South Korea’s New Fair Trade and Competition Regulatory Framework

President Moon Jae-in and his administration (the “Moon Administration”) have pledged to roll out changes to competition regulations as well as reinforce the fair trade regulatory framework in order to achieve his goal of “economic democratization”. Changes include: (i) strengthened enforcement measures that will include a stepping up of criminal enforcement, an expansion of the investigatory powers of the Korea Fair Trade Commission (the “KFTC”); (ii) stricter regulation of conglomerates (Chaebols) to ensure transparency in their corporate governance structures; and (iii) prevention of abuse of superior economic power. Though some of these measures are expected to be implemented as of this year, others are expected later.  They include:

  • Criminal Sanctions for Obstructing KFTC Investigations. Amendments to the Monopoly Regulation and Fair Trade Act (“MRFTA”) will take effect on July 19 this year that substantially increase the penalties for spoliation of evidence (i.e. tampering or destruction of evidence) or refusal to submit information/materials in a KFTC investigation. 
  • Expansion of Punitive Damages to Competition Laws. Punitive treble damages have been newly introduced in amendments to various regulations, such as the recently amended Fair Retail Agency Transactions Act (the “FRATA”), under which retail agents may recover up to three times the damages incurred due to forced purchase or provision of economic benefit in violation of the FRATA. The amended Product Liability Act (the “PLA”) which becomes effective in April of 2018, also introduces punitive treble damages and lowers the burden of proof for product liability claims.
  • New Regulations to Address Abuse of Superior Economic Power (Leveling the Playing Field). Various new laws and amendments have been introduced (and will take effect within this year or next) in order to prevent abuse of superior power in connection with such transactions as franchising, subcontracting, agency transactions, and online transactions, among others. 

Changes Expected Going Forward

  • Abolishment of the KFTC’s Exclusive Criminal Referral Authority. Currently, the KFTC has the exclusive authority to refer any alleged competition law violations to the Prosecutor’s Office for criminal prosecution and has generally reserved referrals for severe violations. The Moon Administration has pledged to abolish this exclusive authority, which would enable the Prosecutor’s Office to initiate its own investigations into competition law violations and allow others to file complaints directly with the Prosecutor’s Office.
  • Class Actions for Competition Law Violations. The Moon Administration will likely seek to introduce a class action system to redress consumer harm caused by competition law violations. The Moon Administration has also stated that it will establish a fund to support consumers that suffer from anticompetitive conduct.  
  • Increased Regulation of Conglomerates (Chaebols). In addition to its measures to prevent abuse of superior economic power (which will focus largely on the conglomerates), it is likely the Moon Administration will also regulate questionable practices prevalent among Chaebols.

For a discussion of President Moon’s new Trade Policies that will be implemented to achieve some of the above goals please join me at the KBLA’s Corporate Governance Forum on June 30 at the Hyatt Hotel in Seoul, Korea for Retired Ambassador Seokyoung Choi’s presentation on President Moon’s Trade Policy.

Registration information is set forth in the link below:

1 Comment

  • Brian,
    Thanks for this. Two comments:
    1: The challenge that we have faced in Korea is not weak laws and regulations but poor enforcement. Enforcement has a) often been politically motivated rather than focused on fair trade and b) focused on redressing specific transactions rather than addressing systematic problems.
    2: Questionable Practices of the Chaebol: Unless the ‘questionable practices’ are defined and applied systematically, this is tantamount to a witch hunt.
    The challenge for the adminstration is to create an enviornment where commercial transactions are fair and transparent and then let the market sort things. This will create opportunities for SMEs and startups. ‘Correcting’ specific errors – i.e. a kind of affirmative action – is merely replacing favors for one set of players for another.

    Peter Underwood June 22, 2017

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