On Feb. 8, the Fair Trade Commission (FTC) unveiled its agenda for the year, intending to elevate the criteria for designating business conglomerates subject to disclosure. Criticism has been directed at the regulations governing the disclosure of business groups as they are unique to South Korea. The adjustment entails aligning the designation criteria with the economic scale.
Currently, conglomerates with assets exceeding 5 trillion won (US$3.76 billion) are designated as subject to disclosure. This designation entails the submission of information regarding stock ownership status, including leaders and executives as well as family members up to the 4th degree of blood relation and 3rd degree of marital relation. Various regulations, including restrictions on internal transactions, are also imposed as part of this designation. The FTC plans to change the criteria for conglomerate designation from a fixed amount to a ratio linked with the country’s gross domestic product (GDP).
Despite the increasing economic scale over the years, the criterion of 5 trillion won has remained unchanged since 2009. As a result, the number of qualifying companies has shown a steep rise. The number of business groups subject to the regulation has risen from 48 in 2009 to 82 last year. Back in 1987 when the system was introduced, there were only 32 obliged companies. Critics have repeatedly pointed out that the original intention of introducing the system to curb the concentration of economic power among some mega-corporations has been ineffective.
Criticism has been particularly strong regarding the lack of designation requirements for foreign major shareholders, leading to accusations of “reverse discrimination” as only domestic investors are regulated. For instance, Coupang, which was designated as a large business group in 2021, went public in the United States. However, in practice, the majority of its operations are in South Korea, and it is led by Chairman Kim, a Korean-American entrepreneur. Nevertheless, the FTC designated Coupang as a “large business group without a leader” because it argued that there is no legal basis for designating a foreigner as the leader.
It is reported that the FTC has been considering changes to the designation criteria based on the results of research conducted last year. It is deliberating between using “0.3 percent of GDP” and “0.25 percent of GDP” as the new criteria. Based on the GDP for 2022, which was 2,161.8 trillion won, 0.3 percent amounts to 6.5 trillion won, and 0.25 percent equals 5.4 trillion won. If the criterion is set at 0.3 percent, the number of business groups that qualify based on total assets would decrease from 82 last year to 64. If it is set at 0.2 percent, the number would decrease to 77.
The FTC has also stated that it will rationally adjust the regulation system for large business groups in line with changes in the market environment. Considering this stance, some argue that 0.3 percent is appropriate. Even if it becomes 0.3 percent of the GDP, it exceeds the number from 48 in 2009, indicating a higher level. Internally, the FTC is known to face difficulties in monitoring as the number of business groups increases.
The business community argues that the current system of designating and imposing various regulations on large business groups is overly restrictive. They argue that it’s time to reconsider the need for maintaining the Korean-style system since advanced countries like the United States, Europe, and Japan do not have such regulations. The Federation of Korean Industries also also highlighted the need for improvement in fair trade policies, listing the designation of leaders for large business groups as the first policy to address.
The FTC also plans to revise the Electronic Commerce Act to require foreign businesses to appoint domestic agents. This means that overseas platforms such as AliExpress and Airbnb, which operate in South Korea without a domestic corporation, will be required to establish separate domestic customer service centers to handle consumer complaints. These agents will also bear responsibility for violations of the Electronic Commerce Act.
The legislative proposal for the Platform Fair Competition Promotion Act, which was announced for re-evaluation the previous day, has been included in this year’s agenda. Although the contents of the previously pursued bill, such as pre-designation, will be reconsidered, there is a clear will to proceed with legislation to regulate large platforms this year.