Limitations of Korea Fair Trade Act and Challenges for its Advancement [Economic Policy Forum]
Dr. Hwang In-hak, a senior research fellow at the Korea Business Law Institute presented about the topic of "Limitations of the Korean Fair Trade Act Amendment, and the Task of Its Advancement" in the ‘Korea Business Policy Forum from the Perspective of Global Standards’ at the Korea Press Center Foreign Correspondents' Club on the 27th, Wednesday.
Dr. Hwang asserted that competition policies are essential for market economy. Competition enhances consumer welfare, efficiently allocates scarce resources and facilitates entrepreneurial discoveries based on creativity and innovation, resulting in promotion of industrial development and economic growth.
Korea first enacted ‘Monopoly Regulation and Fair Trade Act’ (hereinafter referred to as ‘Fair Trade Act’) in December 1980, which from then has played the role of sentinel for competition order under the supervision of Fair Trade Commission, he said.
Dr. Hwang explained that yet, Fair Trade Act of Korea set an additional goal of preventing concentration of economic power and has implemented various regulatory measures on investment, ownership & governance and transactions with affiliates of conglomerates over a certain size.
Regulating 'concentration of economic power' instead of 'abuse of economic power' is Korean Exceptionalism with no precedents in advanced legal systems, he portrayed.
Dr. Hwang described that as of 2018, Korea Fair Trade Commission (KFTC) designates, manages and regulates 60 conglomerates with total assets over KRW 5 trillion as ‘conglomerates with responsibility of mandatory disclosure’ and 32 conglomerates with total assets over KRW 10 trillion or more as ‘conglomerates prohibited from cross – funding’.
Conglomerates under (the governance of) their holding companies are subject to additional regulations on their debt ratios, stages and directions of their investments and ownership ratio of subsidiaries and subsidiaries of subsidiaries, he added.
He questioned that how long on earth will Korea keep its own way of exceptionalism in this age of global competition in the 21st century?
He said that Moon Jae-In administration is seeking to make all-out revision on Fair Trade Act for the first time in 38 years after it was first enacted. It is of course necessary and desirable to advance the legal system in line with the changes in economic conditions and institutions as well as with the developments of knowledge.
He pointed that the revision bill deliberated and put to vote on November 27, 2018 in the cabinet meeting, however, is well against this purpose. The revision bill further strengthens restriction on concentration of economic power by expanding the principle of prohibition on transactions among affiliated companies, restricting the voting rights of public-service companies and raising mandatory ownership ratio of the holding company over their subsidiaries and subsidiaries of subsidiaries for the conglomerates whose total assets exceed 0.5% of GDP.
Pre-regulation to prevent concentration of economic power is one thing and regulation on abuse of economic power is quite another. In order to advance the Fair Trade Act, it is crucial that the goal of regulation should be shifted from ‘prevention of concentration’ to ‘prevention of abuse’, he argued.
There are many reasons why Korea should drop its exceptionalism;
1) Regulation on the concentration of economic power is a globally incompatible solution which does not suit this age of institutional competition among countries and places gag only on conglomerates in Korea.
2) The idea of solving all problems with one means is directly against the ‘principle of optimal mix of policies’.
3) Regulation on concentration of economic power causes problems which conflict with the policy goal of promoting competition.
4) It is unreasonable and is an idea only for administrative convenience which does not discriminate whether an act of a company is motivated for efficiency or for monopolization.
5) It discourages medium and large companies from making bold investments and pursuing rapid growth so as not to be designated as conglomerates subject to regulations.
6) It is in conflict with the principle of ‘prevention of abuse of economic power ’ stipulated in Clause 2 of Article 119 of the Constitution of Korea. Regulation on concentration of economic power under Fair Trade Act which symbolizes the exceptionalism of Korea must be abolished since it does not fit the age of institutional competition and is well against the principle of efficiency and fairness as well.
<Dr. In Hak Hwang>
-Graduated from Yonsei University. Ph. D in Economics, University of Washington (St. Louis) - Senior Research Fellow and Research Coordination Director of Samsung Economic Research Institute and Korea Economic Research Institute
-Director of the Economy & Industry Division of the Federation of Korean Industries. Incumbent Senior Research Fellow of Korea Business Law Institute
-Major Interests of Research: Economic system and governance structure, Entrepreneurship, Competition and industrial policies
-Major books published include ‘Infographic Korea Economy 100’, ‘Institutions and Economic Gr owth’, ‘Realities and Challenges of Entrepreneurship in Korea’, ‘Market Structure and Efficiency of Competition’, ‘Characteristics and Issues of Conglomerate Structures’, etc.
Lee Kyung ah [WikiLeaks Korea]