KLRI : KOREA LEGISLATION RESEARCH INSTITUTE

Ⅰ. Backgrounds and Purposes

▶ Necessity of reviewing of the bill of Framework Act on Social Economy 

○ The problem has been raised that social economy-related policies are not uniformly established and implemented because social economy enterprises are operated by each department under their jurisdiction.

○ Since the 'Bill of Framework Act on Social Economy' was first introduced in the National Assembly in 2014, requests for a legal system related to the social economy have been continuously raised every session, and three basic social economy bills were proposed in the 19th and 20th sessions respectively. The abolition was repeated, and five bills of Framework Act on Social Economy were proposed in the 21st National Assembly, but the enactment of the act is still pending despite the fact that there is no sharp confrontation between the ruling and opposition parties.

○ Awareness of the necessity of the Framework Act on Social Economy is expanding, although bills of similar form and content are being proposed every session, the reason why they are not connected to legislation is that a detailed review has not been made on the subject of application of the act, its status and function as a framework act, and the relationship with existing laws and regulations, and that there is no specific system for integrated implementation through the current social economy-related projects and the Framework Act according to each law. 

○ In order to form a new legal system related to social economy with the enactment of the Framework Act on Social Economy and to function as an integrated policy adjustment for social economy, the concept and principles of social economy should be established, and the relevant legal system centered on the act should be established, It is necessary to prepare policies to implement policies and systems for the social economy, and to examine the purpose and function of each social economy entity in depth.

 

Ⅱ. Major Content 

▶ Background of the Framework Act on Social Economy 

○ Background of social economy

- The social economy refers to an area where the third sector, not the public or private, is the main agent and conducts economic activities. It refers to an organization in which distribution and organizational principles work.

- The social economy pursues social values ​​because the goal of economic activity is not merely to pursue economic profit or market value, but to realize various social needs and solve a wide range of problems facing society. In this respect, the two concepts are closely related.

- Since the purpose of building an ecosystem suitable for social economy or pursuing a social economy is to realize social value, the method or means of realizing such purpose must conform to social value, and performance or evaluation of the social economy is also In that it is based on the existence and degree of value creation, the social economy is a concept that is based on social value and materializes it.

○ Analysis of foreign legal cases related to social economy

- France’s “Social Solidarity Economy Act” sets out the principles and scope of application of the social and solidarity economy, the establishment and role of institutions to promote and support the social and solidarity economy, the authorization and related support of socially useful solidarity enterprises, and cooperation in accordance with existing laws Relevant laws were revised so that cooperatives, mutual aid cooperatives, foundations, and environmental groups could be incorporated into the social solidarity economy system.

- In the case of the “Social Economy Act” of Quebec, Canada, which contains many general or declarative articles, it is necessary to further analyze whether it is possible to lay the foundation for the creation of a social economy ecosystem only with the provisions of this law. The special feature of this Act is that it emphasizes the role of the government in the development of the social economy while stipulating that policy measures for social economy enterprises will be strengthened and support will be promoted.

▶ Analysis of major issues of the Framework Act on Social Economy 

○ Issues focusing on securing legal system coherence, connection, and effectiveness

- When analyzing the main issues focusing on the legal system coherence of the Framework Act on Social Economy, connection with existing laws and institutions, and securing effectiveness, 11 issues are included as follows: (1)Definition of social economy organization, etc. (2)Social economy development Basic Plan, (3) Social Economy Development Committee, (4) Social Economy Mutual Aid Fund, (5) Investment by non-profit private foundations, (6)Designation and promotion of cooperative finance, (7)Tax reduction/exemption support, (8) Source of social economy development fund, (9)Priority purchase by public institutions , (10) facility expenses and support for national and public property, (11)operation disclosure and management disclosure of social economy organizations, etc.

○ Review of definition of social economy organization, basic plan and committee

- (1)The definition of social economy organization, etc. needs to be supplemented to specify the qualitative and practical requirements of  a social economy enterprise. In this regard, regulations on social economy organizations and social economy solidarity organizations need to be rearranged because there is a risk of aggravating confusion in concept and practice. 

- (2)The article of the basic plan for social and economic development may be similar or overlapping with other existing administrative plans, and the subject of the establishment of the basic plan is unclear. It is necessary to rearrange the provisions of the relationship with other plans to conform to the status and legal nature of the Framework Act on Social Economy. (3)The regulations of the Social and Economic Development Committee need to be revised to comply with the Act on the Establishment and Operation of Committees Affiliated to Administrative Institutions.

○ Review of social finance

- (4)In the case of the Social Economy Mutual Aid Fund, the purpose and contents of the fund are unclear, so specific regulations need to be supplemented. In addition, if the social economy fund means deduction in a broad sense as a means of financing support for social economy enterprises, it may be a violation of the Acts of Similar Receipt. 

- (5)The investment regulations of non-profit private foundations are limited in securing the effectiveness of the system in practice according to the Inheritance Tax and Gift Tax Act and the Act on Recruitment and Use of Donations. (6)Regarding the designation and promotion of co-operative finance, it is necessary to clarify specific contents as various co-operative finance methods are being discussed. In addition, a follow-up discussion on the financial participation of cooperatives under the Framework Act on Cooperatives is necessary.

○ Review of social economy enterprise support and regulation

- (7)Since the enforcement power of the tax reduction/exemption support regulations is limited only by enacting the Framework Act on Social Economy, amendments to related laws such as the Corporate Tax Act, the Restriction of Special Taxation Act, and the Restriction of Special Local Tax Act should be accompanied. (10)Provisions for facility expenses and support for state-owned and public property should also be included in the attached table of the Act on Restriction of Special Cases of State-Owned Property to ensure effectiveness.

- (8)The financial regulations of the Social Economy Development Fund need to be supplemented with matters related to securing stable financial resources in accordance with the National Finance Act. (9) It is necessary to enhance the efficiency and performance of support by strengthening the linkage with the existing laws that stipulate similar contents such as the “Act on Promotion of SME Product Purchase and Sales Channel Support” for the priority purchase regulations of public institutions.

- (11) The regulations on operational disclosure and management disclosure of social economy organizations impose excessive disclosure obligations on social economy enterprises, so there is a risk of trade secrets leaking and aggravating the disclosure burden. It is necessary to supplement the reasonable disclosure system by varying the disclosure or disclosure scope according to the nature of social economy enterprises, and to consider the linkage with the existing management disclosure system for some social economy enterprises.

▶ Consideration for subordinate statutes

○ Definition of social economy enterprise

- In the subordinate statutes of the Act, it is necessary to consider the criteria for realization of social purposes and reinvestment of distributable profits based on the basic principles of the Act.

○ Social Economy Development Committee

- In order to specifically stipulate the composition of regional committees in the subordinate statutes according to the Act, sufficient discussion is required on the relationship between the regional committees under the Act and the regional social and economic development committees under the city/province ordinance. Based on these discussions, the relationship between city and provincial ordinances and each ordinance, which is the basis for the establishment and operation of social economy committees for each region, can be rearranged.

○ Korea Social Economy Agency and Social Economy Integration Support Center

- Intermediate support organizations such as regional support centers and ity/provincial support centers must be operated autonomously, independently and transparently from the state and public institutions in accordance with Article 2 (2) of the Act. To this end, the subordinate statutes specify a structure in which various stakeholders can participate in the decision-making of the interim support organization, and establish and maintain a cooperative governance relationship rather than a vertical relationship with the government in the budget and business plan approval process. plan needs to be considered. In addition, it is necessary to have experts from the private sector as well as the government participate as judges in the designation process so that institutions with expertise in social and economic policies can be selected while maintaining independence from the government.

○ Establishment of social financial institutions

- When enacting subordinate statutes, as a requirement for the designation of social financial institutions, it is stipulated that the business purpose of the articles of incorporation specifies the development of the relevant organization and local community, or a certain amount or a certain percentage of profits are transferred to the relevant organization and local community when operating a social financial institution. It is desirable to have regulations that can realize the basic principles of the Act, such as stipulating reinvestment. In particular, in order to secure the transparent execution of the invested public funds, supervision or instructions from the government and local governments are inevitable.

○ Regulations on the financial resources of the Social Economy Development Fund

- Even in the case of regulations on the financial resources of the Social Economy Development Fund, it is desirable to refer to the above ordinary financial resources and similar legislative examples to flexibly include various financial resources in the fund so that financial resources can be secured stably.

○ Regulations on the Fund Management Review Committee

- When defining the qualifications of committee members, the scope should be set to cover various fields and careers of the public and private sectors as much as possible. In addition, it should be decided that experts with an understanding of social economy organizations should be included to encompass various social economy organizations.

 

Ⅲ. Expected Effects

○ Presenting the legislative principles, standards, and future direction for future legislation by presenting issues of the Framework Act on Social Economy and considerations when enacting regulations.

○ Make the foundation for establishing a legal system centered on the Basic Law on Social Economy by analyzing the relationship with other laws related to the social economy field.