Fair Trade Commission "Focusing Efforts on Eradicating Habitual Promotion Cost Shifting and Strengthening Subcontract 'Eul' Negotiation Power"

2020 Business Plan Announcement
Focused Investigation on Exclusive Transactions and PB Product Subcontracting
Eradication of 'Habitual' Promotion Cost Shifting
Correction of Unfair Terms in OTT Contract Cancellations Including Netflix
Encouraging Prevention of M&A Before Startups Grow
Easing Venture Investment Regulations for Large Corporations and SME Venture Capital Firms
"Efforts to Amend Legislation on Private Interest Appropriation by Large Conglomerate Families"

Chairman Jo Sung-wook of the Korea Fair Trade Commission. / Photo by Moon Ho-nam munonam@

[Asia Economy Reporter Moon Chaeseok] The Fair Trade Commission (FTC) announced its plan to eradicate the practice of secretly shifting promotional expenses. By including the Korea Federation of Small and Medium Business (KSMB) as a negotiation party for subcontract payment adjustments, it aims to enhance the bargaining power of the so-called 'Eul' (the weaker party) and promote coexistence with the 'Gap' (the stronger party).

On the 5th, the FTC stated in its annual report that it will decisively reduce unfair practices repeatedly occurring in exclusive and subcontract transactions.

First, it will focus on medium-sized shipbuilding and construction companies, as well as exclusive transactions and PB product subcontract transactions where written investigations have revealed high suspicion of legal violations. Written investigations in sectors such as franchises, distribution, and agencies will also be intensified.

It will detect and correct habitual acts of lowering delivery prices and shifting promotional costs. To this end, it strengthened standards such as the 'Unfairness Review Guidelines for Special Purchase' and the 'Guidelines for Shifting Promotional Expenses' in January.

By amending the law, the KSMB will be included as a negotiation party for subcontract payment adjustments to increase the bargaining power of the 'Eul'.

Three sectors?public safety and health (water supply and railway equipment, medical devices), daily life (telecommunications, food, logistics, etc.), and those causing harm to vulnerable groups (agricultural materials, job search service platforms, etc.)?will be separately selected for focused cartel (a form of collusion or agreement) monitoring.

Emphasis will also be placed on 'transparency' in competition within innovative industries. The FTC will closely examine whether platform operators in the information and communication technology (ICT) sector engage in exclusive conditional transactions or tying sales to block new competitors from entering the market.

To this end, guidelines for unilateral conduct reviews will be established by next year to increase predictability regarding which laws and to what extent they will be applied in the platform sector.

Attention will also be paid to enhancing consumers' 'digital rights.' Unfair contract terms related to contract termination, refunds, and penalties in subscription economy sectors such as OTT (Over-the-top) services including Netflix and e-books will be reviewed and corrected.

In the shared economy sector, including micromobility, unfair contract terms concerning liability and contract termination in case of accidents or breakdowns will be actively corrected.

The FTC will inspect and improve whether contract termination and content deletion clauses of one-person broadcasting platforms such as YouTube and AfreecaTV, as well as MCN (Multi-Channel Network) operators, violate the Act on Fair Labeling and Advertising.

MCN refers to companies that support and manage video production for individual creators active on platforms like YouTube.

Disadvantages faced by startups in competition will be minimized.

First, the law will be amended to introduce a new M&A reporting standard based on transaction amounts.

Even if the acquired company's total assets or sales are below the current reporting threshold, mandatory reporting will be required if the transaction amount exceeds a certain standard and the company is significantly active in the domestic market.

This is to enable early detection when large corporations attempt M&As that limit potential competition by acquiring startups in advance.

Efforts will be made to promote venture investment by large corporations and small and medium enterprise venture capital companies (venture capital firms).

When a large corporation's holding company establishes a venture holding company at the subsidiary or grand-subsidiary level, restrictions on the venture holding company's activities will be eased.

The law will be amended to relax the shareholding requirements for venture holding companies and lift the restriction on acquiring non-affiliated shares (within 5%).

When SME venture capital firms conduct M&As through venture investments or private equity fund (PEF) establishment, the law will be revised to exempt them from corporate merger reporting obligations, as concerns about 'competition restriction' are deemed minimal.

Specifically, regulations related to less than one-third executive dual roles (excluding CEOs) in venture companies by SME venture capital firms and the establishment of PEFs that merely raise funds will be eased.

However, the possibility of private interests being exploited by large conglomerate owners will be reduced. The FTC will continue to push for legal amendments to prevent their illicit expansion of control.

The FTC plans to amend the law to ▲expand the scope of private interest regulation, ▲raise shareholding requirements for holding companies, and ▲strengthen restrictions on circular shareholding, financial and insurance companies, and public interest corporations' voting rights.

An FTC official said, "Through law enforcement against large conglomerates' practices of preferentially allocating work, we will induce improvements in the practice of unfairly channeling benefits to the owners' families."

This content was produced with the assistance of AI translation services.