By Park Jun-young WIRED Korea

Hyundai Motor Co. dedicated its first hydrogen fuel station in downtown Seoul in September last year. But the automaker’s plan on a hydrogen fuel station could still be held in a bureaucratic limbo had it not been for a temporary regulatory waiver.

The automaker was the first beneficiary of a program for regulatory sandboxes, or a program for temporary regulatory exemptions. The government, which launched the program on January 17, 2019, approved Hyundai Motor’s request for permission to build a hydrogen fuel station on February 11.

Few requests for approval of a new business were processed as speedily as the Hyundai Motor case before the government started to enforce the program, a legislative measure taken to allow companies to test innovative products, services or business models in the market.

During the test period of two years, Hyundai is subjected to none of the usual regulations. The test period can be extended by another two years.
 

If the case involving the automaker is beneficial to a business enterprise, an open banking system, another regulatory sandbox, is of great help to the clientele of commercial banks.

The regulatory sandbox program for commercial banks, which was launched last October, made it possible for their customers to make use of many of their banking services on a mobile application.

For instance, customers can get access to all of their bank accounts, be they in one bank or scattered among several, withdraw money from any of them and transfer it to any account of their designation in the nation.

Hydrogen fuel station construction and the open banking system are two of the 180 cases that the government approved under the regulatory sandbox program over the past year. The government has rejected only 15 of the 195 requests that it had received.

Moreover, the government said, 21 companies have secured commitments to investments in their sandboxes, totaling 250 billion won, while 20 others are expanding their new businesses to foreign markets.

The government patted itself on the back when it said its speedy processing of the requests for a regulatory sandbox has removed much of the uncertainty in the market about the new businesses involved.

Its performance is indeed praiseworthy, given that it took an average 50 days for a government agency concerned to decide whether to accept or reject a request for a regulatory sandbox after it received the request. It is much shorter than the average period of time in Japan or Britain, which the Korean government says hovers around 180 days.

The government said it is aiming to cut the processing period further, up to one month. It is also planning to expand the categories of business types that can benefit from temporary regulatory waivers. It is also planning to receive requests for a regulatory sandbox through the Korea Chamber of Commerce and Industry as well as the four designated government agencies.

But advocates of deregulation are not satisfied with what the government has done over the past year. They are accusing the government of being more concerned about window dressing than taking the bull by the horns.

Kwak No-seong, a professor of policy on science and technology at Hanyang University, said that government officials in charge are haphazard about graduating businesses from the program for regulatory sandboxes and issuing them business permits when the test has proved that they pose no regulatory problems.

In an article contributed to the Korea Economic Daily, he cited ride sharing as a case in point.

He said that the taxi companies involved are planning to apply for an extension when their test period expires. The reason, he said, is that the government is reluctant to issue them permits of ride sharing, though it has proved to be beneficial to both riders and drivers.

The government, he said, should be reminded that innovation and growth will depend on regulatory reform and that it will be all the more important when the fourth industrial revolution is ushered in.

Civic groups are critical for a different reason. They claim the temporary regulatory exemptions are given to business at the expense of public safety and health.

The idea of a regulatory sandbox was hatched when President Moon Jae-in demanded a drastic regulatory reform in early 2018 as a means to spurring business innovation and economic growth. Cued by the president’s initiative, the ruling party soon put a legislative process in motion.

One of the first legislative measures taken to introduce a regulatory sandbox was the amendment of the Framework Act on Administrative Regulations and two other laws, which took effect on January 17, 2019. It was followed by the legislation of a new special act on the promotion of financial innovation and the amendment of an act on regional special industrial zones.

Each economic regulation had its own justification when it was written into law, ranging from forestalling market failures, such as monopoly, to environmental protection. But some of the regulations may have outlived their raison d’etre or have been made obsolete by advances in technology. Still others may be found to have been so strict that they needed to be loosened.

Economic regulations, once established, die hard like habits. Moreover, government officials in charge tend to administer them to the letter -- a move to avoid being held responsible for what may prove to be a regulatory malpractice later on. No wonder businesses complain that many of the regulations are obstacles to innovation in businesses, services and technologies.

Yet, there are regulations that need tightening, such as those for public health and safety and environmental protection.

After all, it is the mandate of the government to strike a balance between public concerns and corporate needs when it comes to regulation.


The above is a translation of Park Jun-young’s Korean-language article by Choi Nam-hyun, deputy editor in chief at WIRED Korea.