Foreign enterprises’ participation in tenders for public informatization will remain possible even after the Special Act on Medium Enterprises is put in place on July 22. The controversy surrounding reverse discrimination is expected to be ongoing.
According to the act, a Korean subsidiary where a foreign corporation with total assets of 5 trillion won (US$4.9 billion) or more owns at least 30 percent of the shares is excluded from the category of medium enterprises. IBM Korea, HP Korea, Intel Korea and the like are expected to benefit now.
Those subject to cross shareholding restrictions cannot join public IT projects according to the Software Industry Promotion Act revised last year. Under the circumstances, Korean companies paid much attention to whether or not their foreign counterparts to be excluded from the category are subject to the same regulations. However, the Small and Medium Business Administration (SMBA) and the Ministry of Science, ICT and Future Planning said on July 9 that such subsidiaries of foreign enterprises would not be governed by the Software Industry Promotion Act.
“The Special Act on Medium Enterprises is not about fixing who will join a project but about determining the scope of medium enterprises,” the SMBA explained, adding, “Qualification for participation in public informatization projects is not an issue to be handled by the special act.”
According to the Ministry of Science, ICT and Future Planning, which is in charge of the Software Industry Promotion Act, foreign enterprises’ subsidiaries are not banned from tenders for public informatization projects with some exceptional cases, unlike those where cross shareholding is prohibited. “The Industry Development Act specifies that a medium enterprise is a large corporation which is not banned from cross shareholding,” the ministry said, continuing, “This interpretation signifies that IBM Korea and the like are regarded as medium enterprises.”
At present, companies subject to cross shareholding restrictions cannot participate in public IT projects, but big businesses with sales of over 800 billion won (US$790 million) can join projects worth at least 8 billion won (US$7.9 million), unless they are banned from cross investment. The same rule is applied to foreign corporations, too.
“The mutual investment regulations were prepared separately from the special act by the Fair Trade Commission in order to prevent chaebols from controlling industrial ecosystems,” the ministry went on, adding, “The exclusion from the category of middle-standing companies means that these firms will not be granted the benefits, and has nothing to do with the Software Industry Promotion Act.” This implies that the foreign subsidiaries in question can join public IT projects worth over 8 billion won (US$7.9 million) as they could in the past, which, in turn, will make the reverse discrimination issue permanent.
“It appears that the regulations are applied only to Korean companies,” said an industry insider, adding, “The laws will have to be revised in compliance with global standards so no Korean company is discriminated against.”