8/02/2010

Korean Antitrust Laws' Evolution

Korea Times (07/30/2010)
by Sean C. Hayes

Over the past decade, Korea has fostered the development of a Fair Trade Commission (FTC) with the power to actively fight to eliminate anticompetitive forces in the market.  This admirable evolution is welcomed by most domestic consumers.

However, in many cases, anticompetitive practices may actually be a benefit to consumers in the short and long term.

In these cases, a more nuanced Chicago School approach is necessary in order to incorporate a little realism and reason to the discussion and not to jeopardize economics for the sake of cookie-cutter-like rules.

An FTC ruling to fine the importers of BMW cars was recently upheld by the Seoul High Court.

The seven importers were fined a combined 14 billion won. Their practices were traditional horizontal price-fixing arrangements.

Many in the antitrust field would have expected the outcome after the uncovering of a price-fixing relationship between the importers.

Consumers are hoping that after this holding, competition may reduce the price of new and used BMW cars. Because of market dynamics, however, the situation does not seem hopeful.

These types of decisions and the recent proactive nature of the FTC should be a wake-up call to the numerous companies in Korea that have abused their dominant power to the detriment of consumers.

This should, also be a wake-up call to those doing business in Korea in any market dealing with vertical relationships with suppliers, distributors and even directly with consumers.

The Korean FTC is aggressively investigating perceived practices that have no provable present damage to consumers.

These cases often concern relationships with suppliers, reward and loyalty programs and franchise, licenses, distributors and like vertical agreements and arrangements.

These modern aggressive courting and FTC practices concerning vertical relationships in Korea, may be counter to the primary purpose of antitrust laws and thus should be considered by the FTC, but with a more nuanced and tailored approach.

Competition and antitrust laws were initially intended, in the United States, the EU and throughout much of the world, as tools to protect consumers.

They were not intended as tools to protect competitors, suppliers and distributors unless a finding was obtained that protecting these classes of market participants would, in the end, protect consumers.

The purpose of antitrust laws is best stated by John Stuart Mills.

Both the cheapness and the good quality of commodities are most effectually provided for by leaving the producers and sellers perfectly free, under the sole check of equal freedom to the buyers for supplying themselves elsewhere.

This is the so-called doctrine of Free Trade, which rests on grounds different from, though equally solid with, the principle of individual liberty asserted in this Essay.

Restrictions on trade, or on production for purposes of trade, are indeed restraints; and all restraint, qua restraint, is an evil..

Mills believed restraint on trade was an evil, since consumers could be plagued with inferior commodities for a higher price.

With much criticism, many courts, however, have extended the protection and thus the purpose of antitrust laws to include direct competitors, suppliers and distributors even without a showing of damage to consumers.

Critics, including, former Judge Robert Bork have vehemently criticized this modern trend because of its obvious break from the initial purpose of antitrust laws and their lack of a principled economic reason for extending antitrust laws to these practices.

For all antitrust cases, the FTC and court should apply a standard Chicago School approach to handling these issues and those considered economic and market realities and the true and initial purpose of antitrust laws.

The FTC and courts should be leery on ruling certain actions as a per se violation of antitrust laws when a vertical relationship, efficient mergers, issues concerning vertical franchises, distributors, suppliers,licensing and like agreements are involved and even in some questions when horizontal restraints on trade are involved.

A recognition of the Chicago School approach and not simply per se rules wrapped in nothing more than a lack of understanding of economic and market realities will not lead to the protection of consumers, but will simply be an added tool for market participants to handle disputes.

This will potentially harming consumers and violating the intent of antitrust laws.

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SeanHayes@ipglegal.com