Is the Korean government really doing all it can for self-employed shopkeepers?

by Bae Jae-hong* (Economic Policy Team)

*Bae Jae-hong is the General Secretary of the National Association of Retail Merchants

Starting early 2019, the COVID19 pandemic has impacted the whole world. Shopkeepers are no exception.  For two long years, shopkeepers have gone through great trials and tribulations. Countries around the world are implementing various policies to help shopkeepers recover. While the South Korean government has also implemented such programs, it’s only managing to breed greater resentment from shopkeepers.

Korea’s measures against COVID19 have taken the form of “strong social-distancing,” whose crux is limiting the operating hours and number of people that can patronize restaurants, bars, and indoor gyms. In other words, it’s shrinking the business environment of shopkeepers. These limits have dramatically cut down their revenues, which means many of them cannot pay their rent on time. 

Currently, according to the “Commercial Lease Protection Act,” a landlord can unilaterally nullify a contract if a tenant is late on his rent payments. In order to protect shopkeepers from being forcefully evicted, the Korean government has implemented the “Kind Landlord” campaign, which exempts landlords from taxes on up to 70% of any rent cuts they have offered. Ironically, a policy intended to help tenants actually benefits landlords and makes them rely on the latter’s goodwill. This approach reveals the Korean government’s bias against tenants. 

According to the Nov. 12, 2020 briefing by the Central Economic Emergency Countermeasure Headquarters, as of the end of Oct. 2020, only 5,195 landlords participated in the kind landlord system, which benefitted about 43,000 shops. With about 5.6 million shopkeepers in Korea, this means only 0.76% benefitted from the cheaper rents due to the kindness of their landlord. From a shopkeeper’s point of view, can this be seen as enough? 

One of the government’s relief measures for shopkeepers has been providing financial support, mostly in the form of emergency loans. While this might be an easy way to put out the fire for now, this will only increase the debt that shopkeepers will have to pay later. In addition, through the “Compensation of Losses Law,” shopkeepers are compensated for the losses suffered due to the restriction in patrons and operating hours. However, not only are countless many excluded from this compensation list, but the compensation amount is paltry and doesn’t even cover a month’s rent. 

Recently, the COVID-19 pandemic is rapidly deteriorating. New virus variants continue emerging, prolonging the pandemic. Recently, the Korean government has once again announced a tightening of quarantine measures for shopkeepers such as "preventing gatherings," "restriction on operating hours," and "restriction in the size of private gatherings." Shopkeepers who so far have cooperated with the government's social distancing measures are being once again forced to make sacrifices. Yet, many of those that can’t bear it anymore are taking collective action. Organized by industry, Committees for Emergency Countermeasures are demanding reasonable measures for those affected. Civic groups are also supporting their demands for more appropriate measures by the Korean government.

The government needs to admit that its current measures for shopkeepers aren’t enough. Its financial support is only increasing shopkeepers’ debts and its compensation is not enough to even cover a month’s rent. Government measures should also address the needs of industries indirectly affected. The government needs to provide sufficient compensation for shopkeepers and change its approach to cooperating with shopkeepers in coming up with its social distancing measures. The cost of cooperation with the government’s social distancing measures over the past two years is leading many shopkeepers to close shop. This can’t but greatly hurt the Korean economy. If the Korean government focuses on just minimizing fiscal expenditures and placing restrictions on shopkeepers, it will be responsible for the upcoming economic calumnity. In other words, if the government can’t meet the demands of shopkeepers to immediately increase the amount of compensation for losses, then shopkeepers should be allowed to resolve their economic losses through normal operations. Minimizing the government's fiscal expenditure and assuaging the anger of shopkeepers is simply not possible. Based on the government’s actions, shopkeepers only see a government that cares more about saving money than on saving them. 

Even if the COVID19 pandemic is resolved, scientists predict the continued emergence of many new viruses and don’t know when the next one will occur. As soon as possible, the Korean government needs to come up with measures that can protect shopkeepers today and in the uncertain future. 

The most burdensome costs for shopkeepers are rent and labor costs. Among them, it is necessary to revise the Commercial Tenant Protection Act in regards to rent as soon as possible.

In article 9 of the Commercial Tenant Protection Act, for contracts without a specified period, the lease period (Article 9 of the Act) would be for a year. It was only in 2018, where article 10 (the right to request an extension of contract) was extended from 5 years to 10 years. From a shopkeeper’s point of view, this is still not enough to guarantee their basic rights. Ultimately, Korea's "Commercial Lease Protection Act" favors the defense of property rights of building owners over those of tenants.

In Japan, article 22 of the Act on Land and Building Leases, the period of a contract should be for over 50 years. Renewing one's contract cannot be rejected without a specific reason. Both Korea and Japan have provisions that guarantee tenants’ “right to claim rent reduction” based on economic conditions. If supplemented, the provisions of the “right to claim rent reduction” in article 11 of the “Commercial Tenant Protection Act,” could partially deal with the burden of rent during a pandemic. Currently, during renewal of a contract, a party may request an increase or decrease in rent or in the deposit based on changes in taxes, utility bills, the relative rent and deposit of nearby commercial buildings, and other burdens or changes in economic conditions. In Japan's Act on Land and Building Leases, article 11, paragraph 3 stipulates that if both parties can’t reach an agreement on a change in the rent or deposit, then the decision must be made in court. However, unlike Japanese law, in Korea, there are no provisions for when both parties can’t come to an agreement. In addition, there is no compulsory rule to comply with a request for rent adjustment. In fact, this clause has little power, and exercising a tenant’s right to request a rent reduction is difficult. After all, when tenants exercise their right, the landlord can simply refuse. And while the tenant can go through a mediation procedure through a local government dispute settlement body, there is nothing that protects a renter from a landlord simply refusing to renew the contract later. 

The Korean government boasts that it was the first in the world to establish a legal system for supporting shopkeepers through the Compensation of Losses Act.  But, was the reason why other countries were able to immediately provide necessary relief due to the establishment of some law? In times of global emergency, we must act accordingly. Delaying necessary relief and waiting for legislation (based on the notion that a legal basis is required for action) is tantamount to the government disregarding its responsibility to protect its people, only showing that the government is not using taxes for the people’s benefit. 

A line from a popular television show many years ago pops into mind: “Is this all you can do? Really?! Is this the best you can do?”