hankyoreh

By Choi Hye-jung and Kim Kyung-rak, staff writers　
Since last year, the Fair Trade Commission (FTC) has been drafting measures to stop the practice of chaebol ‘funneling’ business to their subsidiaries. On Thursday, the FTC announced ‘Model Standards for the Selection of Business Partners’ to disappointment among chaebol critics. The measures come with no means of enforcement and reflect the influence of the same businesses they are meant to control.
The FTC’s standards are based on the three main principles: banning unfair acts in support of affiliates, the provision of business opportunities to non-affiliated independent companies, and the guaranteeing of procedural legitimacy in the process of selecting trading partners. 　
Funneling by big businesses is an issue where politicians, who agree on little when it comes to chaebol reform, find themselves in agreement. Politicians agree that funneling entrenches generational transfer of wealth by channeling work from subsidiaries to a company controlled by family members of the group owner. Funneling also widens the gap between chaebols and smaller ventures by denying opportunities to small and medium enterprises (SMEs).
The results of an FTC survey indicate that in 2010, the scale of funneling, in areas such as advertising, systems integration, logistics and construction, by 47 large corporate groups came to 27 trillion won (about US$23.8 billion) for the year. Among 20 advertising, systems integration, logistics and construction companies affiliated with large corporations, insider dealing accounted for 71% of business; 88% of this took place on the basis of private contracts. The FTC’s intention is to sever the inheritance link by increasing competitive bids, and to provide more opportunities to SMEs. 　
As the presence of expressions such as “restraint,” “effort” and “gradual” in the model standards indicates, they do not contain enforcement measures. Funneling is a sensitive issue, directly related to chaebol owners‘ work to transfer their wealth to succeeding generations. 　　
The content of the model standards also largely reflects the positions of big businesses. The FTC allows the signing of private contracts in cases where, in areas where funneling is common (such as advertising, systems integration, distribution and construction), there are noticeable concerns of operational damage being sustained through competitive bidding due to the leakage of important trade information. This is in tune with claims by big businesses that insider trading is inevitable because of the risk of trade information being leaked. This article may serve to officially sanction the practice of drawing up private internal contracts. 　　
There is suspicion of the impartiality of “insider trading committees” that will assess insider trading. The FTC explained that the committees will consist of at least three directors, and that at least two of them would be externally appointed, thereby avoiding conflicts of interest. But many doubt whether outside directors, who have been criticized as “rubber stampers” for conglomerate owners, will be able to make independent decisions. This part of the standards has prompted questions over if they will end up as an “evasive measure” that justifies the practice of funneling. 　　
Experts claim that, instead of the model standards, legal sanctions must be strengthened through amendments to fair trade laws. This would mean using the article in the fair trade law related to “unfair acts of support between subsidiaries” to mutually supportive trade among group subsidiaries and levying fines.
　
Please direct questions or comments to [english@hani.co.kr]