Fair Trade Commission’s black-and-white approach

The Korea Fair Trade Commission (FTC) and Seoul National University Center for Competition Law jointly held a policy debate session at the Korea Chamber of Commerce on Monday. It was a venue to eval‎uate and discuss the commission’s policies implemented during the incumbent Moon Jae-in administration. To be sure, no one would object to a need for fair competition or a thought that those who abuse their superior positions in contracts should be punished.

Yet, what brought attention during Monday’s discussion was a proposal to reconsider the frame that the antitrust watchdog has applied to policies to fight the unfair practices of those in superior positions. Since President Moon took office, the commission has increasingly monitored and cracked down on unfair business practices, usually conducted by large companies, apparently within the framework that assumes conglomerates are always in superior positions while small and mid-sized firms are weaker. However, a presenter pointed out that the government’s excessive intervention may distort or constrict the market, saying, “This is an issue that could arise not only between conglomerates and SMEs, but also between mid-sized firms and small firms, or small companies and smaller individual businesses.”

Another presenter raised an issue with the current framework, citing the relationship between franchise headquarters and stores, which has caused controversies over unjust practices in the country. South Korea’s franchise headquarters tend to make not-very-high operating profits, which are relatively lower than those of foreign franchise headquarters. In addition, their royalty is not likely to be recognized as intellectual properties. In such circumstances, pricing their goods with a margin should not be considered an unfair practice, the presenter stressed.

Under the current law, if a business can’t make a profit and thus tries to cut the payment given to its subcontractor, the business will be subject to punishment. However, some voiced concern over whether this law is realistic enough.

During the Moon administration, there have been many cases where the FTC convened businesses and forced them to create standard agreements or provided guidelines for doing so, in the name of a drive to level the playing field. Still, the government should heed advice that a standardization of how businesses operate or transact could obstruct companies from coming up with an innovative business model.

Punishing large companies within the fixed framework that blindly blames them may earn political applause for the government. However, not a few parts of business relations are in gray areas, which cannot be dealt with a simple black-and-white approach. The FTC should be fully focused on preventing a monopoly and facilitating fair competition to reinvigorate the market economy. Trying to intervene in complex business relations through the ill-advised framework may please certain political parties but will end up ruining the country’s economy.