��

��

A Guide to the Competition Law and Policy of Korea

��

Republic of Korea

��

- Content -

• Fair Trade Laws and Policies

• Policy Goals of the Fair Trade Commission

• Exemption from Application of the Fair Trade Act

• Procedures for Investigations and Decisions

• Organization of the Fair Trade Commission

• Counselling Office, Library, and PC On-line Service

• Addresses and Telephone Numbers

��

��

Fair trade laws and policies are basic economic codes aimed at establishing free and fair competition among enterprises, which is the basic principle of market economy.

��

��

��

��

��

��

��

��

��

��

��

��

The Fair Trade Commission (hereinafter "the Commission") is a ministerial-level central administrative agency in charge of establishing competition policies and enforcing fair trade laws and policies. It is a quasi-judicial agency that reaches decisions on consensus.

< Statutes relating to fair trade >

Monopoly Regulation and Fair Trade Act ("Fair Trade Act")

Fair Subcontract Transactions Act ("Subcontract Act")

Regulation of Standardized Contracts Act ("Standardized Contracts Act")

��

��

Structural evolution of the Commission

� 1981 : In line with the enactment of the Fair Trade Act, the Fair Trade Commission is established as a deliberating body under the now-defunct Economic Planning Board, and the Fair Trade Office is established to deal with practical matters.

� 1990 : The Commission is enlarged and strengthened as an independent agency that reaches decisions by consensus, and the Fair Trade Office is reorganized into the Secretariat of the Fair Trade Commission.

� 1994 : The Fair Trade Commission is declared an independent central agency under the Office of the Prime Minister.

� 1996 : The status of the chairman of the Commission is elevated and strengthened to ministerial level.

��

��

��

��

The Commission is committed to removing anti-competitive regulations that act as stumbling blocks to free business activities and to alleviating economic concentration. At the same time, it strives to secure fair trading practices and establish fair terms in standardized contracts.

��

��� Economic deregulation

During the initial developing stages of the Korean economy, active government support, subsidization, and market intervention were inevitable for reasons of efficiently distributing limited resources. However, at the present stage of economic growth in Korea and under the sweeping trend of liberalization and globalization both at home and abroad, characterized by limitless competition, direct government regulation acts as impediments to healthy market developments and to free and innovative business activities.

The Commission is making utmost efforts to remove anti-competitive factors in the existing laws and policies through close cooperation with the relevant ministries. At the same time, it is striving to eliminate restraints on competition both in the existing laws and policies as well as newly adopted ones by voicing the need to correct anti-competitive acts, decrees, and notifications, as well as authorizations.

��

< Examples of anti-competitive aspects >

• Pre-determination of the prices and terms of business transaction.

• Restricting market entry or business activities of an enterprise.

• Encouraging collaborative acts among businesses.

��

��� Improvement of monopolistic and oligopolistic market structure and regulation of abusive acts by monopolistic and oligopolistic enterprises

The abusive behavior by monopolistic and oligopolistic enterprises not only impedes competition in the market, but also inflicts damages on ordinary consumers. Therefore, with respect to products and markets where monopolistic and oligopolistic structures remain entrenched, the Commission prepares measures designed to promote competition and presents its opinions on the need to introduce competition to the relevant ministries.

Every year, the Commission designates certain monopolistic and oligopolistic enterprises as Market-Dominating Enterprises and makes notifications thereof. When enterprises designated as such take advantage of their positions and engage in abusive acts, they are subject to more severe penalties than ordinary enterprises.

��

< Examples of abusive acts >

• Unreasonably determining, maintaining, or altering prices of commodities.

• Unreasonably controlling sales of commodities.

• Interfering in the business activities of other enterprises.

• Unreasonably interfering in the market entry of competing enterprises.

• Other acts likely to restrain competition or significantly damage consumer interests.

��

��� Prohibition of establishment of holding companies

A holding company forms a pyramid by controlling many companies from the apex. A holding company can own numerous companies with just a little amount of capital. In Korea, holding companies are deemed unreasonable means of economic concentration and prohibited by law. Korea even prohibits a company from converting to a holding company. A company is considered a holding company when stocks owned for the purpose of controlling other local companies amounts to more than 50% of total assets.

��

��� Restricting business combination

Although business combinations are acknowledged to have the positive effect of revitalizing market functions and strengthening business competitiveness, they can also have the negative effect of reducing competition within the concerned market, creating new monopolies and oligopolies. Thus, companies with total assets or sales turnover (total sum of subsidiaries) in excess of 100 billion won are subject to reporting business combinations. When thorough examinations reveal that the combination is anti-competitive, coercive, or in the form of unfair means, such combination is prohibited.

��

< Business combinations subject to reporting >

• Acquisition of more than 20% (15% for listed corporations) of the shares of other corporations or those of the newly established corporation.

• Officers or employees of a corporation engaging in interlocking directorate with another corporation.

• Mergers with other corporations or transferring all or a part of another corporation.

��� Preventing economic concentration

Over the years, business groups (better known as "chaebol") have been nurtured through active government assistance and protection as well as public support, and they have served as the engine of economic growth in Korea. However, certain business groups have recklessly expanded business through fleet-like expansion of subsidiaries, often threatening the survival of companies that did not belong to the business group. Thus, these recklessly large investments weakened the group as a whole and ultimately brought about significant damage to the national economy.

The Commission establishes and implements various policies which are designed to alleviate economic concentration by regulating the business expansion of such large business groups and creates conditions conducive to free and fair competition.

With respect to corporations that belong to the Large Business Groups (top 30 business groups), the Commission prohibits cross-capital investment--that is, acquiring or owning each other's stocks. Moreover, their debt guarantees to subsidiaries are not to exceed 100% of their capital. Furthermore, their total amount of capital investment in other corporations are to be no more than 25% of net assets. With a view to preventing Large Business Groups from expanding business or controlling businesses through financial or insurance companies, financial or insurance companies belonging to Large Business Groups, are subject to limitations on exercising voting rights with their shares of subsidiaries.

On the contrary, business groups with sound ownership de-concentration and financial structure are exempted from designation of Large Business Groups, and corporations with sound ownership de-concentration and financial structure are exempted from the limitations on total amount of capital investment.

��

���   Prohibiting undue collaborative acts

Collaborative acts, such as bid rigging, which restrain competition among businesses in a certain area of trade have the effect of raising or maintaining prices at levels higher than would be under effective competition. Thus, those that participate in such collaborative acts gain profit, while their trading counterparts and consumers are deprived of benefits.

The Commission feels that, among all the different types of unfair business practices, collaborative acts produce the most damaging impacts on the economy and society; thus, undue collaborative acts are subject to the most severe punishments. Even in the absence of clear agreements among corporations, when corporations are engaging in acts that substantially restrain competition, they are deemed to be engaging in undue collaborative acts.

��

< Examples of undue collaborative acts >

• Predetermination of price and terms of trade.

• Control of production and ex-factory volume.

• Restriction of facility investment, types and sizes of commodities.

• Establishment of joint corporations in major sales areas.

However, collaborative acts authorized by the Fair Trade Commission for purposes of rationalizing industry, overcoming recession, readjusting industrial structure, and strengthening competitiveness of small-medium enterprises are exempt from restrictions. Also, voluntary confessors of undue collaborative acts are subject to lighter punishments.

• Prohibiting unfair business practices

Unfair business practices by enterprises impede on the free and fair development of the market and cause damage and inconveniences to consumers. The Commission strives to eradicate unfair business practices in the market and to improve laws and policies.

The types of unfair business practices subject to regulation by the Fair Trade Commission are as follows:

First, unfair business practices between trading partners include unreasonably refusing to deal with a certain trading counterpart, discriminatory treatment, unfairly excluding competitors, unfairly attracting customers by providing excessive profit, abusing superior position in trading, unfairly binding a certain area of trade or a certain trading partner, interfering in business activities, and so on.

Second, unfair business practices between corporations and consumers. False or exaggerated representations or advertisements regarding a company or a product on TV, radio, in newspapers, magazines, and etc.; representations or advertisements slandering a competing corporation; providing excessive gifts to attract customers; and gas stations selling products of other companies are some of the examples.

Apart from the above, assisting affiliates ("unfair in-house trading"); unfairly refusing to deal with a certain affiliate or suspending transaction; unfair discrimination against a certain affiliate; unfairly providing assistance in the form of funds, assets, manpower, and etc. also constitute unfair business practices.

��

• Prohibiting anti-competitive acts of trade associations

The Commission strictly prohibits trade associations from abusing or going beyond the rights granted to it by the government and engaging in anti-competitive acts under the pretext of protecting the interests of the member corporations.

Trade associations are prohibited from limiting the number of member corporations or the activities of member corporations; forcing or abetting member corporations to engage in undue collaborative acts, unfair business practices, or resale price maintenance; and making representations or advertisements that are likely to deceive or mislead consumers with regard to businesses or products (services).

��

• Prohibiting resale price maintenance

The Commission prohibits producers and marketers of products from determining, in advance, the prices for every level of sales and forcing distributors (redistributors) to sell the products at such prices. The reason is that such practices prevent free price competition among distributors and interfere in the formation of a fair market price.

However, the Commission authorizes resale price maintenance for products that meet the requirements in law or of copyrights and which are designated by the Commission.

��

• Restraining international contracts with unfair terms

The Commission feels that international contracts are likely to contain terms favorable to foreign parties. That is, international contracts may contain many unfair terms reflecting the superior positions of the foreign counterpart. Such contracts are likely to impede on fair competition in the Korean market. Thus, in order to establish fair trade in the local market and to protect the rights and interests of local corporations, the Commission prohibits the signing of international contracts by enterprises or trade associations containing unfair terms.

That is precisely why the Commission prohibits enterprises and trade associations from signing international contracts, such as industrial property rights contracts, franchise contracts, and joint research and development agreements which contain undue collaborative acts, unfair business practices, and resale price maintenance prohibited under acts and notifications.

The Commission has also established a scheme under which enterprises or trade associations can voluntarily request an examination of the terms of the contracts.

< Examples of unfair international contracts >

• Limiting the supply source of raw materials, parts, production facilities, and so on; and limiting sales area, trading partner, and method of transaction.

• Restricting improvement, research and development of technology.

• Restricting use of competitors' technology or buying and selling of competitors' products.

• Interfering in parallel importing or unfair clauses for termination of contract or for disputes.

��

• Regulating unfair subcontract practices

Under the Fair Subcontract Transactions Act (hereinafter "Subcontract Act"), unfair subcontract practices in construction, manufacture of goods (including s/w development, engineering activities, and design work), sale of goods, and repair of goods are subject to regulation. The Subcontract Act applies when the contractor is a large enterprise and the subcontractor is a small-medium enterprise; or when both are small-medium enterprises whereby the sales turnover (the ceiling on the contract amount for construction businesses) or the number of regular employees of the contractor is more than twice those of the subcontractor. However, small-medium enterprises belonging to large business groups are considered large enterprises, while contractors which are small enterprises are exempt from application of the act.

< Types of unfair subcontracting practices >

• Failing to issue a contract, a written order, etc.

• Failing to make the subcontract payment; failing to pay the interests for payments delayed; failing to pay discount rates for notes.

• Refusing to receive or accept an object, or returning or reducing the price without justifiable reasons; or forcing a firm to purchase a certain material without justifiable reason.

• Making the subcontract payment in kind or in the form of coupons against the will of the subcontractor.

• Entrusting a subcontractor with a commission to construct and failing to grant subcontract payment guarantee to the subcontractor.

• Failing to reflect the adjustments in payments to the subcontractor after receiving additional payments from the principal for changes in design or in market conditions.

��

• Regulating unfair standardized contracts

An enterprise is to clearly indicate the terms of the standardized contract to the customers; at the customers' demand, the enterprise shall distribute a copy of it and explain important aspects to aid understanding of customers. The Standardized Contracts Act makes sure that no enterprise gets away with a contract that is otherwise. Terms in a standardized contract must be interpreted fairly under the principle of good faith and sincerity. When certain terms in a standardized contract are unclear, the terms shall be interpreted in a manner that is advantageous to the customer.

No enterprise shall include terms in a standardized contract which go against the principle of good faith and sincerity and which are unfair and disadvantageous to the customer in the exercise of their rights regarding liability, compensation for damages, termination or rescission for future of contract, defense, and to set off; or terms which limit the rights of the customer in deemed expression of intent, performance of obligation, prohibition against lawsuits etc.

If an enterprise produces unfair terms in a standardized contract, the Commission has the relevant enterprise make the necessary corrections; if a standardized contract produced or authorized by an administrative agency contains unfair terms, the Commission asks the relevant agency to make the necessary corrections. At the same time, the Commission recommends the use of the Standardized Contract which has undergone and passed deliberations at the Commission for purposes of securing healthy trade practice as well as establishing fair contract terms. Furthermore, the Commission makes public a list of terms in standardized contracts which have been deemed to have violated the Standardized Contract Act after deliberations and adjudgment.

��

��

��

��

The Fair Trade Act does not simply target all activities that are deemed unfair under the conventional wisdom of society and the economy. In fact, the Fair Trade Act does not apply to the following activities.

��

• Industries exempt from application of the Fair Trade Act, and individual activities

The activities in the primary industry, including agriculture, mining, fishery, and forestry (with the exception of the briquet manufacturing industry) and the activities of the government agencies are excluded from application of the Fair Trade Act. Also, the Fair Trade Act applies only to business activities; therefore, purely individual activities are not subject to the Fair Trade Act.

��

• Acts justifiable under other laws

Activities of enterprises or trade associations which pertain to the stipulations of other laws are not subject to the Fair Trade Act.

��

• Execution of intangible property rights

With respect to the execution of rights under the Copyrights Act, Patent Act, Utility Model Act, Design Act, and Trademark Act, the Fair Trade Act does not apply. However, the execution of such rights must be justifiable; otherwise, acts that abuse rights or evade the law shall be subject to the Fair Trade Act.

��

��

��

Any person may report a violation of the Fair Trade Act to the Commission through mail, telephone, fax, or PC on-line services.

The Secretariat or the Regional Offices of the Commission will thoroughly review the reported cases and determine whether the Fair Trade Act applies or not. If it applies, the Commission initiates investigations; if not, it rejects the case. Following investigations, if no evidences are found to prove any violation, the case is dismissed, while if the violation is proven to be relatively light, a warning is given. However, when the violation is sufficiently heavy and worth issuing corrective measures, on a case-by-case basis, the Commission either recommends the relevant party to make voluntary corrections, or takes the case to the commission meeting for deliberations and adjudgment.

At the commission meeting, the defendant is subpoenaed and given a chance to make a statement. If necessary, his/her statement is verified with the assistance and cooperation of the relevant agencies. When the commission meeting deems the investigations insufficient, it orders a re-investigation. When violation of the law is clearly acknowledged and needs to be corrected or suspended, the commission meeting orders a correction. On a case-by-case basis, the violator is to make a public announcement of the violation in newspapers and so on, or to pay fines. Extremely heavy violations are reported to the prosecution or referred to the relevant agencies for appropriate measures in accordance with the relevant statutes.

The court room is, in principle, open to public. However, when enterprises or trade associations need to protect their business secrets, it may be closed to the public.

Those who have objections to the decisions of the Commission may file an objection at the Commission within 30 days after the date of receiving notification of the Commission's decision. The Commission is to re-deliberate the case within 30 days unless special circumstances make it impossible. If the defendant wishes to raise an objection to the Commission's decision from re-deliberation, it may do so at the court (Seoul High Court) within 30 days. If the Commission deems it necessary, the Commission may suspend the execution of the corrective measure pending the period in which objections may be filed. However, the victims of violation of the Fair Trade Act may file a compensation for damages suit at the court, apart from filing a report at the Commission.

With respect to businesses or industries frequently reported or where subcontract transactions occur frequently, the Commission conducts direct authoritative investigations based on separate investigation plans.

< Basic content of report >

• Trade name, name, address, phone number and other means of contacting the reporter.

• Trade name, address, telephone number, name of representative, major business areas of the alleged violator.

• Description of violation and supporting documents.

For your convenience, please consult the relevant personnel within the Commission or the counsellor by phone prior to filing reports.

��

��

��

��

• Composition of the Fair Trade Commission

��� The Fair Trade Commission is composed of a commission, a secretariat, and four regional offices located in metropolitan cities.

��� The commission is composed of nine commissioners, including the chairman. The chairman and vice chairman are appointed by the president upon recommendation by the prime minister.

��

��

Organization Chart of the Fair Trade Commission

��

��

��

��

• Commission

��� The chairman represents the Fair Trade Commission and oversees and supervises the public servants belonging to the commission. When the chairman is unable to carry out his/her duties due to unforeseen circumstances, the vice chairman acts for the chairman.

��� The commissioners are nine in all, including the chairman and the vice chairman. Among them, four are non-standing commissioners. Their term of office is three years which can be renewed only once.

��� The meetings of the commission take place in the form of a full committee or a subcommittee.

��� The full committee is presided over by the chairman with the participation of all nine members duly elected and seated. The full committee deliberates on matters relating to the enactment, revision, modification, or interpretation of the acts, decrees, and notifications relating to fair trade. It also reaches judgments regarding cases for which objections have been filed and deliberates on and reaches decisions on other related matters. Decisions at the full committee require the concurrence of a majority of the members duly elected and seated.

��� The subcommittee is composed of one standing commissioner and two non-standing commissioners and its meetings are presided over by each standing commissioner. The subcommittee deliberates and decides on ordinary or light cases or matters referred to it by the full committee. Decisions by the subcommittee require the unanimous consent of all the members.

��

• Secretariat

The Secretariat is composed of six bureaus that are in charge of developing policies and dealing with cases along with the Office of Legal Affairs and the Proceedings Administration Division which is responsible for the affairs relating to commission meetings.

��

��

��

��

��

��

��

��

: Establishing and coordinating basic plans relating to fair trade laws and policies; research and development of competition policies; promotion of public relations and inter-ministerial cooperation. (��� 503-9117~8)

��

��

: Improving anti-competitive laws and policies. (��� 503-9120~1)

��

��

: Establishing international competition policy; strengthening bilateral cooperation; and reviewing international contracts. (���504-5145~6)

��

��

: Reinforcing cooperation in competition policy at international organizations such as OECD, WTO, UNCTAD, APEC, and etc (��� 504-5944~5)

��

��

��

��

��

��

��

��

��

��

: Establishing and enforcing policies designed to regulate monopolies and oligopolies; designating market-dominating enterprises and monitoring market power abuse (��� 503-9122~3)

��

��

: Establishing and enforcing measures designed to alleviate economic concentration; designating top 30 business groups (enforcement of regulations relating to the ceiling on total amount of capital investment and on debt guarantees) (��� 503-9124~5)

��

��

: Examining mergers; prohibiting the establishment of and conversion to holding companies (��� 507-1934~5)

��

��

: Investigating unfair in-house trading of enterprise groups and unfair business practices by public enterprises (��� 507-0748~9)

��

��

��

��

��

��

��

��

: Establishing and enforcing measures designed to promote competition and establish order in the market; investigating general unfair trade practices (��� 503-9128~9)

��

��

: Investigating unfair business practices in certain areas of trade, including the wholesale and retail businesses, the service business and the financial business (��� 503-9078, 9511)

��

��

: Investigating undue collaborative acts by enterprises (��� 504-4163~4)

��

��

: Investigating undue collaborative acts or unfair business practices by trade associations (��� 503-9126~7)

��

��

��

��

��

��

��

��

: Establishing and enforcing consumer protection policies ; and examining representations and advertisements pertaining to manufacturing and real estate businesses (��� 504-4161~2)

��

��

: Examining representations and advertisements pertaining to the distribution, communications, financial, and transportation businesses (��� 504-9474~5)

��

��

: Examining standardized contracts pertaining to the financial, insurance, distribution, and public businesses (��� 503-9012, 504-5946)

��

��

: Examining standardized contracts pertaining to the manufacturing, real estate, and service businesses, such as public facilities, membership clubs, and etc (��� 507-0957~8)

��

��

��

��

��

��

��

��

: Establishing and enforcing measures designed to establish fairness in subcontract transactions (��� 503-8894~5)

��

��

: Investigating subcontract transactions in the construction-related businesses (��� 507-1943~4)

��

��

: Investigating subcontracting in the manufacturing, repairing, and software industries as well as in the sales businesses (��� 507-1467,1847)

��

��

��

��

��

��

��

��

: Establishing investigation plans and gathering information (��� 507-0161~4)

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

The Commission has regional fair trade offices in four metropolitan cities: Pusan, Kwangju, Taegu, and Taejeon.

��

��

��

��

��

��

��

��

��

[Areas of Jurisdiction at the head office and regional offices]

��

��� Head office : covers nationwide cases or those occurring in Seoul, Kyonggi province, or Kangwon province.

��� Pusan office : covers Pusan and South Kyongsang province.

��� Kwangju office : covers the North and South Cholla provinces and Cheju island.

��� Taegu office : covers Taegu and North Kyongsang province.

��� Taejon office : covers Taejon and North and South Choonchung provinces.

��

��

��

��

The Commission operates two counselling offices for the purpose of enhancing understanding of the fair trade laws and policies and providing counselling and guidance. Any person may personally visit the counselling office or make a telephone call or send a fax. The counselling office provides legal counselling as well as information and guidance regarding the methods and procedures of filing reports. At the counselling office in central Seoul (Kwang-hwa-mun), we accept registrations of reporting documents for your convenience.

The Commission also operates a library open to the public. The library has judgement books, case books, statistics, annual reports, and other periodicals published by the Commission, as well as books from home and abroad regarding economy and law or economic policies. In particular, the library holds books which introduce the competition laws and policies of foreign competition authorities.

Beginning April 1, 1997, the Commission began a "Fair Trade Information Service for the Public" through the PC on-line service. The Commission uses this service as a window through which various types of information relating to competition laws and policies are offered to the public, legal counselling pertaining to fair trade law is provided, guidance on reporting of violations or anti-competitive law enforcement are provided, reports are accepted, and the opinions from all walks of life are collected.

. Order of registration: Select 33. "Open government" in the top menus of on-line services (including Chollian, Hitel, and etc.) ��� 44. "Fair Trade Information/Reporting".

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��