefit to consumers in the short and long term.

In these cases, a more nuanced Chicago School approach is necessary in order to incorporate a little realism and reason to the discussion and not to jeopardize economics for the sake of cookie-cutter-like rules.

An FTC ruling to fine the importers of BMW cars was recently upheld by the Seoul High Court.

The seven importers were fined a combined 14 billion won. Their practices were traditional horizontal price-fixing arrangements.

Many in the antitrust field would have expected the outcome after the uncovering of a price-fixing relationship between the importers.

Consumers are hoping that after this holding, competition may reduce the price of new and used BMW cars. Because of market dynamics, however, the situation does not seem hopeful.

These types of decisions and the recent proactive nature of the FTC should be a wake-up call to the numerous companies in Korea that have abused their dominant power to the detriment of consumers.

This should, also be a wake-up call to those doing business in Korea in any market dealing with vertical relationships with suppliers, distributors and even directly with consumers.

The Korean FTC is aggressively investigating perceived practices that have no provable present damage to consumers.

These cases often concern relationships with suppliers, reward and loyalty programs and franchise, licenses, distributors and like vertical agreements and arrangements.

These modern aggressive courting and FTC practices concerning vertical relationships in Korea, may be counter to the primary purpose of antitrust laws and thus should be considered by the FTC, but with a more nuanced and tailored approach.

Competition and antitrust laws were initially intended, in the United States, the EU and throughout much of the world, as tools to protect consumers.

They were not intended as tools to protect competitors, suppliers and distributors unless a finding was obtained that protecting these classes of market participants would, in the end, protect consumers.

The purpose of antitrust laws is best stated by John Stuart Mills.

Both the cheapness and the good quality of commodities are most effectually provided for by leaving the producers and sellers perfectly free, under the sole check of equal freedom to the buyers for supplying themselves elsewhere.

This is the so-called doctrine of Free Trade, which rests on grounds different from, though equally solid with, the principle of individual liberty asserted in this Essay.

Restrictions on trade, or on production for purposes of trade, are indeed restraints; and all restraint, qua restraint, is an evil..

Mills believed restraint on trade was an evil, since consumers could be plagued with inferior commodities for a higher price.

With much criticism, many courts, however, have extended the protection and thus the purpose of antitrust laws to include direct competitors, suppliers and distributors even without a showing of damage to consumers.

Critics, including, former Judge Robert Bork have vehemently criticized this modern trend because of its obvious break from the initial purpose of antitrust laws and their lack of a principled economic reason for extending antitrust laws to these practices.

For all antitrust cases, the FTC and court should apply a standard Chicago School approach to handling these issues and those considered economic and market realities and the true and initial purpose of antitrust laws.

The FTC and courts should be leery on ruling certain actions as a per se violation of antitrust laws when a vertical relationship, efficient mergers, issues concerning vertical franchises, distributors, suppliers,licensing and like agreements are involved and even in some questions when horizontal restraints on trade are involved.

A recognition of the Chicago School approach and not simply per se rules wrapped in nothing more than a lack of understanding of economic and market realities will not lead to the protection of consumers, but will simply be an added tool for market participants to handle disputes.

This will potentially harming consumers and violating the intent of antitrust laws.

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SeanHayes@ipglegal.com

Jul 25, 2010

Chinese Aren't Coming

Korea Times (July 23, 2010) By Sean Hayes

Willie Sutton, the famous 1940s bank robber, was attributed with answering a reporter’s questions concerning why he robs banks with: ``that is where the money is.”

The Japanese, knowing that China is where the money is, loves China ― why don’t the Koreans?

The Chinese knowing that Japan is developing a vibrant ``Chapanese” economy love Japan ― why don’t the Chinese love Korea?

Overwhelmingly, Korean employees and shareholders believe that the Chinese will enter the market to steal technology, lay off workers, and abuse their dominant world power. Chinese investors are not dumb; they know this perception by the Koreans.

China only accounts for 1.4 percent of the total foreign direct investment (FDI) in Korea, according to government data. While, China accounts for 11.1 percent of Japanese FDI with only the U.K., Canada, Germany and the United States surpassing Chinese investment in Japan, according to Japanese government data.

The Chinese have controlling interests in numerous Japanese companies including well-known golf club manufacturer Honma, die-maker Ogihara, electric technology company Nikko Electrics, and information services company SJI Inc.

Wealthy Chinese are gobbling up Japanese and other foreign products in Japan at a rate that makes even wealthy American consumers blush. The number of wealthy Chinese surpasses, in number, the entire Korean population.

This Korean situation is alarming and worrying considering that Korea is only a stone’s throw from China. China is one of the world’s largest economies and Korea bills itself as the ``Hub of Asia.”

These impressions by the Chinese come from, in part, the Ssangyong Motors disaster. Ssangyong Motors is a former Chinese-controlled Korean company. A controlling share of Ssangyong was sold to the Shanghai Automotive Industry Corporation (SAIC) in order to save the company from liquidation.

The SAIC attempted to avoid liquidation through reorganization. Members of the Korean Federation of Trade Unions and the Korean Metal Union Workers, unwilling to compromise with the company, led a 77-day seizure of the Pyeongtaek Ssangyong Motors’ plant.

Union members and hired thugs tossed fire bombs and projectiles from slingshots at police and caused significant damage to the plant and the reputation of Korea.

The then very unpopular Lee administration, out of fear of being perceived as too right-leaning, made few moves to end this strike until almost two months into the fiasco. The situation made a lasting impression on many foreign investors, not just the Chinese.

Why is the situation much different in Japan? The Japanese government has made a concerted effort to attract Chinese investment and the Japanese are much less nationalistic than Koreans. This nationalism is hurting the chances for the government to have a true sustainable growth rate.

We should no longer consider companies as national enterprises. Most major Korean companies manufacture more of their goods outside Korea and these and all multinational companies’ primary concern is profit, not promoting the nation of the management’s best interests. Nationalist company management is the rare exception and definitely far from the rule.

With this in mind, the Lee administration must make a government-wide effort to educate the population and officials to think with their minds first and not with their hearts and thus realize that Korea must focus on ``where the money is.”

A great start is the recent revision of the visa rules for Chinese visitors, but no true change will occur without a change in the hearts of the population, this will only come through a collective raising of consciousness and a realization as in the words of Thomas Friedman that: ``The historical debate is over. The answer is free-market capitalism.”

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SeanHayes@ipglegal.com

Jul 5, 2010

Korean Outsourcing: Legal Basics

So you have decided to outsource the manufacturing of your products to Korea. Good choice in choosing quality-focused Korea over quantity-focused China, but don't make the bad choice of not even taking the basic legal steps necessary to protect your good name, technology, brand and the future of your business.

If you plan on just dealing through a purchase order (PO) in Korea, you are heading down a path that will invariably lead to a kick in the tail.

The recession has hit small/medium-sized manufacturers even harder than large manufacturers. Many of these SMEs have decided that the only way to survive is OEM (original equipment manufacturing) outsourcing to China, India, Korea and other parts of Asia.

I, also, do a good deal of enjoyable work in China and India. I am, however, always happy to see clients choose Korea over India and China, since many of the headaches you will experience in China and India will never be felt in Korea.

The legal system, in Korea, is generally transparent, fair, and the judges tend, with a little guidance, to be able to understand commercial disputes. Also, I have been told that Korean manufacturers need much less guidance than Indian and Chinese manufacturers and the cost of doing business in Korea is not substantially greater, for high quality products.

This situation being known, foreign companies often make the poorest of choices when doing business with Korean companies. Korea is still far behind the United States and the West in terms of business ethics, protection of intellectual property and legal transparency. Many risks, not even considered potential risks in the West, are regularly realized in Korea.

Before entering into any Korean OEM agreements, please consider and follow these very basic pieces of advice. As in an article I wrote for a Korean daily entitled Listen to your Mother -- always look both ways before crossing the street, carry an umbrella in the spring and don't go out alone at night.

1. Request and obtain the company’s business registration number and perform a credit check on the company. A basic credit check can be obtained through the Korean Investors Service (www.kisrating.com).

2. Register all your intellectual property rights (copyright, patents, trademarks etc.) in Korea. Registration will help to prevent your competitor, a disgruntled distributor, or your manufacturer from counterfeiting your goods and exporting your product from Korea to your customers and potential customers. Registration in the United States and Europe does not guarantee that your intellectual property rights are protected in Korea. IP treaties only provide you a window of time to register in a member state.

3. Your Korean license, distribution, OEM agreements and other agreements used in other nations are not adequate for Korea.  All “standard” distribution, license, OEM agreements and other agreements should only be used as guides in Korea. Korea has a unique legal system with unique business risks. If you are planning to deal only through a purchase order (PO), you are a goat waiting to be milked.

4. All agreements, to avoid any initial misunderstandings, should be drafted in English and Korean.  A well drafted Korean OEM agreement is not complete until it is translated.  Even the best English speaking Koreans, are ill prepared to understand agreements of this nature.  Clear misunderstandings upfront and avoid legal fees down the road.

5. Know-how, trade secrets and the like should be protected through a written agreement. A standard non-disclosure agreement (NDA) is not enough. This agreement should be signed prior to any course of dealing and normally should include confidentiality, non-use, non-circumvention, non-competition clauses with a liquidated damage clause.

6. For at least the first few shipments, don’t pay until the goods are inspected. For the first shipment, check the goods at the port yourself. Afterwards, procedures can be put in place that guarantees the quality, quantity and delivery time through local channels.

If you heed these simple pieces of advice you are well on your way to having a successful relationship with a Korean manufacturer.

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SeanHayes@ipglegal.com

Jul 3, 2010

Korean Law Firm's Competition from American/British Law Firms

The Donga-Ilbo reported that 83% of the Korean companies surveyed would utilize foreign law firms for domestic matters if foreign firms operated in Korea. The local Korean newspaper surveyed 50 Korean companies, state-run enterprises, law firms and financial institutions.

At present no American, British, French, German or any other foriegn law firms are allowed to operate in the Korean market.

However, a number of foreign lawyers in Korea have taken on senior roles at Korean law firms and many Korean law firms have standing relationships with American and British law firms.

The biggest fear for Korean law firms and lawyers was always thought to be the loss of foreign clients, however, it seems likely that even Korean companies may also be lost to foreign law firms without a drastic improvement in the quality and efficiency of representation by Korean attorneys.

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SeanHayes@ipglegal.com

Debt Collection in Korea

With the recent economic crisis, my Korean law firm has received a noted increase in the number of calls concerning collecting debts from Korean debtors. The debts have been mainly from small U.S. & British importers. Most of the matters concerned unpaid invoices and commercial loans.   A few of the calls concerned, simply, scams by Korean exporters.

A few basics steps can help your company not to be duped by Korean businesses and obtain the money you are owed.
  • Request the Korean company’s business registration number and registered business address.  If they claim not to have a business registration number -- run.  Check that the number and address is correct.

  • Make sure the person you are talking to is actually working for the company that you believe you are doing business with. Call the main company number and send an email to the main company email address listed on the company's website.  If you smell a rat, you probably found a rat. If you smell a rat -- don't eat the rat, get someone in Korea to check the situation out for you. I found two situations, this year, where an individual fraudulently represented himself as a member of a company.  One was found prior to contracting, the other individual was not and is no where to be found. 

  • Obtain a credit rating report on all Korean company you intend to do business.  The reports can be obtained through one of the various commercial rating agencies. Smaller companies reports are often not available in the English language. Some of the ratings can be found at http://www.kisrating.com/.  Ratings for larger companies are very good. Some of the data for smaller companies is not complete, but can still be very useful. 

  • Have all your Korean license agreements and other agreements reviewed by a legal professional with knowledge of the Korean business and legal landscape. A contract drafted by a U.S. law firm is rarely adequate for use in Korea.

  • If a dispute arises, have a firm immediately send a warning and then a demand letter. In most situations, if you have a good lawyer and a debtor with assets, the matter will be solved through the letters. The fee for this service, in most cases, is minimal and can often be obtained for a small upfront fee and percentage of the amount collected.

  • Make sure the demand letter is drafted in English and translated into Korean. I have seen too many times the lack of care and understanding of the facts of the matter leading to negative outcomes in court. Often Korean lawyers seem to understand what you are saying, but often don’t actually understand - so make sure they got the story down by having them first draft the letters in English.  Make sure this is agreed to before you sign the retainer, since this is added work for the attorney.  I strongly advise having a native or at least near native English speaking attorney work on the case with you.  Some firms can still perform well without these attorneys, but this is the exception and far from the rule.  Also, often a foreign educated lawyer is advisable.  I have written articles on this blog and in local media sources concerning the reasons for this and the ineptness of far too many Korean attorneys.  If you are interested, a quick search will locate numerous articles on this issue.

  • If the demand letters fails, you should, normally, obtain an attachment order before trial. Real property and movable property can both be attached. The Korean courts require large refundable deposits for the attachment of movable properties often greater than 1/3 of the value of the movable. A part of the sum may be through bond.  I personally enjoy attaching automobiles.  A company president that is used to a driver and car is often lost when the car is being towed to a government lot.  In one of my favorite cases the president begged us to take the money today and get the car back, since his wife was not too amused by the fact that she was not able to go on her weekend shopping trip to Yeoju Outlet with the husband's car and driver.   

Only hire an attorney that has significant experience with international clients and business litigation.  Make sure the attorney you hire will actually work on the matter and not simply hand it off to a junior attorney.  Also, please realise that the attorney is always more important than the firm.

Recently, two new clients first hired international collections agencies that claimed to specialize in Korean debt collection. The agency failed through demand letters and phone calls and noted that it is best to hire an attorney. Beware debt collectors that advertise that they are internationally experienced in debt collection.  It is possible that some of these agencies can obtain results, but in Korea, and I believe throughout Asia, lawyers can exert strong pressure on a debtors to pay, a debt collection agency, does not seem to have this same pressure unless they have good local attorneys retained.  

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SeanHayes@ipglegal.com

Korea may Introduce U.S. Grand Jury System

Prosecutor General Joon-gyu KIM, in reaction to a recent bribery/sex scandal involving over 100 current and former Korean prosecutors, announced that Korea should adopt a U.S. grand jury system. The Korean prosecutor general vowed that for major cases he will initiate citizen-review panels immediately.

Grand juries, in United States federal courts, comprise groups of between 16 and 23 citizens. The prosecution must present evidence to the grand jury before the prosecution can indict. In the U.S. federal system, 12 jurors must vote that the evidence is sufficient for the prosecution to indict and thus for a case to go to trial.

The United States is one of the only legal systems to still utilize the system. The protections afforded by the grand jury, in U.S. federal court, are guaranteed by the 5th Amendment to the United States Constitution.

The major advantage of the grand jury system, in Korea, will be that the system may assist in returning confidence in the Korean legal system to some foreigner investors, while providing an added safeguard against abuse of the system by prosecutors and politicians. The introduction of the system could also provide an escape value for prosecutors that often feel overwhelming pressure to indict even on the most weak of evidence.

During the last few administrations a few questionable criminal investigation have given the Korean legal system, in the eyes of many foreign and local investors, an impression that Korea is not a foreign capital-friendly destination. Prosecutors, overall, realized this sentiment, but pressure from outside sources often led the prosecution to choice less choices.

In these cases, the prosecution, often, feels overwhelming pressure to investigate and indict. The pressure, normally, comes from the administration and press. The prosecution, if the grand jury was available, could present available evidence to the grand jury and the grand jury would have the opportunity to dismiss the charges based on the lack of evidence, thus, giving the prosecution an added tool to avoid a case they may believe has a low possibility of receiving a conviction on.

Without the grand jury, the prosecution in the most public of cases will continue to have overwhelming pressure to indict even on the weakest of evidence.

A J & S Law Firm (International Practice Group) client was the victim of this pressure on the prosecution.

My firm is presently engaged by a well-known multi-national company. The prosecutor had overwhelming pressure to investigate and indict foreign and domestic employees. Some of the foreign employees were subjected to multiple lengthy interrogations on evidence that amounted to nothing more than the speculation of a disgruntled former employee. The prosecution, since the case was referred by a government agency, had overwhelming pressure to do a "complete" investigation and indict.

The case ended well, but not after the loss of trust in the Korean legal system by senior management at the parent company. The parent will not consider additional investment in Korea in the near future, because of perceived transparency fairness issues evident in the Korean criminal justice system. The situation is a regular occurrence that is often mentioned by clients and foreign investors. Clients have noted that these issues are not apparent in most of Korea's Asia-Pacific competitors including Hong Kong, Singapore, Japan, Malaysia, Indonesia and Australia.

Hopefully, the grand jury system will be introduced to the Korean legal system and the system will allow defendants and key witnesses requested by the defense to testify at the grand jury.

The U.S. Attorney Manual notes that not allowing a witness to testify can lead citizens to believe that the system is unfair. Without allowing defendants and witnesses to testify this system will simply be used as a rubberstamp for prosecutors, since prosecutors will have nearly total control of the evidence presented.

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SeanHayes@ipglegal.com

Jun 30, 2010

Korean Court Overturns Immigration’s Deportation Order

The Administrative Court in Incheon, Korea ruled in June of 2010 that a Chinese woman suspected of marrying a Korean national for the right to gain a Korean residency card (F-2-2 Visa) is not allowed to be deported on the sole grounds that both her former and present husbands were convicted of being involved in marriage fraud and the previous marriage ended only two months before the current marriage.

The Chinese woman entered Korea with her previous Korean husband in 2006. The couple was divorced in 2008. The woman, then, married another Korean man, only two months after the divorce. Both the present and past husbands’ had been convicted of marriage fraud.

The Court ruled that the evidence of previous and present husbands’ involvement in “sham marriages,” and a new marriage closely preceding a previous marriage are not adequate grounds, in of themselves, to deport.

The Court also noted that the woman was living with the present husband, had a miscarriage during the time of the present marriage, had frequent contact with the husband’s family, and statements affirming the marriage by neighbors were all signs of a legitimate marriage.

The case was warmly welcomed by many NGO and attorneys interested in pro bono initiatives because of the case’s outcome being one of many signs that Korean courts are increasingly willing to protect the rights of vulnerable foreign migrant workers.

For additional information on pro bono initiatives of IPG Legal, please contact Sean Hayes.

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SeanHayes@ipglegal.com

Apr 26, 2010

Sean Hayes in NY Times on Samsung Slush Fund/Corruption Case

Sean Hayes, co-team leader of IPG, was quoted by the New York Times on a  book written by Former Samsung head attorney and Prosecutor Yong-Chul Kim on the Samsung Slush Fund Scandal.

Sean C. Hayes, an American lawyer and newspaper columnist in Seoul who has worked for the Constitutional Court and taught at a law school here, said he hopes more "brave souls" like Mr. Kim would speak out about corruption "for the benefit of a promising nation that is being choked by corrupt incompetents."

"The change will have to come from the masses," he added, "since elite power centers have a firm grasp on most government entities through implicit guarantees that evils will only be dealt with by a little slap on the wrist."
Some quotes from the article:
  •  In his book, Mr. Kim depicts Mr. lee and "vassal" executives at Samsung as bribing thieves who "lord over" the country, its government and media. He portrays prosecutors as opportunists who are ruthless to those they regard as "dead" powers, like former president, but subservient to and afraid of Samsung, which he calls the "power that never dies."
  • "I wanted to leave a record of Samsung's corruption because prosecutors' investigation turned it into historical gossip," Mr. Kim said. "I wrote this book because I was afraid that children would grow up believing that in South Korea, justice does not win, but those who win become justice."
  • Mr. Lee (Samsung President) was convicted of having evaded 46.5 billion won in taxes on profits generated from hidden money and of having helped his son buy shares of a Samsung subsidiary at an artificially low price.  He was sentenced to three years in prison, but a judge suspended the sentence, saying the crime "was not serious enough to merit an actual prison term."
  • After his conviction, Mr. Lee (Samsung President) said he was "sorry for causing trouble to the people."  In February, he received a presidential pardon, and a month later he returned to Samsung as chairman, without a board meeting to approve the appointment.
The full text of the article may be found HERE: BOOK ON SAMSUNG DIVIDES KOREA

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SeanHayes@ipglegal.com

Mar 10, 2010

Check Kiting Scam Hits Korea (Beware)

I was contacted by an attorney needing assistance in placing a block, via injunction, on a Korean bank account. The attorney was the victim of a check kiting scam targeting attorney trust accounts.

A number of these scams have been running through Missouri. 

My firm's case involves an attorney's trust account, in which a “client” claiming to be from Malaysia contacted the attorney and asked for assistance in having insurance funds transferred from a North American insurance company to a foreign bank. The fraudster claimed he was injured in an auto accident involving a Missouri-based trucking company. The trucking company paid the settlement, but the fraudster needs the assistance of an attorney to have the funds transferred overseas, since the insurance company is unable or unwilling to forward payments out of North America.

The fraudster sent a copy of his Malaysian passport, utilized the name of a real Missouri trucking company, a real insurance company based in Canada, signed a retainer with the firm and sent a letter claiming to be an adjustor from that company.  He even had a person pose as an agent from the insurance company.

The local bank received the check and wire transfer instructions to a person in Korea. The attorney’s bank, before presenting the check to the bank the check was drawn on, forwarded the funds to a bank in Korea. The majority of the funds were in the attorney’s trust account and part of the funds were part of the attorney’s overdraft protect.  The amount of the money forwarded was USD 350,000.

I was contacted in the wee hours of the night and we contacted the Korean bank and firmly requested them to place a temporary hold on the funds and also filed an injunction, since the beneficiary of the funds has strongly petitioned the bank to release the funds and thus not return the funds to the forwarding bank.
Our client is not the only attorney that was the victim or target of the scam. According to an article in this week's Missouri Lawyers Weekly, at least 12 attorneys in that state have fallen or nearly fallen for this scam. Once an attorney agrees to handle the case, the fraudster sends a counterfeit check for the fake settlement amount and the attorney initiates a wire transfer request.

A simpler but equally devious scam has recently been sweeping attorneys' trust accounts in Hawaii.

In this scam, a “client” claims to be an American woman seeking a divorce while living overseas. When an attorney accepts the “case,” the fraudster sends a counterfeit check to pay the retainer fee, but for an amount exceeding the fee. If the attorney's fee is say $10,000, the fraudster sends a counterfeit check for $100,000. The attorney then contacts the “client” and explains that she has made a mistake. The fraudster requests the attorney to send her a check for the difference. The attorney learns they have been scammed only when their bank tells them the original check was counterfeit.

It seems odd to target attorneys, however, they often keep client funds in trust accounts and have access to large overdraft protection on accounts.

Attorneys may be more susceptible, since attorneys often delegate much of the “clerical” work to secretaries, often juggle multiple matters at the same time, and are notoriously more careful with client matters than their own matters.

If you are contacted via e-mail, phone or through a dream – confirm everything, never forward funds until a check is confirmed cleared by the bank the check was drawn on and don't believe anyone.

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SeanHayes@ipglegal.com

Feb 11, 2010

Security on Movable Property and Receivables in Korea

Security on Movable Property and Receivables Bill in Korea

The Ministry of Justice has recently announced a draft bill concerning the securitization of movables and receivables. The Bill has been pushed for strongly by SMEs. SME’s have complained, since the 1997 Currency Crisis that they are unable to adequately capitalize at market rates. Representatives of the IMF, that I spoke with a few years back, also were very keen on this type of bill. They believed that this Bill will help foster SMEs and new entrant’s potential for innovation and growth.

At present, over 92% of securitized lending is through real estate. The reason stems from the lack of a disclosure system for movables and receivables. The Bill intends to address this issue and solve the problem of SME with adequate raw materials, account receivables, intellectual property, and inventory and no real property.

Basic Details of the Act on Security on Movable Property and Receivables (the "Bill"):

1. Grantors can only be those with a registered business name (exception for intellectual property rights);

2. Fosters the creation of a registry to be modeled after the present real property registry;

3. Joint collateralization of intellectual property is possible through registration in the intellectual property registry;

4. Addresses the obvious, but not all, procedural shortcomings of the Asset Backed Securitization Act;

5. Grantor may be a non-registered business if securitization of intellectual property;

6. Avoids conflicts with other laws by exempting ships, aircrafts, construction equipment, and vehicles (bill of lading or may be registered under other laws);

7. Avoids conflicts with others laws by still allowing, under prior security systems, security assignments, mining securities and factory mortgages;

8. The security interest holder is granted a right to priority;

9. The Bill grants the holder the right to request the exclusion of third party “interferers” in the interest;

10. Bill grants the holder the right to request the transfer, disposal, and auction of all security with the exception of intellectual property;

11. Bill grants the holder only the right to request auction of intellectual property rights;

12. Bill creates a system to register receivables and perfect against third parties after registration (discussed in a follow-up post);

13. Law Firms and consultants are presently assisting some proactive lenders in creating internal systems   and processes in order to take advantage of these new eagerly anticipated lending opportunities.

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SeanHayes@ipglegal.com

Feb 10, 2010

Koreans' Appetite for Inept Attorneys

Korean’s Appetite for Inept Attorneys
Korea Times
February 12, 2010
Sean C. Hayes (Host of this blog)


I had the pleasure to work with many of Korea’s most entrepreneurial business professionals in outbound investment projects in China, India, Southeast Asia and the United States. Most of these individuals and companies came to me because of the perceived or realized failures of local Korean law firms with outbound departments and branches.

Many of these problems have been directly caused by Korean attorneys they entrusted for their legal services. Many of these attorneys are at firms that have physical presences in China, Russia, Southeast Asia, and the Middle East. The loses were caused mainly because of the attorneys inexperience, lack of adequate education in international business transactions, inadequate English language skills, lack of business savvy, and in some cases an overt arrogance.

Over the past few years Korean businesses have been hit hard by the precipitous decline in the real estate market and numerous unethical business practices by, amongst others, Southeast Asian, Eastern European and Chinese entrepreneurs.

Many of the loses could have been avoided or mitigated by adequate due diligence and a little market and business savvy. However, too many businesses placed their trust in Korean law firms with attorneys with little to no experience in international business transactions. Thus, only the luckiest of businesses succeeded in such situations. Most received inadequate due diligence reports, poorly drafted joint venture agreements, and ill-advised advice.

Many of these attorneys were introduced to these businesses by government sponsored institutions. The institutions, thus, gave an implicit guarantee of quality and accordingly the entrepreneurs were ready and willing to employ their services.

Many of these law firms have now either closed their foreign shops or drastically cut down on their staff. Some, I have heard, have even been threatened with lawsuits by clients.

I have seen my share of interesting practices. For example, I assisted in cleaning up part of the mess caused by a Korean attorney who asserted that he completed the due diligence and drafted a joint venture agreement concerning the joint development of a piece of real estate.

The agreement involved land that was later found to be not owned by the non-Korean venturor. The error occurred because of the Korean attorney’s reliance on an unauthenticated title and the lack of any communication or investigation of the non-Korean venturor. A basic background check would have shown that the individual was under a prosecutorial investigation for fraud and had no apparent assets in his name. In the United States, this may have led to a successful malpractice suit and sanction from the local bar.

Another situation, which I am happy to note was resolved in the favor of the Korean investor, concerned the renegotiation of the sale price of land in Southeast Asia. The retained attorney from a noted large law firm negotiated a land price that was approximately 25% above market. The attorney was unaware of market realities and trusted the determination of a real estate agent that stated the fair market price to be within the range of the anticipated price.

One of the most interesting situations involved a nation that is notorious for this type of trick. The attorney which was a partner at one of Korea’s largest law firm engaged in outbound transactions was obviously unaware of the trick and was impressed, himself, by the background of the counterparty.

The property, in question, had a title that only allowed the land to be used for farming. The non-Korean venturor promised, from his contacts, to get this restriction on use lifted, but could only lift the restriction after the transfer of funds, since he would need to utilize some of the funds to grease the bureaucratic wheels. The wheels were never greased and the counterparty is now nowhere to be found.

Advice that goes a long way when doing business is to first, never hire an attorney for international business transactions that does not have a native-like understanding of English language and international attorney-like contract drafting skills. The English language and an attorney with language tools in his or her hands can utilize these tools to the advantage of a client. An attorney without the skills will only be utilized to the advantage of the counterparty.

Second, never hire an attorney without, at a minimum, reviewing the attorney’s project portfolio. Remember you are hiring an attorney not a law firm.

Thirdly, get a good lawyer involved early on in the deal. A good lawyer will save you money, headaches, and time.

Lastly, don’t trust anyone. A person who is friends with the prime minister, the police chief or appears in international magazines may be useful to your joint venture, but most likely will be only useful to his own interests. A reputation should not preclude a thorough due diligence and any counterparty that is insulted likely has something to hide.

Find this post in Korean here.

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SeanHayes@ipglegal.com