Total Ownership Limit, Major Economic Bone of Contention

The Total Ownership Limit imposed on conglomerates is emerging as the major economic bone of contention in the second half of this year.

The Fair Trade Commission plans to strengthen or implement the regulation as it is. But the business community harshly criticizes the policy as an obstacle to their investment. In particular, the Ministry of Finance and Economy is attracting much attention as it indirectly support businesses by releasing a report on the investment cap it commissioned to an outside research center.

In light of the development, FTC and the People`s Solidarity Participatory Democracy, a civic group, disagree with the business circle and the Finance Ministry over the issue.

The controversy is intensifying along with the emerging consensus that more corporate investment should be made to turn the national economy around.

Businesses and the FTC were divided over the Total Ownership Limit during a forum hosted by the Korea Economic Research Institute.

Cho Hak-guk, vice chairman of the FTC said, ˝The limit is the minimum measure Korea has to implement to prevent corporate governance from being distorted. The FTC would maintain the basic framework of the investment cap while aggressively compliment its parts in need of improvement.

But having expressed its position many times that the Total Ownership Limit is not much related to corporate investment, the FTC plans to drastically abolish ‘exceptional provisions’.

In response, Jwa Sung-hee, the president of the Korea Economic Research Institute repudiated saying, ˝The next growth engine projects are hindered by the stock investment cap. Why the government disturbs business activities?”

There also was a heated debate over the investment ban at a ˝Market Reform Task Force Conference˝ made up of government agencies and private sector experts.

Professor Lee Sang-seung, a member of the task force, emphasized based on the report titled `the Direction for the Improvement of Total Ownership Limit` that the government should facilitate corporate investment by drastically easing the existing investment cap.

However, the two sides only confirmed their differences in opinions with the FTC held on to its previous position to maintain the existing regulation.

The Finance Ministry and the FTC are dividing over how to deal with the ways to implement Total Ownership Limit and its detailed clauses.

The Finance Ministry argued for implementing the rule based on `the voting rights multiplier` as newly proposed by the Seoul National University report. The multiplier is the proportion of a stock ownership to voting rights of a conglomerate`s owner CEO.

The Finance and Economy Ministry believes that the multiplier would drastically raise the cap on conglomerates` investment. Meanwhile, the FTC views that while the multiplier could be a standard to show a company`s corporate governance, it could not be used as a standard in implementing the Total Ownership Limit.

The Finance Ministry plans to maintain the existing system - when the debt ration of a conglomerate is less than 100%, it is exempted from the investment ban. But the FTC opposes the idea calling for a new standard for exemption. It points that under the current system, some big companies such as Samsung are free from the investment cap.

As to strengthening the standards for a holding company, the business circle and the Finance Ministry want to ease it while the FTC prefers to maintain the existing regulation.

The Total Ownership Limit stipulates that firms with over 5 trillion won asset could make stock investment of up to 25% of its total asset. Seventeen companies such as Samsung, LG and SK are affected by the ban.

Ki-Jeong Ko koh@donga.com