I. Introduction

1. The foreign exchange crisis that erupted in late 1997 sent a shock wave throughout Korea, which had so far enjoyed continued economic growth. Korea is now on the path to recovery through regulatory reform, financial sector restructuring, etc, laying a groundwork for sustainable growth. These reform programs have received acclaim from domestic and foreign investors, and made significant contributions to Korea's economic recovery.

2. Regulatory reform currently under way in Korea is ultimately aimed at moving away from the model of government-led economic development toward the open and market-driven economy.

3. The policy of structural adjustment constitutes an important task of fundamentally changing the relationship among the government, the business, and the consumer in the open market economy. It is also an integral part of attaining the goal of sustainable economic development through regulatory reform pursued by APEC member economies.

4. Many point out that Korea's achievements in the field of regulatory reform offer implications for crisis-stricken Asian countries. In this light, the achievements and implications of regulatory reform, particularly the experience of Korea, are discussed.

II. Legal and Institutional Devices for Regulatory Reform

5. The Korea Fair Trade Commission (KFTC) has unique status and function within the Korean government, not to be found in other countries.

The KFTC is a ministerial-level organization under the Prime Minister's Office and is thus able to work in an independent manner, free from the influence of other government agencies.

6. The Chairman of the KFTC sits on the Cabinet meeting, and can have the perspective of competition policy reflected in the process of major policy making.

7. Turning to the statutory authority of the KFTC, other government agencies, when attempting to enact or revise laws with anti-competitive provisions, should first undergo consultation with the KFTC pursuant to Article 63 of the Monopoly Regulation and Fair Trade Act (MRFTA), Korea's basic competition law. This requirement is an important tool designed to prevent the lessening of market competition by statutory or institutional arrangements and promote the ideas of competition policy in the policy making process.

8. The prior consultation requirement complements the MRFTA whose application is limited only to the correction of offences already occurred. Holding consultation with other government agencies help improving the overall market structure and the condition for competition in a fundamental way.

9. During the consultation, the KFTC puts forth its views aimed at promoting competition principles and enhancing institutional transparency through the deregulation of entry繚price and the clarification of various standards. If necessary, it has pro-actively voiced its opinions at the Vice ministerial-level and Cabinet meetings, the ultimate decision-making authority in the administration.

10. The KFTC has a division in its organization exclusively in charge of regulatory reform (Competition & Deregulation Division), consisting of one director and 7 staff members. However, in the sense that other divisions also carry out the competition advocacy role in relation to the prior consultation requirement and the sectoral market structure analysis, the Commission as a whole is responsible for the regulatory reform.

III. Outcomes of Regulatory Reform

1. Review繚Consultation on Anti-competitive Statutes

(1) Outcomes of Review繚Consultation on Anti-competitive Statutes

11. In 2000, government ministries sought prior consultation with the KFTC on a total of 481 laws and regulations. Of the total 481 cases, the KFTC made recommendations in 60 cases or 12.5%, which were reflected in 51 cases or 85%.

12. Such a high acceptance rate of KFTC recommendations signifies that the opinions put forth by the KFTC are in line with the government's policy direction toward regulatory reform and the promotion of competition and transparency. This also means that other government agencies give serious thoughts about the opinions of the KFTC, since the Commission has actively voiced its views in the vice-ministerial and cabinet meetings.

<Annual Statistics on KFTC's Recommendations and Acceptance by Other Ministries>

(2) Major cases of legislative moves redressed by the KFTC

13. The KFTC has actively made suggestions on virtually all sectors covering the areas such as culture, agriculture, and the local autonomous bodies.

(i) Culture : The proposed revision of the Copyright Act permitted the organizations designated by the Minister of Culture and Tourism to claim compensation charges from importers繚distributors or manufacturers繚distributors of digital recording繚taping equipment or media, for the use of copies for private purposes. Since such provision could undermine the competitiveness of digital industry, the KFTC successfully recommended the deletion of the provision.

(ii) E-commerce: In the process of enacting the Enforcement Decree of the Framework Act on Electronic Commerce, the Guidelines for Consumer Protection in the Context of Electronic Transaction was originally to be promulgated by the Minister of Commerce, Energy and Industry. However, the jurisdiction was transferred to the KFTC, as recommended. This move enhanced the policy consistency and the effectiveness of works related to consumer protection.

(iii) Small-and Medium Internet Start-up Enterprises : The amendment draft of Electronic Signature Act set forth the capital of 10 billion Won or more as the criteria for official certificate agencies. The KFTC recommended the change in the phrase to "the capital of 10 billion Won or more or financial institution's guarantee on capital and liability for damages", expanding the scope of such criteria and thereby making it easy for small Internet startups with technological capacity to enter the certification market.

(iv) Local Autonomous Bodies : In the process of revising the Enforcement Decree of the Local Finance Act, the proposed provision stipulating that the proceeds from selling off public asset by head of local autonomous body shall be earmarked to acquire new asset similar to the old one was dropped. By doing so, the possible restraint on the autonomy of local governments through excessive internal administrative regulation was prevented.

2. Elimination of Cartels through the Enactment of the Omnibus Cartel Repeal Act

(1) Background

14. In the process of government-driven economic development, the government turned a blind eye to existing cartels to achieve the goal of economic efficiency. Some cartels were even allowed under laws and regulations. However, these cartels had side-effects that outweighed their efficiency-enhancing benefits, such as mis-allocation of resources. They caused inconveniences on the part of the general public and also undermined the competitiveness of the businesses.

15. Meanwhile, on April 18, 1998, the OECD adopted the Recommendation of the Council concerning Effective Action against Hard Core Cartels, which exemplified the global effort to allow free market access.

(2) Description of the Act

16. Following the OECD Recommendation, the Omnibus Cartel Repeal Act was enacted in Feb. 1999 which removed 20 statutory cartels.

(i) Abolition of the cartel of professionals which allowed trade associations to fix service fees subject to the approval of relevant agencies

(ii) Streamlining of the coordination directive on exports and imports under the Foreign Trade Act and the abolition of coordination in bidding competition for overseas projects under the Overseas Construction Promotion Act

(iii) Revision of the joint computation of insurance premium rates by the Insurance Development Institute (IDI)

(iv) Reduction of the number of products subject to the group negotiation contracts for SMEs

(3) Achievements

17. The Act carries special significance in that it represents a marked departure from the past conception about cartel and in the major vehicle of economic policy. More concretely, the implementation of the Act served as an opportunity to change the conception of corporations which regarded concerted acts as an ordinary business practice. It also signified a termination of government policy employing cartels as a major policy tool.

18. The enactment of the Omnibus Cartel Repeal Act led to the establishment of pro-competitive system in the economy. It is also expected to promote market economy. Companies have to face fiercer competition in the market and as a result will sharpen their competitive edge for survival.

19. Prohibiting cartels may be especially painful for businesses, since it represents a change in the stable status quo. However, the reality is that companies are inevitably exposed to the cut-throat competition in the global market. The Act, by creating an environment conducive to enhancing competitiveness of corporations, will benefit not only new but also incumbent market players.

20. In addition, the enactment of the Omnibus Cartel Act made great contributions to improving Korea's international credit rating, by expressing the government's firm commitments toward reforming economic fundamentals.

3. Economic Regulatory Reform

21. From April 1997 until the end of 1998, the KFTC operated Economic Regulatory Reform Committee. It also set up a task force to assist the Committee. In less than 2 years, the Committee and the Task Force reformed 73 regulations in 16 sectors including logistics and distribution that had a close bearing on the people's lives and business activities. To name a few, it led to the elimination of recommended consumer price, the mandatory incorporation of trade associations and payments of membership fees and deregulation of telecom service charges.

22. Since April 1998, the KFTC has maintained a close cooperation with the Regulatory Reform Committee under the Office of the Prime Minister, pushing ahead with regulatory reforms. 7 deregulation tasks identified in 2 sectors were completed such as the improvement of quality review procedure on petro-chemicals.

23. In addition, early in October 1999, the Deregulation Task Force Team was re-instituted under the KFTC, which has been putting forth constant efforts in streamlining economic regulations.

IV. Evaluation and Future Tasks

24. Korea has put in place legal and institutional devices to implement the review繚consultation on anti-competitive laws, the Omnibus Cartel Repeal Act, and the economic deregulation, with outstanding achievements. However, rather than basking in short-term success, the competition authority should keep strongly committed to constant reform and implement the reform programs.

25. Among the statutory tools on hand, the consultation requirement is an important vehicle to promote competition policy principles by examining policies of each government agency from the competition policy perspective. In this view, the fact that the number of consultation sought by other industries has been on the rise for the recent 3-4 years and the recommendation by the KFTC has been accepted at a high rate testify to the elevated status of the KFTC as competition authority.

26. However, much needs to be done at the Commission level to allow for the effective and substantial operation of the prior consultation requirement. First, the Commission's market analysis function should be strengthened in order to effectively secure the necessary time for consultation and ensure its substantial implementation.

27. The outcomes of sector-by-sector (or industry-by-industry) market analysis carried out for case handling or regulatory reform can naturally lead to legal or institutional improvements, and such prior review and analysis should precede the formulation of alternatives based on the accurate diagnosis of problems.

28. Second, the proposed legislation is examined by the Bureau concerned, which may sometimes result in the difference of opinions inside the Commission depending on the statutes under review. In order to resolve this problem, a uniform review standard should be set up, based on the results of consultation by type of anti-competitive practices or general principles. This single, KFTC-wide standard should be utilized in a systematic manner in the review of laws and regulations.

29. Finally, the outcomes of consultation sometimes fail to be filed and kept in records, which limits their availability in future consultation. Thus, efforts should be made to periodically publish the outcomes of legal consultation.

30. Korea plans to constantly carry out effective regulatory reform, building on its past experiences of regulatory reform.