Anti-trust trade commission unveils plan to ease regulations for conglomerates

Posted on : 2008-03-29 09:22 KST Modified on : 2019-10-19 20:29 KST
Fair Trade Commission aims to improve market conditions to increase global competitiveness

The Fair Trade Commission said it plans to significantly soften regulations on big companies, including a cross-investment ceiling for affiliates of family-run business conglomerates and a system for holding companies. The anti-trust regulator also pledges to scale down its investigations of companies suspected of violating the law. In response, a civic organization accused the FTC of virtually giving up its role as the “guardian of the market economy” to focus on the corporate-friendly policies of the administration of President Lee Myung-bak.

In the FTC policy briefing on March 28, President Lee said, “The FTC has so far made a dent in the market economy and corporate activities, but I want it to have a new role in this new era. With all regulations lifted, supervision should be conducted. If companies are tied one by one, they won’t be able to compete with (their rivals overseas),” Lee said. “They are fighting with unfavorable conditions amid competition in the global economy. To do so, they must be allowed to escape various regulations. Let’s take just a half step forward to move beyond the pace of change in the global economy,” Lee said.

FTC Chairman Baek Yong-ho’s briefing to President Lee on the commission’s policy was in line with these remarks. At first, the commission had said it would scrap the cross-investment ceiling, which bans conglomerates from spending more than 40 percent of their net assets to buy stakes in its affiliates or in other companies. The system was introduced to ease the dominance of the family-run conglomerates, or chaebol. However, in addition to lifting the ban, the commission said it plans to introduce a new scheme that will allow the chaebol to voluntarily issue regulatory filings on their investment details among their affiliates.

In addition, another restriction, adopted in the wake of the 1997-98 Asian financial crisis, will be eased. Currently, a conglomerate with assets of more than 2 trillion won is banned from investing in its affiliates or guaranteeing debt payments within the conglomerate. The restriction will now apply to conglomerates with assets of more than 5 trillion won. The commission said it would make it easier for conglomerates to set up a holding company by abolishing some requirements such as a debt-to-equity ratio of 200 percent and a term to ban the holding company from holding more than a 5 percent stake in its affiliates. The commission also plans to ease rules on corporate takeovers. If things go as planned, any company with more than 200 billion won in assets, compared with the current cap of 100 billion won, would be required to report its mergers and acquisitions to the commission. Baek said the commission “would turn its focus to promoting competition, rather than focusing on big companies or exercising market-friendly policies.”

In order to prevent possible side-effects from concerns that the planned deregulation measures may not apply to the actual economy, the commission plans to tone down its strict investigations and strengthen monitoring following a sale. The scope of investigations directly ordered by the chairman will be limited. As part of deregulation efforts, the commission said it would be prepared to launch investigations if a big company were to cause unfair losses to its suppliers.

At the policy briefing, the government had planned to lay out its plan for providing financial support to small- and medium-sized companies as they are struggling with higher raw materials costs, but it did not present anything detailed due to differences of opinion among the government ministries.

Former FTC Chairman Kang Cheol-gyu, who is currently serving as a professor at the University of Seoul, said, “The FTC should focus on market-friendly policies that can curb dominance and monopolies, but ironically, it unveiled plans for a chaebol-friendly policy.”

Kim Jin-bang, a senior activist with the People’s Solidarity for Participatory Democracy and a professor at Inha University, blamed the FTC for “Its plan to ease regulations, despite a lack of plans for supervisions and punishments, which shows that (the FTC) may sit idly by if the market collapses.”

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