Legal Market Overview
With politics and economics being interconnected, South Korea’s economy has been impacted by the country’s deteriorating relations with Japan, which have arisen from the latter’s decision to place export restrictions on its neighbour in relation to certain materials used to manufacture smartphones. In addition, while the Trump administration has created disruptions across the world, this has been particularly evident in the ongoing trade war between the US and China, with South Korea being a major trading partner of both countries. The dispute has had a significant impact on the domestic economy, particularly in the high-tech sector, with there being a reduction in exports of high-tech equipment to China.
Within the political scene in Korea, President Moon Jae-in took office in May 2017 intending to make the economy less reliant on the activities of the country’s family-owned conglomerates (chaebols) and create a more level playing field for small and medium-sized companies to compete in. To this end, the government has placed pressure on the chaebols to be more transparent, make changes in how they operate and divest. Antitrust and competition enforcement by the Korea Fair Trade Commission (KFTC) has also focused on creating a level playing field.
On the domestic M&A front, market sentiment has been impacted by changes in the regulatory landscape. Private equity funds flush with dry powder have been making use of opportunities to invest in non-core assets being divested by Korean companies. Korean conglomerates and state-owned enterprises, however, do not see enough attractive opportunities at home and mainly focus on strategic acquisitions outside of Korea. Vietnam has emerged as one key market for investors who have eyes on areas with high-growth potential.
Further illustrative of the Korean government’s domestic priorities, in a push to revive the jobs market, legislation on a 52-hour maximum working week was implemented in 2018. In a more recent development, the minimum hourly wage was raised by 10.9%. In addition, an amendment to the Labour Standards Act has been passed, which officially defines and prohibits workplace harassment. The conversion of irregular workers to regular workers is also being pushed by the government, leading to a rise in litigation over whether subcontracted workers can be recognised as employees of the principal company. Labour compliance audits are also on the increase.
Corrupt hiring practices remain a high-profile social issue; investigations into corrupt hiring practices – which originally targeted commercial banks – have now expanded in scope to include public bodies and private entities across a range of sectors, thanks to the establishment of the ‘Committee for Eradication of Illicit Hiring Practices in Public Entities’ in September 2018. Increased pressure on the government to collect more revenue is likely to cause a rise in the number of aggressive tax audits conducted by the National Tax Service (NTS). South Korea is no exception to the global trend of low-interest rates. The generally stable banking and finance market has led Korean investors to seek higher returns. Acquisition financing remains incredibly active, partly due to the entry of many private equity firms into the market. Aircraft financing was on an incline due to the flourishing of low-cost carriers but suffered a slow-down upon the Boeing 737 MAX accidents. Project financing is focused on renewable energy projects, which are attracting plenty of interest due to the government’s goal of sourcing 35% of the nation’s power from renewable sources by 2040.
Elsewhere, the legal market comprises of a mix of Korean and foreign firms. The most prominent Korean firms include Kim & Chang, Bae, Kim & Lee LLC, Lee & Ko and Yulchon. There have been changes to the make-up of foreign firms with a presence in Korea, with Simpson Thacher & Bartlett LLP and McDermott Will & Emery LLP closing their Seoul offices. Shearman & Sterling LLP opened an office in Seoul in February 2019. In another development, Arnold & Porter also opened an office in Seoul; at the time of writing, it had hired James Lee and two other partners from White & Case. A ‘continuity’ trade agreement between South Korea and the UK signed in June 2019 has ensured post-Brexit security for London-headquartered firms in Seoul.