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Key Issues and Implications of the New Administration’s Environment Policies On May 3, 2022, the 20th Presidential Transition Committee announced the national vision and six major goals of the Yoon Suk-yeol administration and 110 national agenda items (the “National Agenda”) to realize these goals. In particular, the National Agenda contain detailed measures, among other things, to implement the environment-related pledges of the President Yoon Suk-yeol and the “climate and environmental policy direction for sustainable future” announced by the Presidential Transition Committee on April 28, 2022. Key issues are as follows. 1. Devising scientific measures to implement carbon neutrality With the objective to achieve green economy through science-based carbon neutrality policies, the new administration plans to devise realistic measures to achieve the 2030 national greenhouse gas emission objectives (40% reduction as compared to 2018) and reflect them in the relevant statutes. Further, it will evaluate a plan to expand the paid allocation of emission permits under the emissions trading system and apply the generated revenue to support companies’ carbon reduction activities. Moreover, following the EU’s system, it will also include “nuclear power” in the K-Taxonomy, which will be implemented in 2023. 2. Creating a blue sky free of fine dust The new administration plans to re-establish the “Comprehensive Plan for Improvement of Air Quality,” a roadmap to reduce ultrafine dust (PM2.5) by 30%, in order to reach mid-ranking for ultrafine dust concentration among the Organization for Economic Co-operation and Development countries. To establish such a plan, the proportion of fossil fuel-based electricity generation will be reduced via power mix optimization, while establishing pollution-free vehicle transition goals, expanding early scrapping eligibility of diesel vehicles, and strengthening greenhouse gas standards for compact vehicles within the field of transportation. Further, reduction in the operation of coal power generation will be expanded when the concentration of fine dust is high, and seasonal fine dust management implementation period will be extended. Separately, the total permissible emission of air pollutants for each air control zone will likely be reduced by more than 50%. 3. Transitioning to a circular economy and fostering new green industries In order to accomplish carbon neutrality, it is necessary to shift to a circular economy system that fundamentally reduces wastes, while increasing the proportion and quality of recycling. To lay the foundation, the ‘Act on Promoting Circular Economic Society’ is expected to be enacted. Specifically, the implementation plan includes (i) mandatory use of high-quality renewable plastic materials and (ii) recycling of waste plastics, which are difficult to be recycled, as petroleum/chemical raw materials or hydrogen fuels via thermal decomposition. Meanwhile, the new administration also plans to intensively foster the new five major green industries (e.g., climate tech, environment IoT, and biogas). 4. Devising reasonable chemical substance management system Moving forward, the chemical substance management system will be modified based on scientific data to enhance the public safety and to reduce corporate burdens. For example, under the new system, hazardous substances will be designated and managed by taking into account their characteristics and volume. Moreover, as the system to ensure the safety related to public health hazards is expected to be further heightened, the new administration plans to expand the environmental health services for the public by establishing a human-safety based assessment and management system for total amount of hazardous substances rather than a product-based system, and integrating damage relief systems that are currently dispersed into four different categories (e.g., environmental pollutants and asbestos). Because the environmental policies will be considered within the context of accomplishing carbon neutrality and improving public health, they are expected to be frequently emphasized in the future. When discussing feasible implementation measures for carbon neutrality, responding to climate change and creating new future industries will be also discussed substantially. In this regard, it is necessary to closely monitor the announced national affairs as they will be further elaborated in greater detail by the new administration and the National Assembly. On a separate note, as environment-related regulations are expected to reasonably alleviate corporate burdens while strengthening public health-related areas, it is also necessary to promptly respond to the expected regulatory changes in terms of ESG management, which appears to be essential all around the world. [Korean version]
2022.06.09

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Introduction of Clean Hydrogen - Amendment to the Hydrogen Act for the Promotion of Hydrogen-fueled Power Generation An amendment to the Hydrogen Economy Promotion and Hydrogen Safety Management Act (“Hydrogen Act”) passed the National Assembly on May 29, 2022. The Hydrogen Act was originally enacted in 2020 to promote the development of the hydrogen industry and, through this amendment, it is expected to invigorate the hydrogen business by introducing (i) a clean hydrogen certification system, (ii) obligations to sell and use clean hydrogen, and (iii) obligations to purchase and supply electricity generated using hydrogen (“hydrogen-generated electricity”). The key details of the amendments are as follows: Clean hydrogen certification system The amendment introduces a graded clean hydrogen certification system for hydrogen and hydrogen compounds that satisfy criteria such as the volume of carbon dioxide emitted during the production / importation of hydrogen (Article 25-2), the details of which will be set forth in the Enforcement Decree. Based on the volume of carbon dioxide emitted during the production / importation process, clean hydrogen shall be classified into (i) “zero-carbon hydrogen” that does not generate any greenhouse gases during production / importation, (ii) hydrogen whose greenhouse gas emissions during production / importation are below the threshold set forth in the Enforcement Decree, and (iii) “low-carbon hydrogen compounds,” which are hydrogen compounds manufactured for hydrogen transportation whose emissions during production / importation are below the threshold set forth in the Enforcement Decree. The amendment also enables the government to provide varying administrative and financial support to those who produce or use clean hydrogen, depending on the applicable grade of the clean hydrogen. Obligation to sell or use clean hydrogen The amendment obliges hydrogen fuel supply facilities and businesses that use hydrogen as raw material or fuel to sell / use a certain percentage of the volume of hydrogen they sell / use as clean hydrogen. Businesses that fail to comply with this requirement may be fined (Article 25-5, 25-8). The specific types of businesses subject to this obligation are to be prescribed in the Enforcement Decree. Obligation to purchase or supply hydrogen-generated electricity The amendment obliges electricity business operators identified in the Enforcement Decree to purchase or supply a certain amount of hydrogen-generated electricity. Whilst the scope of hydrogen power generation was limited to fuel cells prior to the amendment, the amended Hydrogen Act expands the scope of hydrogen power generation to include electricity generated with equipment that utilizes hydrogen, such as hydrogen gas turbines. Although details such as the specific types of businesses subject to this obligation and the required purchase / supply volume will be set forth in the Enforcement Decree at a later date, it is expected that electricity business operators such as electricity generation business operators and sales business operators may be obliged to procure a certain percentage of their total electricity purchase / supply volume from hydrogen-generated electricity. This new obligation is expected to create demand for hydrogen-fueled power generation and production of hydrogen for fuel. Under the amendment, the Ministry of Trade, Industry, and Energy will establish a tender market for hydrogen-fueled power generation, and businesses with hydrogen-generated electricity purchase / supply obligations must execute purchase / supply agreements through this tender market. Accordingly, hydrogen-generated electricity will be exempt from the existing RPS policy, and traded in an independent tender market. Relationship with the RPS policy Hydrogen energy and fuel cells are defined as new energy under the New and Renewable Energy Development, Use, and Distribution Promotion Act, meaning that renewable energy certificates (“RECs”) may be issued for electricity generated using hydrogen energy and fuel cells. However, RECs will no longer be issuable for such electricity under the amendment to the Hydrogen Act; instead, they will be substituted by payment for electricity sales in the new tender market. Nevertheless, in order to protect the credibility of existing business operations, RECs will still be issued for electricity generated by (i) facilities that had been receiving RECs before the enforcement of the amended Hydrogen Act or (ii) facilities that obtained electricity business licenses before the enforcement of the amended Hydrogen Act and completes the procedures for the approval / registration of construction plans within one year of the enforcement of the amended Hydrogen Act. Effective Date The obligation to purchase / supply hydrogen-generated electricity will become effective six months from the promulgation of the amendment. However, due to the time needed until the commercial production of clean hydrogen, the clean hydrogen certification system and obligation to sell / use clean hydrogen will become effective on the date to be prescribed in the Enforcement Decree, which should be within five years of the promulgation of the amendment. Before the effective date of the amendment, the Korean government will specify further details through an amendment to the Enforcement Decree. Implications Hydrogen is garnering attention as a promising source of green energy, but some have been critical of its use, as it is mostly produced using fossil fuel. By introducing a clean hydrogen certification system and requiring the sale and use of clean hydrogen, the amendment is expected to promote the development of and investment in clean hydrogen production technology. However, considering the state of current clean hydrogen-related technology and the point at which commercial production of clean hydrogen becomes possible, the provisions of the amendment relating to clean hydrogen are only likely to be implemented a considerable period of time after the amendment becomes effective. However, the obligation on electricity business operators to purchase or supply hydrogengenerated electricity will enter info force as soon as the amendment becomes effective. The purchase / supply obligation for electricity businesses, and the creation of a tender market for executions of purchase agreements between hydrogen electricity generators and electricity business operators, are expected to vitalize the hydrogen business ecosystem, including businesses for hydrogen power generation and hydrogen production for fuel. The specifics of the policies introduced in the amendment, such as the criteria for clean hydrogen certification, and types of businesses subject to the clean hydrogen sale / use obligation and hydrogen-generated electricity purchase / supply obligation and volume requirements, will be finalized through an amendment to the Enforcement Decree of the Hydrogen Act. As such, it will be necessary to monitor the relevant discussions on policy design between stakeholders. Furthermore, since companies that are preparing to launch hydrogen energy and fuel cell generation businesses may not be eligible for RECs depending on the progress of their power generation project, they should keep close track of additional amendments to the Hydrogen Act and its subordinate laws in order to ensure they can operate their generation business as planned.
2022.06.07

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Cabinet Passes Amendment to FFTA Enforcement Decree On May 31, 2022, the Cabinet passed a proposed amendment to the Enforcement Decree to the Fairness in Franchise Transactions Act ("FFTA") which, among other things, sets the minimum rate of consent that franchisors are required to obtain from their franchisees in order to launch a cost-sharing advertising or promotional campaign with franchisees. The proposed amendment, referenced as a key initiative of the Korea Fair Trade Commission ("KFTC") in its enforcement plan for the year, will take effect on July 5, 2022, at the same time as the related amendment to the FFTA. Based on the amendments to the FFTA and its Enforcement Decree, franchisors will have to execute a separate contract with their franchisees, or separately obtain their consent, before launching advertising or promotional campaigns for which the franchisees are expected to share in the costs. The amended Enforcement Decree establishes further regulations on this new requirement, and we provide the key details of these changes below. Minimum Rate of Consent Required for Launching Advertising or Promotional Campaigns and Acceptable Forms of Consent The amended FFTA will now require franchisors to obtain consent from their franchisees before launching advertising or promotional campaigns for which the franchisees are expected to share in the costs, and refers to the Enforcement Decree for the minimum rate and acceptable forms of consent. In addition, for promotional campaigns, the franchisor may only ask those franchisees that agreed to share in the costs to participate. The amended Enforcement Decree specifies that franchisors are required to obtain consents from at least 50% of its franchisees for advertisements, and from at least 70% of its franchisees for promotional campaigns. The amended Enforcement Decree also specifies that such consent should be obtained in a form that allows for the verification of the time of consent. This includes (i) in writing, (ii) registered mail, (iii) email, or through (iv) an online website, (v) mobile application, or (vi) POS (point of sale) system. Separate Agreement Required for Advertising or Promotional Campaigns The amended FFTA also allows franchisors to launch advertising or promotional campaigns in accordance with an advance agreement executed with the franchisees. The amended Enforcement Decree provides that such agreements for advertising or promotional campaigns must be executed as a separate contract, rather than as part of a franchise agreement. In addition, the amended Enforcement Decree also expressly requires that such agreements reflect (i) the name and period of the proposed campaign, (ii) the percentage of related expenses to be borne by each side, and (iii) the ceiling amount of costs to be borne by the franchisee. Criteria for Administrative Fines The amended FFTA provides that the KFTC may impose administrative fines of up to KRW 10 million against any franchisor that fails to inform its franchisees of the detailed expenses incurred from an advertising or promotional campaign or if the franchisor denies a franchisee's request to review such information. The administrative fine will be set at KRW 5 million for the first violation, KRW 7 million for the second violation and KRW 10 million for the third or subsequent violation. In light of these changes, companies operating franchise networks in Korea are advised to inspect their current practices regarding advertising and promotional campaigns, and make improvements where necessary. In particular, the new requirement could lead to various issues relating to applicability of the scope of advertisements and promotional campaigns, and extent of details that need to be included in the relevant agreements. [Korean version]
2022.06.07

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New Administration’s National Agenda on Maritime Sector and Implications On May 10, 2022, President Yoon Suk-yeol was inaugurated as the 20th President of Korea and started his 5-year term of office. The Presidential Transition Committee (the “Transition Committee”), which had been preparing the new administration’s main policies, announced on May 3, 2022 the national vision and 6 objectives, as well as 110 national agenda items (the “National Agenda”) to accomplish them. For the maritime sector, the new administration presented (i) detailed plans to enhance the competitiveness of the Korean maritime logistics industry by expanding the shipping and logistics hubs and establishing smart hubs, along with various other plans to (ii) foster new energy industries, including offshore wind farms, and (iii) protect Korea’s maritime territories and sustainably manage the ocean. Key details of the National Agenda for the maritime sector are as follows: Establishing the World’s Leading Maritime Transportation & Logistics System As the national objectives for the maritime logistics industry, the Transition Committee proposed (i) enhancing the competitiveness of the Korean maritime logistics industry by expanding the shipping and logistics hubs and establishing smart hubs and (ii) capturing new markets by building a digital maritime traffic network, and by developing and supplying autonomous and eco-friendly ships. Accordingly, the new administration plans to provide incentives to vessel investors with an aim to enhance Korea’s shipping capacity, as well as expand public sector support and investments to increase the order volume of domestic vessels. Additionally, in order to enhance Korea’s overseas shipping capacity, the new administration will endeavor to secure additional overseas port terminals and joint logistics centers. Furthermore, starting from 2023, the new administration will assist major SME associations representing each industry in entering into long-term container shipping contracts to ensure stable delivery of SMEs’ products. Simultaneously, the new administration will establish a comprehensive welfare system to support and protect sailors, who serve as the cornerstone of the maritime industry. Moreover, to create hub ports, the new administration plans to transform the Port of Gwangyang into a fully automated port and establish new ports in Busan and Incheon by 2026. In particular, the new administration will formulate and implement polices to strengthen the competitiveness of Korean ports by expanding ship repair services and LNG bunkering services and developing sea routes and hinterland complexes. With the aim of leading the future ship market, the new administration is expected to implement policies to develop autonomous ship technologies and core technologies for carbon neutral vessels by 2025. In addition, to promote the introduction of eco-friendly ships, the new administration will subsidize up to 30% of the ship price when purchasing an eco-friendly ship. Furthermore, the new administration will designate sea lanes by each type (e.g., wide lane, branch line or port entry/exit route) across the nationwide coastal areas to build a maritime traffic network and shift to the digital maritime traffic management system by 2027. By doing so, the new administration will support Korean companies to capture the digital maritime traffic service market. Establishing Energy Security and Creating New Energy Industries and New Markets To establish energy security, the new administration plans to (i) reasonably adjust the energy mix considering the harmony between nuclear energy and renewable energy and (ii) revise plans to accomplish the NDCs in the energy, industry and transport sectors. The Transition Committee stated that the new administration would (i) advance the solar and wind power industries, (ii) innovate the energy demand management with highly efficient and low-consuming energy and (iii) develop new energy and hydrogen industries in conjunction with industry 4.0 technologies. Accordingly, the new administration is expected to conduct reviews to establish a stable production and supply infrastructure for clean hydrogen and to advance renewable energy industries including solar power and wind farm industries. Although concerns have recently been raised that the renewable energy policy may change in line with the new administration’s transition away from the nuclear phase-out policy, it is anticipated that the continued utilization of nuclear energy will not significantly change the renewable energy policy, whether for producing clean hydrogen or meeting the 40% NDC target. While renewable energy’s share in the total energy mix will decrease, it is expected that the total volume of renewable energy that can be produced will not change significantly. Considering that the current volume and share of renewable energy in the NDCs are excessively high to the extent that they are infeasible to implement, the new administration is anticipated to adjust the NDCs to a more feasible level. Furthermore, with regards to offshore wind farms, the new administration stated that it would establish a mutually beneficial framework for offshore development activities. Thus, the new administration is anticipated to implement institutional improvements to resolve issues relating to reckless site selections by small wild farm developers public acceptance within developers’ consultation with fishing communities (public acceptance issue). Furthermore, the new administration plans to introduce the “water use impact assessment” scheme. The fact that such scheme will follow the previous administration’s “maritime environment impact assessment” laws implies that the new administration will simplify and rationalize regulations on offshore wind power. The new administration will also expand the scope of resource security to hydrogen and core minerals, as well as implement plans for enhancing procurement stability, including restoration of the ecosystem for overseas resources with a focus on the private sector. Strengthening Capabilities to Protect Ocean Territories and Sustainable Ocean Management The new administration aims at (i) building a robust sea power such that Korean citizens can use the sea with ease of mind and (ii) creating a clean and safe ocean and coast for the enjoyment of future generations. To this end, the new administration plans to (i) reorganize the Fisheries Management Service into the Fisheries Management Headquarters and (ii) deploy additional large fishery patrol vessels and police watercrafts to strengthen the capabilities for managing maritime territories in preparation for threats from neighboring countries. Under the objective of expanding large watercrafts to the level capable of ensuring the checks and balances against neighboring countries’ ocean powers, the new administration plans to (i) deploy additional large patrol ships at three strategic zones where the maritime boundaries with neighboring countries have not been defined and (ii) establish the maritime domain awareness platform to prepare for potential threats to Korea’s ocean sovereignty. To this end, the new administration will expand the scope of maritime surveillance by (i) introducing additional remote marine drones on a phase-by-phase basis and (ii) establishing infrastructure for collecting maritime information, such as a satellite center that collects and processes satellite data related to observations, communications, and search and rescue. At the same time, the new administration plans to (i) compile big data by integrating various data collected from patrol ships and aircraft satellites and (ii) establish a system to effectively analyze, integrate and utilize them. Furthermore, to protect citizens’ life and property from various maritime accidents, the new administration will ensure the safety of ship navigation by advancing the vessel traffic service via (i) integration of the current 20 vessel traffic service centers dispersed across different areas into five regional centers by 2025 and (ii) increase in the number of control radars from 86 to 107. Moreover, to secure a prompt rescue capability, the new administration will integrate private rescue organizations, currently divided into each field, into the national maritime rescue organization. The new administration also plans to enhance the private sector’s rescue capabilities by providing stronger governmental support, including specialized rescue trainings for private marine rescue team. In addition, the new administration plans to enhance the mobility of islanders by nationalizing coastal passenger ships by 2025, ensuring the availability of maritime transportation in every island and reducing passenger ship fares for islanders. Moreover, the new administration will also endeavor to secure safety nets for coasts by establishing networks for monitoring typhoons, tidal waves and other disasters on domestic coasts, creating eco-friendly buffer zones on major coasts and constructing ports that are safe against disasters. Implications As the blueprint for state administration, the Transition Committee’s National Agenda will be reflected in each Ministry’s policies under the newly inaugurated President Yoon administration and is expected to be finalized as Yoon administration’s own national agenda. According to the National Agenda announced by the Transition Committee with regards to the maritime sector, the new administration will endeavor to (i) enhance the competitiveness of the Korean maritime logistics industry and (ii) pioneer new markets including those for autonomous and eco-friendly ships. Through such endeavors, it is expected that the total capacity of domestic ships will increase from 89 million tons (as of 2021) to 100 million tons (by 2027), and the number of joint logistics centers from 3 to 8. Moreover, by 2026, a total of 296 ships are expected to be converted into eco-friendly ships. Thus, it is anticipated that the maritime logistics industry will evolve toward expansion of investments in vessels, diversification of container shipping contracts, and full automation and enhanced eco-friendliness of ports and ships. Similar to the previous administration, the new administration has shown active willingness to achieve carbon neutrality in the energy sector. Especially given that the expansion of renewable energy is an inevitable, worldwide trend, the new administration is anticipated to undertake initiatives to develop the renewable energy industry as well. This will likely increase attention towards the offshore energy sector, including offshore wind farms. Furthermore, the new administration will expand the scope of maritime surveillance by twice the current level by utilizing advanced surveillance systems, and convert all coastal passenger routes (104 routes in total) into a one-day life zone for round-trip passengers. Moreover, the new administration is expected to take interest in creating a clean maritime environment by reducing the amount of marine plastic waste generated annually by 50%. The specifics of the foregoing National Agenda on maritime logistics, renewable energy (including offshore wind power), maritime territories and ocean management will be further discussed by the government and the National Assembly in greater detail and depth. Thus, it would be necessary to continue monitoring the discussions that take place among stakeholders and legislative/administrative processes related to policy formulation. [Korean version]
2022.05.27

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Supreme Court Decision: Wage Peak System Maintaining Retirement Age is Deemed Invalid The Supreme Court just rendered an unprecedented decision to the effect that a wage peak system, under which a company gradually reduces the salaries of employees aged 55 years or older prior to retirement, while maintaining the employees’ previous retirement age of 61, is deemed null and void and in violation of Article 4-4 (1) of the Act on Prohibition of Age Discrimination in Employment and Aged Employment Promotion (Supreme Court Decision 2017Da292343, May 26, 2022). Despite the fact that the system was introduced and implemented under an agreement with the company’s labor union, the Court opined that the system constituted discrimination against employees on the basis of their age without any justifiable grounds. In particular, the Supreme Court ruled that, whether or not the wage peak system is invalid should be determined by taking into account various circumstances such as the following: legitimacy and necessity behind introduction of the wage peak system; degree of disadvantages to the affected employees, such as the scope and duration of the wage reduction; whether the measures subject to wage reduction, including whether the demanded workload or level of work intensity equivalent to their wage reduction was likewise reduced for the employees; and whether the money saved through the system was indeed used for its original purpose behind the system’s implementation. More specifically, the Supreme Court ruled that the wage peak system in this case was promoting unreasonable age discrimination on the grounds that (i) even if the wage peak system was introduced to enhance efficient management of the business, such as alleviating the company's burden of continuously rising labor costs, the wage reduction could not be justified under the circumstances (i.e., legitimacy of the purpose was denied), and (ii) even though application of the system caused wages to drop significantly, no appropriate measures were taken to alleviate the impact thereof, and there was no difference in an employee's target work level or work duties before and after application of the wage peak system (i.e., insufficient measures to alleviate the wage reduction). Although the criteria above presented by the Supreme Court is somewhat abstract, it will become increasingly specific and acknowledged with more case precedent in the future, and the invalidity of each company's wage peak system will be determined on a case-by-case basis. For example, on the day the aforementioned Supreme Court Decision was rendered (May 26, 2022), the Supreme Court dismissed an appeal without further deliberation in a different case where the lower court held that the wage peak system was valid, rendering the lower court's decision final and conclusive. It is our understanding that the Supreme Court has also assumed that the validity of the wage peak system may vary depending on the type of system each company has, as well as the arguments and evidence submitted in support thereof with other cases. If the wage peak system is invalid according to the criteria presented by the Supreme Court above, (i) retirees and other employees whose wages have already been reduced due to application of the wage peak system may make a claim for back pay as to the difference in salary under the wage peak system and if it were not applied to the employee; (ii) employees to whom the wage peak system is set to apply to may refuse this change and oppose their wage reduction; and (iii) even if the wage peak system was introduced and implemented with the union’s consent or through a collective bargaining agreement, labor unions may claim that the system is illegal or invalid and may file a lawsuit demanding for abolition of the system or seeking confirmation of the invalidity thereof. Therefore, companies that have adopted or intend to adopt the wage peak system must set up a specific structure of the wage peak system and thoroughly review and prepare for any and all contingencies, including, whether the wage peak system can be deemed invalid based on the criteria presented by the Supreme Court, and whether the risk of invalidation can be reduced by supplementing the wage peak system, such as mitigating the scope or period of the wage reduction or seeking appropriate measures to relieve the impact of the wage reduction. [Korean version]
2022.05.31

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