Feb 21, 2007

Ten Petrochemical Companies Fined For Price Fixing

Chosun Ilbo Editorial Feb 21, 2007

Price Fixing Is a Serious Crime. The Fair Trade Commission has fined 10 petrochemical companies W105.1 billion (US$1=W939) for price rigging between 1994 and 2005. The firms including SK Corp., LG Chemicals and Samsung Petrochemicals were found to have held monthly executive meetings to set standard sales prices and “monitored” each other to make sure nobody undercut them. The FTC estimates the price-fixing cost consumers an estimated W1.56 trillion due to steady increases in prices of vinyl and plastic products.

Price fixing is a serious offense that shakes the very foundations of a free market economy. Companies no longer strive to make better yet more affordable products and consumers end up with the short end of the stick. That’s why the United States, Europe and other advanced countries treat price-fixing as a serious crime.

In 1999, an international price-fixing scheme involving vitamins was discovered. The industry leader, Switzerland’s Hoffmann?La Roche, was slapped with W1.45 trillion fines by U.S. and the EU fair trade authorities and ended up closing the business altogether. Samsung Electronics and Hynix Semiconductor had to pay $485 million in fines for DRAM chip price fixing in the U.S. while their executives ended up serving time.

In Korea, there is still a lack of awareness and regulations about price fixing. Businesses do not seem to feel terribly guilty, saying simply that such practices have been in place for years, and the government at times supported price fixing to avoid damaging effects from overheated competition. The government’s allotment of sales quotas to prevent oversupply after facilities expansions during the early 1990s is believed to have been the cause of the petrochemical price-fixing scheme.

The U.S. government levies a fine that is double the amount of damage caused by price fixing. If the petrochemical price-fixing scheme had been uncovered in the U.S., the companies involved would have been slapped with a maximum W3 trillion fine and most of the manufacturers would have had to close down. If Korean companies go overseas with such a weak sense of the seriousness of price fixing, they will not be safe. Companies must be on the guard against the temptations of price fixing, while the government should strengthen fines and penalties for such offenses in line with global standards.

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SeanHayes@ipglegal.com