RESTRICTED
WORLD TRADE WT/WGTCP/W/37
1October 1997
ORGANIZATION(97-4061)
Original: English Working Group ontheInteraction
between Trade andCompetition Policy
COMMUNICATION FROM KOREA
Thefollowing communication, dated 16September 1997, hasbeenreceived fromthePermanent
Mission ofKorea withtherequest thatitbecirculated toMembers.
_______________
INSTRUMENTS, STANDARDS AND ACTIVITIES OFKOREA 'SCOMPETITION POLICY
I. Introduction andDevelopment ofCompetition Law
1. When theGovernment oftheRepublic ofKorea began topursue itseconomic development
policies intheearly1960's,thenation suffered fromanabsolute shortage ofcapital andotherresources.
Under suchcircumstances, theonlypolicy option available fortheeconomic development andgrowth
wasastrategy thatwould leadtounbalanced economic development where afewselected industries
weretargeted asanengine forgrowth andaparticular emphasis ofthetrade policy wasplaced onthe
promotionofexports.Havingoptedforthatpolicydirection,Koreasucceededinachievingaremarkable
economic development. However, itwasnotwithout acost. Duetotheexport-oriented tradepolicy,
imports wererather restricted andthusdomestic markets often fellintomonopolistic andoligopolistic
control. Economic power andwealth began tobeconcentrated.
2. Suchsideeffects ofKorea 'sunbalanced economic development onitsmarket began toemerge
associal issues evenattheearly stage oftheimplementation ofthestrategy. Itwasonlyin1975that
thefirstlegislation designed tocontain these negative effects wasintroduced. However, thenewlaw,
Price Stability andFairTrade Act,regulated onlythearbitrary setting ofprices bymonopolistic
enterprises inaneffort toensure price stabilization. Inthissense, thelawwasquite short ofatrue
competition law.
3. Acompetition lawinitsrealsense, which regulates monopolies andoligopolies, wasenacted
inDecember 1980. Theprimary goalofthislaw,theMonopoly Regulation andFairTrade Act,is
topromote freeandfaircompetition, through which itaimsatencouraging innovative business activities,
protecting consumers andpromoting abalanced development ofthenational economy. ThisActhas
undergone fiverevisions since itsenactment anditsregulations ontherestrictions ofeconomic
concentration haveconsistently gained strength witheachrevision.
II. Institutional Development oftheFairTrade Commission
4. In1981, theFairTrade Commission (FTC) wasestablished under thenow-defunct Economic
Planning Board toadminister theMonopoly Regulation andFairTrade Act. In1994, theFTCwas
made anindependent central agency under theOffice ofthePrime Minister. In1996, thestatus of
theChairman oftheFTCwaselevated totheministerial level.WT/WGTCP/W/37
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5. TheFTCiscomposed ofaCommission andaSecretariat. TheCommission iscomposed of
nineCommissioners,aChairman,aVice-Chairman,threestandingandfournon-standingCommissioners.
TheSecretariat iscomposed ofsixbureaus, 30divisions andfourregional offices.
III. Competition LawofKorea
Relationship between competition policy andtrade policy
6. Astheunderlying objective ofKorea 'scompetition lawistohelpestablish apro-competitive
market structure andtoenhance economic efficiency, thefocus ofitscompetition policy isbasically
limited within itsnational boundary.
7. Withthedeepening integration oftheworld economy, however, anti-competitive practices in
Korea 'smarket maypose substantial barriers totheenhancement ofcompetitiveness ofKorean
companies ininternational trade. Thus, establishing grounds forfaircompetition within Korea 'smarket
hasdeepimplications foritsinternational trade. Thatisprecisely thereason whyKorea 'scompetition
lawhasbecome increasingly related totradepolicies. Furthermore, theprohibition ofdiscriminatory
treatment andtherestrictions ontheabuse ofmarket-dominating position under Korea 'scompetition
lawhaveapractical effect ofimproving access offoreign trading partners totheKorean market.
Main features ofKorea 'scompetition law
8. Almost allprovisions ofKorea 'scompetition lawarerelated totrade policy inthesense that
theyaimat"establishing playing fields forfaircompetition". TheMonopoly Regulation andFairTrade
Act,theprimary competition lawofKorea, hastwomainfunctions: oneistoimprove market structure
andtheother istoimprove business practices.
A. Improvement ofmarket structure
9. TheActincludes thefollowing provisions designed tomake themarket structure moreefficient:
10. First, toprevent theformation ofmonopolistic andoligopolistic market structures, theFTC
identifies firms which have market-controlling power, onayearly basis, anddesignates them as
"market-dominating enterprises". Thefirms sodesignated become subject tospecific regulations by
theFTConanyabusive acts.
- Forexample, companies aredesignated asmarket-dominating enterprises inamarket
inwhich totalvalue ofsales turnover amounts toWon 100billion (approximately
US$110 million) ormore, ifacompany hasamarket share of50%ormore, orifthe
topthreecompanies inacertain market occupy 75%ormore ofthetotalmarket share.
Inaddition, theFTC ismandated toformulate policies aimed atimproving competition in
markets where monopolistic oroligopolistic structures haveprevailed foralongtime.
11. Abusive actscovered bytheActareasfollows:
- Actofunreasonably determining, maintaining oraltering theprice ofcommodities
orcharge ofservice;
- Actofunreasonably controlling thesaleofcommodities orprovision ofservices;
- Actofinterfering withbusiness activities ofother enterprises;WT/WGTCP/W/37
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- Actofimpeding themarket entry ofnewenterprises; and
- Other actsthatarelikely torestrain substantially competition orsignificantly prejudice
consumer interests.
12. Second, toprohibit thecreation ofnewmonopolies andoligopolies, companies withtotalvalue
ofassets orsalesturnover (including those ofsubsidiaries) inexcess ofWon100billion arerequired
toreport totheFTCwhen theyareinvolved inbusiness mergers andother similar actssuchasstock
acquisition andparticipation intheestablishment ofnewenterprises. When suchreported actsturn
outtobeanti-competitiveortohavebeentakenthroughcoerciveorunfairmethods,theyarenotallowed.
13. Third, large business groups inKorea (better known as"chaebol") haverecklessly expanded
business through thefleet-like expansion ofsubsidiaries, often threatening thesurvival ofcompanies
thatdidnotbelongtothoseparticularbusinessgroups.Inmanycases,theserecklesslylargeinvestments
weakened thegroup asawhole andultimately brought about significant damage tothenational economy
aswell. Therefore, theFTCdesignates thetop30business groups as"Large Business Groups" and
prohibits themfrommaking suchcross capital-investment asacquisition orownership ofeachother's
stocks.Theirdebtguaranteesforsubsidiariesshouldnotexceed100%oftheirowncapital.Furthermore,
theirtotalamount ofcapital investment inother enterprises isrequired tobenomore than25%of
netassets.
14. Fourth, topromote competition intheeconomy asawhole, government agencies concerned
arerequired toconsult inadvance withtheFTCwhen theyprepare legislation thatmaynegatively
affect competitive conditions inmarkets. Furthermore, theFTCismaking itsutmost efforts toremove
anti-competitive factors from existing lawsandpolicies through close coordination withrelevant
ministries.
B. Improvement ofbusiness practices
15. First, unreasonable collusive acts,suchasbidrigging, which restrain competition inacertain
market havetheeffect ofraising ormaintaining prices atlevels higher thantheywould beunder normal
competition. TheActprohibits enterprises fromagreeing withother enterprises totakesuchcollusive
actsthatwould substantially restrict competition inanymarket. Such actsinclude:
- Pre-determination ofprice andterms oftransaction;
- Control ofproduction andex-factory volume;
- Restriction onfacility investment andtypes andspecifications ofproducts;
- Establishment ofcompanies forthepurpose ofcarrying outormanaging jointly main
parts ofenterprise; and
- substantial suppression ofcompetition inparticular business fields through interference
with, orrestriction onbusiness activities ofother enterprises.WT/WGTCP/W/37
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16. Second, theFTCstrives toeradicate unfair business practices inthemarket andtoimprove
lawsandpolicies concerned. Thetypes ofunfair business practices subject toregulation bytheFTC
areasfollows:
(a) Unfair business practices involving other enterprises:
- Actsofunreasonably refusing todealwith, ordiscriminating acertain business
counterpart;
- Actsofmaking transactions withanaimofunfairly excluding competitors;
- Actsofunfairly attracting orcoercing competitors 'customers;
- Actsofabusing superior position intransaction;
- Actsofmaking transactions under conditions tobindunfairly business activities
ofbusiness counterparts orhindering theirbusiness activities; and
- Actsofassisting specially interested persons orother companies byunfairly
providing assets, capitals ormanpower.
(b) Unfairbusinesspracticestowardsconsumers,suchasactsofmakinganyrepresentations
oradvertisements which maydeceive ormislead consumers.
17. Third, theFTCprohibits producers andsellers ofproducts fromdetermining, inadvance, the
prices foreachsales level andforcing suchprices onresellers. Such practices hinder freeprice
competition among sellers andinterfere withtheformation offairmarket prices.
18. Fourth, thesigning ofcertain international contracts byenterprises ortrade associations that
contain unfair terms isnotallowed under theAct. Unfair terms ofinternational contracts subject to
thisregulation areundue collusive acts,unfair business practices, andresale pricemaintenance. Such
contracts, ifallowed, mayhaveadverse effects onfaircompetition intheKorean market.
IV. Roleofcompetition lawinKorea
19. When thecompetition lawinitsrealsense wasenacted in1980, Korea 'spercapita income
reached onlyUS$1,500. Infact,Korea wasoneofthefewdeveloping countries which adopted
competition lawatthatstage ofeconomic development. Theintroduction ofcompetition lawwas
intended totackle thepossible abuse ofmonopoly andoligopoly which resulted from unbalanced
economic growth strategy thathadbeenpursued overtheprevious 20years. Despite itsrather short
history of17years ofimplementation, Korea 'scompetition lawhasconsiderably contributed to
transforming itsmonopolistic andoligopolistic domestic market intoamore competitive structure and
toeliminating restrictive business practices.
20. Itshould benoted that,although competition lawwasintroduced in1980, ittookalmost ten
years before thecompetition regime settled inKorea. Only fromtheearly 1990'sonwards -Korea 's
percapita income reached US$5,800 in1990-theFTCfound itselfinaposition tovigorously enforce
thelaw.Infact,thisinterval period ofapproximately tenyears served asaperiod forimproving public
awareness ofcompetition policy andforassisting adjustment ofenterprises thereto.