On May 3, 2022, the 20th Presidential Transition Committee (the “Committee”) announced 110 national agenda items (the “National Agenda”) for the Yoon Suk-yeol Administration, which lists the new administration’s key policy objectives and direction. They include detailed tasks relating to the field of fair trade under the objective of creating “a country where SMEs are at the center of the economy.”
The Committee promised to “create a country where SMEs and business ventures are at the center of the economy,” and listed three competition and fair trade law-related tasks: (i) revitalize the market economy through fair competition, (ii) provide greater relief for damages arising from fair trade law violations by improving law enforcement efforts, and (iii) eliminate unfair trade practices and technology misappropriation, and foster mutual growth of conglomerate groups and SMEs. Below, we will explain the important tasks announced by the Transition Committee and their implications.
Revitalize the Market Economy Through Fair Competition
(1) Prompt M&A Review
- Exemption from Notification Obligations for Establishment of PEFs and Mergers Between Parent Company and Wholly-Owned SubsidiaryTo ease corporate burdens and promote innovative investment through prompt merger review by the Korea Fair Trade Commission (the “KFTC”), the new administration plans to exempt establishment of private equity funds (“PEFs”) and mergers between a parent company and its wholly-owned subsidiary, which tend to have little impact on competition, from the notification obligation. If the scope of notification exemption is expanded under the new administration through amendments to applicable laws and regulations, we expect the transactions for PEF establishment and corporate restructuring to be carried out more efficiently.
- Introduction of Procedure for Submission of Voluntary Remedy PlanCurrently, the KFTC issues remedies in the form of a corrective order to address any actual or potential anti-competitive effects arising from the merger review and does not have any system that allows the parties to formally submit a voluntary remedy plan during the KFTC’s review.
In the National Agenda, the new administration stated that it will introduce a procedure for submission of a voluntary remedy plan to enhance global consistency and corporate autonomy in the future. Once the voluntary remedy submission process is introduced, it will allow formal discussions to be had between the parties and the KFTC during the merger review process.
This will result in a remedy plan that better reflects the specific circumstances of the parties and the relevant industry, and is more consistent with the remedy plans submitted to foreign competition authorities. For companies considering merger deals that are expected to require remedies, it will become important to prepare an appropriate remedy plan and discuss the plan with the KFTC.
(2) Changes in the Conglomerate Regulation System
- Adjustment of scope of relatives of the Same PersonThe new government has accepted some of the demands to ease corporate burdens and announced that it will adjust the scope of relatives of the Same Person. Currently, the scope of relatives of the Same Person includes direct ancestors, spouses, siblings, and up to second cousins by blood and first cousins by marriage. However, the new administration proposed to reduce the scope to first cousins by blood and to aunts and uncles by marriage. If the Enforcement Decree is amended as such, the scope of affiliates, transactions subject to disclosure, and the number of cases subject to reporting will be reduced to some extent.
- Improvement of CVC system for holding companiesThe new administration plans to support the swift and smooth implementation of the corporate venture capital (CVC) system allowing general holding companies to own CVC funds and to make public disclosure system more reasonable by setting a higher threshold for disclosure and amending the disclosure items and cycles.
Although the new administration has not yet announced the details of how the new administration will improve the system, the KFTC has shown a keen interest in the CVC system as a means of promoting venture investments, as can be seen from its holding the “Meeting on Corporate Venture Investment Companies” on April 20. Therefore, companies interested in setting up CVC funds or engaging in transactions with CVC funds should closely monitor this issue as the government’s policy direction becomes further specified.
(3) Establishment of Fair Competition
The Committee announced that the new administration will focus on closely monitoring abuse of dominance (e.g., in the app market and semiconductor industries) and cartel conduct, and promised to strictly enforce the law against misuse of company assets for private gains and unfair affiliate transactions. Accordingly, we expect the KFTC to actively monitor and investigate monopolistic/oligopolistic companies’ anti-competitive conduct, such as tying, refusal to deal, and exclusive dealing, and companies should take greater caution in their business transactions.
In particular, with the sharply-rising cost of living, driven by rising commodity prices, the KFTC is more likely to actively monitor and investigate collusion in consumer products and commodities that can affect living costs.
Strengthen Damage Relief through Fair Trade Law Enforcement
To regulate unfair trade practices and protect consumers’ rights and interests in the digital platform market, the new administration plans to establish fair trading in the platform sector. To achieve this, the new administration plans to first prepare self-regulatory measures for the platform industry and establish the least restrictive regulatory environment. At the same time, the new administration plans to correct app market conducts that restrict app developers’ business activities (e.g., exclusive dealing) and deceptive acts (e.g., dark patterns and false reviews).
Further, to help SMEs receive their due supply price in full and in a timely manner, the new administration plans to enhance the effectiveness of supply price negotiations, including (i) possible introduction of a unit price adjustment system, (ii) strict correction of non-compliance with SMEs’ requests for adjustment of unit prices by conducting fact-finding surveys and operating a reporting center, and at the same time, (iii) publishing model subcontract agreements and consignment contracts that link the supply price to the cost of production, thereby promoting an environment where it is customary for the parties to make voluntary adjustments of the supply price. On May 20, 2022, the KFTC also prepared the “Guidebook on Adjustment of Unit Prices for Supply,” which includes the specific procedures and methods for the adjustment of unit prices for supply, in order to enhance the effectiveness of the adjustment of unit prices.
- Eradication of Technology Appropriation
The new administration plans to ease the burden of proof on companies whose technology was misappropriated, by granting the courts during damages litigation the right to request submission of materials collected during the administrative investigation stage. The new administration will also prepare a plan for more accurately calculating the damage amount by expanding the application of punitive damages and providing support for calculating the appropriate level of damages. In addition, the new administration plans to reinforce sanctions against technology misappropriation by conducting ex officio investigations more frequently and raising the maximum administrative fines.
The new administration’s fair trade agenda aims to ensure that “SMEs and business ventures are at the center of the economy” and focuses heavily on subcontract and technology-related policies. Accordingly, the KFTC is expected to step up its efforts to amend and enforce relevant laws in line with the new administration’s policy focus.