Korean transportation law amended to open way for taxi hailing platform businesses

Amendments to Passenger Transport Service Act passed on March 7, 2020 erect regulatory framework for app-based taxi hailing businesses.

Set to take effect around March 2021, rules allow for several business models, subject to conditions including licensing or registration, public fund contributions (in case of one model), and fare control or oversight.

Framework includes – subject to exacting conditions – possibility of using vehicles that are not taxis per se (and with “gig economy” drivers), but “Tada-banning” rule changes will preclude Tada’s van rent-hailing model.

Rules are expected to spur taxi-based ride-hailing services in 2021 – but many important details await further decrees and regulations.

On March 7, 2020 the National Assembly passed a set of amendments to its transport sector statute that erect a framework to allow for app-based taxi hailing or “platform taxi” businesses. The changes to the Passenger Transport Service Act (PTSA), the main statute restricting vehicle transport for pay, will enable several basic operating models, subject to various kinds of government control and oversight: (A) new formation of a taxi-like enterprise (which will be the most regulated model), (B) platforms based on tie-ups with existing taxi enterprises, or (C) taxi-rider matching (“intermediation”) platform businesses. At the same time, a “Tada banning” part of the legislation will close off the popular van-hailing app’s reliance on a pre-existing permissive feature of PTSA (which was predicated on short term rental with furnished driver).

While many important aspects remain to be worked out – such as license (or permit) conditions, and scope and direction of fare regulation –, the amended PTSA with its general framework will go into effect 12 months after formal promulgation (which is expected shortly), thus probably take effect in March 2021.The amendments are in culmination of many months of controversy and negotiation over the future of the taxi industry in an age of ready mobility apps. The “Tada-banning” changes (which, exceptionally, take effect in 18 instead of 12 months) are a sudden reversal of fortune for that company, which just one week earlier defeated charges of alleged violation of the current PTSA.

Main features of allowable “platform taxi” business models

The amended PTSA will introduce “passenger vehicle platform services” as a new general category of transport services, involving use of mobile or online apps to meet passenger transport needs. This will comprise 3 types of business model, each using network platforms to coordinate of passenger vehicle transport: (A) platform transport business: (B) platform franchise business, and (C) platform intermediation business.

Main parameters of these types of business are summarized below, though key conditions and standards must await the implementing decrees and regulations. Drafts of the main administrative “Decrees” may well come out within 4 or 5 months. The main regulator in this regard will be the Ministry of Land, Infrastructure & Transport (MOLIT).

(A) In a platform transport business, the business sets up a platform and procures vehicles (owned or rented by the business) to provide transport services for a fare. Falling within this business model, so defined, would be a new platform business owning or renting its vehicles for offer to riders, such as if Uber or Lyft were to acquire a fleet of cars, owned or rented. Conditions will clearly be stiffest for this business model, among the three types: It will require a license (for a specified term, up to 30 year) from MOLIT, which will be subject to significant conditions – to be elaborated in the Decrees – and subject to some substantial scope of agency discretion. Fares: Setting or modifying of fares will require “reporting” to MOLIT, and, at least for this type (A) business, this means approval by MOLIT, according to standards that are to follow in the Decrees. Among other implications of this, unclear at present is whether, and to what extent, flexible or “dynamic” fare pricing schemes will be feasible.

In any case, a platform transport business will have to pay some extent of contributions to MOLIT, for public funds – with the amounts, periods and other specifics to be set in the Decrees. (This and other business models will naturally require disclosure of fares to riders.) Interestingly, the Tada van rent-hailing service probably would qualify as a platform transport business, though, apart from the license requirement, it is said that a “deal-breaker” issue for Tada is the MOLIT contribution requirement.

(B)A platform franchise business, the second type, will set up a platform and affiliate – enter into franchises – with already licensed taxis (taxi companies and/or individual taxis), to provide those affiliates’ services to hailing riders. This would be as if the current Kakao taxi app were re-allocated to function (for pay, unlike now) with taxi companies with which Kakao forms franchise tie-ups. A platform franchise business will require a permit– a process that generally would be less exacting than the licenserequired for the type (B) model noted above, though the degree of difference in this situation remains to be seen. (The agency for these purposes will be MOLIT or a province or city administration, depending on geographical reach of the business.) Fares: Fares, when set or changed, must be reported to the government, but at this point it is unclear – unlike for type (A) above – whether this means an element of approval of fares by the agency. (Unlike for type (A), the amended PTSA does not specifically indicate that standards for approval are to follow in the Decrees, down the road.) Obviously the situation will demand clarification.

(C) A platform intermediation business would mean, basically, operation of a taxi-hailing platform app, matching app-subscribing taxis with hailing app users. It would include, for example, a paid version of the Kakao taxi hailing app, which has been in free use for quite a while. This would require registration with MOLIT, which should normally mean a comparatively simple and straightforward procedure, as compared with the license or permit requirements for type (A) or (B) business models. Fee rates will require reporting to MOLIT, and there is no particular indication that those rates will be subject to agency approval.

“Gig economy” drivers possible in (A) platform transport business

A noteworthy feature of type (A), platform transport business, is that, according to the amended PTSA, such a business is permitted to deploy freelance or “gig economy” drivers, including for fleet cars that are rentalas opposed to owned vehicles. That is, the PTSA will specifically resolve, for type (A), the separate issue – which was the crux of the Tada situation – of the current PTSA prohibiting intermediation (or “introducing” or brokering) of drivers for rented vehicles. This rule had blocked businesses in recent years which (attempting to obviate the general restriction against non-taxi paid automobile transport) had put rental cars in circulation while arranging for the drivers. Tada, in contrast, relied on a special PTSA provision – an exception to the rule against driver intermediation for rented cars – allowing for such intermediation for larger-size (11+ seater) vans.

The amended PTSA expressly exempts type (A) businesses (so licensed by MOLIT) from the bar on driver intermediation for rented cars. Thus it will be possible – subject to fairly exacting conditions – to set up a taxi-like ride-hailing platform enterprise using rented cars (including sedans) and intermediated (i.e. gig economy) drivers. At the same time, outside the context of a type (A) licensed business, the amended statute specifically rules out – in what is called the “Tada ban” – the use of intermediated drivers for larger vans, along with other vehicles, except under conditions that mostly preclude their use in Tada-style ride hailing. Among other things, the new rules stipulate that, absent a type (A) license, use of driver intermediation, with 11+ seater vans, will be off-limits unless it is for a 6+ hour stretch, or to or from the airport or a port.