(1) Reasons for Proposal

As the recent economic environment and market conditions have changed significantly compared to the time of the enactment of the Monopoly Regulation and Fair Trade Act (hereinafter referred to as the “Fair Trade Act"), and the social demands on the fair economy have also increased, this amendment aims to implement a fair and innovative market economy system and improve the fair-trade law system to meet the changed economic environment in the 21st century through restructuring the overall legal system and its compositions, such as the introduction of the principle of competition in the 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 a system allowing a request for prohibition by a private person against unfair trade practices; the correction of large business groups’ improper conduct such as the funneling-of-business and the advancement of corporate governances of business groups by rationally supplementing and improving the measures to restrain concentration of economic power; and the provision of a foundation to promote innovative growth by improving the business combination evaluation system in the new industry sector and mitigating the requirements of the venture holding company.

(2) Major Provisions

A. Introduction of 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, by paying a large amount of money, there is concern that even a review of business combination may not be done even though the large company forms a monopoly or oligopoly in the market or builds entry barriers in the future because the reporting obligation does not arise due to the amount of total assets or sales of the acquired company not reaching the criteria for reporting business combination.

2) Even though the domestic sales, etc., of the acquired company are below the current reporting criteria, require reporting the combination to the Fair Trade Commission if 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 of 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 shares in subsidiaries and second-tier subsidiaries of a holding company are not high.

2) Raise the requirements for shares (30% for the listed and 50% for the unlisted) of subsidiaries and second-tier subsidiaries only for the newly established or 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 the listed and 40% for the unlisted) to deter expanding excessive control through the holding company.

C. Mitigate requirements for venture holding companies (Article 18) 

1) The 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 as to not be applicable to the nature of venture holding companies, such as that venture holding companies are subject to the same restrictions on the stock acquisition of non-affiliates as general holding companies and that the requirements for shares in 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) Maintain the current venture holding companies’ requirements of owning a 20% share of subsidiaries to substantially stimulate the investment and acquisition of venture companies, but permit the application of 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 abolish 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 the forming or strengthening of new cross-shareholdings for companies belonging to business groups subject to limitations on cross-shareholding, but it may be difficult to resolve the problems due to existing cross-shareholdings for the business groups which already were in possession of 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 be restricted from exercising voting rights of the 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. Establish a provision of restriction on voting rights of public-service corporations belonging to large business groups (Articles 24 and 28) 

1) A public-service corporation belonging to 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 the business group of the same person, etc.

2) Require a public-service corporation belonging to a business group subject to disclosure to disclose transactions on shares of affiliates and internal trading which is larger than a certain size after a resolution by the board of directors.

3) Especially, in principle, restrict the exercise of voting rights on shares of a domestic subsidiary of a public-service corporation belonging to a business group subject to limitations on cross-shareholding, but allow the exercise of voting rights within the limit of 15% in total with related parties only for reasons such as the appointment of an officer, merger, etc., when the affiliate is a listed entity.

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

1) Currently, business groups with more than 10 trillion won based on asset size 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 continuously occurring changes in economic conditions and that social consensus costs arise due to 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) in order 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 next year after the year of the announcement that the GDP, after the enforcement of this Act, exceeds 2,000 trillion won for the first time.

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

1) While the conduct of exchanging sensitive information such as future prices among competitors has the significantly harmful effect of restricting competition and the EU, the United States, etc., prohibit such 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 illegal cartel conduct.

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

H. Reform of exclusive complaint system (Articles 43, 119, and 129) 

1) There is a possibility that criminal punishment may be restricted for illegal cartel conduct that requires prompt and strict measures for the large harmful effects of the competition-restricting because it is stipulated that for illegal cartel conduct, 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, and bid-rigging) among illegal cartel conduct to take prompt and strict measures by using the prosecution's forcible investigation capacity, and allow the sharing of case-related information 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 company belonging to a business group subject to disclosure from making any undue benefits attributable to any listed affiliate in which related parties (limited to the same person and his/her relatives) own a share of 30% or more or any unlisted affiliate in which related parties own a share of 20% or more, but the proportion of the internal trading done by companies which are out of the regulatory criteria appears to be larger, which renders the regulation less effective.

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

J. Introduce a system for requesting prohibition by a private person (Article 107) 

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 is free from suspicion.

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

K. Impose companies an obligation to submit information in damage suits (Article 110) 

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 making it difficult for a grieved party to obtain the necessary evidence to prove damages and the amount of damages.

2) In order to resolve these problems and promote damage claim suits, allow the court to order a relevant company to submit the information for illegal cartel conduct and unfair trade practices (excluding illegal assistance practices), require the company not to reject the submission of information when it is absolutely necessary to prove damages or to calculate the amount of damage even if it is a trade secret, 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.

L. Improve penalty provisions (Articles 124 and 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 through economic analysis of competition-restricting, etc., it seems not suitable as the subject of imposing penalties requiring clarity; and for the type of conduct from which competitive-restricting effect is relatively small, the 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 with no possibility of being imposed in the future, delete the penalty provisions.