Aug 24, 2011

Top Ten Things to Do Before Manufacturing in Korea

Korea, in most cases, is a much better choice for the manufacturing of hi-tech, biotech, chemical, petroleum, skilled crafted (tanned leather), construction, complex metal crafted, specialty steel, automotive, semi-conductor, medical and pharmaceutical equipment and goods than China and most nations in Asia, because of Korea’s skilled work force and increasingly transparent business practices.

In many cases, manufacturing in Korea will not, in the end, be more costly than manufacturing in China, because of the increased efficiency of Korean workers and the, often, lower cost of doing business.  China is no longer cheap and China will never be easy.

However, before going into any manufacturing arrangement in Korea here are the Top Ten things you need to know before investing money in Korea in a manufacturing venture or like Korean venture.

The list assumes that you will have a local company as your JV partner in this venture:

  1. Register all Intellectual Property including your trademarks and patents in Korea.  No - your E.U., U.S., Indian, Japanese etc. registrations are not enough (See: Don't Just Trust US: Trademarks in Korea); 

  2. Due Diligence, Due Diligence, and More Due Diligence (See: Listen to My Mother: JVs in Korea; Listen to my Mother: Minority Shareholder Rights);

  3. Complete a decent feasibility study.  This does not mean simply running a cost estimate;

  4. Consult a technical adviser;

  5. Checkout and go through my Stock Purchase/JV DueDiligence Check List;

  6. Meet the Anticipated JV Partner and learn about the partner.  A discussion on the phone is not enough either is a meeting over dinner.  Have a local help with feeling the person out; 

  7.  Execute a Non Disclosure Agreement (NDA) in English and Korean (Liquidated Damages in NDAs in Korea);

  8. Execute OEM, Manufacturing, JV, Supplier, Shareholder Agreements as the case may be in English and Korean.  Don’t get them drafted by hacks or those who don't have experience in Korea.  No, the lawyer you use in NY is not good enough.  I write a great deal on this issue;

  9.  Research or have researched benefits to manufacturing in the Korean Free Trade Zone (FTZ);

  10. Research or have researched benefits to manufacturing or employing people in certain areas of the country.  Example: Seoul government subsidizes new hires in certain industries;

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SeanHayes@ipglegal.com

Aug 23, 2011

Foreign-Capital Invested Companies in Korea Subsidies for Employing New Workers in Seoul, Korea

The Seoul Government has issued the following official notice in order to inform foreign-capital invested companies of a program to partially subsidize the wages of newly hired Korean employees. 

We have recently advised clients eligible for this program in our quarterly legal update.  We have also advised on the numerous other new tax holiday, incentive, and other programs available to foreign businesses operating in Korea and will be posting some of these updates on this blog over the next couple of weeks.  We think this program is immediately useful for many of the readers of this blog.  Please promptly apply for the benefits and we highly recommend learning more about the numerous other benefits available to foreign-capital invested companies in Korea.

The following is the Official Notice issued by the Seoul Government.      
___________________________________
Notice No. 2011 - 1289
Seoul Metropolitan Government (SMG), under the Seoul Metropolitan Government Ordinance on Support for Foreign Investment (Articles 15 and 16) and the Enforcement Rule of the Seoul Metropolitan Government Ordinance on Support for Foreign Investment (Articles 6, 7, 8, and 10), hereby announces the 2011 payment plans for Employment and Training Subsidies for foreign-invested companies in Seoul. Thus, please refer to below and submit the application for 2011 Employment and Training Subsidies.

August 1st, 2011
Mayor of Seoul
Employment and Training Subsidies - 2011

□ Eligible Applicants
- Foreign-invested companies whose business areas are within the
category of the SMG's new growth engine industries
※ SMG's eight new growth engine industries : Business Service, Finance,
Tourism&Convention, IT Convergence, Biomedical Technology, Green
Technology, Design&Fashion

□ Type of Subsidies
- Employment Subsidy : When a foreign-invested company hires more
than twenty Korean nationals within five years after the initial
investment
- Training Subsidy : When a foreign-invested company offers training
to their new employees in the designated vocational training centers

□ Requirements
- The number of Regular Employees during the eligibility period
should be more than twenty.
(Eligibility Period: from January 1st 2010 through December 31st 2010)

※ Regular Employee: Average number of reported wage earners for the period
of three consecutive months from the reference date.
- 30% or more foreign ownership

※ This excludes ownership shares of both Korean nationals and corporations.
- To be eligible for the Training Subsidy, companies should offer
education and training to their new employees in the vocational training
centers designated under the Vocational Education and Training Act

□ Subsidy Amount
- Up to KRW 0.5 million in monthly subsidies for each new employee
for no more than six months
※ The subsidy amount and period will be decided after deliberation of the
Seoul Foreign Investment Support Commission.
- 2011 Budget : KRW 1,008 million

□ Obligations
- Subsidies must not be used for any purpose other than employees’
wages, incentives or benefits, and must be managed on a separate
account
- Companies must have maintained the appropriate number of Regular
Employees and 30% of foreign ownership for three years as of the
date of application
- Companies must consult with SMG in advance if they plan to
relocate to another city or country within a period of five years
from the date of receipt
- If it is found that a company has violated any of the obligations
described herein, or has obtained subsidies illegally, subsidies already
paid must be recovered from the applicant or company under the
SMG Ordinance on Subsidy Management (Article 21)

□ Application
- Period : September 15th ~ September 30th, 2011
- To apply, please visit the office or mail the completed application
form along with other required documents to the following address
(must be postmarked by September 30th)
- Office: Investment Promotion Division, Economic Promotion Headquarters, SMG
l Tel : 2171-2842
l Address : Press Center Building fl.10, #25 Taepyeongro 1-ga, Jungu, Seoul
- Required Documents
l Application form
※ The form can be downloaded at SMG web site (http://www.seoul.go.kr)
l Registration certificate of a foreign-invested company registration
l Performance report on withholding income tax (October ~
December 2009 and October ~ December 2010)
l Confirmation letter of employment insurance acquisition
l Financial statements
l Personal information of the applicant
∘ Foreigner : Certification of Domestic Residence Report, phone
number(Mobile), Alien Registration Number
∘ Korean : Certificate of Residence, phone number(Mobile)
l Documents detailing investment made in Seoul between 2010 and
2011 and future investment plans (Annual plans for up to 2013)
l Real estate documents (e.g. real estate contracts)
 ※ If necessary, companies may be required to submit additional documents.
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SeanHayes@ipglegal.com

So Your Korean Company's Employees Violated Law in Korea: What you Should Do? by Tom Coyner at Soft Landing Consulting

This is not a pleasant topic, but multinational firms and/or their employees occasionally trip over the law in Korea. Actually, this is sometimes easier to do than one might imagine. To illustrate the point, a long-term foreign resident investigated why his vehicle had been issued a parking ticket, given that others had been parking along the same curb for years. He soon discovered that most parking along curbs in Seoul is technically illegal. And such is the case for many things in Korea. This foreigner, a somewhat notorious wag, declared, “The whole country is illegal!” That is obviously an exaggeration but the notion works surprisingly well as a working theory.

The problem can be traced to two major areas. First, the Korean laws are open to interpretation by enforcement officials and the community at large, given their vagueness and/or sometimes their impracticality. And second, since society is routinely cutting legal corners, many businesses would be at a significant economic disadvantage if their managers adhered to the letter of the law in Korea.

To make things interesting, occasionally the Korean authorities crack down on transgressors of a certain regulation or law by suddenly arresting, without warning, an individual as an example to the community. Too often the defense is simply, “Everyone else was doing the same!” -- which may be true, but doesn't get you off legally.

Should you find one of your employees in legal jeopardy, and your company is willing to come to the rescue, you may wish to consider the following.

The Korean prosecutor, to a surprising degree, acts also as judge and jury (Korea does have judges, on the civil law model, but not juries - except for the jury system being tested). The Korean legal system offers a great deal of latitude to its prosecutors. Should a case formally make its way to court, there is at least a 99% probability that the prosecution will prevail.

However, the prosecution drops many cases prior to trial. The reason for this is that many prosecutors are more concerned about social justice than the mechanical aspects of the law. It is the duty and responsibility of the prosecutor to consider all mitigating factors. Also of huge importance is the defendant’s attitude in cooperating with the investigation and, if truly guilty, the degree of expressed remorse and contrition. If the prosecutor believes the first-time offender has learned a life lesson, there is a good chance the case will be dropped or a trival sentence is handed down if the crime is not a major one.

If the detained person is a foreigner, you should immediately contact that person’s embassy. Normally the police will contact the appropriate embassy as well. However, it may be critical for you to develop a rapport with the responsible embassy official to ensure that the detained foreigner’s legal rights are respected. Also, you may get some helpful advice from the embassy official, based on his or her prior experience in dealing with similar matters. In any case you will want to contact a Korean attorney with relevant experience immediately.

Given all of this, any outside assistance must be rendered quickly. Time is of the essence. The longer cases gestate within the legal system, the larger the number of prosecution officials who become involved, adding to the complexity.

Furthermore, one should keep in mind that the investigator can hold a suspect up to 48 hours without showing cause. During this time, the suspect is simply detained. At a brief court hearing within that period, the prosecution must make its case for formal arrest and the court normally rules within a few hours. Most of the time this step is a formality since, if the matter goes before a judge, it is extremely likely the prosecution will prevail. Therefore, it is in everyone’s best interests to try to persuade the prosecution to exercise maximum leniency during the first 48 hours. A common error is to spend too much time shopping around for legal counsel instead of taking preemptive action during this critical time.

If the suspect is formally arrested and placed in jail, it is not too late for a pre-trial acquittal -- but it does becomes a bit more complicated since the case has sunk down a layer deeper into the legal system. A Korean prosecutor may still reduce or even drop all charges, but now he or she must have a stronger argument to do so. Prosecutors in Korea are held responsible for their decisions to defer or to prosecute their cases.

There are several ways to appeal to a prosecutor. First, there are face-to-face meetings. Most Korean prosecutors are very approachable, and many regard themselves as part social worker, responsible for improving society. If they honestly believe full prosecution would render a greater injustice, they will often back off.

Another route is to hire an attorney who was once a prosecutor and who is well regarded by his or her former colleagues. At the same time, a word of encouragement for leniency from someone else in government can have surprisingly positive results. So it can be critical to solicit help from parties not directly related to the case.

In short, if one chooses to act, do so quickly and creatively and give your lawyer in Korea the power to get actively involved. It is important to reach the Korean prosecutor and/or investigator as soon as possible. At the same time, check among your network of Korean allies to discover who knows whom in the legal system. You are likely to be surprised at who may be of special value in a time of such difficulty.

Korea has a rapidly maturing legal system, but its cultural foundation still retains more concern for overall social justice than for strict adherence to the letter of the law. And as in many other aspects of Korean society, personal relations often have a major impact on the outcome.

The system works well when the foreign manager quickly puts many western notions of legal strategy aside. So, if there is ever a time to “go native,” it is certainly when one has to deal with Korean legal jeopardy.

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Tom Coyner is President of Soft Landing Consulting (www.softlandingkorea.com), a sales and business development consultancy and he serves as senior commercial advisor to IPG Legal. His professional involvement with Korea began in 1975.

The original article may be found HERE .  The article appeared in the Korea Times.

Classification of Directors in Korea under the Korean Commercial Code: Inside, Outside and Other Directors in Korea

In Korea, all company directors are listed on the Korean Commercial Register.  If you are doing business with a Company, always check the Commercial Register to determine if you are doing business with a person authorized to do business with your company.   Additionally, if you have been told that you are a director of a company (I have seen this trick a few times) make sure that you are listed on the Commercial Register.

The members of a Korean board of directors may be listed as either: “inside directors”; “outside directors” or “other directors not directly engaged in the regular business of the company.”  In many Korean companies, one of the insider directors is, also, classified as the representative director.   The Korean company may also be required to have a statutory auditor. 

Inside Director
This director is a director that is responsible for the day-to-day activities of the company. The director is held to similar standards as those imposed on directors in the Western world. However, in Korea, shareholder disputes are often resolved at the prosecutors’ office – not with a civil lawsuit as in the West. The situation is changing in Korea, but often when shareholder disputes occur, the shareholder Korean lawyer will advise filing a criminal complaint against interested directors, shareholders and even customers with alleged ties with a shareholder.  This Korean-based law firm, also, often advises to file a criminal complaint, since often the procedure leads to a prompt settlement.

Outside Director
The concept of outside director was adopted with the implementation of the Korean Financial Investment Services and the Capital Markets acts.  The Commerical Code of Korea was amended in 2009 and, now, specifically authorizes the utilization of outside directors.

The introduction of outside directors to Korea was intended to add a level of transparency to Korean companies.  In reality, the introduction of outside directors, has done little to increase transparency, since these outside directors are normally handpicked by the inside directors, powerful shareholders or the family of the company founder.

The larger listed companies (capital of over KRW 1 billion) must have at least three directors and all listed-companies must have at least 1/4 of their directors as outside directors. Larger listed-companies must have at least three outside directors.

Disqualification of Outside Directors
A Korean Outside Director may be disqualified in Korea if, in short, the Outside Director
  • is engaged in the day-to-day business of the Company;

  • family is a majority shareholder in the Company;

  • is an employee, director or statutory auditor of the majority shareholder;

  • is a director, statutory auditor, or employee of the parent or subsidiary of the Company;

  • family, employees of the Outside Director are transacting business with the Company;


“Other Director not Directly Engaged in Regular Business of the Company”
The classification is similar to the conception of a “non-standing director.” The obligations imposed on the director are the same as the obligations imposed on inside directors.
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SeanHayes@ipglegal.com

Aug 22, 2011

Electronic Voting in Shareholders Meetings in Korea: To Vote or Not to Vote

Prior to the 2009 amendments to the Korean Commercial Code, electronic voting was not specifically authorized. I highly recommend to most clients the utilization of electronic voting if the foreign shareholder is in a closed corporation in Korea. 

The method to include this voting  is well known by most attorneys experienced in the drafting of Korean joint venture agreements and shareholder agreements for non-Korean clients.

In order for a company to utilize electronic voting:
  1. The board of directors must approve voting by electronic means;

  2. The Company’s articles of association must not exclude voting via electronic means;

  3. The notice of the general meeting of shareholders, must note that electronic voting is allowed, must note the internet address to cast the vote, the period in which votes may be cast and the basic technical details. The voting must end the day before the shareholder meeting;

  4. Prior to voting, the shareholder must have a “registered electronic signature.”  This is sometimes cumbersome for foreign shareholders, but is manageable with a little assistance from your lawyer.

The Board of Directors is prohibited from revealing the results of the electronic voting until the vote is held at the shareholder meeting.

In contrast, if a shareholder vote in Korea is to be conducted by mail, the articles must specifically note that voting by mail is allowed.  Thus, the articles are required to be amended prior to the vote.
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SeanHayes@ipglegal.com

Korea Due Diligence: Not So Different From China

Steve Dickson wrote a great article entitled China Due Diligence. Not Optional - that I will steal and copy at length. His article appears on the China Law Blog. The blog is a must read for all doing business in China.
Most companies are not aware that due diligence is required whenever you do any kind of business with a Chinese company. If you do not already know the Chinese company with which you will be conducting business, you must confirm that the company really does exit and that you are dealing with the actual  company and not an impostor.
Substitute Chinese with Korean and we have a good article for this blog.

I had a client contact me asking for advice on how to collect a debt of USD 150,000. I first asked the client for the name of the debtor and he gave me the name JH Park. I asked if he had any other information and he said he had an email address. How the heck can you send someone USD 150,000 without any information on the person?

He noted that he saw the website and I noted that the website has only an email address and the name JH Park. I felt really bad for this guy and agreed to try to dupe the "JH Park" into revealing more information, but of course the man was too smart to fall for our fishing exercise. Thus, we are left with a fake gmail account and a name that is more common than Joseph Smith in Utah.

Steve seems to experience the same issues I experience working in Korea.

It is easy in China to fake company seals, business cards, bank accounts and even a website. The unsuspecting foreigner makes a deal with the impostor and sends funds to the bank account. Product never arrives. The foreigner contacts the well established Chinese company and that company truthfully responds by saying "we have never heard of you." It turns out the foreigner had been dealing with a fake, virtual company the entire time. This happens all the the time in China. Trust me when I tell you we see instances of this at least once a month. 
Please, my friends at the China Law Blog and I have said numerous times, please do your due diligence. Read the below articles and one can get a better sense of what due diligence actually means.
I love Steve Dickson (in a Philadelphia way), since he is the smartest guy on the other side of the Yangtze and one of the most interesting and creative thinkers in law. I know, enough of the brown nosing. Hope he invites me one day to meet him in China. His blog may be found at: www.chinalawblog.com and the article may be found HERE.

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SeanHayes@ipglegal.com

Aug 17, 2011

Free Trade Agreements and Korea: Where is the Love?

The executive branch, in Korea, has been aggressively pursuing FTAs, but the liberal parties and pro-farmer parties have been doing everything in their power to undermine the agreements and negotiations these agreements.  Nearly universally, Korean citizens believe that lowered tariffs will bring benefits to consumers and the nation’s economy as a whole.  Few, non-Marxist economics don’t believe in the benefits of Free Trade.

So where is the people’s love? As in the words of the Black Eyed Peas: Father, Father, Father help us send some guidance from above “Cause people got me, got me questionin.” Where is the love (Love).

If Korean citizens wish to get these FTAs passed they need to engage in protests, public internet campaigns and vigorously engage there politicians. The radical liberals in Korea are great at this, but the mainstream is apathetic at best. If Koreans want the benefits of FTA – “Show Your Love All.”

Links to Korean FTAs and Status of FTAs with Korea
Each link below, links to the MOFAT's website and the details of the FTAs.  




Concluded FTAs (Not signed into law. No legislative votes)


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SeanHayes@ipglegal.com

Aug 16, 2011

Establishing a Company in Korea: New Corporate Forms Available under Revised Korean Code

According to the Ministry of Justice, over 95% of corporations in Korea are formed as a Chushik Hoesa, while the Korean Commercial Code (KCC), at this time, defines four different types of Korean potential business entities.  In order to allow a little more flexibility, two new business forms have been created. 

The recent amendment to the Korea Commercial Code, that will be promulgated from April of 2012, introduces two new forms of Korean business entities:
  • Hapja Johap (LLP)

  • Yuhan Chaekim Hoesa  (LLC)

We expect that more foreign investors will choose the Hapja Johap and Yuhan Chaekim Hoesa forms and few new market entrants will utilize the Yuhan Hoesa form, because of the added flexibility of the Hapja Johap.

Chushik Haesa (Joint Stock Company; Co. Ltd.; Corp.;  Ltd.)
Chushik Hoesa is the only corporate entity that is allowed, at the present, to publicly issue shares.  The revision will not change this.  The vast majority of incorporators in Korea chose the Chushik Hoesa corporate form.  It is also the most common corporate form for foreign companies establishing subsidiaries in Korea and this will not change with the April 2012 revisions.

Yuhan Hoesa (Private Company, sometimes referred to as an LLC)
Yunhan Hoesa is a closely held company that is prohibited from having more than 50 shareholders.

In recent years, a few foreign companies (including some international hedge funds) have chosen Yuhan Hoesa.

A few companies, recently, have chosen this form because of possible U.S. and E.U. tax benefits (pass-through benefits).  Additionally, there are few requirements in regard to directors, publication of balance sheet and accounting.  However, the KCC prohibits securitizing shares and issuing corporate bonds.

Hapja Hoesa (Limited Partnership; LLP)
With a Hapja Hoesa one or more partners must maintain unlimited liability and one or more partners may maintain limited liability. The entity is responsible to pay Korean corporate taxes and thus may not be treated as a pass-through entity.

Hapmyeong Hoesa (Partnership)
In a Hapmyeong Hoesa two or more partners form the partnership. The partners must maintain unlimited liability. The entity is responsible for corporate taxes and thus is not a pass-through entity.

Hapja Johap (Limited Liability Partnership; LLP)
Hapja Johap is similar to Hapja Hoesa. With a Hapja Johap one or more partners may have unlimited liability and one or more partners may maintain limited liability. The critical difference between Hapja Hoesa and Hapja Johab is that Hapja Johap, like Johap (partnership) is not a separate legal entity. The tax treatment issues are not yet resolved; however, we doubt that it will be subject to double taxation, thus, we assume that it will be treated as a pass-through entity.  The form, after the tax treatment issue is resolved, may be, in most cases, a more advisable solution than the Yunhan Hoesa form for those that may benefit from the pass-through nature of the entity. 

Yuhan Chaekim Hoesa (Limited Liability Company; LLC)
Yuhan Chaekim Hoesa is very similar to a U.S. LLC.  It is intended to provide the advantages of Yuhan Hoesa and Chushik Hoesa. The liability is limited, shares are freely transferrable between members, bonds may be issued, no capitalization requirements are imposed, no director or auditor requirements are imposed and the entity has easy exit requirements.  The tax treatment issues are not yet resolved, but, however, we doubt that it will be subject to double taxation, thus, we assume that it will be treated for tax purposes in the same manner as a Chushik Hoesa.

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SeanHayes@ipglegal.com

Aug 8, 2011

Limiting Director Liability under Korean Law: Don’t Drop the Insurance Policy Yet

Prior to recent amendments to the Korean Commercial Code (KCC) it was impossible to limit the liability of directors of Korean companies without the agreement of all shareholders.

Obviously, this was difficult, if not impossible, for most listed-companies.
In order to relieve the burden on directors (and their insurance companies) and also to encourage qualified individuals to be willing to become directors (facial purpose), the KCC was amended to exempt directors from some liability in certain cases.  The details are found below. 
Article 400(2) of the newly amended KCC allows the exemption of a director for liability of sums in excess of six times remuneration for inside directors and three times remuneration for outside directors.
The specific details of what is considered "remuneration" is not yet clear.  I assume this may be made clear by the not, yet, implemented enforcement decree.  It will be interesting to see if bonuses and stock options will be considered part of the remuneration of a director.
Article 400(2) of the KCC may only be availed of by a director if the Articles of Incorporation (not clear if board vote is also needed) so stipulate and the director has not:
  1. Engaged in action or inaction that are intentionally or grossly negligent;

  2. Violated the competitive business prohibition (KCC art. 397);

  3. Violated the interested transaction prohibition (KCC art. 398);

  4. Violated the misappropriation of business opportunities prohibition (KCC art. 397-2).

Other articles that may be of interest related to the amended KCC:
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SeanHayes@ipglegal.com

Aug 5, 2011

The KORUS FTA will Pass: Don't Hold Your Breath

According to U.S. Senate Majority Leader Harry Reid and House Speaker John Boehner, the Korea-United States Free Trade Agreement will get an up or down vote soon.   How soon - who knows.

If KORUS FTA reaches the floor of each house of Congress, the Bill will without little doubt pass.  I am less optimistic on the vote than the Speaker and the Majority Leader, since three FTAs are still bundled (Korea, Columbia and Panama) and the Trade Adjustment Assistance Act (TAA) is still a politically sensitive issue with Democrats.

According to a friend that is still working in the Senate from the days I worked at the Senate - the Bills will not receive a vote this month.

The Democrat Leadership has reluctantly agreed to split and give a separate vote on the Korea, Columbia and Panama agreements with the politically sensitive TAA.

We will still need to see what the rank and file Democrats demand.  Democratic Sand Levin the Ranking Member of the powerful House Ways and Means Committee noted that he believes that the TAA must be linked to the FTAs or the TAA should be guaranteed passage.

The TAA is a work retraining and assistance program that in 1999 cost over USD 1.1 billion mainly because of the extension of the program to service sector workers.  Many Republicans and some Democrats believe the TAA is nothing more than welfare in the disguise of a work-training bill.

Republican Leadership has, to date, not been willing to unbundle the three FTAs, since they realize that the liklihood of passing the Columbia and Panama deal is slim without the bundling of it with the Korean agreement, because of the strong opposition to the Columbia and Panama deals by the AFL-CIO who claims that these nations are nations without respect for the protection of the rights of workers. 

The AFL-CIO is also opposed to the KORUS FTA for the obvious reasons.

The TAA program was scrapped when the Republicans took over the House in 2010.

In order to garner passage/extension of the TAA, the Republicans have promised to allow an up or down vote on the Bill and extend a toned down version of the program until 2013.

The KORUS FTA would eliminate over 95% of the tariffs between the U.S. and Korea.  Details of the tariff reductions will be noted in a separate blog post upon passage in the U.S. and Korea.

If the deal passes, the post will be found HERE.

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SeanHayes@ipglegal.com

Aug 4, 2011

Korea-EU FTA Part I: Custom Duties/Tariffs on Imports into Korea

Korea has implemented FTAs or like agreements with Chile, EFTA, ASEAN, Chile, India and now the EU. The Korea-EU FTA was implemented on July of 2011. I have already seen an increase in interest in entry by Europeans into the Korean market.

Korea is Europe’s fourth largest export destination behind the United States, Japan and China.

This is the first in a multipart article on the Korea-European Free Trade Agreement.

Custom Duties/Tariffs under the Korea-EU FTA for Items Entering Korea
  • Cosmetics: Year 5: Duty Free (Presently 8%)

  • Pharmaceuticals: Year 3: Duty Free (Presently 6% average)

  • Medical Devices: Year 7: Duty Free (Presently 5% average)

  • Agricultural: Year 3: 45% of Products Duty Free; Year 5: 65% of Products Duty Free; Year 10: 85% of Products Duty Free;Year 18: 95% of Products Duty Free. Tariffs High at Present and Vary Greatly Based on Product. Rice is protected.

  • Chemicals: Year 5: Duty Free (Presently 6.2% average)

  • Car Parts: Day 1: Duty Free (Presently 8%)

  • Railroad Items: Year 5: Duty Free (Presently 5%)

  • Large-Mid Cars: Year 3: Duty Free

  • Small Cars: Year 5: Duty Free

  • Textiles: Day 1: Nearly all Duty Free

  • Iron/Steel: Year 3: Duty Free (Presently 7.2% average)

  • Industrial Items: Year 5: Nearly All Duty Free

  • Electronics/Machines: Day 1: 88% Duty Free (Presently 7.2% Average): Year 3: 97% Duty Free; Year 5: Nearly All Duty Free; Year 7: Duty Free

  • Beer: Yearly Reduction of 3.7% over 7 years (Presently 30%)

  • Whisky: Yearly Reduction 5% over 3 years (Presently 20%)

More good information on KorEU FTA to come.   Links will be HERE. 

Other articles that may be of interest:
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SeanHayes@ipglegal.com

Aug 3, 2011

Enter the Korean Market - Then Enter China and Japan

Secretary General Jean – Jacques Grauhar made many interesting comments in the EU Chamber’s August 2011 issue of Infomag. He is the most Texas looking Frechman I have ever met.

On another side note, I hope the American Chamber of Commerce in Korea catches up to the EU Chamber in Korea. The EUCCK is producing much better magazine content and much better programs for members.

I am not sure if the EUCCK has more resources than AMCHAM, but when I speak to members of both chambers, many mention the stark differences and are disappointed in AMCHAM.

Competition, hopefully, will produce an even better AMCHAM - it is actually quite decent now.

The Secretary General mentioned something that I think all global businesses should recognize.

He notes that:

While the world focuses on the Chinese market, company executives should also try to include Korea in their itinerary whenever they visit this part of the world, because a presence in South Korea is indispensable for truly global brands and could in fact constitute an excellent launching pad to reach the Chinese and Japanese markets.
In most cases, Korea is a great test market before entry into China and Japan. Many of my clients have successfully succeed and also "successfully" failed in Korea and choose to enter or forgo the Chinese and Japanese markets based on these Korean experiences.

Korea is simply a much cheaper place to do business than Japan and is a much geographically small market than China, thus, lowering the cost of doing business.

Korea, however, for many of my clients, is their largest market in Asia.

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SeanHayes@ipglegal.com

Aug 2, 2011

One Flew over the Cuckoo’s Nest and the Apple Saga in Korea

Over 27,000 iPhone users have filed a suit against Apple over the collection of location data of users of the iPhone in Korea.

Mirae Law, a small law firm near the port city of Pusan is, according to their website, charging clients KRW 9,000 (USD 8.50) plus 20% of the recovered sum for representation in the matter. The clients are, also, required to pay a small court fee.

It is great to see that more Korean law firms are becoming creative and aggressive and that lawyers in Korea are also focusing on the needs of non-business clients, however, the merits of the case are peculiar at best and the passive action by Apple is even more peculiar.

The potential damage to Apple is not only c. USD 25 million, but, also, its business reputation. The law firm may earn in legal fees over USD 5,000,000 for the service of filing the suit and making a website with a decent data entry system.

Since, Apple never responded to the first lawsuit (Demand for Payment)  filed by the Firm, (peculiar) a form of a default judgment was granted. Thus, Apple never made the strongest argument that they could have made – the lack of quantifiable damages. This argument would have gone a long way in other cases and would have likely killed the media’s interest in the case.

What are the damages for Apple collecting our locations? Ok, they may have known that I spend too many weekdays eating dinner at Johnny Rockets, but how is that damaging to me? I suspect I will visit my old rocket friend Johnny today.

The first “test” suit that the Korean law firm won claimed, in short, that Article 17 of the Korea Constitution guarantees the right to privacy and that the right to privacy was violated by the storing of the location data. The court calculated the psychological damages at KRW 200,000 won per month for the five months of the use of the iPhone.

I hope Korean law schools will begin to teach the concept of State Action. I even had a hard time explaining this to those working for the Constitutional Court of Korea when I worked at the Court.

Too many Korean lawyers and even professors believe that the Korean Constitution's main purpose is to not only restrain the actions of the government, but also restrain the actions of the people. This is not the intent of the Constitution and this poses a danger to the future of the protections accorded by the Constitution.

____
SeanHayes@ipglegal.com

Aug 1, 2011

Korean Law School Students SHOULD Face Grim Reality - Blame the Professors

The Korea Times posted a decent article entitled “Law School Graduates Face Grim Reality.”

The author’s one flaw is that it only takes into account the opinion of law professors and students.

The reality, in Korea,  is that most professors do not have law licenses and even the professors with law licenses often have little experience practicing law.  The quotes from the articles are correct, but do not reflect the complete reality.

The article quotes a professor that contends “What’s certain is that the government should be most blamed for all the confusion and disputes surrounding the law school system. And the victims of this mishandling will be the students.” The professor refused to be named in the article.

Another professor noted, “The country will have 1,500 lawyers next year, but they will be driven into cutthroat competition.” What is wrong with competition? I have been taught to believe that capitalism produces cheaper and better products and services. 

I love competition.  It makes me a better lawyer and also makes us all more profitable, since with better lawyers comes more work for lawyers.  Better lawyers are more respected lawyers and more respected lawyers will lead to more opportunities including opportunities outside of the traditional legal jobs.   This has not yet occured in Korea.

I have worked with Korean, Chinese, Japanese, American, British, Hong Kong, Singaporean, French, German and other lawyers in my decade plus in Asia and by far the Korean lawyers have been the least efficient, creative, careful, and dedicated to the needs of clients. This fact may be caused, as other have noted, by cultural realities, but must also be blamed on the lack of quality education and competition.
I formerly worked as professor (6 years) and sadly intimately know the reality. 

The majority of professors, still, simply lecture. The majority of professors, even those with law licenses, are incapable of writing a legal opinion, case brief, or drafting a complaint that anyone but a friend in a law firm will pay for.

Different problems occur in the Judicial Research and Training Institute. The Institute professors, overwhelmingly, are judges. These judges have zero experience representing clients.  The Institute, however, overall does do a good job in training students to be judges, but does a poor job of producing attorneys with capabilities needed to be a good attorney.

The law schools must adapt to new realities and teach Korean lawyers skills they need - however it seems few know what skills are needed. The third year law school students that I saw this summer - do not have the needed skills. or work ethic needed to be attorneys in our competitive world.

The problem is the professors and even lawyers are unaware of the skills needed to be lawyers, since most Korean lawyers are, only, focused on non-complex litigation. They are incapable of any services to clients other than basic contract drafting and mundane litigation. This is why you see few attorneys working in non-legal roles in Korea.  While, in contrast, in America and the U.K many attorneys are also presidents of companies, author books, run non-profits, brokerage houses, investment banks and engage in activities that a legal education is perceived useful for (almost any job).

I suspect major changes will occur if foreign law firms entering Korea push hard to impose their structure into the Korean law firms.  If they do not, I suspect some attorneys will specialize in going after the deep pockets in malpractice cases.  Judges are more willing to accept these claims and the stuff I have seen over the years, deserves not only civil punishment. 

I am lucky enough to have a team that I have been able to push to work within a structure similar to international law firms.  This has taken me a great deal of time and produced a great deal of grey hair, but has also produced a product that few Korean firms can duplicate.

The Korea Times articles mentioned in this article may be found HERE.

Other articles that may be of interest:
---
SeanHayes@ipglegal.com

How to Select an Attorney in Korea by Tom Coyner

There are excellent and ethical attorneys in every country; this is certainly also the case in Korea. While all are no doubt intelligent and highly educated, the manner in which many approach their clients’ needs harkens more to the early 20th century than the cusp of the 21st century. Unfortunately, most Korean attorneys fail to appreciate or care to consider the commercial context of their counsel.

Based on what one reads in the press, doing business here is tough. But generally, the difficulties are greatly overstated. The tragi-comedy is that cynical self-interest cultivates much of Korea’s allegedly thorny business environment. Furthermore, the conventional wisdom of how difficult it is to do business in Korea goes largely unchallenged. As a result, both experienced and inexperienced foreign executives frequently hesitate too long, turn to legal counsel too late, and then meekly accept huge legal bills. In this scenario, it is often hard to see who is at greater fault—the foreign managers or their attorneys. But one can say that the actual Korean business environment is frequently and unfairly blamed.

Like any other aspect of running a successful business, good management demands defining need and controlling costs. If the manager is diligent and competent, doing business in Korea is not inherently difficult nor necessarily expensive. One should remember that using legal services is similar to employing medical services. If one takes prudent, preventive measures, such as health check-ups or legal reviews, ultimate costs can be kept reasonable. But if one waits until disaster strikes and a lifesaving surgery or major legal defenses are absolutely imperative, pricing can end up being incredibly expensive.

But just how expensive are Korean legal services? On an hourly basis, Korea can in fact be considered reasonable compared to developed Western countries. Typical rates range from W150,000 to W600,000 an hour, depending on the attorney’s reputation and experience. However, the hourly rates are not the pitfall.

The author has witnessed and heard numerous accounts of a foreign business client’s meeting three, four or more attorneys at once. Always, there is at least one attorney who is fully competent who dominates that side of the conversation. Often the reason other attorneys do not participate is readily apparent—their lacking conversational English skills prevent them from adequately following along with the conversational trail. So, it is fair and proper for a business executive to challenge the number of attorneys in a hearing. Often there is good reason for additional attorneys. But one should not blame the law firm after the fact without questioning the need for multiple attending attorneys beforehand.

If the savvy business manager doesn’t control the legal expenses, managerial neglect can contribute to needless billable hours. The truth is, no business manager, foreign or domestic, needs to tolerate such real or accidental abuses from the Korean legal community. But cost-effective legal services only come with proper management of one’s legal counsel.

So how can the savvy business professional in Korea successfully navigate these troubled waters? First and foremost, always keep in mind one vital point: the client ultimately does not hire a law firm—the client hires an attorney.

Should one need to hire an attorney beyond administrative tasks, such as in the case of litigation or defense from a government probe, it is worth keeping in mind how the Korean legal system actually works. A good place to begin is to consider the relevant education system. Aspiring legal professionals upon graduation from university, normally with law majors, take the judicial exam. Those few people who pass this three-day test are put into a two-year government program where they are further trained. At this point, few if any can even write a simple legal brief. Upon graduating from the government program, depending on one’s overall ranking within one’s class, the new legal professional has as few as one option—or as many as three options—as a vocation. The best graduates may become judges, prosecutors, or lawyers—but most become judges.

Attorneys who do not place within the top tier but still do very well may become prosecutors or lawyers. New legal professionals in the bottom tier of educational background simply become lawyers.

In contrast, in Western countries, most attorneys, barristers, and solicitors undergo rigorous study in post-graduate law schools before preparing for bar examinations frequently after obtaining a four-year degree, often in business or political science. During these two to three years of post-graduate law study, future legal professionals learn how to conduct legal research and write legal documents, analyze a legal situation, determine effective legal recourses within commercial and government environments, and advocate his or her client’s case beyond a simplistic legalistic perspective. As a result, foreign-trained attorneys are much more likely to deliver concise, logical, and meaningful legal counsel that resonates with the commercial issues at hand.

Furthermore, it is critical to keep in mind that the vast majority of judges and prosecutors eventually rotate out of government service and enter private practice. As a result, most judges and prosecutors understand that their years in government service are limited. As such, it is wise for these professionals to maintain a good rapport with potential future employers—i.e. the major law firms.

Adding to this dynamic is Confucianism and placing a premium on seniority in terms of age and rank. Consequently, should one hire an attorney, it can be critical to hire one who retired out of the government system at a grade higher than the current position held by the prosecutor or presiding judge. This is not necessarily a requirement; but that said, if one’s legal representative was once the government’s “senior” within the legal establishment, it can be amazing how much leniency the government legal official may bestow upon one’s attorney and, thus, one’s case. If an attorney with high, prior government service rank is going to play his cards on one’s behalf, it is crucial to confirm that the attorney actually picks up the phone and not simply relegates the task to a junior subordinate. The key is to secure an attorney who will personally go to the bat for you.

Sure, in certain cases, the effective attorney may need political pull. But it is far more important for a lawyer to be effective and efficient, rather than famous. With some searching and reference checking, one can find Korean attorneys who will handle one’s case in 21st-century fashion.

Once a manager settles on a law firm, the business client should identify the lead attorney being assigned to the case. The business professional should not be shy to ask the hard, qualifying questions such as to what kind of prior, relevant experience do the lead and supporting attorneys possess. What positions did the attorneys hold in other law firms and what ranks did the attorneys achieve in prior government service? The smart business professional learns the identities and backgrounds of every lawyer involved in the case. He or she demands efficiency and effectiveness, and discourages the addition of lawyers if the numbers are not needed. Above all, a competent business manager insists at the outset on a detailed bill, with dates and services adequately notated and the billing lawyer identified.

One other suggestion: before picking up the phone to call an attorney, first review the need to do so with other managers. Once there is a clear consensus on the need for an attorney and agreement on defining the issue that an attorney is to handle, the managers should write down relevant questionsbefore asking for legal counsel. Given the possibility of miscommunication with one’s Korean legal counsel, this seemingly menial method of preparation can prevent major, needless costs resulting from the attorney and the client thrashing about before eventually coming to a clear and mutual understanding of the issues.

On the other hand, with the influx of Western-trained foreign lawyers in Korean firms, foreign and Korean business managers can take advantage of a legal community better prepared for and geared toward international issues. While foreign lawyers are not yet permitted to practice law in Korea, the capable foreign lawyer can still be effective in many ways. For example, he or she can serve as a contact point, making communication more comfortable and productive. In addition the foreign lawyer can serve that vital role as the attorney the company hires, as opposed to the firm that business client retains. The foreign lawyer can manage the company’s case and work with the law firm’s Korean attorneys in getting the job efficiently done. Finally, foreign-trained attorneys generally have a better grasp of business than most Korean attorneys, who often have little or no understanding of concepts other than the Korean legal profession. A foreign or foreign-trained attorney normally can do a better job balancing commercial concerns with legal requirements.

At the same time, several foreign lawyers have impressive Korean language skills. The astute manager, on the other hand, makes sure that the Korean-speaking foreign lawyer is not just a sales person adept at bringing in foreign clients and that he or she will take an active role in the company’s case.

Ultimately, the best way to select an attorney is through references. Ask around the Korean business community, both domestic and foreign. Good attorneys, Korean and foreign, are around—it just takes some old-fashioned legwork to find.

So, doing business in Korea can be difficult but need not be outrageously expensive in legal fees. Like most Korean services, many Korean law firms have been slow to embrace the 21st century when it comes to client services. The good news is there are excellent attorneys found in large- and middle-sized Korean law firms. But it is up to the competent business professional to select and properly manage one’s attorneys, just as one would be expected to do so anywhere else in the world.

_______
Tom Coyner, Journal of the American Chamber of Commerce in Korea, 2nd Quarter 2010 edition.

Tom Coyner is President of Soft Landing Consulting(www.softlandingkorea.com), a sales and business development consultancy, and serves as senior commercial advisor to IPG Legal. His professional involvement with Korea began in 1975.

The original article may be found HERE

Resolving Korean Joint Venture/Partner Disputes without an Attorney --- Maybe

Conflicts are inevitable, but not unresolvable. Since the circumstances surrounding Korean JV/partner conflicts can vary greatly and since the personalities of the involved parties play a major role in the confrontation, there may not be any ready-made prescription for the solution. There are however, some general ideas that may help in resolving conflicts in the local business environment.

Personal Considerations
Western logic, alone, is not usually sufficient to influence a Korean counterpart. Re-opening or referring to the exact stipulations of a contract is not desirable; it has been said "don't confuse me with facts." Such a factual confrontation will only raise the defenses of the local partner and even block any attempt at resolution. Once again, the matter of "kibun" plays a subconscious role in the resolution of conflict. Try to appeal to his emotional common denominator.
Control Emotions

Showing one's emotions in a demonstration of anger can only exacerbate the situation; the foreign partner must always keep his own emotions under complete control, while appealing to the local partner's emotions.

Just as wise parents go to great lengths not to bicker in front of the children, it is even more important that the top executives representing the two companies keep a positive façade for the benefit of the other employees. They can still – and should – let their hair down off site or behind closed doors to get conflicting matters, while still small, out on to the table for resolution.
Compromise Diplomacy

In difficult confrontations, the use of some diplomatic procedures such as the give-and-take of a trade-off may prove productive in resolving conflicts. It may require some innovation to generate alternative ideas to try in the resolving process.

A Korean joint venture partner agreed to concede the majority share in the company to the foreign partner on condition that he be granted the right to veto the first executive vice-president appointed by the foreign partner. Though not ideal perhaps, it may be an example of tradeoff.

The "tit-for-tat" procedure may never create a win/lose situation. One wins only the battle and not the war. If a deadlock arises, however, a valid alternative may be to consider areas of possible tradeoff in order to reach a compromise.

Home Office Support
A very important requirement for expatriates representing a foreign company is to secure the full support of the head office for what one intends to propose vis-à-vis the local partner. If such support is not firm, it will be more difficult to resolve the differences.

Such consultation and approval from the head office has several benefits. First, it offers the opportunity for counsel concerning the proposal. It also takes the foreign partner off-the-hook so that the proposal is not just his or her own idea that might not work. Finally, it adds backing to the foreign partner in presenting his case to the local partner. The wider the support, the better in dealing with knotty problems in an unresolved conflict situation. Such backing adds confidence that can influence the outcome of the consultation.

Confidential Negotiations
Not an easy discipline in resolving conflicts, but a crucial one, is to keep quiet about the matter. Korea is a relatively small community. Word spreads fast, especially if it is undesirable, unfortunate news. In this case the problem of "blab" is not confined to any one segment of society. So it is important to keep one's mouth shut when partners are trying to resolve a conflict. During World War II we were told that "a slip of the lip can sink a ship." If this is true in war, it is also true that loose lips can sink a business partnership as well.

Neutral Moderator
A mediator or go-between has no emotional connection to the situation and can help to reduce tensions and defuse the volatile atmosphere between the partners. Third parties can be used to great advantage. When one is confronted with an uncompromising deadlock, replacing the negotiating party with another may lead to a solution.
Exceptional Conflicts

Sometimes the conflict goes beyond personalities. Fundamental differences in the priorities between the two mother companies can and does take place. When the conflict of interests becomes so obvious that most middle managers and above recognize the problem, it may be a good strategy not to try to futilely hide the matter but to amplify the matter so that ultimately the issue, in an extreme case, may go beyond even the board of directors and over to the next shareholders' meeting. Obviously, this is an extreme case. But sometimes this magnitude of conflict can occur beyond the control of the current representative directors – regardless how adroit they may be in handling the issue locally.

Top 10 Pointers from an Experienced Foreign JV Director:
1. Whenever possible, make sure your firm has the CFO position. Try to avoid giving up control of the position. In the end, no matter how tempting the current situation may be to negotiate away that position, you will regret it.

2. The Korean CEO is likely to be a god in the eyes of the Korean employees. Never underestimate your counterpart's power and be extremely careful not to cause him to lose face. It is not easy but you must determine how to walk the line between not being belligerent and being a push over.

3. The wrong motivation to enter into a JV in Korea includes forming a partnership simply out of necessity or ease in entering the market. There needs to be a genuine, ongoing and mutual reason for maintaining the JV with the Korean partner.

4. The expatriate director must have a clear cut mission and genuine backing from his head office to be successful. Too often the overseas head office looses interest in the Korean operations and the local expat director takes on an attitude of resignation from not making a real contribution. This sort of matter often appears in JVs created out of convenience rather than of shared purpose with the Korean firm. When that attitude sets in, it is often the beginning of the end of any chance of a successful joint venture.

5. It takes at least 18 months even for a fairly experienced and competent foreign director to become truly effective since it so difficult to understand the game.

6. As soon as a new guy comes in as the new foreign JV representative, almost certainly the Korean partner will try to revise the relationship with the disappearance of a number of regular meetings, reports and information procedures. It's therefore important that the new representative director arrive with a clear agenda as to his role and what information he is to received plus clear delegation of authority such as spending authority, investment authorization, etc.

7. Most Westerners want about a month to ease into a job before putting their foot down. In Korea, one is not normally given that luxury. Rather it is much better to approach the job as representative director with even a dogmatic sense of authority. Otherwise, the Korean organization will likely marginalize the new director and he or she will be endlessly trying to chase down critical information.

8. It is critical in Korea to immediately establish your authority to be included on important – particularly negative – information. By culture, Koreans are loath to speak up – particularly if there is bad news. One really needs from the beginning to make it clear that you need and welcome bad news rather than waiting until a bad situation festers into becoming a crisis.

9. Networks of relationships are critical. Often the real communication and secrets are shared over beers after work.

10. Hire a bilingual Korean or even a gyopo (Korean returnee) who is totally on your payroll but works within the JV. This person can do much more than be an interpreter. For example, hire a bilingual Korean who has a relevant degree or experience and preferably with an MBA. This person can serve beyond his or her official responsibilities by offering invaluable reports as to what is happening in the company below the surface, offering insights on cultural issues, and suggesting advice on how to rebuild damaged bridges.

Other articles that may be of interest:
The article appeared in the Korea Times on Feb. 14, 2007. Tom Coyner is senior business advisor (M & A/Market Entry) for IPG Legal. 

The original article may be found HERE