Law firm interviewed: Lee & Ko
On May 30, South Korea’s newly elected National Assembly met for the first time after the April local elections altered the composition of the country’s 300-seat legislature.
President Yoon Suk-yeol’s administration was dealt a heavy blow as the ruling conservative People Power Party, and its satellite party clinched only 108 seats. The main opposition Democratic Party and allies notched a landslide victory, scoring a majority of 176 seats.
The spotlight of this election has been centred on a range of socio-economic difficulties facing South Korea’s voters, who have used their ballots to revolt against issues ranging from rising inflation to perceived shortcomings in welfare under Yoon’s governance in the past two years.
“The recent election results highlight a shift towards left-leaning policies in South Korea, altering the business and legal environment,” says Saemee Kim, a partner at South Korean law firm Lee & Ko.
“The ruling People Power Party aims for tax cuts and pension reforms, while the opposition Democratic Party focuses on higher corporate taxes, stronger pension benefits, pro-labour union laws and stronger punishment of companies for workplace injuries,” Kim adds.
The electoral setback of Yoon’s party could scupper the conservative president’s domestic agenda, likely miring Asia’s fourth-largest economy in three years of political deadlock and economic uncertainty.
However, the main opposition forces have failed to muster the supermajority of 200 seats that could give them legislative powers to pass bills vetoed by a president and even launch impeachment bids against key administration figures, including the president.
With nobody having an absolute say on legislative matters, the parties may reach for compromises on some issues, Kim says.
For example, “The opposition might support a property tax cut, believing it could weaken the ruling party’s support among wealthier voters, thus aiding their chances in the next presidential election,” notes Kim.
Historically, conservative governments in South Korea were known as stalwarts of market liberalism. But Yoon’s administration has outlined domestic policies ranging from increasing housing supply and implementing major infrastructure projects to boost people’s living standards and the country’s overall competitiveness.
Yoon, a former top prosecutor, has also held no punches when it came to corporate behaviour and market malfeasance. Under his watch, regulators have imposed tens of millions of dollars in fine on companies for wrongdoings, and once temporarily banned short selling in the stock market.
Now, with the National Assembly controlled by the liberal opposition forces, lawyers believe the Yoon administration, even with its pivot away from the conservative laisses-faire economic approach, will be under more pressure to enhance social welfare and regulate corporate misdemeanour.
Take criminal investigations on workplace injuries as an example. The introduction of the Serious Accidents Punishment Act, or SAPA, in January 2022, has given rise to a significant number of criminal investigations of serious workplace accidents.
“Before the introduction of SAPA, only direct supervisors of injured employees faced criminal responsibility. Now, a company’s management may face criminal charges for workplace injuries if the management did not take reasonable measures to ensure workplace safety,” Kim explains.
She expects the number of criminal charges stemming from the SAPA to climb with the parliament now dominated by the liberal opposition.
“The opposition Democratic Party earlier this year refused President Yoon’s proposal to postpone the enforcement of SAPA on small- and medium-sized enterprises. Smaller companies are considered to be more susceptible to SAPA claims as they lack safety measures,” explains Kim.
On the foreign policy front, Seoul has been pushing hard to boost economic and security cooperation with the United States and Japan since Yoon took office, as the rise of China unnerved the Blue House and cast a shadow on South Korea’s policymaking.
But with the U.S. presidential elections approaching in November, Korean exporters might still be subject to tightening scrutiny regardless of Seoul’s painstaking efforts to warm ties.
The situation is unlikely to be materially influenced by a potential shift of ruling party in the White House amid rising bipartisan consensus in Washington on adopting protectionist trade regimes, even against allies including South Korea.
To back up this point, Kim notes that the number of U.S. anti-dumping and countervailing duty investigations on Korean companies is on the rise.
“While there was no reported case initiated against Korean companies in 2022, there were four reported cases in 2023. Several investigations have also been initiated in 2024,” she notes.
All in all, these potential changes are likely to present significant challenges for businesses operating in South Korea, but at the same time, they will enhance legal access for the public, says Kim.
“They will present opportunities for domestic and international law firms operating in the Korean market, in both disputes and advisory practices alike, to meet the challenges of drastically transforming socio-economic landscape in Korea,” she adds.
