Foreign Countries Courting Business, Korea Obsessed with Anti-Business Laws

Abolishing the KFTC’s Exclusive Right to File Complaints Would Unleash Excessive Accusations and Shackle Business Activity

There has been a lack of thorough review of the necessity, effectiveness, and side effects of various regulatory bills.

Countries around the world are waging a war to attract businesses. They not only offer the carrot of tax cuts and deregulation, but also do not hesitate to apply explicit pressure to lure companies into their jurisdictions. While countries around the world are engaged in this fierce battle to attract businesses, Korea is heading in the exact opposite direction. In the midst of this, an amendment to the Fair Trade Act is set to be submitted to the National Assembly as government legislation. Although it is virtually identical to the bill that was discarded at the end of the 20th National Assembly’s term, the likelihood of passage in the 21st National Assembly is higher than ever.

With 180 seats, the broader ruling bloc has enough votes to pass virtually any law it wants in the National Assembly, short of a constitutional amendment. Moreover, as seen in the passage of the “three real estate laws,” there are increasing cases in which bills are rushed through at breakneck speed without regard for their side effects.

The stated purpose of regulating unfair support among affiliates is to prevent controlling shareholder families from extracting private benefits through transactions between affiliated companies. Under the amendment, the scope of regulation would expand from companies in which the controlling shareholder family holds “30 percent or more” under the current law to those in which it holds “20 percent or more.” In addition, even subsidiaries of companies in which the controlling shareholder family owns 20 percent or more would be included in the scope of regulation.

To avoid this, controlling shareholder families would have to reduce their ownership stakes. For businesses already facing threats to management control from restrictions on major shareholders’ voting rights, cross-shareholding regulations, and excessive inheritance taxes, this would inevitably be an additional burden. Unlike in foreign countries, there are virtually no means of defending management control in Korea, such as dual-class shares, which would also increase the likelihood of attacks by hedge funds.

Some argue that companies should reduce internal transactions rather than sell off shares. But internal transactions by companies should not be treated as inherently problematic. Not only in Korea but around the world, many companies engage in internal transactions as a result of adapting to their given environment.

Companies rely on internal transactions for facility management, system integration (SI), and logistics because doing so improves operational efficiency and enhances security. There is no reason to view a company’s production of needed parts within a business division differently from purchasing them through an affiliate. In a situation where government policy and institutional uncertainty are greater than in advanced countries, activating an internal market to reduce such uncertainty is one way for companies to reduce risk. Above all, the Fair Trade Act’s regulation of private benefit expropriation is a uniquely Korean system, and it is difficult to find directly comparable cases overseas.

The reason abolishing the KFTC’s exclusive right to file complaints must be reviewed carefully is that, unlike ordinary criminal offenses, Fair Trade Act violations require judging not the act itself but the anticompetitive effects that act has on the market. Depending on the case, the KFTC first determines whether administrative measures such as surcharges and corrective orders are needed, or whether criminal punishment such as referral to the prosecution is necessary.

Unlike other countries, Korea allows broad criminal punishment for violations of competition law. If abolishing the exclusive right to file complaints leads to excessive private accusations and reports, it will inevitably shackle business activity. There may also be duplicate investigations by the prosecution and the KFTC into the same case, with differing conclusions. It should also be taken into account that the prosecution has not infrequently used information obtained through search and seizure in corporate investigations to conduct “separate-case investigations.”

The National Assembly is not a factory for churning out whatever laws it wants. Various regulatory bills continue to pour out even in the 21st National Assembly, but there is a lack of meticulous review of the necessity, effectiveness, and side effects of these regulations. We have already witnessed the results of the Moon Jae-in administration’s economic policies, which pressed ahead at full speed with income-led growth and a nuclear phase-out. What we need is a responsible National Assembly that considers the ripple effects of legislation and the shocks it can inflict on the market.

Younghoon Kim, Secretary General, Economic Knowledge Network

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Original title: 기업 유치 혈안 외국, 기업 옥죄는 법 혈안 한국

Author: Young-hoon Kim

Date: 2020-08-13

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&pn=19&idx=23032