FTC powers come under pressure

By Korea Herald
  • Published : Jul 15, 2012 - 19:22
  • Updated : Jul 15, 2012 - 20:02

Political parties consider ending antitrust watchdog’s exclusive right to file complaints with prosecution

The Fair Trade Commission is facing growing criticism over its exclusive right to decide whether firms face criminal investigation for antitrust activities, after a series of lenient decisions.

With the aim of stopping abuse by law enforcement agencies, the Fair Trade Law dictates that the antitrust watchdog is the only entity with the right to file a complaint with the prosecution regarding fair trade act violations.

Recently, however, the effectiveness of the 32-year-old system has come into question. Some argue that the FTC seems more eager to protect companies than victims of unfair trade. 

In January, the state-run regulator fined Samsung and LG ― the nation’s two electronics giants that dominate more than 90 percent of the domestic market ― for fixing the prices of home appliances between 2008 and 2009.

But due to the regulator’s leniency program for first and second declarers, LG was exempted from a fine of 18.83 billion won ($16 million), while Samsung got its 25.81 billion won fine halved.

More recently, the FTC imposed only a combined fine of 10 billion won on some 20 builders for manipulating construction costs totaling about 1 trillion won via back-room deals when they participated in the government’s project to refurbish the nation’s four major rivers.

Officials said the FTC did not exercise its right to file a complaint for both the cases because “the Samsung-LG case was part of the leniency program, while in the case of the four-river project, companies were working in the national interest.”

Until 2000, the FTC filed a complaint against 2 percent of the total cases detected. But the figure dropped to 0.95 percent over the past 10 years even though the annual number of cases the agency handles has increased five- to six-fold during the same period.

Out of the 3,505 cases the FTC detected in 2010, the agency filed a complaint in only 19 cases. In 1,763 cases, the agency ended up issuing a warning.

The low amount of fines also raised criticism among the public. The FTC usually imposes fines equivalent to around 1 to 2 percent of related profits but in other developed countries the rate increases to 15 to 20 percent of profits.

Politicians and civic groups now demand that tougher measures, including criminal charges, be adopted to prevent unfair trade among conglomerates together with abolishing the exclusive right of the FTC.

Compared to other countries, they say, unfair business activities like price fixing are more likely to happen in Korea, where the gap between large and smaller firms is deepening due to the powerful market dominance of major conglomerates.

“The FTC’s exclusive right is a legacy from the past authoritative governments that prioritizes the right of administrative organizations rather than protecting the public interests,” said Rep. Kim Jae-won of the ruling Saenuri Party.

“At a time when ‘economic democratization’ is emerging as a new agenda, it is inappropriate to maintain the system.”

The FTC, however, protests that antitrust cases should be handled differently from other criminal charges, saying that the consequences need to be considered carefully.

“In many countries, criminal charges are taken as supplementary measures together with administrative punishment. Of 34 OECD member states, Korea is one of 13 countries that impose criminal charges,” said Chung Joong-won, competition policy bureau chief at the FTC.

Fifteen countries including Australia, the Netherlands, Sweden, Spain and Finland have no regulation for criminal charges, while six countries, including Germany, Turkey and Italy, file criminal charges only on bid-price fixing.

Out of the 13 countries that impose criminal charges, seven countries have no record of punishment over the past 10 years, except the U.S. where the Justice Department oversees antitrust cases together with fair trade authorities.

“If the FTC and the judiciary authorities launch an investigation together, companies will suffer an excessive burden. Our exclusive right is the minimum safety net to prevent criminal charges from being abused,” Chung said.

“In order to better protect victims, civil actions need to be more encouraged. The FTC already requested academic research to improve the current compensation system,“ he said, hinting that more specific plans would be unveiled in the latter half of the year.

With political parties preparing to submit a bill to abolish the FTC’s exclusive right during the regular parliamentary session starting in September, industry sources expect related disputes could escalate until the presidential election in December.

By Lee Ji-yoon (