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Economic Crisis and Fair Trade

2009.02.17

It is hard to predict at this point what the consequences ofthe global economic crisis, which started with the bankruptcy of LehmanBrothers Holdings on September 1, 2008, will be Korea’s economic growth ratehas also fallen into the negatives in the fourth quarter of 2008 for the firsttime after the 1997 Asian Currency Crisis, and the dominant view is that such atrend will be difficult to overturn. Recently, the International Monetary Fund(IMC) has adjusted this year’s economic growth rate of Korea from 2% to -3.7%. 
 
In the midst of such economic conditions, the Fair TradeCommission has released its "2009 Policy Plan" on December 18, 2008.It mostly states that it will prevent economic damages on common people andsmall and midsize companies, continuously improve corporate regulations inorder to overcome economic crisis, and actively cope with the issues regardingthe improvement of consumer rights and the globalization of law enforcement oncompetition. 
 
The Monopoly Regulation and Fair Trade Act is a regulatoryAct with the primary purpose to prevent abuse of market-dominating positions byenterprisers and any excessive concentration of economic power, as well as toregulate unjust collaborative acts and unfair trade practices. As this Actindicates, issues regarding monopolistic market structure or unfair competitioncannot be neglected simply because of the economic crisis. On the contrary, itis true that there is a higher possibility of concentration of economic poweror rationalization of anti-market conducts under the pretext of resolving theglobal economic crisis. Nevertheless, the authority that should focus itsadministrative capacity on prioritizing the enforcement of competition lawscannot ignore such national economic conditions. From that perspective, itseems that the FTC’s policy plan for this year has been made by considerablyreflecting such economic conditions. 
 
Looking at the policy plan of the FTC and etc. collectively,it is advised that much attention is required for the following: 
 
First, it is expected that inspections will be focused onprice fixings in areas that are closely connected to the lives of the commonpeople. It has been reported that a secret investigation of the FTC on theprice fixing of school uniforms has already commenced early this year. Lastyear, the private education, automobile, mobile communication, gas oil, andmedical sectors have been designated as the five main supervisory businessareas, and collusion has been found in bank fees, insurance premiums, movietickets, LPG, and oils sectors. According to the parliamentary inspection dataof the FTC, it has imposed a correction order in connection with 80 collusioncases and KRW 17,570,000,000 of fines in connection with 53 collusion casesincluding 5 cases that involved criminal prosecutions, since September 30,2008. In sum, inspection on price fixing will continue to be the main duty ofthe FTC in the future. 
 
Second, an inspection on the areas that may have damagingeffects on the common people (such as illegal multilevel marketing, funeralservice business, loaning business, etc.) and franchise businesses such assmall capital self-employed enterprises is expected. The illegal multilevelmarketing, funeral service business, loaning business and the franchisebusiness is closely related to the deterioration of the economic condition andthe increase in the unemployment rate. Experts expect a loss of 180,000 jobs ifthe economic growth rate falls to -2%. If this year’s economic growth ratefalls to the level of the IMF’s forecast (-3.7%), then almost 400,000 jobs willdisappear. The official number of the unemployed was just shy of 780,000 by theend of December, 2008 and is expected to eventually exceed 1,000,000. However,this is only the official estimate of the unemployed and the actual number ofthe jobless is estimated to be over 2,000,000. Common people who are sufferingfrom the difficult economic conditions will be attracted to the illegalmultilevel marketing or high income franchise business to start a small-capitalenterprise or loans. As a result, there is a high probability that the commonpeople will suffer damages from profiteers. The recent unfair agreements of thefuneral service business, bankruptcy, vanishing after closing business, etc.that have become a social issue are good examples. 
 
Thirdly, a regular inspection on unfair subcontracting andunfair trade practices of the distribution industries, such as departmentstores and large retail outlets, is expected in order to protect small and midsizecompanies. A business that is in a superior position in transactions, such aslarge corporations, may pass expenses to the businesses in inferior positionswhen the economy deteriorates. Therefore, unfair practices in subcontracting(such as unjust reduction in unit cost, usurpation of technology and paymentsin substitutes) and unfair practices in department stores and large retailoutlets (such as unjust returning of goods, etc) may occur. The FTC hasarranged for the creation of the fair trade agreement between 79 largecorporations and around 27,000 partner firms thus far and is continuouslyinspecting the performance of the agreement. 
 
Lastly, the mitigation of corporate regulations willcontinue. Especially regarding M&A, the intent of the FTC is to minimizecorporate burden through a corporate merger review. The threshold for selectinglarge business groups that will be subject to the investment ceiling hasalready been raised last year, but it is uncertain whether the amendments tothe laws regarding the abolition of the investment ceiling and the softening ofregulations regarding the holding company and private equity fund may be passedby the National Assembly. 
 
The current economic crisis should be overcome bythe cooperation of all economic entities. In the process of overcoming aneconomic crisis, it is difficult if only certain economic entities are coercedto make unjust sacrifices. The legislative purpose of the Fair Trade Act -which encourages creative corporate activities, protects customers, and pullstogether a balanced development of the national economy by promoting fair andfree competition - is a virtue that should be complied with in all economiccircumstances.

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