The Asia-Pacific Antitrust Review 2018

Korea: Fair Trade Commission

19 March 2018

Chairman of the Korea Fair Trade Commission

Introduction

The basic role of the KFTC is to promote competition, which is the core mechanism of the market economy. The KFTC detects and corrects the abuse of market dominance, cartels and other unfair trade practices, thereby establishing fair market economic order. Moreover, the KFTC fosters a competitive market environment by regulating anticompetitive M&As and reforming anticompetitive regulations such as various entry barriers.

In 2017, the KFTC imposed sanctions against Qualcomms’ abuse of telecommunications SEPs, detected 68 domestic and international cartels in public biddings related to the people’s welfare, levying approximately 358 billion won, and referred 27 cases to the prosecutor. Furthermore, the KFTC imposed remedies on global merger cases such as Dow/DuPont, Maersk’s acquisition of HSDG stakes by coordinating with antitrust enforcers across the globe, and greatly reformed anticompetitive regulations in 25 sectors closely related to the lives of ordinary people, such as beer and electronic devices.

Abuse of market dominance

The KFTC continues to concentrate its capacity on regulating the abuse of dominant market positions. Such effort by the KFTC has been made when a dominant firm unduly blocks competition with other companies in a monopolistic market, or when conduct that undermines consumer interest has very harmful effects on the national economy.

In particular, the KFTC imposed remedies along with a penalty surcharge amounting to 1.03 trillion won on Qualcomm for interfering with the business activities of the rival modem chipset makers and mobile device companies, abusing its dominant market position. This case demanded not only the legal analysis of traditional competition law and economics on abuse of market dominance, but also demanded review and judgment on a high degree of the specialised and technical issues that are related to patent law and communications technology.

The KFTC held a total of seven oral hearings including five hearings per major issue, such as economics, law, patents and two hearings for consent decree that Qualcomm requested. The KFTC went through a thorough examination in the Qualcomm case and finally came to a decision that Qualcomm’s conduct constituted an abuse of market dominance, and imposed effective and appropriate measures to rectify this.

The measures are designed to turn ‘an exclusionary ecosystem that allows Qualcomm to be an exclusive beneficiary’ into ‘an open ecosystem where any industry player can enjoy the incentives of innovation that it has achieved’. It is expected that imposing these measures will serve as the trigger to restore fair competition in the mobile communication industry.

Cartels

In 2017, the KFTC detected and corrected cartels mainly focusing on sectors that cause the weakening of national finance, such as public bidding, and sectors that are directly related to corporate competitiveness such as bidding in industry materials, and sectors that are related to import-export with foreign enterprises. As a result, the KFTC imposed remedies on 68 cartels in total, and issued approximately 358 billion won penalty surcharges.

In the public bidding sector, the KFTC detected bid-riggings in sectors where an enormous amount of budget is required, such as large national projects such as railway and gas, and purchasing of food supplies for military use. First of all, the KFTC decided to impose remedies as well as penalty surcharges of 70.19 billion won against four companies that engaged in cartels for the bidding of railway roadbed construction in the Gangwon province. Also, the KFTC imposed remedies and 92.165 billion won penalty surcharges against six enterprises for colluding to win the bids for steel pipes commissioned by Korea Gas Corporation. The KFTC also decided to impose remedies and penalty surcharges of 33.5 billion won in total on 19 companies that were involved in cartels for 10 years in the bidding for military meal service such as sausages and pork cutlets.

In the industrial materials sector, the KFTC detected cartels that had lasted for 14 years in the conveyor belt market. The four conveyor belt manufacturers were slapped with 37.858 billion won in total fines for colluding to win the conveyer belt bids offered by steel companies and power plants, and were referred to the prosecution.

Active law enforcement was carried out in the international cartel sector. The KFTC imposed remedies and penalty surcharges of 43 billion won against 10 companies for price fixing and allocating the market for certain shipping companies to continue to win the bids per each route in the car marine transport market. Moreover, the KFTC decided to levy a total of 37.1 billion won against bid-riggings in the bids placed by Korean car makers for fuel pump and variable valve timing supply market. Elsewhere, the KFTC imposed penalty surcharges that amount to 2 billion won in total on conspirators for fixing the price of bearings that are supplied to Korean car manufacturers.

Anticompetitive M&As

In 2017, the KFTC reviewed a total of 668 merger cases. Of them, the KFTC conducted general review on 20 cases, and imposed remedies on four cases that have been recognised as anticompetitive. The two major cases of global M&A are the merger between Dow and DuPont in April 2017 in the global chemical market, and Maersk’s acquisition of HSDG stakes in November 2017 in the global container liner shipping market.

In the acid copolymer market, the long-lasting oligopoly market situation that resulted from a technical entry barrier was a problem, and there was a concern for intensifying that market situation with the merger between Dow and DuPont, which are the first and third biggest market players. Therefore, the KFTC decided to impose measures on one company out of the two merging parties to sell its acid copolymer related assets.

In the case of Maersk’s acquisition of HSDG stakes, the KFTC conducted, for the first time, the analysis on market share per consortium unit along with the traditional analysis based on the individual enterprises unit considering industry practices. As a result, the KFTC decided that the merger case could substantially intensify monopoly and oligopoly in the two sea routes in the container liner shipping market where Far East Asia is either the beginning or end point, thus, imposing remedies including the order to pull out of a shipping consortium and not to extend its contract with the consortium.

On the other hand, the major examples of mergers by Korean monopolistic companies are Esmeralda’s acquisition of DSPower stakes in the waste heat supply market in October 2017, and CJ Hellovision’s acquisition of HanaTV stakes in December 2017 in the pay-TV market.

Basically, the waste heat supply market and pay-TV market are relatively easy to become monopolistic and oligopolistic in the industry. Therefore, after taking into account that the combined market share of the merging entities meets the presumption requirements and that there are anticompetitive concerns such as the possibility of a price hike in the future, the KFTC imposed remedies including the prohibition of increasing steam price that exceeds the producer price index growth rate, and prohibition of increasing the broadcasting charge that exceeds the inflation rate.

Competition advocacy

The KFTC discovered a total of 25 anticompetitive regulations in sectors that are closely related to the lives of ordinary people, such as food, daily necessities and leisure. After coordinating with the relevant ministries and going through regulatory reform meetings by the Office for Government Policy Coordination, the KFTC came up with measures for improvement.

A major example of this is regulatory reform in the beer market. There are a number of regulations restricting market entry, which in turn make the monopoly and oligopoly mostly by large companies permanent. Thus, it leads to serious harmful effects such as reduced number of products in variety and consumer complaints.

In accordance with the current law on liquor tax, the beer licence is categorised into general licence and micro-brew licence. In the case of a micro-brewery, the size of facilities is limited to 5 kilolitres (kl) to 75 kilolitres. This system excessively restricts the production volume, which makes it difficult for the businesses to flexibly adjust the production volume suited for market situations or consumer demand. Accordingly, it was allowed for the businesses to increase the size of their facilities from 75kl to 120kl, thereby enabling micro-breweries to increase the production volume tailored to the market demand.

Also, until now, small and medium-sized beer manufacturers, which mostly produce craft beers, can only sell beer to ‘assorted liquor wholesale stores’, which distribute in large quantity, and are not allowed to sell to liquor wholesalers which only sell certain types of liquor and mostly distribute in small quantity. Accordingly, it was allowed for small and medium-sized craft beer manufacturers to distribute beers through liquor wholesalers that only sell certain types of liquor also. As a result, it is expected to enhance the convenience of small and medium craft beer manufacturers and expand the distribution channels.

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