In Korea, unfair trade practices and anti-competitive behavior of enterprises are regulated under Monopoly Regulation and Fair Trade Act (“MRFTA”), which was enacted on December 31, 1980 and which have underwent several revisions since its enactment. Article 1 of MRFTA sets forth the purpose of the Act as preventing the abuse of market dominance and excessive concentration of economic power in enterprises and regulating undue concerted acts and unfair trade practices, thereby promoting fair and free competition.

In principle, MRFTA applies to transactions between enterprises or those transactions where a party thereto is an enterprise. However, such sectors as electricity, gas, water, public health, and small-and-medium enterprises are regulated under separate laws and regulations since they are highly public in nature or require different policy considerations by government. In addition, exercise of rights pertaining to intellectual properties is regulated under such acts as Copyright Act, Patent Act, and Trademark Act, etc.; however, to the extent a certain intellectual property right holder abuses his or her rights to obtain unfair trade benefits in a transaction (e.g., designating the source of purchasing raw materials or parts when granting licenses to other enterprises), MRFTA shall be applicable to regulate such unfair practice.

The Korea Fair Trade Commission (“KFTC”) is Korea’s competition agency which is in charge of developing competition policy and enforcing MRFTA. For KFTC, cartel, M&As, and abuse of dominance in market are major targets of law enforcement. KFTC also does not seem to shy away from applying MRFTA to foreign companies operating outside of Korea when their actions cause, or have potential to cause, anti-competitive effects in Korea. More specifically, marking for the first time to apply Korea’s anti-trust laws extraterritorially, KFTC issued last March 20, 2002, an order imposing a surcharge of 11,242 Million Won on six graphite electrode manufacturers from the US, Germany and Japan that participated in the international cartel of graphite electrodes.

Below are some important provisions under MRFTA and KFTC’s role in enforcing them.

1. Prohibition Against the Abuse of Market-dominant Positions

Under MRFTA, any company with annual sales revenue of at least 1 Billion Won whose market share is more than fifty (50) percent is presumed as a market-dominant enterprise. Or, if and when combined market share of less than three (3) enterprises is above seventy-five (75) percent, those enterprises are also presumed to hold market-dominant positions, provided, however, that any enterprise with market share of less than ten (10) percent shall not be counted in.

If any market-dominant enterprise commits any of the acts listed below, KFTC may order corrective measures and/or impose upon the said enterprise a surcharge not exceeding three (3) percent of the turnover.

a) Unreasonably fix, maintain, or alter the price of a good or service fees;
b) Unreasonably control the sale of goods or the rendering of services;
c) Unreasonably interfere in the business activities of other enterprises;
d) Unreasonably interfere in the entry of new competitors; or
e) Engage in unreasonable transaction to eliminate competitors or harm interests of consumers.

It used to be that KFTC regularly issued a list of enterprises with market-dominant positions, but now the market-dominant enterprises are determined ex post facto, taking into account such factors as market share, existence of market barrier for new entrants, size of competitors, etc.

2. Restrictions on Business Combinations and Economic Concentration

MRFTA prohibits a business combination which would substantially restrict competition in a given sector, unless efficiency-enhancing effects are deemed difficult to achieve without the proposed combination, or the business combination involves a company whose revitalization would be impossible without the combination.

As a related matter, MRFTA requires companies of a certain scale (total asset or revenue amount, inclusive of all affiliates, exceeding 100 Billion Won) to make a report on the following business combination to KFTC.

a) Acquisition of shares of another company (20% or more, 15% for listed corporations);
b) Officers’ concurrent hold of positions (limited to a Large Enterprise – to be explained in the next section);
c) Mergers and acquisitions;
d) Taking over or leasing the whole or a substantial part of the business, and undertaking the management of another company; or
e) A company subscribing to 20% or more of the shares of a new company to be established.

3. Designation of Large Enterprises

Under MRFTA, as part of curtailing excessive economic concentration of power, any company belonging to a “large business enterprise” is allowed to acquire or own stocks of other companies, but such investment is limited by the rule that the total investment amount cannot exceed an amount representing forty percent (40%) of the investing company’s net assets. These companies are also banned from making mutual equity investments or providing mutual debt guarantees.

As a result of the recent amendment of the MRFTA, which took effect on April 13, 2007, the number of companies subject to the investment limit by KFTC has been reduced to 27 large affiliates in seven major business groups, including Samsung Electronics Co. in the Samsung Group and Hyundai Motor Co. in the Hyundai Motor Group. Last year, 343 affiliates in 14 business groups were subject to the investment restriction, adopted in 2001 to prevent top conglomerates from reckless business expansion.

Before the revision, every affiliate of a business group with assts of 6 trillion won ($6.4 billion) or more was banned from investing more than 25 percent of its assets in other companies.

Now, under the revised fair trade laws, the threshold has been raised to 10 trillion won, and the ceiling has been raised to 40 percent of net assets. In addition, the target of the restriction is narrowed to large affiliates with minimum assets of 2 trillion won. For example, LG International Corp. will not be subject to the investment limit because its assets are less than 2 trillion won, though LG business group to which the company belongs is subject to the investment limit because the assets of the business group as a whole exceed 10 trillion won.

Consequently, LG, Kumho Asiana, Hanwha and Doosan business groups will be excluded from the conglomerates subject to the investment restriction because they do not have affiliates with at least 2 trillion won in assets, except for holding companies that are exempt from the investment cap.

Other acts that are regulated under MRFTA include activities of holding companies, unfair concerted acts, unfair trade practices, and unfair practices in execution of international contracts, etc.
If you have any inquiries on Korean competition or anti-trust laws, please contact Hoon Lee (hoonlee@sigonglaw.com.), chief editor of this Korealaw.com and senior foreign attorney at Sigong Law P.C.