Sangui Forum "Concerns Over Restriction of Internal Transactions Leading to Contraction of Efficient Normal Transactions"

Sangui to Host the 3rd Fair Competition Forum on the 24th
Topic: "Current Status and Improvement Measures of Internal Transaction Regulations"

Uniform Regulation under Competition Law Unprecedented Overseas
All Companies Meeting Specific Criteria Subject to Regulation

Pre-Regulation Causes Burden of Prior Verification Even for Normal Transactions
Holding Company Discrimination... Companies Switching to Holding Companies Are Instead Regulated
Referencing Japanese Cases, "Should Shift to Voluntary Internal Regulatory Mechanisms"

[Asia Economy Reporter Jeong Dong-hoon] There has been a claim that regulations on internal transactions under the Fair Trade Act impose an increasing burden by requiring all companies meeting certain criteria to be subject to regulation, necessitating prior verification even for normal transactions. Since 'pre-regulation' is in effect, it is argued that regulation should be established through internal control systems under company law rather than the Fair Trade Act.

The Korea Chamber of Commerce and Industry (KCCI) announced on the 24th that it held the '3rd Fair Competition Forum' and discussed the 'Current Status and Improvement Measures of Internal Transaction Regulations under the Fair Trade Act.' The KCCI Fair Competition Forum was organized to continuously examine the problems of fair trade policies that disadvantage Korean companies in global competition and to discuss improvement measures.

At the forum, expert panelists included Professor Kwak Gwan-hoon of Sunmoon University, Lawyer Park Seong-beom of Yulchon LLC, Professor Shin Young-soo of Kyungpook National University, Professor Hwang Tae-hee of Sungshin Women’s University, and Professor Lee Hyuk of Kangwon National University. Economic sector panelists included Woo Tae-hee, Executive Vice President of KCCI, and executives responsible for fair trade in major companies. Representing the government, Jeong Areum, Director of the Internal Transaction Monitoring Division at the Korea Fair Trade Commission, also attended.

Data provided by the Korea Chamber of Commerce and Industry

South Korea is the only country regulating internal transactions under competition law

Professor Kwak Gwan-hoon, who gave the keynote presentation, stated, "In countries like the United States and the EU (European Union), competition law generally does not apply to support from parent companies to subsidiaries or cooperative acts among affiliated companies," adding, "In South Korea, since competition law imposes public sanctions, uniform regulations are applied without considering the environment and characteristics of individual companies, which hinders normal corporate growth."

Professor Kwak explained that the reason internal transactions become an issue uniquely in South Korea is due to a gap between corporate realities and the domestic legal system. In reality, management through corporate groups is common, but domestic company law adopts a legal framework that denies the existence of corporate groups, leading to overlooking the positive roles of internal transactions and increasing views that see them only as subjects of regulation.

Regarding this, expert panelist Professor Hwang Tae-hee said, "It is time to analyze to what extent the legislative purpose of resolving economic concentration has been achieved since the introduction of internal transaction regulations," and added, "Considering the current reality where various stakeholders such as foreign investors and minority shareholders are monitoring, it is necessary to contemplate the problems and improvements of current regulations from various perspectives."

Meanwhile, Professor Shin Young-soo of Kyungpook National University argued, "Internal transaction regulation should be understood as a unique system in Korea under the ‘Corporate Group Regulation Act,’ which governs Korea’s distinctive governance and transaction practices, rather than under company law or competition law," and stated, "Considering the reality that the negative effects of unfair internal transactions are difficult to control adequately by company law means, intervention by the Fair Trade Act is inevitable."

Holding companies face reverse discrimination... paradoxical situation where regulation focuses on companies complying with policies

Professor Kwak criticized the current internal transaction regulation method, saying, "Because all companies are uniformly regulated, corporate groups that trusted government policy and converted to holding companies ironically become targets of internal transaction regulation," and argued, "It is necessary to shift to autonomous regulation through internal control systems tailored to corporate characteristics or to improve internal transaction regulations considering the essence of holding companies."

In response, Professor Lee Hyuk said, "The holding company system introduced during the foreign exchange crisis has shown mismatches between regulation and reality after 20 years of implementation, including excessive internal transaction regulation issues, the principle of separation of finance and industry, and problems with personnel and physical division," and mentioned, "There is a need to comprehensively redefine policy goals for improving corporate group governance such as internal transactions and holding companies."

Data provided by the Korea Chamber of Commerce and Industry

Ambiguous criteria and strict exceptions... hinder companies' prior judgment and suppress normal transactions

Professor Kwak explained, "Internal transaction regulations under the Fair Trade Act have ambiguous criteria such as 'unfairness' and 'normal price,' making it difficult for companies to judge in advance whether internal transactions are normal or illegal," and added, "The conditions for exceptions are also strict, so cases where exceptions are actually allowed are rare."

He emphasized, "Ambiguous or strict criteria act as pre-regulation on companies, suppressing even normal transactions," and said, "In Japan, positive aspects of internal transactions are also considered, and autonomous regulatory systems such as corporate group internal control systems are established, so we need to refer to this as well."

Lawyer Park Seong-beom, who participated as a discussant, expressed the view that "Considering the reality of Korean companies that have grown through the corporate group system, the Fair Trade Commission needs to maintain the purpose of internal transaction regulation while actively considering the positive effects of internal transactions such as reducing transaction costs and efficient allocation of resources."

An economic sector discussant requested, "Recently, the Supreme Court canceled the Fair Trade Commission’s sanctions by presenting criteria for unfairness in cases of unfair profit provision to related parties, so the government should reduce uncertainty by providing more specific standards through revising review guidelines."

In this regard, the 'New Government Economic Policy Direction' announced on the 16th included content to define uncertain concepts such as normal price with objective standards and to improve exception recognition requirements considering Supreme Court precedents, such as efficiency enhancement.

Woo Tae-hee, Executive Vice President of KCCI who chaired the discussion, said, "Internal transactions are a management method with both advantages and disadvantages, but only the negative aspects have been overinterpreted," and added, "Given that the times and circumstances have changed since the introduction of regulation, it is necessary to design and improve a balanced system that broadly allows normal and efficient internal transactions rather than approaching it solely from the perspective of suppressing economic concentration."

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