On February 6 the Korean government issued a draft amendment to the Monopoly Regulation and Fair Trade Act (MRFTA), Korea’s general competition statute. Certain of the key changes proposed may be of particular interest to foreign companies that are intending to commence or are currently doing business in Korea.
To simplify business group structures and to encourage the use of holding companies, certain requirements for share ownership in subsidiaries are eased under the amendment to the MRFTA, although it has yet to be approved by the National Assembly and will likely be subject to substantive change before it becomes law. Under the proposed amendment,
- A holding company will be required to hold only 20% in each listed subsidiary (a change from the previous 30%);
- the sub-subsidiaries of a holding company will be able to have their own subsidiaries in limited circumstances (for example, 100% shareholding);
- the debt-equity ratio for holding companies will be raised from 100% to 200%; and
- holding companies may have sub-subsidiaries that do not have any business relationship with the holding company group.
Tightened Provisions on the Abuse of Dominance
The MRFTA currently specifies six types of activities that constitute an abuse of market dominance: the abuse of price, output control, obstruction of a competitor’s business activities, impeding market entry, exclusion of competitors and harm to consumer interests. While the MRFTA and its Enforcement Decree set out examples of such activities in some detail, such examples are insufficient to be used as a comprehensive point of reference for all disputes. For example, the absence of "tied sales" as a type of abuse of market dominance has become problematic, and contested in length, in Microsoft’s recent domestic proceedings. In some cases, if the conduct in question is not listed under the abuse of market dominance provisions, it may be regulated as a general unfair business practice and no appropriate penalties may be levied.
The amendment proposes to alleviate this problem by specifying abuse of market dominance activities under the "exclusion of competitors" and "harm to consumer interests" categories in the Enforcement Decree of the MRFTA.
Simplified Merger Reporting Requirements
Merging companies are currently required to report their union with two or more governmental agencies for approval. For example, a merger of cable system operators must be reviewed by the KFTC, the Korean Broadcasting Commission and the Ministry of Information and Communication.
The amendment proposes to simplify merger reporting requirements so that companies are only required to report to one of the relevant agencies.
Revised Cartel Provisions
The MRFTA currently provides that when two or more companies participate in activities that "have the semblance of a cartel" and have substantial anti-competitive effects, they will be presumed to be a part of a cartel. In practice, however, the KFTC considers circumstantial factors to determine whether such activities would constitute a cartel. The amendment outlines the specific factors that must exist before a cartel may be presumed.
Revised Leniency Program Provisions
In the event that the parties to a cartel report their participation in the cartel voluntarily to the KFTC, the KFTC may mitigate or exempt them from certain corrective measures or penalties (i.e., a type of leniency program). The amendment introduces the possibility of exempting them from criminal punishment as a further incentive for voluntary reporting.
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