‘Profit Rate Regulation’ Deleted from Fair Trade Law

The Fair Trade Commission (FTC) amended the enforcement ordinance of the Fair Trade Act, stepping back from its initial plan to impose regulations on an enterprise’s price and profit rate. It decided not to impose a profit rate regulation.

After Dong-A Ilbo solely reported and publicized the relevant amendment law pursued by FTC, criticism spread that “the regulation on price and profit rate is an anti-market measure that impedes the efforts of enterprises to lower costs through technological development.” FTC’s decision on the deregulation seems to reflect such criticism.

But since the regulation on price, one of the controversial plans will be enforced as it is and business communities are raising strong objections, prolonging the conflict between the government and businesses.

Reflecting the criticism on “impediment to new technology”-

On October 3, FTC announced that it made a modification to the amended enforcement ordinance of the Fair Trade Act that imposes regulations on the price or profit rate of a market dominator, such as a monopolizer, which is conducive to misuse of price, by deleting the profit rate regulation.

FTC also stipulated in the modified enforcement ordinance that the profit raised by “the development of new goods or lowering costs through renovation of technology and management” will be excluded from the regulation.

“The modification was made because the amended ordinance aroused misunderstanding that FTC is impeding the efforts of enterprises in renovation and enterprises raised opinions that the ordinance is a burden,” explained a FTC official.

But the price regulation remains in the modified version, though a clause reading “the field of trade where substantial competition is blocked by an entrance barrier or institutional barrier” was added.

Accordingly, FTC intends to sanction enterprises by applying this modified enforcement ordinance when the price of a product is markedly higher than the cost and the ordinary level of the same or similar business.

○ Business circle: “the FTC version of open cost policy”

Concerning FTC’s plan on price regulation, the Federation of Korean Industries (FKI) raised an objection, saying, “It not only contradicts market principles but also runs counter to the global trend in administering competition law and the deregulation trend in South Korea.”

It especially pointed out that the regulation on high prices will obstruct the creation of luxurious brands and hinder high-value-added industrialization through the development of new products and technology.

“Forgetting the fact that price is determined by supply and demand and regulating price based on supply is a FTC version of ‘open cost policy’ and is a 1970s means of price control,” it added.

Furthermore, concerning FTC’s modification to exclude from regulation the profit raised through technology management renovation, it said, “The vagueness of the notion of technology and management renovation creates confusion on the sides of both the law enforcers and those influenced by the law.”

Director of Economic Division of FKI Hwang In-hak said, “It’s puzzling that FTC is taking a regressive measure through price regulation while it has been making great efforts to match the competition law to the global trend.”

Meanwhile, FTC and FKI unfolded a war of nerves. When FKI distributed a document saying that the amended enforcement ordinance of the Fair Trade Act containing price regulation collides with the market principle, FTC distributed an opposing document, and FKI followed suit soon after.

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