(1) Reasons for Proposal

Since the recent economic environment and market conditions have changed significantly compared to the time when the Monopoly Regulation and Fair Trade Act (hereinafter referred to as the “Fair Trade Act") was enacted, and social demands for a fair economy have also increased, the Amendment aims to implement a fair and innovative market economy system and improve the fair-trade law system to meet the changed economic environment of the 21st century through restructuring the overall legal system.

Accordingly, the Amendment introduces the principle of competition in enforcement of the Fair Trade Act by expanding and supplementing civil and criminal regulatory means under the Fair Trade Act, such as abolishing the exclusive complaint system for hardcore collusion and introducing the system of request for prohibition by private person against unfair trade practices; corrects large business groups’ improper conduct such as the funneling-of-business and advancement of corporate governances of business groups by rationally supplementing and improving the measures to restrain concentration of economic power; and enhances transparency in handling cases by expanding the rights to defense and reinforcing the due process of investigation by the Fair Trade Commission.

(2) Major Provisions

A. Introduce criteria for reporting business combination based on transaction amount (Article 11 (2))

1) Where a large company purchases a venture company or a start-up that is small in size but has great growth potential, paying a large amount of money, there is concern that even a review of business combination may not be done though the large company forms a monopoly or oligopoly in the market or builds entry barriers in the future because the reporting obligation is applicable because the amount of total assets or sales of the acquired company does not reach the minimum criteria for reporting business combination.

2) Even though domestic sales, etc., of the acquired company are below the current reporting criteria, reporting to the Fair Trade Commission shall be required when the amount of the acquisition is above a certain level, and the acquired company is operating at a considerable level in the domestic market.

B. Increase shares in subsidiaries and second-tier subsidiaries of a holding company (Article 18)

1) There are problems that large companies may overpower their control with less capital and acquire profits in an expedient manner other than dividends through transactions with subsidiaries and second-tier subsidiaries because the current requirements for shareholding of the subsidiaries and second-tier subsidiaries of a holding company are not high.

2) The amendment raises the requirements of shareholding ratio (30% for listed and 50% for unlisted) of subsidiaries and second-tier subsidiaries only for newly established or when converted to a holding company (applied to an existing holding company if the existing holding company newly includes subsidiaries and second-tier subsidiaries) from the existing ratio (20% for listed and 40% for unlisted) to deter expanding excessive control through the holding company.

C. Deregulate requirements for a venture holding company (Article 18)

1) A venture holding company system was introduced to promote venture companies, but there were, in fact, no cases of using the system after the introduction of the system because the requirements were so strict that they were not applicable to the nature of a venture holding company, such as that venture holding companies are subject to the same restrictions on stock acquisition of non-affiliates as general holding companies and that the requirements for shareholding of subsidiaries and second-tier subsidiaries are applied if a general holding company establishes a venture holding company at the stage of a subsidiary or second-tier subsidiary.

2) The amendment maintains the current venture holding companies’ requirements of owning a 20% share of subsidiaries to substantially stimulate the investment and acquisition of venture companies but permits application to special cases on shareholding of subsidiaries for venture holding companies if the existing holding company establishes a venture holding company at the stage of a subsidiary and second-tier subsidiary, and abolishes the restriction on acquiring non-affiliates for venture holding companies unlike general holding companies.

D. Restrict voting rights for existing cross-shareholding of member companies of a business group subject to limitations on cross-shareholding (Article 22)

1) The Fair Trade Act prohibits forming or strengthening new cross-shareholdings for companies included in business groups subject to limitations on cross-shareholding, but it may be difficult to resolve the problems due to existing cross-shareholdings for those business groups that had many cross-shareholdings before the designation of business groups subject to limitations on cross-shareholding.

2) A business group which is newly designated as a business group subject to limitations on cross-shareholding shall restrict the voting right of existing shareholdings that the group has had since the designation, so that the business group, which is expected to be designated as a business group subject to limitations on cross-shareholding, does not circumvent the prohibition provision because the group does not eliminate the cross-shareholdings until the designation is made.

E. Newly insert a provision of restriction on voting rights of public-service corporations included in business groups subject to disclosure (Article 28)

1) A public-service corporation included in a business group subject to disclosure is not subject to any regulation under the current Fair Trade Act, so there is concern that it may be used as a means of expanding its control and defrauding private interest over a business group of the same person, etc.

2) Require a public-service corporation included in a business group subject to disclosure to disclose transactions on shares of affiliates and internal trading that exceeds a certain size after a resolution by the board of directors.

3) In particular, the exercise of voting rights on shares of a domestic subsidiary of a public-service corporation included in a business group subject to limitations on cross-shareholding shall be restricted, in principle, but allow the exercise of the voting right within the limit of 15% in total with related parties only for reasons such as the appointment of an officer, merger, etc., for a listed affiliate.

F. Improve designation criteria for business group subject to limitations on cross-shareholding (Article 30)

1) Currently, business groups with assets exceeding 10 trillion won are designated as business groups subject to limitations on cross-shareholding, but the current total assets criterion for the designation has problems that need to change according to changes in economic conditions that continuously occur and that social consensus costs arise due to the divergence between stakeholders whenever the criterion is changed.

2) The designation criterion for a business group subject to limitations on cross-shareholding shall be changed to 0.5% of the gross domestic product (GDP) for the scope of a business group subject to limitations on cross-shareholding to be automatically determined in conjunction with the growth of the economic scale; provided, however, that the changed designation criterion shall be applied from the designation of a business group subject to limitations on cross-shareholding which shall be made in the year following the year of the announcement that the GDP, after the enforcement of this Act, exceeds 2 quadrillion won for the first time.

G. Illegal cartel conduct through information exchange (Article39 (5))

1) While the conduct of exchanging sensitive information such as future prices among competitors creates a harmful effect of restricting competition and the EU, the United States, etc., prohibit the conduct as concerted practices or regulate the information exchange agreement itself, the current Fair Trade Act does not have an explicit provision on the conduct, and it is difficult to regulate it as an illegal cartel conduct.

2) To more effectively regulate competition-restricting information exchange conduct, where there exists a concurrence in appearance that may be seen as a cartel between business entities, which exchange the information necessary for it, the agreement on “conduct that substantially restricts competition by exchanging information such as price and production volume" shall be included in one type of illegal act by cartels, being deemed by the Act that there is an agreement between business entities.

H. Reform exclusive complaint system (Article 43, Article 117, Article 130)

1) There is a possibility that a criminal punishment may be restricted for an illegal cartel action that requires prompt and strict measures for the harmful effects of restricting competition because it is stipulated that for an illegal cartel act, criminal punishment shall be possible only with the accusation of the Fair Trade Commission under the Fair Trade Act.

2) Allow the prosecutors to prosecute a case directly for the serious and obvious cartel conduct (so-called hardcore collusion such as price fixing, supply restriction, market division, bid-rigging) among illegal cartel acts that require prompt and strict measures by using the prosecution's forcible investigation capacity, and allow case-related information to be shared between the Fair Trade Commission and the Supreme Prosecutors' Office.

I. Expand the regulatory scope for defrauding private interest (Article 46)

1) To eradicate unfair internal trading that undermines the base of fair competition for small and medium enterprises and intensifies the concentration of economic power of large business groups, the current Fair Trade Act prohibits a listed affiliate in which related parties (limited to the same person and his/her relatives) own a 30% share or more and an unlisted affiliate in which related parties own a 20% share or more to provide unfair profits to the related parties, but the proportion of the internal trading done by companies which fall into below the regulatory criteria appears to be larger, which looks like the regulation is less effective.

2) The amendment unifies different regulatory criteria for listed and unlisted companies to one criterion, that is, a company in which related parties, including the owner’s family, own a 20% share or more regardless of whether the company is listed or not, and at the same time, includes the subsidiaries, in which these companies own a 50% share or more, into the subject to be regulated to expand the regulatory scope for defrauding private interest.

J. Strengthen protection of the rights of reviewees, etc. (Article 79 (4) and (5), Article 80 (9), Article 82 (2))

1) The disposition prescription for a violation of the Fair Trade Act is dualized as five years from the date on which the Fair Trade Commission commences an investigation and seven years from the date when a violation is discontinued, where the Fair Trade Commission does not commence an investigation; if the investigation commences immediately before the 7th year from the date when a violation is discontinued, the period of disposition prescription may be prolonged, and thus, the amendment prevents the prolongation of the disposition prescription by unifying the criteria of the disposition prescription to seven years (for a case of illegal cartel conduct, the current criteria are maintained) from the day when a violation is discontinued.

2) At the deliberation stage, the right to state an opinion of a party to the case and interested parties are stipulated, but at the stage of the investigation, the rights to present an opinion and to state an opinion of a party to the case and interested parties are not expressly stipulated, under the current Fair Trade Act; therefore, at the stage of investigation, the rights to present an opinion and to state an opinion of a party to the case, interested parties, and witnesses are stipulated in the Act to strengthen the protection of the rights of the reviewees, interested parties, etc., have in the investigation and deliberation process.

3) There is a risk of infringing on the defense of a reviewee if the investigating officer conducts a field investigation or listens to statements from a party to the case at the deliberation stage; therefore, the amendment prohibits investigating officers from conducting field investigations or listening to statements from the parties at the deliberation stage except when the plenary session or sub-committee meeting is deemed necessary by the application of a reviewer or reviewee.

K. Introduce the system of request for prohibition by a private person (Article 105)

1) In principle, a grieved party is not allowed to request a prohibition against the violation of the Fair Trade Act under the current Act; therefore, the case handling period may be prolonged, or there is no alternative for rapidly remedying damages if the Fair Trade Commission decides the violation freedom from suspicion.

2) Allow a grieved party to request a prohibition against unfair trade practices (excluding illegal assistance practices) for rapid relief of their rights at the court directly.

L. Impose a company’s obligation to submit information in damages suit (Article 108)

1) Under the current Civil Procedure Act, orders for submitting documents may be rejected by a relevant company for the reason that they are trade secrets, materials other than documents such as electronic documents and videos are excluded from the subject of submission, and even if a company does not respond to a submission order, the sanction is weak; thus, there is a difficulty for a grieved party to obtain the necessary evidence to prove damages and ascertain the amount of damages.

2) To resolve these problems and promote damage claim suits, allow the court to order a relevant company to submit the information for illegal cartel acts and unfair trade practices (excluding illegal assistance practices), prevent the company from rejecting the submission of information when it is absolutely necessary to prove damages or to calculate the amount of damages even if such information includes trade secrets, and regulate that the fact to be proved by stating the information shall be recognized as true when the company does not respond to the submission order.

M. Improve penalty regulations (Article 124, Article 125)

1) Although the penalties are prescribed for most violations under the current Fair Trade Act, for the type of conduct whether the violation is determined or not through economic analysis of competition-restricting, etc., it seems unsuitable as the subject of imposing penalties requiring clarity; and for the type of conduct from which competitive-restricting effect is relatively small, regulatory effect may be achieved only by corrective orders and penalty surcharges, and thus, there is a possibility to be against the supplementary principle of penalties.

2) Therefore, for business combination practices, some unfair trade practices, some prohibiting practices of business entities' organization, and practices of resale price maintenance for which there have been few cases of imposing penalties and no possibility of being imposed in the future, the penalty provisions are deleted.