The basic role of the Korea Fair Trade Commission (KFTC) is to promote competition, the core mechanism of the market economy. The KFTC detects and corrects 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 2018, the KFTC submitted a draft of the amendment to the competition law, the Korean Monopoly Regulation and Fair Trade Act (MRFTA), to the National Assembly; imposed sanctions against Siemens' abuse of market dominance in the medical equipment repair and maintenance service market; and detected 134 domestic and international cartels, levying approximately 291 billion won. Furthermore, the KFTC imposed remedies on global M&A cases such as Linde/Praxair in the industrial gas market and the acquisition of NXP by Qualcomm by coordinating with antitrust enforcers across the globe, and greatly reformed anticompetitive regulations in 23 sectors that are closely related to the everyday life of the people, such as air transport services.
Competition law amendment
In 2018, the KFTC focused on drafting the proposal for a comprehensive overhaul of the MRFTA to modernise the competition law. As the MRFTA had remained largely unchanged since its enactment in 1981, it was limited in its ability to reflect recent changes in economic situations. In this regard, an amendment to the MRFTA was drafted in 2018 to modernise the competition law. The KFTC submitted a draft of the amendment to the National Assembly at the end of 2018 and is endeavouring to get it passed. The main changes are as follows.
First, the amendment aims to improve the enforcement system of the MRFTA by institutionalising various civil, criminal and administrative enforcement measures. It plans to introduce injunctive relief by a private party for unfair trade practices. It also introduces the submission order for case-related documents by the court in private damage actions. Regarding criminal enforcement, the KFTC currently has exclusive authority to make criminal referrals for violation of the MRFTA. The amendment abolishes such authority in hard-core cartel cases and also eliminates criminal penalties for anticompetitive mergers and certain types of unfair trade practices.
Second, it aims to enhance the rights of examinees and procedural fairness in the investigation and deliberation process. It expands the scope of materials that examinees can have access to. It also clarifies the standard for calculating the statute of limitations in antitrust cases.
Third, it aims to enhance the role of the competition authority in establishing an innovative ecosystem. It plans to significantly ease requirements, such as minimum shareholding ratio, for establishing a venture holding company. It also adds a new merger notification criterion based on the value of the transaction. It will also revise the provisions related to presumption of an agreement and types of prohibited cartel conducts to more effectively regulate anticompetitive information exchange activities.
Meanwhile, in August 2018, another amendment that allows punitive damage lawsuit for certain types of antitrust violations was finally passed by the National Assembly and will go into effect in 2019. Under the amendment, any enterpriser who engages in cartel agreements or takes disadvantageous measures in retaliation for acts, including reporting to the KFTC, should pay up to three times the actual damage in compensation.
Abuse of market dominance
The KFTC has been actively responding to the abuse of market dominance and unfair trade practices. In 2018, the KFTC focused on correcting the abuse of market dominance and unfair trade practices in sectors such as medical equipment, insurance and auto parts.
A landmark case was Siemens in January 2018, when the KFTC imposed remedies along with penalty surcharges amounting to 6.3 billion won. Siemens abused its market dominance by foreclosing the small and medium-sized repair and maintenance businesses that were newly entering the medical equipment (eg, CT, MRI) market. The case required a highly sophisticated economic analysis such as market definition, anticompetitive effects analysis and so on. As such, the KFTC and the respondent were engaged in a fierce legal debate over the outcomes of economic analysis. The KFTC actively countered by inviting internal and external experts to point out the inaccuracy of the respondent's economic analysis, and proved the illegality thereof.
Moreover, the KFTC imposed remedies and 7.6 billion won penalty surcharges (tentative) against Korean Reinsurance Co for blocking potential rivals from entering the general aviation reinsurance market.
In addition, the KFTC imposed remedies and 500 million won penalty surcharges on Hyundai Mobis. Hyundai Mobis set an excessively high sales goal and forced its regional agencies to buy its products to achieve the goal in domestic auto parts sector.
In 2018, the KFTC uncovered and rectified cartels mainly focusing on the following sectors: public bidding that could worsen the soundness of the national finance; industrial equipment bidding that is closely related to companies' competitiveness; and collusion in import and export with foreign enterprises. As a result, the KFTC imposed remedies and approximately 290.7 billion won penalty surcharges against a total of 134 cases of agreements.
In the public bidding sector, the seven companies were slapped with a total 20.4 billion won surcharges and referred to the prosecution for colluding in the repair and maintenance service bid of waterworks, dam and weir placed by Korea Water Resources Corporation between 2011 and 2016. The KFTC also imposed surcharges of 10.8 billion won against 14 companies that had engaged in the rigging of aerial shooting bids commissioned by the National Geographic Information Institute from 2009 to 2013, and referred them to the prosecution.
In the industrial equipment sector, the KFTC detected price-fixing by six steelmakers and levied a total of 119.4 billion won in surcharges and referred them to the prosecution. Further, the 27 ready-mixed concrete manufacturers were fined 15.6 billion won in surcharges and referred to the prosecution for fixing the price of ready-mixed concrete.
In the international cartel sector, the KFTC identified anticompetitive agreements that lingered on over the period of 15 years in capacitor market. The KFTC imposed surcharges of 36 billion won on nine capacitor manufacturers colluding to raise or maintain the prices of aluminium and tantalum capacitors, and referred them to the prosecution. Moreover, the KFTC imposed a total of 1.7 billion won surcharges against two steel shot manufacturers for agreeing the price increase rate of steel shot supplied to domestic bearing makers, and referred them to the prosecution.
In 2019, the KFTC will continue to monitor and apply a rigid enforcement on bid rigging in the public sector; agreements in the industrial equipment sector that harm the nation's industrial competitiveness; and international cartels that cause harm to the market competition and consumer welfare.
In 2018, the KFTC reviewed a total of 702 merger cases. Of those, the KFTC conducted an in-depth review on 24 cases and three of them were found to have anticompetitive concerns.
The merger of Linde and Praxair (October) in the industrial gas market, the acquisition of NXP by Qualcomm (January) and Celanese-Blackstone's joint venture (March) are some of the high-profile cases. Recognising that the merger between Linde, the world's second-largest industrial gas supplier, and Praxair, the world's third-largest industrial gas supplier, could significantly reduce competition in the relevant markets, the KFTC examined the case by collecting opinions from parties concerned, including competitors, and by closely cooperating with the United States Federal Trade Commission. After the review, the KFTC concluded that the proposed transaction could intensify monopolistic structure in global markets for excimer laser gas and helium, and in domestic markets for oxygen, nitrogen and argon, and required Linde and Praxair to divest related assets to proceed with the merger.
In the case of Qualcomm's acquisition of NXP, the proposed transaction could reduce competition in the NFC chip market. Therefore, the KFTC ordered Qualcomm to sell off NFC-related patents and provide its own NFC SEPs to competitors under FRAND terms.
In the case of Celanese-Blackstone's joint venture, there were competition concerns that the proposed joint venture could increase prices in the acetate tow market. To address the concerns, the KFTC issued an examination report containing the imposition of measures, and Celanese abandoned its plan to form a joint venture with Blackstone.
Meanwhile, the KFTC is actively preparing for improvements of its system for coping with changes in the competitive environment. First, to address a problem in which large-scale acquisitions of start-ups by large business groups are being exempted from the obligation of merger notification, the amendment to the MRFTA introduced merger filing notification thresholds based on the value of the transaction and was submitted to the National Assembly in November. In addition, to more thoroughly analyse the anticompetitiveness of mergers related to innovation-based industries or big data, the KFTC is now considering adding new methods for the market definition of innovative markets to merger review criteria.
This year, the KFTC will closely monitor the trends of mergers in areas in which consumers are highly interested, such as broadcasting and telecommunications, and will continue to improve the system.
In order to create a competitive market environment in which companies can actively advance into new markets and businesses, the KFTC has found 23 anticompetitive regulations in the field of new industries and services, and set up improvement plans through consultations with related ministries and regulatory reform meetings by the Office for Government Policy Coordination.
A case in point is relaxation of the criteria for granting a licence to operate air transport services. The air transport service market has been maintaining a monopolistic and oligopolistic structure led by full-service carriers for a prolonged period of time due to its capital–intensive nature and various entry regulations.
A provision stating that 'the relevant business shall not be likely to cause excessive competition among business operators', which is one of the criteria for granting a licence, is too unpredictable and ambiguous, and serves as an unreasonable barrier to entry for new operators. In this regard, a draft of the amendment to the Aviation Business Act was submitted to the National Assembly to abolish the aforementioned provision. Under the relaxed criteria for granting a licence, it is expected that an increase in the entry of new operators will create more jobs, while competition among business operators in the market will improve the quality of air transport services.