The Korea Fair Trade Commission (the “KFTC”) under the President Moon administration has been actively working to identify challenges to Korea’s current competition law regime and implement reforms to promote fairness and innovation. To discuss and recommend appropriate reforms, the KFTC established the Competition Law Enforcement Reform Task Force (the “TF”) and the Competition Law Amendment Special Committee (the “Special Committee”).
TF Recommendations for Reform
Following a lengthy review and discussions held in 11 meetings over a 5-month period, the TF published a comprehensive report in February 2018, identifying 11 areas for improvement in the competition law regime’s civil, administrative and criminal enforcement procedures.
The TF determined that the current level of administrative fines is too low to have sufficient deterrent effect, and has recommended doubling the upper limits of current basic administrative fine rates, as follows:
Cartels: from 10% to 20% of the relevant volume of commerce;
Abuse of Dominance: from 3% to 6% of the relevant volume of commerce; and
Unfair Trade Practices: from 2% to 4% of the relevant volume of commerce.
The TF has also recommended legislating new procedural laws relating to the KFTC’s case-handling procedures.
In addition, the TF discussed the adoption of a system empowering the KFTC to issue structural remedies (such as divestiture orders) in abuse of dominance cases for purposes of market structure improvement. However, the TF did not reach sufficient consensus on adoption.
The TF considered issues relating to private litigation, including: injunctive relief, punitive damages, as well as class actions. Though agreeing in principle to the need for certain reforms, the TF did not agree upon the scope of reforms.
In order to assist private claimants to obtain evidence for civil actions, the TF has recommended making it obligatory for corporate defendants to produce documents to the court upon the court’s request; however, leniency related documents would not be subject to such requests, so as not to prejudice a leniency applicant’s interests.
The TF has agreed to an eventual repeal of the exclusive criminal referral system (whereby the KFTC currently has the exclusive right to refer antitrust violations for criminal prosecution). However, opinion is divided on the scope of repeal. While some argue for repeal in its entirety, others argue that the overall system should remain intact, with a few modifications. Others argue for a selective and partial repeal, based on competition analyses (including economic analyses) and consideration of the need for deterrence for each violation. In the meantime, the TF agreed to repeal the KFTC’s exclusive criminal referral authority for violations of fair trade related statutes, such as the Fair Transactions in Franchise Business Act, Fair Transactions in Subcontracting Act, and the Fair Retail Agency Transactions Act.
Although there was some agreement as to the direction of administrative, civil and criminal enforcement, differences of opinion remain. For the issue areas where all was agreed, implementation will be relatively swift; for issue areas where differences of opinion occurred, further discussion is necessary for implementation.
Competition Law Reform by the Special Committee
Consisting of 22 legal and economic experts with diverse backgrounds, the Special Committee have been meeting on a regular basis to discuss competition law related topics.
In furtherance of the TF’s recommendations, the Special Committee is preparing a full-scale reform plan regarding the Monopoly Regulation and Fair Trade Act (the “MRFTA”), the primary competition statute of Korea; the plan will address the TF-identified issue areas, and propose appropriate legislative amendments to the National Assembly.
The Special Committee seeks full-scale reform and structural reorganization of the competition law regime to improve its consistency and reliability. To that end, the Special Committee plans to address issues involving both procedural and substantive provisions of the MRFTA. For example, its objective includes not only structural reorganization of the competition law, but also creation of new substantive competition laws to regulate new types of competition-related violations, such as algorithm cartels.
On March 16th, 2018, the Special Committee held a kick–off meeting and proposed 17 reform topics for discussion, under three categories: (1) Substantive Law; (2) Conglomerate-related Regulations; and (3) Procedural Law.
The following are the topics for discussion:
|Reform Topics for Discussion|
|Common Objective||1. Overall structural reforms|
|Substantive Law||2. Abuse of market dominance
3. Unfair trade practices
4. Leniency and cartel sanction policies
5. Criminal penalties and the KFTC’s exclusive criminal referral right
6. Reinforcement of market structure investigations
7. Modernization of competition law to cope with the 4th industrial revolution (big data, etc.)
|Conglomerate-related Regulations||8. Conglomerate designation policy
9. Restrictions on holding companies
10. Conglomerate investment regulations (e.g. circular shareholdings)
11. Conglomerate disclosure obligations
12. Reinforcement of prohibition on unfair assistance for affiliates
|Procedural Law||13. Expanding legal defence rights of investigation targets
14. Enhancement of procedural efficiencies
15. Further utilization of consent order system
16. Reforms to ensure independence of the KFTC
17. Reforms to guarantee reliability of the KFTC’s enforcement powers
Based on the recommendations of the Special Committee, the KFTC will prepare a proposal for legislative amendments for submission to the National Assembly, which is currently targeted as September 2018.
If all the amendments to the 17 areas planned by the Special Committee are implemented, considerable changes can be expected to the current MRFTA. Accordingly, companies operating in Korea are advised to carefully monitor the reform process to keep track of the legislative amendments that are ultimately approved by the National Assembly.
Genny S. Kim