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[Lee Jae-min] Twist in large retailer saga

The Distribution Industry Development Act of 2012 is indeed unique in many respects. It is designed to restrict the business activities of large retailers such as E-Mart, Homeplus, Lotte Mart and Costco, so that small shops can survive and remain in the neighborhood. Who can criticize such a noble cause?

the act bans opening of super supermarkets, or SSMs, of these large retailers within a 1-kilometer radius of traditional markets. It also offers a 
legal basis to impose a mandatory closedown of large retailers every other weekend. Cities and districts around the country have adopted their own ordinances based on the act. Since inception, questions have persisted concerning the law’s compatibility with, in particular, the WTO Agreements and the Korea-EU FTA.

Just recently, an interesting development took place regarding the implementation of the statute. On Dec. 12, 2014, the Seoul High Court delivered a judgment that found the implementing ordinances of Seongdong-gu and Dongdaemung-gu districts of Seoul are in violation of the said act, because the six large retail stores, the targets of the ordinances and hence plaintiffs in the proceeding, were not actually the “large retail stores” within the meaning of the act. While the decision is directed at the implementation of the ordinances, it also pinpointed loopholes in the statute itself. As the two district offices appealed the decision to the Supreme Court on Dec. 31, the final fate of the ordinances is still unclear. If the December decision is sustained, the ordinances will be revoked and a legal dent to the law is unavoidable.

Now, the law is in the limelight in a different context. The city of Gwangmyeong on the outskirts of Seoul is exploring ways to treat its outlet of IKEA, the Swedish ready-to-assemble furniture giant, as falling under the above definition of “large retail stores,” and is consequently subject to the restrictions of the Distribution Industry Development Act. The city says the DIY furniture store is a variation of large retailers, so, the argument goes, it should be covered by the act.

Anyone knowing the history of the 2012 legislation is aware that the act was about regulating large retail stores that sell food, electronic appliances and household items of all sorts. Apparently, a furniture store was not intended to be covered by the law, simply because it is big in size. Under this approach, stores like Toys R Us, Home Depot and Office Depot will be subject to the legislation as well.

This development is unpalatable as it was just 20 days ago that the store opened in the city amid fanfare, its largest store in the world. The DIY furniture giant was touted as a symbolic representation of increasing foreign investment. A convincing argument has yet to be offered as to why this presumably critical issue, according to the city, was not raised in advance. Apparently, this issue should have been discussed thoroughly among the city constituents with a reliable impact assessment, and reflected in the discussions with the Swedish corporation.

So, a proposal to amend the act is now being floated to expand the scope of the act. Of course, an ultimate decision falls under the prerogative of the National Assembly. But an amendment, mainly targeting a particular foreign corporation, might have difficulty in overcoming the scrutiny imposed by a web of domestic legislations and international agreements, as evidenced by the recent decision of the Seoul High Court. In a nutshell, a core question raised with respect to governmental regulation for foreign investment almost always boils down to the issue of consistency and predictability.

By Lee Jae-min

Lee Jae-min is an associate professor of law at Seoul National University. ― Ed.
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