1. Background and Purpose

In 2001, Korea Fair Trade Commission (KFTC) asked KDI to prepare a comprehensive
set of proposed amendments to Monopoly Regulation and Fair Trade Act (MRFTA)
and other consumer protection laws that KFTC has the authority of enforcement1)
. MRFTA, the Korean antitrust law was enacted in 1980 and the Year 2001 was
the 20th anniversary of Korean antitrust laws. Based on 20 years experience
of antitrust law enforcement, KFTC would like to pursue a major revision of
antitrust laws to enhance their effectiveness in the next 10 years and beyond.

The antitrust enforcement in Korea has been focused on restraining the economic
power concentration (so-called chaebol regulation) and regulating unfair business
practices. Unfair business practices are basically business-to-business unfair
trade rather than business-to-consumer problems. Unfair trade regulations by
MRFTA were in line with regulating large conglomerates and protecting small
and medium sized enterprises (SMEs). With strong industrial policy tradition
in Korea, KFTC has not been active in preventing anticompetitive mergers, which
is one of the most frequently enforced areas of competition policy in other
countries like United States and EU. However, Korea's economic environment and
institutional infrastructure has been changed significantly since the enactment
of MRFTA, especially after the economic crisis2) . MRFTA and other antitrust
laws in Korea are about to restructure into more competition policy oriented
ones.

Between 2001 and 2002, working closely with KFTC, the Corporate Affairs and
Competition Policy Division of KDI led the research team of economists and lawyers
that crafted a set of amendment proposals. The outcome of this endeavor has
resulted the abovementioned book of Study on Korean Antitrust Laws and Regulations:
Looking for Effectiveness Enhancing Amendment Proposals.

2. Summary

In the long run, regulating large conglomerates (chaebols) by antitrust laws
is expected to phase out as monitoring role of each part of corporate governance
intensifies both inside and outside the firm. For a consistent and effective
competition policy, the MRFTA needs to be based on the concept of market power
and aim to promote economic efficiency by strengthening competitive forces.
KFTC's coverage and remedies to consumer protection need to be expanded and
improved.

(1) Mergers and Acquisition

Only 12 out of 5506 reported large scaled M&A between 1981 and 2000 were
challenged as anti-competitive. Many seemingly anti-competitive large scale
mergers were allowed including the SKT-ShinSegi Telcom merger and the merger
between LG Semiconductor and Hyundai Semiconductor (later became Hynix ). Weak
M&A regulation is due to loose concept of anti-competitiveness and wide
exceptions. This study suggests that the MRFTA applies more stringent standards
in evaluating efficiency enhancing argument and failing company argument as
exceptions to anti-competitiveness. Efficiency enhancing effect should be merger-specific
and should be proved to benefit consumers in terms of lower price, higher quality,
and better services rather than simple cost savings to the merging parties.
Ambiguous concepts such as "national-wide efficiency enhancing effect"
should be abolished3) . Ideas to clarify the standard of failing company were
discussed. The study also provides different approach to improve the concept
of "significantly restricting competition". Expansion of pre-notification
system and improvement in notification standards are recommended. Amendment
proposals to accommodate the above ideas (Article 7 and 12 of MRFTA) were provided.

(2) Cartel

Cartel enforcement in Korea is relatively strong especially since 1990s.
Through Omnibus Cartel Repeal Act of 1999, many exempted cartels by individual
act were gone. As of 2002, there was no approved cartel. This study suggests
ideas of fine-tuning the Cartel regulations including the proof of liability,
legal standard for illegal cartels, and the amount of surcharges to price-fixing
and other cartel behaviors. Amendment proposals on Article 19, 22, and 58 of
the MRFTA were suggested.

(3) Monopolization and Abuse of Monopoly Power

Monopoly position itself is not illegal if it was attained through innovation
and diligence. Competition laws usually prevent abuse of monopoly power including
monopolization (maintaining monopoly position) and attempt to monopoly (acquiring
monopoly position) by excluding competitors or other illegal behaviors. The
Article 3-2 of the MRFTA regulates the abuse of market dominant position. It
does not distinguish abuse of monopoly power such as abusive pricing from maintaining
monopoly position by excluding behaviors and it does not cover acquiring monopoly
position. This study suggests to divide the monopoly regulation into two parts,
maintaining monopoly and exploitive abuse of monopoly power. Issues concerning
the overlapping between monopoly regulation and regulation of unfair trade practices
(Article 23 of MRFTA) were discussed4) . Feasibility and necessity of introducing
structural remedy into monopolization regulation were also examined.

(4) Unfair Trade Practices

The Article 23 of the MRFTA prohibits unfair trade practices5) . The standard
of illegality is defined as "threatening to impair fair trade" but
it is not clear enough and each subparagraph lists the types of illegal unfair
trade practices which restrain competition. Article 23 is also supposed to cover
consumer protection but is not explicit enough to discipline the trade between
firms and consumers and hence it is limited to be a consumer protection law.
In this study, instead of depending of types of behaviors, the standards of
illegality has been re-established by two concepts such as "illegal restraint
of trade" between firms and "deceptive or unfair trade practices"
which applies both between firms and between producer and consumer. The former
based on anti-competitiveness and efficiency and the latter based on methods
and conditions of trades. This study also suggests introducing trade rule making
role of KFTC in Article 23 so that KFTC could respond appropriately to the changing
patterns of consumer fraud. By introducing this umbrella article of consumer
protection in MRFTA, the coverage of consumer protection would be improved.

(5) Consumer Protection

Four laws including the Fair Labeling and Advertising Act, the Contract Compliance
Act, the Installment Transaction Act, and the Door-to-Door Sales Act were reviewed
and analyzed. Amendment proposals to improve these consumer protection laws
under the jurisdiction of KFTC were provided. Economic rationality and legal
consistency of introducing new consumer remedies such as consent order and Parens
Patriae action were also examined6) .

3. Assessment

This study examined the overall coverage and remedies of Korean antitrust
laws to enhance the consistency and effectiveness of the antitrust enforcement.
Ways to eliminate loopholes and disparities in coverage were suggested. Issues
on introducing new remedies in consumer protection area had been thoroughly
analyzed and discussed. Legal and economic standards of liability were clarified
and improved. The comprehensive set of amendment proposals were displayed with
economic and legal interpretations. Comparisons between the existing laws and
the amendment proposals has been summarized and tabulated.

Based on this study, KFTC is planning to submit antitrust law amendment proposals
in 2004. We hope this study provoke further discussions and contributions of
experts to the evolution of Korean antitrust laws.

* footnote

1) The other consumer protection laws include the Fair Labeling and Advertising
Act, the Contract Compliance Act, the Installment Transaction Act, and the Door-to-Door
Sales Act.

2) Until the end of 2001, MRFTA had been amended ten times. Those amendments
were done piecemeal-wise but our mission was to overview antitrust laws altogether
to restructure and re-clarify.

3) At present, the efficiency enhancing effect includes not only merge-specific
efficiency but also employment promotion, regional development, stable supply
of energy, etc.

4) For example, vertical restraint, predatory pricing, other excluding behaviors
are regulated both in Article 3-2 and Article 23.

5) The concept of "unfair trade" in Section 23 of Korean antitrust
law is quite different from that of American FTC Act Section 5. FTC Act Section
5 says that the "unfair method of competition " or "unfair or
deceptive acts or practices" is unlawful and this section is basically
enforced as a consumer protection clause. However, Korean unfair trade regulation
is basically regulation on business to business transactions. The Article 23
of MRFTA is also utilized as a tool of chaebol regulations because it includes
transfer pricing regulation to prevent cross subsidizing among subsidiaries
of chaebols. If prices of the internal transactions among subsidiaries of chaebols
were higher than market prices, then those transactions are "unfair trade".
Also, in the past before it became an independent Act, the Fair Labeling and
Advertisement regulation was under this article 23 of MRFTA.

6) Korea has not introduced class action yet. A proposal to introduce class
action limited to Security Transaction Law is pending.