Jan-Feb 2009 > Investment > Ombudsman's Office at Work l
PLANNING AN EXIT
The Ombudsman is called in to break an impasse after vaccine producer Berna Biotech is presented with an eviction notice
The rapid pace of myriad aspects of life in Korea never fails to impress even the longest-term foreign residents of the world's 13th largest economy. In fact, the country's development from being counted among the world's poorest nations several decades ago to one of its wealthiest at present can be directly attributed to the Korean bballi-bballior "quickly quickly" temperament. The speed at which even the seemingly impossible becomes possible in Korea can surely be considered a prime factor behind the decision of multinational corporations to invest here.
One of the world's few high-speed train networks and a prize-winning international airport built on reclaimed land are just two manifestations of Koreans' capacity to accomplishment the monumental in a short space of time. However, as regular readers of the Invest Korea Journal will recall from the September/October 2008 Ombudsman's Office at Work column that featured the plight of foreign and domestic companies located in a planned "new city" zone, finding one's self directly in the path of a Korean development project can quickly become an exercise in headache and frustration, if but only temporarily.
The background of this issue's Ombudsman's Office at Work is the establishment of yet another subway line in the greater Seoul Metropolitan Area's growing underground transportation network. Line No. 9, running from the satellite city Bundang to the southern Seoul hub of Gangnam Station, will, when completed, cut the commute from start to finish to only 16 minutes.
It is easy to imagine that, as with other major infrastructure projects, the construction of a subway line would entail a massive and expensive effort by affected businesses and residences to relocate to unaffected areas. For this particular region of Gyeonggi Province, however, such worries were not caused solely by the establishment of the "Bundang Line" but also by a decision by the city of Yongin to build a light rail line that would link Seoul's subway system to the Everland amusement park, South Korea's largest park of its kind and ranked 10th worldwide in 2007 in attendance.
CRYING FOUL
One of the companies directly affected by the city of Yongin's plan to develop the light rail system was Green Cross, a pharmaceutical company that had originally entered a strategic alliance with Rhein Biotech of the Netherlands in 2000, which itself was later acquired by vaccine producer Berna Biotech of Switzerland in 2003. For the sake of accuracy, it should be mentioned that all outstanding shares of Berna Biotech were acquired by Crucell N.V. of Leiden, The Netherlands in early 2006, making the new entity the sixth-largest vaccine company in the world.
A five-year lease agreement between Green Cross and Berna Biotech was made in 2003, allowing Berna Biotech use of nearly one-sixth of the over 60,000-square meter site for production of its pentavalent children's vaccine Quinvaxem(R) for a period of five years, with an option for automatic renewal thereafter. This particular vaccine was sold to The United Nations Children's Fund (UNICEF) and delivered to areas in need by the World Health Organization (WHO). At the time, total sales for the Quinvaxem(R) vaccine had reached 180 billion won.
Although Berna Biotech Korea, which would become Crucell Berna Biotech Korea in 2007, had been operating its vaccine production facilities for nearly three years from entering into the lease agreement with Green Cross, due to its status as a sublettor, the company itself did not receive formal notification from the city of Yongin in 2006 that a subway station was to be built on the property, thus requiring the tenants to relocate and set up shop elsewhere.
When finally made aware of the need to vacate the premises by a December 2008 deadline, Berna Biotech Korea cried foul, stating it had never received official notification, and argued that the relocation process would require three-and-a-half years more in the light of time needed to identify a new facility and begin production on their vaccines at the new location. Further frustrating the company was that, if it were forced to move, the vaccine it had been producing would once again have to undergo a testing process -- post-move -- to ensure identical standards were being met. Then, the testing service itself would have to be reevaluated by the WHO, providing the company with yet additional strife.
BOTH SIDES AT LOGGERHEADS
Several options made available to Berna Biotech Korea management included compensation from Green Cross and assistance in relocating to the site which Green Cross had chosen as the location of its future factory, an industrial complex in Hwasoon in South Jeolla Province. With the second option rejected due to the area's inaccessibility to Seoul and major transportation routes, as time was the essence rather than money, Berna Biotech Korea took the issue to the courts. Local antagonism was also growing against the foreign company as its unwillingness to move angered a zone development consortium of over 200 individuals from the area and two company shareholders -- one of which was a Green Cross proxy -- which had been formed to finance construction of rail station commercial complex which would include a 50-floor commercial building.
It should be pointed out that the construction of social overhead capital (SOC) projects in Korea, especially those related to public transport systems, still receive top priority at both the national and local level. Thus, whatever and whomever own facilities and/or land on the site of a planned development project are expected to defer to the requests of the relevant authorities.
This said, with the sides at loggerheads, however, Dr. Ahn Choong-Yong, Korea's Investment Ombudsman was contacted to try to find a resolution to the dilemma. During a visit to Yongin city government, Dr. Ahn was told that all companies were subject to zoning regulations and this did not exclude Berna Biotech Korea, even in light of its sublettor status. The foreign company was also suspected of holding out in order to get additional compensation from local authorities, a supposition the Ombudsman effectively quashed. A proposal was made by Dr. Ahn, however, that the company be allowed to stay at the site for the specifically desired period of time while construction on the new subway station would go on around it.
Said the Investment Ombudsman, "As the exact site where the Berna factory was located was destined to become the [subway station's] parking lot, I felt that its completion could be left until the end of the entire project, thus allowing the factory to maintain its status for the remainder of the time it was requesting."