New Administrationí»s Economic Policy Direction – Antitrust and Competition
On June 16, 2022, the administration of President Yoon Suk-yeol unveiled its economic policy direction.
The new administration views that the Korean economy faces a crisis, and has identified challenges such as economic decline, high inflation, and growing uncertainties at home and abroad. Given such economic reality, the new administration states that it will pursue four values (freedom, fairness, innovation and solidarity) to restore a freer and fairer economy, aiming to overcome low growth and achieve a virtuous cycle of growth and welfare.
In particular, while it aims to give greater discretion to the private sector to enhance corporate vitality, the new administration also emphasizes the value of fairness, which it considers essential for establishing a free and fair market economy order.
The new administration\'s economic policy roadmap is based on such awareness of current challenges and vision for economic direction. We summarize below the main policy directions relating to fair trade and competition regulation:
1. Revision of regulations and practices
- Standards for determining a market dominant player
Under Article 6 of the Monopoly Regulation and Fair Trade Act (the \"FTL\"), if a business entity has a market share of at least 50% in the relevant market, or if three business entities have a combined market share of at least 75% in the relevant market, each of such business entities is presumed to be a market dominant player. However, even in such a case, an exception would apply if the relevant business entity\'s annual sales or purchases in the relevant market are less than KRW 4 billion. The threshold of KRW 4 billion was established at the time of the amendment of the FTL in August 2007. The new administration has indicated that it would raise the threshold amount in consideration of the changes that have taken place since then, including the increased size of overall economy.
- Regulation on large business groups
The Korea Fair Trade Commission (the \"KFTC\") annually designates groups of affiliated companies as large business groups and the individual having de facto control of such group (referred to as a \"same person\" under the FTL). By virtue of being affiliated with a designated large business group / individual controller, certain restrictions apply under the FTL. The new administration considers that certain rules relating to the regulation of large business groups require amendment, such as the standard for determining a same person\'s related parties who are subject to restrictions under relevant laws.
While the specifics on such revision have yet to be announced, based on the 110 National Agenda of the new administration (announced on May 2, 2022), the revision is expected to include the following: (i) adjust the scope of related parties of the same person who are subject to regulation (e.g., reduce the scope of such persons from second cousins related by blood to cousins related by blood\; and from cousins related by marriage to aunt / uncle by marriage)\; (ii) provide support for the implementation of the newly adopted system allowing holding companies to establish corporate venture capital firms\; and (iii) amend rules relating to the public disclosure system (e.g., update the threshold amounts requiring public disclosure by companies, matters to be publicly disclosed, frequency of public disclosure).
2. Resolution of legal uncertainties that potentially undermine business activities
- Criminal penalties under economic laws and regulations
The new administration announced that in order to prevent criminal sanctions from restraining business activities, it would pursue appropriate measures to switch criminal sanctions imposable under economic related laws and regulations to administrative sanctions, or adjust the sentence of imprisonment imposable under such laws and regulation.
Relatedly, certain provisions of the FTL that enable imposition of criminal sanctions for certain types of illegal conduct (e.g., anti-competitive merger, certain types of unfair trade practices, resale price maintenance) have already been excluded from the amended FTL in consideration of factors such as the principle of clarity and the principle of subsidiarity.
That said, the FTL and related laws such as the Subcontracting Act and the Large Retail Business Act still contain provisions imposing criminal sanctions for most types of conduct prohibited under such laws. The scope of criminal sanctions that may be converted into administrative sanctions and the details regarding the adjustment of the level of criminal sanctions are expected to be further specified by a team to be comprised of relevant agencies, such as the Ministry of Justice, the KFTC and the Ministry of Economy and Finance (the \"MOEF\").
- Amendment of review guidelines on unfair support
With respect to the prohibition against unfair support practices, the new government views that concepts such as \"arms\' length price\" and amount / level of \"unfair support\" prohibited under the law were unclear, and that the lack of clarity causes difficulties for businesses to determine whether they are in compliance with the law. Accordingly, within the second half of 2022, the new administration plans to amend the guidelines for examination of unfair support practices in order to clarify such standards to resolve uncertainties.
Moreover, with respect to the provisions of the FTL that prohibit affiliates from receiving unfair benefits, the new administration plans to further clarify the standards for determining whether the benefit provided is unfair, and exceptions to the prohibition (e.g., efficiency enhancing effect) by amending the relevant review guidelines within the first half of 2023. In this regard, the new administration is expected to reflect the guidance provided by the Supreme Court in a recent case involving this issue\; in that case, the court held that the term \"unfair\" for purposes of determining violations should be reviewed based on whether the provision of the benefits is likely to help maintain or increase the concentration of economic power held by such affiliated persons.
3. Strengthening of regulation of unfair trade practices and establishment of systems for promotion of fair trade practices
The new administration\'s economic policy directive reflects the key policy tasks related to fair trade and competition that were included in previously announced 110 National Agenda, such as strict regulation of unfair trade practices, improvements to the KFTC\'s exclusive authority to file a criminal referral, promotion of fair trade order in the platform business sector.
- Strict regulation of unfair trade practices such as technology misappropriation
The new administration cited misappropriation of intellectual property and technology, and unfair support to affiliated companies as examples of unfair trade practices, and indicated that it would strengthen regulation of such practices. In particular, the new administration stated that it will strengthen punitive damages for technology misappropriation and improve the KFTC\'s guidelines to operate a strict and objective criminal referral system.
- Adoption of the supply price update system for small and medium-sized enterprises
In addition, in order to help small and medium-sized enterprises (\"SMEs\") providing subcontracting services to receive appropriate payments in the event of an increase in the prices of raw materials, the new administration plans to adopt a supply price update system. Under this system, the increase in prices would be reflected in the payments to be provided by companies to the SME subcontractors. Specifically, the new administration stated that within the second half of 2022, it would prepare a standard contract and facilitate a trial of the system. The new administration also indicated that it would take other measures in parallel to promote fair trade practices in subcontracting transactions, such as improving mediation procedures and providing incentives.
- Platform businesses &\#8211\; self-regulation measures of the private sector
The new administration announced that a governmental consultation body consisting of various agencies (e.g., the MOEF, Ministry of Science and ICT, Ministry of SMEs and Startups, KFTC, Korea Communications Commission, Personal Information Protection Commission) would provide support to private, non-governmental self-regulatory organizations, in order to enable such organizations to prepare self-regulatory measures that help platforms, SMEs and consumers.
In addition, the new administration indicated that it would continue to monitor platform businesses by, for example, preparing guidelines for review of unfair trade practice. Previously, the KFTC had issued an administrative notice regarding its plan to implement review guidelines on abuse of market dominant position by online platform service providers. As such, the KFTC\'s efforts to implement such review guidelines will also likely gain momentum.
4. Stabilization of consumer prices through fair competition
The new administration also plans to strengthen efforts to stabilize consumer prices by organizing a joint inspection team of the KFTC and relevant ministries, which would monitor unfair trade practices such as collusion and resale price maintenance in major industries that affect consumer welfare. To this end, the new government stated that it would also analyze the market situation in major monopolistic and emerging industries (i.e., as of 2022, mobile virtual network operators, auto parts manufacturers, IoT) to prepare measures to promote competition, and to reform anti-competitive government regulations that restrict business activities.
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