Narrow the Scope of “Same Person” Under the Fair Trade Act to Family Members

Creating one innocent victim in order to catch 99 criminals is neither just nor efficient. In a country with such a judicial system, citizens can be branded criminals at any time and have their individual freedom infringed upon, so they inevitably become intimidated. As a result, that country will struggle to accumulate wealth, politically and economically alike. History shows that systems that place the highest priority on individual freedom have replaced those that do not. That is why economic considerations must be taken into account when evaluating laws and institutions.

Recently, the government announced as a national policy task that it would adjust the scope of relatives of the “same person,” prompting discussions on improving regulations related to the Fair Trade Act. The Fair Trade Act, especially its regulatory provisions concerning the “same person,” contains many irrational elements and requires a full-scale overhaul. Unfortunately, the direction of amendment currently proposed by the Fair Trade Commission, including adjusting the scope of relatives, is highly likely to result not in regulatory improvement but in stronger regulation. It is necessary to reexamine the relevant regulations from the ground up in order to resolve difficulties in corporate management and enable companies to strengthen their competitiveness through competition.

The Fair Trade Act has caused problems by including not only the heads of large business groups but also their relatives within the scope of “same person” regulation. Business groups with combined total assets of at least KRW 500 billion are designated as large business groups and subjected to various regulations, and the contrived concept introduced here is that of the “same person.” It is an absurd term with no global precedent. Using the “same person,” meaning the head of a large business group, as the standard, the law defines “related parties to the same person,” including relatives, in-laws, and affiliates, and thereby determines the scope of the business group. Related parties to the same person include not only a spouse, blood relatives within the sixth degree, and relatives by marriage within the fourth degree, but also executives of affiliate companies. This reality-detached regulatory method is causing enormous confusion among businesspeople.

Because of this “same person” standard, all heads of large business groups and businesspeople are effectively treated as potential criminals. In the process of economic growth since the 1960s, business groups emerged, and some large companies grew into global corporations. Because exports account for a large share relative to the size of the domestic economy, critics argued that these firms were excessively large conglomerates. As a result, a policy goal was established: to restrain corporate activity and weaken owner control structures in order to curb concentration of economic power. Through that political process, in 1987 the Fair Trade Act was amended to add provisions regulating large companies’ ownership of shares through relatives or affiliates and the earning of profits through internal transactions among affiliates.

The “same person” provision, created in the name of preventing concentration of economic power among large corporations, is not suited to changing economic conditions. Above all, it has become an irrational system that cannot be universally applied to all large firms. When this regulation was introduced in the 1980s, the Korean economy was centered on manufacturing, but IT companies such as Naver and Kakao, as well as other large companies that have grown recently, expanded under management environments and investment structures different from those of the past, and therefore have different governance structures and management methods. In particular, it has become common for relatives not to participate in management, revealing that same-person regulation is an outdated rule with no grounding in reality. There have even been cases in which the head of a large business group who should have been designated the “same person” by the Fair Trade Commission was a foreign national and thus escaped regulation. As a result, confusion continues: in some companies the owner personally becomes subject to same-person regulation, while in others an exception is recognized.

The Fair Trade Commission does not appear to understand the essence of the problem and still seems intent on maintaining a system that effectively tinkers with specific companies. Recently, while announcing that it would narrow the scope of relatives of the same person, it also added de facto marital relationships to the category of relatives. In Korea, anyone could interpret this as a system designed with a particular company in mind. If, in the process of government authorities creating excessive rules and wielding public power in order to punish a few problematic behaviors, victims emerge whose freedom is infringed and the business ecosystem shrinks, the only result will be harm to the public.

Now, 30 years after these regulations were introduced, it has become clear that concerns about concentration of economic power were unfounded. A simple comparison of large business group rankings in 1980 and 2020 makes the changes unmistakable. If concentration of economic power by large corporations had truly been possible in our economy, it would be difficult to explain both the disappearance of former business leaders such as the Daewoo Group and the emergence of firms that have only recently entered the ranks of large companies. We have confirmed that the law of the market is working properly in our economy: only companies that win consumer choice through innovation and competition survive.

Moreover, even in family firms, as management control is passed down to the third and fourth generations, the owner’s personal shareholding ratio is declining. It is common sense that even among siblings or cousins, differing interests make it difficult for them to speak with one voice. This is why criticism is gaining force that same-person regulation under the Fair Trade Act, which assumes an economic community extending to sixth-degree relatives, is anachronistic.

The Fair Trade Act should be reformed to reflect reality at this opportunity. Regulations need to be eased so they can be universally applied to all companies. Limiting the scope of a same person’s relatives to the immediate family would be consistent with common sense. It is wrong to force the submission of information on fourth- and sixth-degree relatives who are not even family in any meaningful sense. Since the same person is neither the police nor the prosecution, there is no means to compel fourth- or sixth-degree relatives to submit materials if they refuse on the grounds of privacy. In addition, it is desirable for the Fair Trade Commission itself to collect such data directly. If the burden is to be placed on the heads of large business groups for reasons of administrative convenience, that scope should be limited to the individual owner or the family.

Advanced countries around the world uphold the principle of the presumption of innocence, which prevents the sacrifice of one innocent citizen even if it means letting 99 thieves go free. They do so because it is fair in sustaining the state and society and desirable for maintaining social soundness. In the case of same-person-related provisions, they have largely been neglected simply because the group suffering unfair harm consists of a small number of large business group owners. Countries around the world are competing to establish good institutions and laws. It is time for Korea, too, to remove the excessive regulations it alone imposes on businesspeople so that vitality can return to the corporate economic ecosystem.

Eun-kyung Kwak, Director of the Corporate Culture Division, Center for Free Enterprise (CFE)

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Original title: 공정거래법상 동일인 적용범위를 가족으로 축소해야

Author: Eun-kyung Kwak

Date: 2022-08-15

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&idx=24946