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Recent Developments - PDF


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									                                                                            KFTC Newsletter Issue.3

                     KFTC Newsletter

Issue.3                                                                       August 30, 2007

Recent Developments………………2                            4. KFTC imposed 13 million Won on 5
1. Comprehensive measures against unfair                  underground cable detectors* for bid
  and deceptive advertising and adhesion                  rigging
  contract of money lending businesses                5. KFTC imposed corrective orders on 18
2. KFTC reinforced e-commerce fraud damage                cable system operators for abuse of
 prevention mechanism                                     market dominant power
3. The First Step towards Expansion of the 6. KFTC imposed corrective order on GM
  Market’s Monitoring of Large Business                   Daewoo      for   transaction   based   on
  Groups                                                  restrictive conditions
Enforcement Activities……………5
1. 10 non-life insurance companies colluded on        Other Activities……………………10
 the insurance premium of major non-life
 insurance products for 5 years
2. Three domestic sugar manufacturing
  companies colluded on delivery quantity
  and price
3.Samsung      Tesco    and     Savezone         (3
 companies), raised selling commission
 rate before contract termination

                                                                    KFTC Newsletter Issue.3

Recent Developments
1. Comprehensive measures against unfair and deceptive advertising and
   adhesion contract of money lending businesses

The KFTC is preparing comprehensive measures against unfair and deceptive advertising
and adhesion contracts of money lending businesses following imposition of remedies on
the problem.

Between May 15 and June 12, the KFTC conducted on-site investigations to detect
misleading advertisements by 20 moneylenders and plans to take strict measures against
illegal practices in August according to the Fair Labeling and Advertising Act.

When the Money Lending Business Act is amended, city mayors and provincial governors
will also participate in monitoring deceptive advertising. So the KFTC plans to distribute
guidelines for review of unfair and deceptive advertising by money lending businesses for
effective and consistent regulation.

For tighter monitoring of illegal practices in the money lending market, the KFTC’s
Headquarters for Consumer Policy and five regional offices will run report centers and
introduce rules for self-regulation of unfair advertising by moneylenders.

The KFTC also selected moneylenders, which are frequently reported for causing consumer
damage, and looked into their practices. The KFTC is pursuing revision of the standard
adhesion contract in accordance with the change in circumstances. The modified standard
adhesion contract will require important items, such as amount of lending, interest rate and
repayment term, be written by hand and the debt guarantee specify the limit and the period
of guarantee to protect the guarantor.

Last year, 402 claims were received by the Korea Consumer Agency in relation to money
lending businesses. Most of the reported damages concerned charging of interest rates
exceeding the level stipulated in the Money Lending Business Act and of illegal commission.

                                                                        KFTC Newsletter Issue.3

2. KFTC reinforced e-commerce fraud damage prevention mechanism

- Online shopping sites are mandated to indicate their subscription to secure
payment service (Escrow) on the front page from September 1-

The KFTC decided to enact the “Notification on method of labeling, advertising or
notification of secure payment service by mail-order businesses” and enforce it from
September 1, 2007.

* Secure payment service: a service designed to protect consumers’ purchases from
fraudulent e-businesses. The buyer may choose Escrow (deposit of payment), customer
damage compensation insurance of the online seller or debt guarantee agreement.

From April 1, 2006, mail-order businesses (excluding catalog and TV home-shopping) must
subscribe to a secure payment service. However, the current service is not widely used by
both the mail-order firms and the customers. In this regard, the KFTC established a
notification that mandates mail-order firms to indicate their subscription to secure payment
service with service details on the front page of the website or on the payment method
selection page.

With enforcement of this notification, consumers can easily check if the mail-order firm is
subscribed to secure payment service, and use this information as criteria for selection of
online shopping site. Consequently, more online shopping sites will be encouraged to
subscribe to secure payment service. For consumers, it will become easier to get the
information about the use of secure payment service inducing their increased use of the
service. Moreover, it will make a positive contribution to preventing consumer damage
caused by fraudulent transactions.

3. The First Step towards Expansion of the Market’s Monitoring of Large
   Business Groups

On July 14, 2007, the Korea Fair Trade Commission (Chairman Ohseung Kwon) launched
“OPNI (Online Provision of ENterprises Information),” a portal site on large business group-
related information, to expand the basis for the market’s monitoring of large business groups.

 *OPNI address: http://groupopni.ftc.go.kr
(also accessible through the link on the bottom left of the KFTC homepage, www.ftc.go.kr)

                                                                      KFTC Newsletter Issue.3

 The launch of OPNI is part of the large business group policy revision bill proposed by the
 government (on November 15, 2006), which is aimed at easing preventive regulations,
 such as the ceiling on equity investment, while reinforcing ex post regulations and the
 market’s monitoring function.

 Amendment of the Monopoly Regulation and Fair Trade Act (MRFTA) and the Enforcement
 Decree of the MRFTA has been completed in order to clarify the legal foundation for
 disclosure of information regarding items that were previously disclosed through press
 releases and other means.

 The portal site gathers large business group-related information to one site, which used to
 be scattered across the Internet, enabling people to easily access and acquire information
 on large business groups.

◦ Current status on large business groups: current status of affiliates, businesses and
 financial status
◦ Ownership structure: shareholding among affiliates, circular shareholding, disparity
 between voting right and cash flow right / the ratio of cash flow right to voting right, etc.
◦ Corporate governance: organization and operation of board of directors, fulfillment of
 conditions for good corporate governance, etc.
◦ Current status of holding companies: general information on holding companies,
 shareholding and financial status, etc.
◦ Comparison of management performance of business groups: comparisons of major
 items, including ownership structure and financial structure, among business groups and
◦ Public announcements: link to public announcements issued voluntarily or under the
 Securities Exchange Act and the MRFTA.
      *Please refer to 【Attachment】 for the Sitemap of the portal site.

 Introduction of OPNI is expected to establish a mechanism where fair, accountable and
 transparent business groups will be recognized, thereby contributing to advancement of
 Korea’s large business groups and enhancement of the country’s economic efficiency.

                                                                  KFTC Newsletter Issue.3

 Enforcement Activities

1. 10 non-life insurance companies colluded on the insurance premium of
   major non-life insurance products for 5 years

 The KFTC detected collusion by ten non-life insurance companies on the insurance
premium of eight major general non-life insurance products from 2002 to 2006, and decided
to impose a total surcharge of 50.8 billion Won ($ 53 million) through a full committee on
June 13.

With the liberalization of insurance premiums in April 2000, insurance companies grew
anxious that the premium competition among insurance companies might result in lower
premiums to undermine their profit. For this reason, they fixed the premium of major non-life
insurance products, which have high premium and big markets.

The ten insurance companies are Samsung Fire and Marine Insurance Co., Ltd., Hyundai
Marine & Fire Insurance Co., Ltd., LIG Insurance Co., Ltd., Dongbu Insurance Co., Ltd.,
Meritz Fire & Marine Insurance Co., Ltd., Hanwha Non-Life Insurance Co., Ltd., Green Fire
& Marine Insurance Co., Ltd., Ssangyong Fire & Marine Ins. Co., Ltd., First Fire & Marine
Insurance Co., Ltd. and Daehan Fire & Marine Insurance Co., Ltd.. These insurance
companies held a number of department manager and general manager-level meetings in
February or March every year from 2002 to 2006, agreeing on the scope of the net premium,
loading premium and discount rate of eight major insurance products. This way, they
maintained the gross premium and the actual premium within a certain range.

It is expected that the correction of this insurance premium fixing will revitalize the
substantial price competition, which the liberalization of insurance premium had hoped to
achieve in the first place, and reduce the non-life insurance premium which has not changed
much in the past five years due to collusion.

                                                                   KFTC Newsletter Issue.3

2. Three domestic sugar manufacturing companies colluded on delivery
   quantity and price

The KFTC held a full committee on July 18, 2007 and decided to impose a total surcharge of
51.1 billion Won ($ 54 million) on CJ Corporation, Samyang Corporation and TS Corporation
for colluding on the product delivery quantity and price between 1999 and 2005, while
referring Samyang Corporation and TS Corporation to the Prosecutors’ Office. CJ was
excluded from the charge thanks to the leniency program.

The representatives, general managers, sales directors and sales managers of the three
companies agreed on their sugar delivery shares (CJ 48.1%, Samyang 32.4% and TS
19.5%) at the end of 1990, based on which the companies adjusted their yearly and monthly
delivery quantity from 1991 till Sep. 2005. In addition, they agreed on and adjusted price
whenever necessary in the face of emerging price increase factors.

Consequently, the three companies have maintained their sugar delivery shares since 1991,
and the price of sugar has been considerably high compared to the cost. As a result, the
market share among the sugar manufacturers has been fixed and the price competition in
the sugar market has been limited.

3. Samsung Tesco and Savezone (3 companies), raised selling commission
   rate before contract termination

Home Plus (Samsung Tesco) and Save Zone (3 companies: Savezone, Savezone I&C.,
Savezone Riviera) have violated the Fair Trade Act and the Notification on Large Retail
Store Business by raising the selling commission rate to their advantages. In this regard, the
Korea Fair Trade Commission (KFTC) imposed a surcharge of 180 million Won($ 190,000)
and 346 million Won ($ 366,914) on those companies respectively with corrective orders.

Samsung Tesco demanded of its suppliers an increase of selling commission rate, based on
nominal agreements, despite the fact that contract terms with the suppliers remained for
another two to eleven months, making them pay an additional commission of 580 million
Won ($ 615,000) in total.

Meanwhile, Savezone, Savezone I&C. and Savezone Riviera, which run outlets, raised the
selling commission rate during the contract term without any written agreement with the

                                                                   KFTC Newsletter Issue.3

suppliers. In addition, they unfairly returned products whose expiration dates were close or
passed, and made them bear the cost of advertising leaflet production and promotional
events without any prior written agreement on allocation of such costs.

The KFTC’s sanctions on Samsung Tesco and Savezone are part of the results of KFTC’s
ex officio investigations on seven large retailers at the end of 2006 after a written survey of
the actual situation conducted earlier that year. The KFTC also issued warnings to Samsung
Plaza, GS Home Shopping, and Hanaro Club on their violations.

In consideration of the fact that the suppliers tend to hesitate to report their contractor’s
unfair trade practices in fear of losing business, the KFTC plans to expand the written survey
and ex officio investigation.

4. KFTC imposed 13 million Won ($ 13,785) on 5 underground cable
   detectors* for bid rigging

The KFTC decided to impose corrective orders and a total surcharge of 13 million Won
($ 13,785) on Daeju Aero Survey Co., Ltd., Daewon Geographic Information System Co.,
Ltd., Taeyang Information System Co., Ltd., Daehan Aero Survey Co., Ltd., and Korea
Consolidation Design Co., Ltd. for bid rigging. The five companies had prearranged their
bidding prices for “Daedeok Techno Valley Stage 2 Cable Conduit Map and Detection
Project” (2005.7.5) of Korea Electric Power Corporation (KEPCO) so that they are evenly
spaced out.

* Underground cable detection service (cable conduit specifications map and detection
service): The service of detecting the location and structure of electric facilities buried
underground by KEPCO for electricity supply and making the maps of such facilities.

Unlike typical bid riggings where the bidders collude on the successful bidder and the
highest bid, the five bidders prearranged their bid prices so that they are evenly spread out
without any overlap or convergence in order to raise the probability of winning the contract.

This is because under the pre-tender qualification screening system*, unlike in the lowest
price bidding system, prearrangement of the successful bidder and the highest bid is
virtually impossible.

                                                                   KFTC Newsletter Issue.3

The above companies had agreed to divide the work and the pay by five if any one of them
acquired the contract.

* In order to prevent bidders from prearranging the highest bid, the contractor gives scores
to bidders based on their bid price and ranks them in the order of priority. Then it gives
marks on the performance capabilities in the order of the ranking and selects the one with
the full mark as the successful bidder.

- When scoring bidders on their bid price, the highest mark is given to the one with the
lowest bid price among bidders with bid price higher than the eligible bid price (bid price /
expected price). Here, the expected price is determined by a certain method, regardless of
the bid prices. Therefore, the bidder of the lowest bid price does not necessarily become the
successful bidder.

5. KFTC imposed corrective orders on 18 cable system operators for abuse of
   market dominant power

-Corrective measures for unilateral termination of group contracts and changing of
popular channels from low-cost service to premium service-

At a full committee held on July 25, 2007, the KFTC decided to impose 1) a total surcharge
of 216 million Won ( $ 229,056)on 15 cable system operators (hereinafter called “SO”) of the
T-Broad group for unilateral termination of group contracts (for apartment residents) and 2) a
corrective order on eight T-Broad SOs and three CJ SOs for changing of channel
composition of their services at their sole discretion.

<Unilateral termination of group contract product>
15 T-Broad SOs refused both new and renewal of group contracts for a product that they
had provided exclusively at a low price from December 2005. The group contract product
was developed by the SOs to attract subscribers from markets where relay operators or
multiple SOs already existed, and subscribers could use the service at a relatively lower cost
than that provided individually. Termination of the group contract, aimed at increasing the
license fee, took advantage of the market situation where it was difficult for the subscribers
to convert to its rival SKY Life, inducing consumers to subscribe to its more expensive
individual products, which is an abuse of market-dominant power.

                                                                       KFTC Newsletter Issue.3

<Unilateral change of composition of bundled channels〉
In April 2006, eight T-Broad SOs and three CJ SOs had moved popular channels such as
MBC ESPN, SBS Sports and Drama Channel from the low-cost service to the premium
service, deteriorating the quality of the low-cost service. The subscribers had difficulty in
terminating the contract even if they were unhappy with the channels because they had to
pay a penalty for breach of contract. Subscribers had to select either the economic service
or the premium service to watch the popular channels, paying additional fees of 50 to 150

By imposing remedies, the KFTC made it clear that no SO shall abuse its market dominance
in the authorized area to substantially lessen consumer benefits. The KFTC will continuously
strengthen    its   regulation   against   abuse     of   market   dominance   in   the   regional
monopolistic/oligopolistic markets.

6. KFTC imposed corrective order on GM Daewoo for transaction based on
   restrictive conditions

The KFTC imposed a corrective order on GM Daewoo for allocating the sales territory and
forcing retail price to each bumper distributor and unilaterally terminating contracts before
the contract expiration date.

From May 13, 2004, GM Daewoo allocated sales territories for five bumper distributors and
forced them to provide bumpers to maintenance shops and parts distributors at a price set
by it, threatening contract termination if they did not follow this order.

This illegal practice restricted price competition among bumper distributors and forced
consumers to purchase products at higher prices. Moreover, some of the bumper
distributors that rely on GM Daewoo for 42 to 100 percent of total sales revenue have
suffered due to unilateral termination of contracts by GM Daewoo before the end date of the

                                                                  KFTC Newsletter Issue.3

Other Activities

   Asia’s consumer policy makers met at the Asia Consumer Policy Forum

-The KFTC, the Ministry of Finance and Economy (MOFE) and Korea Consumer
Agency (KCA) jointly organized the “Asia Consumer Policy Forum”-

The KFTC, MOFE and the KCA hosted the Asia Consumer Policy Forum on Jun.19~20. The
two-day forum invited consumer policy makers from five ASEAN member countries plus
India for a discussion on ways to pursue cooperation in the Asian region for customer policy

- Participating countries: Cambodia, Indonesia, Laos, Thailand, Vietnam, India, Korea

Particularly, in line with Korea-ASEAN FTA (in trade in goods) effectuated this year (Jun. 1,
2007), the forum was organized to seek joint response to cross-border consumer issues
which are expected to grow in the future.

On the first day of the forum, participants discussed “Consumer policy cooperation among
Asian countries (a presentation made by Director General of the Headquarters for
Competition Policy of the KFTC)” based on presentations on the consumer policy system of
each country and the trend of consumer policy discussion at international organizations,
such as the OECD and ICPEN.

On the second day of the forum, there was an open forum attended by representatives from
consumer groups, enterprisers organizations and the academia in addition to those from
ASEAN and India. In the open forum, the KCA gave a presentation on “Cross-border
consumer in Asia” and Thailand’s Prime Minister’s Office (Consumer Protection Board) on
“Consumer issues and cooperation among ASEAN countries”. After the presentations,
participants discussed resolution of international consumer disputes and consumer policy
cooperation among Asian countries and agreed on the necessity to pursue co-development.

This forum provided the opportunity for the KFTC to strengthen cooperation with Asia’s
consumer policy authorities. The KFTC plans to review the feasibility of consumer policy-
related technical assistance to developing countries in Asia.

                                                                  KFTC Newsletter Issue.3

    KFTC Chairman Ohseung Kwon passed Korea’s competition law
   enforcement experience to Chinese officials working on competition law

Chairman Ohseung Kwon of the KFTC attended a seminar of the Legislative Affairs
Commission of the Standing Committee of the National People’s Congress of China on July
26~27. This seminar was jointly organized by the Legislative Affairs Commission of the
Standing Committee of the National People’s Congress, the OECD and the Asian
Development Bank (ADB) to accelerate introduction of competition law in China by giving
advices to Chinese officials on the draft of China’s Anti-Monopoly Law.

The organizers invited experts from advanced countries, including the KFTC Chairman, so
that their legislators could learn from the experience of advanced countries regarding the
importance, content and enforcement system of competition law.

Chairman Kwon shared the KFTC’s experience of introducing competition law with Chinese
officials, contributing to ensuring China’ competition law’s compliance with the global

  KFTC and JFTC held the 16th Korea-Japan Competition Policy Consultation

The Korea Fair Trade Commission (KFTC) and the Japan Fair Trade Commission (JFTC)
held the 16th Korea-Japan Competition Policy Consultation Meeting in Jeju on July 20~21.
This two-day meeting was attended by seven members of the KFTC, including Chairman
Ohseung Kwon and Secretary General Dong-Kyu Lee, and four officials from the JFTC
including Chairman Takeshima.

At the meeting, the representatives of the KFTC and the KFTC exchanged their views on
major issues concerning competition law and policy and discussed measures to strengthen
bilateral cooperation.

The KFTC introduced the recent amendment of the Monopoly Regulation and Fair Trade Act
of Korea while the JFTC shared major issues of Japanese antitrust law. They also talked

                                                                   KFTC Newsletter Issue.3

about improvements made to M&A-related institutions and introduced major law
enforcement cases.

This consultation meeting has laid the foundation for further strengthening of the traditional
cooperative relationship and mutual understanding between the KFTC and the JFTC.

c.f. The exchange rate applied in this KFTC Newsletter is 1 USD = 943 KRW


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