Enactment/Amendment of the Chemical Substance Control Act

As accidents involving leakage of toxic chemicals such as hydrofluoric acid and sulfuric acid have repeatedly occurred of late, the Chemical Substance Control Act (hereinafter “CSCA”) has been enacted/amended in place of the Toxic Chemical Substance Control Act in order to (1) expand the scope of the control and regulation to general chemical substances as well as toxic chemical substances, (2) strengthen the control of chemical substances and (3) provide a quick response to accidents arising from chemical substances.  As the CSCA becomes effective as of January 1, 2015, business licensing will be introduced with respect to toxic chemical substances.  Also, an enterpriser’s responsibility for toxic chemical substances will be heightened and the establishment of risk management systems on substances that require preparation for accidents and notification of hazard information under such risk management systems to residents in the neighboring area at least once a year will become mandatory.  

Suspension of Operations and Surcharges

Under the CSCA, surcharges, in lieu of suspension of operations, can be imposed up to 5% of the sales revenues, or in the case of an enterprise with a single place of business, up to 2.5% of the sales revenues.  Also, there are 26 types of the regulated activities that are subject to suspension of operations, including lending of one’s name from a permit for chemical substance control, failure of submitting materials necessary to examine the amount of chemical substances released, failure of complying with the standards for handling toxic chemical substances, failure of wearing personal protective equipment and violation of administrative or procedural obligations such as display or storage of chemical substances beyond the permitted level.  Critics argue that business vitality could be dampened because the level of surcharges of 5% of the sales revenues is excessive and there is a possibility that surcharges may be imposed for simple mistakes, unintentional or inevitable violations, violations due to force majeure or minor violations.  In taking into account the above, it is stipulated that the maximum amount of surcharges (i.e., 5% of the sales revenues) would only be imposed in limited circumstances upon an enterprise that intentionally and repeatedly violates the law despite of guidance and warnings. 

Preparation of Evaluation Reports on Off-Site Effects

Under the CSCA, an enterprise planning to establish or operate a facility handling toxic chemical substances is required to submit in advance to the Minister of Environment an evaluation report on off-site effects of toxic chemical substances, which evaluates off-site effects of chemical accidents to residents or environments in the neighboring area of an enterprise’s place of business.  The Ministry of Environment plans to provide in the Enforcement Decree that the items to be included in the evaluation report would vary according to the size of an enterprise’s place of business, and an enterprise handling chemical substances below a certain level would be exempt from the requirements to submit the evaluation report and instead will be required only to submit materials establishing the amount of chemical substances handled.

Scope of Contracts Regulated

Under the CSCA, obligors are subject to the violations of obligees.  More specifically,  general contractors (i.e., obligors) may be held liable for the violation of subcontractors (i.e., obligees) committed within the scope of a contract that deals with toxic chemical substances. The reason that such vicarious liability is imposed is to heighten the responsibility with respect to such types of contracts and provide an obligation to general contractors to manage and supervise subcontractors.  The Ministry of Environment has not yet provided specific evaluation criteria with respect to the scope of contracts to be regulated and, in this regard, input from the industry will be required. 

Establishment of a Committee for Subordinate Laws

In viewing the industry’s opposition against the enactment/amendment of the CSCA, the Ministry of Environment recently announced that it is planning to establish a committee consisting of industry participants, non-governmental organizations and experts to make subordinate laws.  A draft proposal for the subordinate laws is planned to be prepared by November and, a final proposal is planned to be prepared by December.  The Ministry of Environment notes that the level of surcharges and suspension of operations to be imposed would vary in consideration of what violation was committed and how severe the damages incurred in the area are.  Specific criteria for determining the level of surcharges to be imposed will be promulgated in the Presidential Decree.  Therefore, it is expected that the level of surcharges to be imposed with respect to chemical leakage accidents will vary depending on how the specific criteria would be set in the course of enacting the enforcement decree.