On July 2, 2013, partial amendments (“Amendments”) to the Monopoly Regulation and Fair Trade Act (“MRFTA”) were passed by the plenary session of the Korean National Assembly. The key provisions of such Amendments are (i) the establishment of a new regulation prohibiting provision of unfair profits to specially related persons and (ii) strengthening of existing regulations prohibiting unfair support.
< Background of Amendments>
According to the current Article 23(1), Paragraph 7 of the MRFTA, the Korea Fair Trade Commission (“KFTC”) may only regulate an act of unfair support when a company supports a specially related person or another company through a transaction under substantially favorable conditions and, this poses a threat of impeding fair trade. Therefore, if such act of support did not meet the “substantially favorable” standard or if support was provided to an individual specially related person as opposed to an enterpriser, it was practically difficult to establish impediment to fair trade and was therefore difficult to regulate.
Additionally, since the KFTC could not impose any sanctions to the beneficiary that actually profited from such acts of unfair support, the existing law was subject to criticism for its limitations in deterring acts of unfair support.
<Key Contents of Amendments>
Establishment of New Regulation Prohibiting the Provision of Unfair Profits to Specially Related Persons (Article 23-2 of the Amendments)
- Prohibition on Fraudulently Obtaining Private Interests by the Family of the Company’s President (Section 1)
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- Regulation on Counterparties (Section 3) In regard to the counterparties in Section 1 above, an act of engaging in a transaction or receiving a business opportunity when the counterparties disregard the concern that such act may fall under any of the paragraphs under Section 1 is prohibited.
- Prohibition of Instructing a Specially Related Person to Fraudulently Obtain Personal Interests or Being Personally Involved in Such Act (Section 4) Instructing any specially related person to engage or being personally involved in any act that is included in Section 1 or Section 3 is prohibited.
- Strengthening Regulations Prohibiting Unfair Support
- Relaxing “Substantially” Standard (Article 23(1), Paragraph 7, Clause A of the Amendments)
The requirement for constituting the act of unfair support has been changed from “transacting under substantially favorable conditions” to “transacting under considerably favorable conditions.”
- Establishment of New Regulatory Basis on the Practice of “Toll Fees”* (Article 23(1), Paragraph 7, Clause B of the Amendments)
The act of transacting which uses a specially related person or another company with no actual role as a medium is newly established as one type of act that is deemed to be an act of unfair support.
* An act of transacting that uses a specially related person or another company as a medium, despite the existence of considerable advantage in transacting products or services directly with another enterpriser.
- Establishment of New Regulation Regarding Beneficiary of the Support (Article 23(2) of the Amendment)
In regard to the beneficiary of the act of unfair support, an act of receiving support is prohibited when the beneficiary disregards the concern that such support may constitute an act of unfair support.
- Effective Date and Interim Measures of Amendments
The Amendments become effective six months after its official announcement. However, for transactions completed prior to the effective date of the Amendments, the previous regulation applies despite the Amendments. Additionally, for transactions continuing at the time of the effective date of the Amendments, the previous regulation will apply for a period of one year after the effective date.
<Necessity of Measures Regarding the Amendments>
The KFTC is planning to strictly enforce the Amendments in order to realize the economic democratization policy. In this connection, corporations should be mindful to be fully aware of the contents of the Amendments which, among others, strengthen the prohibition on fraudulently obtaining private interests by the family of a company’s president and the regulation prohibiting acts of unfair support.