Three Years Under
For the third year in a row, the Korea Fair Trade Commission (KFTC) has failed to reach a conclusion on whether foreigners can be designated as head of a business group (the “same person” under the Fair Trade Act). The “foreign head of a Korean business group” controversy has been continuing for three years since e-commerce giant Coupang was designated as a large business group in 2021.
The KFTC failed to come up with a standard on the definition of a foreign head of a Korean business group when it announced a guideline on designating the same person of a business group on June 29. The market watchdog determines the scope of business groups subject to various regulations centered on same persons. In particular, if the same person of a business group is a natural person, an “illegal profit taking” provision of the Fair Trade Act will apply.
Until now, natural persons have been designated as same persons except for foreign-invested companies in Korea such as GM Korea and S-Oil, POSCO Holdings, and KT. However, a controversy began to brew when Coupang was included in the designation of large business groups in 2021. Although Coupang’s main business activities are being carried out in Korea, Coupang Chairman Kim Bom-suk, who holds substantial control of the e-commerce player, is a U.S. citizen.
At the time, the KFTC designated the head of Coupang as the same company and stated that it will improve the Same Person System. This is because the Fair Trade Act, which prohibits the provision of unfair benefits to related parties, cannot logically be applied to a business group without its same person. Since related parties (the same person of a business group and their family members) cannot be designated, regulations prohibiting selfish exploitation by the same person’s family members such as insider trading will also be annihilated.
Moreover, applying the KFTC’s criteria on designating a same person, Chairman Kim Bom-suk falls under the same person designation. The KFTC proposed five criteria for same persons. They must be the largest shareholder of the top company of a business group, the highest position holder of a business group, the exercise of dominant influence over the management of a business group, a person recognized as the head of a business group, and someone who has a same person succession policy.
“Based on the first, third and fourth criteria, we conclude that natural person Kim Beom-seok has qualifications to be considered the same person of Coupang,” said KFTC Chairman Han Ki-jung in a briefing. “We were unable to designate a natural person (Chairman Kim Bom-suk) as the same person of Coupang due to international trade friction issues,” Han said. “We plan to revise the decree in full consultation with relevant ministries including the Ministry of Trade, Industry, and Energy.” The U.S. government reportedly conveyed its concerns to the KFTC through the American Chamber of Commerce in Korea about the KFTC’s plan to designate the foreign head of a business group as the same person.
Competition law experts advise that Korea needs a system for designating the foreign head of a business group as the same person. This is because there is already a same person with a foreign nationality (OCI Chairman Lee Woo-hyun who is a U.S. citizen), and there are 38 foreign nationals among same persons’ spouses or children who are likely to succeed Korean businesses.
“It is not desirable to not designate the head of a business group as a same person because they are a foreigner,” said Lee Ho-young, dean of Law School at Hanyang University (a former chairman of the Korea Competition Law Association). “It is necessary to consider whether they are starting, growing, and conducting business in Korea. I think the KFTC should respond in principle according to the logic of the Fair Trade Act. If the KFTC cannot designate same persons because of international trade issues, it means that the Fair Trade Act will not hold in the face of trade issues in the future.”