Nonghyup Sues Korea Fair Trade Commission at Seoul High Court

The National Agricultural Cooperative Federation has filed suit against the Korea Fair Trade Commission at the Seoul High Court.  Nonghyup is claiming that the monopoly prevention measures, imposed by the KFTC and Korean law, should not be applied to an organization with a main function of supporting struggling farmers.  What do you think?   The Korea Times reports, in part, that:  

The National Agricultural Cooperative Federation, otherwise known as Nonghyup, said Thursday it had filed a suit against the Fair Trade Commission (FTC) with the Seoul High Court. This comes one month after the FTC prohibited Nonghyup and its affiliates from making equity investments in or offering loan guarantees to one another.

Conglomerates with assets of 5 trillion won ($4.25 billion) or more, including Samsung, LG and Hyundai among others, are subject to the restriction aimed at preventing the distortion of conglomerate governance structures.

As of April 12, Nonghyup had assets of 8.6 trillion won. Nonghyup’s assets jumped sharply early this year after the government invested 5 trillion won into it.

The FTC’s decision is equivalent to a provincial court’s ruling, which means Nonghyup must take the case to an appellate court to overturn it.

Nonghyup counters it should be given an exemption from the restriction, highlighting its activities meant to improve the livelihood of farmers. “We have been struggling with a variety of disadvantages caused by the restriction imposed on April 12,” a Nonghyup official said. “Apart from the suit, we are seeking a court injunction to minimize the side effects of the measure.”

The official complained that the FTC’s decision has put the federation at a great disadvantage in tax benefits and subsidies among others. “Under the restriction, we can no longer receive state funds with which Nonghyup has helped cash-strapped farmers and livestock breeders,” he said.

The federation also faces the risk of losing some 20 billion won since the regulation mandates it to sell its stakes in private equity funds, he added.

The ban on direct investment among affiliates has made it difficult for Nonghyup to establish a new affiliate whose role is supporting farming and livestock industries.

“Without the collection of funds from affiliates, it’s virtually impossible for us to establish any new affiliates,” another official said. “The government invested (5 trillion won) to help us. It eventually crippled us.”

Nonghyup has reportedly launched a campaign calling on lawmakers to revise the law in a way that gives Nonghyup an exemption from the restriction. But many analysts express concerns over the move, saying it can hurt the basic principle of equality under the law.

“If Nonghyup is given an exemption, other federations and interest groups will ask for the same status, which will eventually undercut the entire system,” an FTC official said.

As of Dec. 2011, Nonghyup has nearly 2.44 million farmers as members nationwide. Last year, it was ranked the 9th greatest cooperative among the Global 300 cooperative list by the International Co-operative Alliance. In March, it was spun off into one federation and two holding companies to help increase its effectiveness and competitiveness. 

The complete article may be found at:  Nonghyup vs. FTC

What do you think?
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Sean Hayes, IPG's Co-Chair of the Korea Practice Team, may be contacted at: SeanHayes@ipglegal.com

Korea's Supreme Court Ruled Drug Test Unreliable if Evidence of Guilt in a Criminal Trial in Korea is Based Solely on the Test

The Kyungyang Daily has reported on an interesting development in Korea criminal law that may lead to issues for the prosecution in obtaining convictions based, primarily, on testing hair for the presence of drugs.  Hair tests are widely used in Korea and have been considered by the Korean police and prosecution as one of the most useful tools for determining if a suspect is a drug user.  Often, no other evidence is presented as evidence of guilt.

The police, in the the not so distant past, would request the testing of the hair of multiple people at clubs that were known for the distribution of drugs. 

"The Supreme Court has ruled that estimating the length of time since a person used an illegal drug from the length of the person’s hair is baseless. Affirming a trial court decision, on the 21st the Court affirmed the dismissal of the indictment of 44-year old Mr. K on charges of using pilophon [amphetamines].

The Court wrote that “against the defendant’s denials of the charges, the prosecution’s indictment proposes to use nothing but the results of testing his hair to estimate the time, place, and method by which he used the drugs… The estimate of ‘November of 2010′ includes an entire month, and as the trial court correctly saw, this makes it difficult to know the true circumstances of the drug use and thus to trust the indictment.”

The Court explained that “hair testing, which is meant to reveal the circumstances of drug use, is a method of estimating the length of time since drug use by taking advantage of changes due to external factors. However, it relies on the assumption that rates of growth are uniform, and with rates varying across individuals, as well as differences caused by the particular region from which the hair is taken and with medical factors, the test’s reliability is uncertain and this represents a serious problem.”

The trial court judge had written that “in the indictment the crime is said to have occurred in ‘November of 2010′ based on the results of a test of a 4 to 5 centimeter sample of the defendant’s hair which tested positive for pilopon, and the indictment goes on to estimate the length of time of the drug use and even the location, which it gives as [redacted city] [redacted district] and ‘under a Buddha Statue.’ It is difficult to see this as a sound basis for a criminal prosecution.” That ruling was affirmed by an intermediate trial court."

Sean Hayes, IPG's Co-Chair of the Korea Practice Team, may be contacted at: SeanHayes@ipglegal.com

Korea Fair Trade Commission to Investigate Korean Chaebols

The Korea Times has report that Chairman Dong-Soo KIM of the the Fair Trade Commission of Korea will strengthen its monitoring of Korea's main conglomerates.  We suspect that increased monitoring of major foreign-capital invested enterprises will, also, be the target of the increased monitoring.  We strongly advise to have an attorney conduct a complete compliance audit immediately.

The Korea Times reported, in part, that:

Kim Dong-soo, chairman of the Fair Trade Commission (FTC), said Wednesday that the FTC will disclose fact sheets demonstrating dozens of conglomerates’ stock ownership, liabilities and inter-subsidy dealings by August.

Kim said 51 conglomerates banned from doing cross-investment among affiliates will be subject to the announcement which he said is to “strengthen the FTC’s monitoring to secure more transparent corporate management.”

Information regarding stock ownerships of 51 firms will be announced in June, with one regarding liabilities in July and inter-subsidy dealings in August, he said.

“We need to have a stronger monitoring system on conglomerates to make their management more transparent,” Kim told reporters at a Seoul hotel where he spoke at a forum. “We will tell what big companies in phases to those involved in their business.”

Kim Hyung-bae, FTC spokesman, said as of late April, 63 conglomerates were banned from doing cross-investment among affiliates, but the FTC will focus on 51, excluding 12 state-funded firms.

Kim’s remarks came only one week after the Commission on Shared Growth for Large and Small Companies (CSG) announced a list of best and worst companies in terms of business attitude toward domestic suppliers and subcontractors.

Six companies, including Hyundai Motor, Kia Motors, Samsung Electronics and POSCO, got the highest scores in the CSG’s assessment, while seven firms, including LG Uplus, Hyundai Mipo Dockyard, STX Offshore, were categorized as “underachievers.”

The FTC and the CSG are key entities playing a pivotal role in pushing forward President Lee’s co-prosperity policy. Kim said the FTC will look into all inter-subsidy dealings, each worth 5 billion won ($4.29 million) or more, to check whether they were done in a fair and transparent manner.

“We will continue to provide detailed information about this (inter-subsidy dealings), enabling small firms to know their counterparts’ business practices,” he said.

Asked about the FTC’s alleged pressure on large retailers to open new sections that exclusively sell products from small and medium-sized manufacturers, he said “this is a matter that should be resolved voluntarily between retailers and small manufacturers.”

The alleged intervention, surfaced last week through news reports, stirred controversy and provoked retail giants. Critics say the anti-trust regulator is abusing its power and the scheme will run counter to free-market principle, of which the FTC exists to uphold.
 

The complete article by the Korea Times may be found at: FTC to Tighten Chaebol Monitoring.

Additional articles on the Korean Fair Trade Commission and Korea's Monopoly Control Measures may be found at:

• Four Oil Companies in Korea Fined for Price Fixing
• The FTC of Korea: All Bark and No Bite?
• Defining the Relevant Market in Korea by the KFTC
• Korea's Antitrust Evolution in Korea.  Sean Hayes in Korea Times
• Antitrust/Competition Law Consent Orders in Korea
• Fines by Korea Fair Trade Commission Increase for Abuse of Market Dominant Position and Unfair Trade Practices in Korea

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Sean Hayes, IPG's Co-Chair of the Korea Practice Team, may be contacted at: SeanHayes@ipglegal.com

Korea Merger Remedies by Korea Fair Trade Commission

Earlier this year, Korea's Fair Trade Commission has announced the amendment of its rules on merger remedies through the Notice on Merger Remedies.  The amendment revises the prior Merger Remedies Guidelines.  The most relevant changes are listed below.

• The KFTC will, only, utilize behavioral changes when structural changes are impracticable or may be ineffective.  Structural changes, include, prohibition of a merger, divestiture and the transfer of intellectual property rights.  The Fair Trade Commission has noted that the preferred choice will be divestiture and a merger injunction will only be ordered when the divestiture is not feasible in the situation.  
• The Korea Fair Trade Commission has noted that the guiding principles of the Merger Remedies is: Effectiveness, Proportionality and Transparency and Enforceability.  Arguments from attorneys should be directed at the KFTC ability to meet these guiding principles by proposed actions. 
• The KFTC has increased investigations and has become much more aggressive in all areas under its jurisdiction.  We strongly recommend a compliance audit and a nuanced approach in all actions where your company may be a target of the KFTC.

Other articles on the Korea's Antitrust/Competition Law may be found at:

• Four Oil Companies in Korea Fined for Price Fixing
• The FTC of Korea: All Bark and No Bite?
• Defining the Relevant Market in Korea by the KFTC
• Korea's Antitrust Evolution in Korea.  Sean Hayes in Korea Times
• Antitrust/Competition Law Consent Orders in Korea
• Fines by Korea Fair Trade Commission Increase for Abuse of Market Dominant Position and Unfair Trade Practices in Korea

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Sean Hayes, IPG's Co-Chair of the Korea Practice Team, may be contacted at: SeanHayes@ipglegal.com

Korea, China, Japan - East Asia FTA Negotiations to Commence

It has been reported in local news outlets that China, Japan and Korea have vowed to commence free trade negotiations and cooperate in alleviating the issues with North Korea.

Korea's Yonhap News has reported, in part, that:

During annual summit talks in Beijing, South Korean President Lee Myung-bak, Chinese Premier Wen Jiabao and Japanese Prime Minister Yoshihiko Noda also agreed to start preparations to launch official negotiations on a three-way free trade agreement by the end of the year.

The summit came a month after North Korea unsuccessfully launched a long-range rocket on April 13. Though the rocket fizzled soon after takeoff, the liftoff drew international condemnation as it broke a U.N. ban adopted over concerns such a launch could be used to develop missiles capable of carrying nuclear warheads.

Concerns have since grown that Pyongyang could stage additional provocations, such as a nuclear test, which would be its third, as well as more missile tests and border clashes. Officials in Seoul have said the North appears to have completed preparations for a nuclear test.

"The leaders of the three countries appreciated the U.N. Security Council's strong and swift presidential statement regarding North Korea's long-range rocket launch and agreed that they cannot accept a nuclear test and other additional provocations by North Korea," the presidential office said.

The agreement on North Korea was seen as rare because the three countries have usually differed over how to deal with North Korea, with South Korea and Japan calling for a tougher stance, and China, the North's last-remaining major ally, being reluctant to criticize Pyongyang.

On the sidelines of the summit, the three countries also signed an investment guarantee treaty that calls for providing most-favored-nation status and other protective measures for investment from each other. The pact is the first economic treaty between the three countries.

The three countries also agreed to begin preparations to launch free trade negotiations before year's end. The envisioned pact, if realized, would create one of the world's largest markets as South Korea, China and Japan account for 20 percent of the global gross domestic product (GDP) and 17.5 percent of all global trade.

The sides have carried out non-governmental academic research on the trilateral FTA since 2003.

The three countries also signed two other cooperation agreements, one of them on agricultural cooperation and the other on preventing desertification of forests and protecting wildlife.

After the trilateral session, the leaders attended a lunch meeting of business leaders.

Later in the day, Lee planned to hold a one-on-one summit with Wen, which is expected to include discussions on North Korea and free trade 

The full article may be found at Korea, Japan and China Agree to Work Together on N. Korea, FTA
We suspect that an FTA will not be forthcoming until, at least, until a couple of more years. 
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Sean Hayes, IPG's Co-Chair of the Korea Practice Team, may be contacted at: SeanHayes@ipglegal.com

Fines by the Korea Fair Trade Commission Increases for Abuse of Market Position and Unfair Trade Practices in Korea

The Fair Trade Commission of Korea has implemented substantial amendments to its guidelines for imposing fines on companies doing business in Korea.  The Amendments were detailed in a document the Fair Trade Commission of Korea calls the "Amendment Notice."  This Amendment Notice comes into effect on April 1 of 2012.

The Amendment Notice will likely increase the fines imposed by the Fair Trade Commission.   Prior to the Amendment Notice violations of the Monopoly Regulation and Fair Trade Act would result in lower fines than that authorized by Korean Monopoly Law.  The change will, likely, substantially increase the fines.

INCREASE IN FINES FOR UNFAIR TRADE PRACTICE AND ABUSE OF DOMINANCE IN MARKET

The Amendment Notice will likely increase fines for Abuse of a Companies Dominant Market Position in Korea from 2 % to 3% of revenues earned because of the violation.  Additionally,the fine will be increased from 1% to 2% of the revenue earned because of violation of the catch-all unfair trade practice prohibition.

AGGRAVATION OF FINES FOR OBSTRUCTION OF INVESTIGATIONS

The fine may be increased by 40% for the physical obstruction of an on-site investigation through violence or use of force; 30% increase for obstructing an on-site inspection through concealing, destroying or falsifying records; and 20% increase for other acts of obstruction.  Multiple violations based on the same facts may, additionally, lead to an increase in the fine by 20%. 

Korea's Fair Trade Commission has been very aggressive in its enforcement of Korea's Antitrust laws and it is advisable to have an attorney conduct a compliance audit to determine and assist in mediating your risk of an investigation, fine and criminal punishment for violation of Korea's Monopoly Regulation and Fair Trade Act and related laws.

Additionally posts on Korea's Antitrust/Competition law may be found at:

• Four Oil Companies in Korea Fined for Price Fixing
• The FTC of Korea: All Bark and No Bite?
• Defining the Relevant Market in Korea
• Korea's Antitrust Evolution in Korea.  Sean Hayes in Korea Times
• Antitrust/Competition Law Consent Orders in Korea

Sean Hayes, IPG's Co-Chair of the Korea Practice Team, may be contacted at: SeanHayes@ipglegal.com

Korea Aggressive Energy & Natural Resources Program: Locking Up Australia's Rare Earth Minerals

Arafura, an Australian resources company, has reported that it has executed a non-binding agreement with a major Korean construction company to supply to the company rare earth minerals.   The company will provide, according to the company, a viable option to the Chinese rare earth minerals and the Chinese governments increasing grip over these resources. 

Most involved in the energy and natural resources industry know who the Korean conglomerate is, but I will refrain from mentioning the name until it is officially reported.

The company and other Korean companies have been aggressively attempting to secure resources throughout Asia, the Middle East and in the Pacific with many of these projects leading to substantial loses.  The loses occurred, mainly, because of the lack of qualified advisers and the lack of understanding of the nature of business in many of the parts of the world that they attempted to do business in. 

However, the proactive and aggressive approach has lead to Korea maintaining, for the foreseeable future, a supply of the resources needed to maintain the Korean manufacturing economy. 

Rare earth minerals are utilized in batteries, mobile phones and computers.

Other, recent, articles on Korea Energy & Natural Resources:

• Korea's Cap and Trade from 2015
• Korea's Proactive Energy Procurement Policy:  Another Failure?
• Korea's Blundering Natural Resources Procurement Policy

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Sean Hayes, IPG's Co-Chair of the Korea Practice Team, may be contacted at: SeanHayes@ipglegal.com

Additional Mutual Saving & Loan Banks in Korea Operations Suspended by Korean Government

In a sign of more trouble in the second-tier banking market in Korea, four savings banks operations have been temporarily suspended by the Financial Services Service.

The banks were ordered to increase capitalization within 45 days or face the risk of being forced to permanently suspend operations or sell their assets.  16 banks were closed last year.  These, previous, closings led to prosecutions and a bailout by the Korean government.

Savings deposits are backed by an explicit Korean government guarantee on each account at each bank of KRW 50,000,000 (USD 45,000).  The banks are presently providing yearly deposit rates in the low 5% range.  An investor may receive this protection from as many accounts opened if the accounts are at different banks.   This, guarantee, along with many peculiar loans by these banks lead, in part, to this banking crisis in Korea.  External factors played a negligible for in the crisis. 

According to Korea's FSS the combined assets at the savings banks totaled nearly USD 53 billion nearly 31 percent from 2010.  
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Sean Hayes, IPG's Co-Chair of the Korea Practice Team, may be contacted at: SeanHayes@ipglegal.com

Korea Passes Cap-and-Trade Carbon Trading System

The Korean National Assembly has passed, with the support of the ruling and opposition parties, a bill to implement a carbon trading system.  Korea is one of the fastest-growing emitters of greenhouses gases in the industrialized world because of, inter alia, an over reliance on the use of coal, inefficient use of resources and lack of a consistent environmental management program.  Korea, according to the International Energy Agency, was the 8th largest carbon emitter in the word in 2009.

The Korean cap-and-trade system will be effective from 2015.

There are many issues that are not addressed in the bill in Korea.  Many of the major details have been delegated to the president or will be addressed in future bills including:

• Availability of International Offsets
• Calculation for determining the amount of carbon emission
• Feed-in-tariffs for renewable
• Renewable energy quota
• Enforcement Mechanism
• Implementation of a Carbon Trading Market

We expect the system will benefit energy management and like companies.  Many of the large international players, in this industry, either have small or no footholds in the Korean market. 

The penalty for non-compliance is three times the prevailing market price with a cap of KRW 100,000 per ton.
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Sean Hayes, IPG's Co-Chair of the Korea Practice Team, may be contacted at: SeanHayes@ipglegal.com

IPG's Energy & Natural Resources Team is one of the leading and most experienced teams in Asia because of working in Asia for over a decade on some of the most noteworthy energy and natural resources projects.

You can Succeed in Korea without Resorting to Bribery?

The following is a post by Tom Coyner a Senior Adviser to IPG.

Perhaps in a few warped ways, I have a bit of affection for the Foreign Corrupt Practices Act, which bars American companies from bribing officials overseas.

From a nostalgic perspective, I recall when this act was made into law while I was at my first “real job” at The Chase Manhattan Bank in Seoul. The immediate reactions around me in the US business community were those of dread. We were certain that we would be put to disadvantage when competing with the locals as well as with other foreign nationalities. It turned out not to be the case. In fact, by and large we discovered the act gave us legitimate cover not to “go local” in conducting unethical and potentially sordid business practices.

In time, other Western nations passed similar laws. While this clean business movement has hardly eradicated corruption, it has contributed to reducing unethical business behavior – most notably among large multinational corporations. It now seems the smaller and more local the business entity, the greater the likelihood for kickbacks, bribes, etc. – usually more with corresponding local governments or other small-time businesses.

In Korea, the Big Boys in business really don’t have to resort to bribes at the same levels as they once did. The biggest players pay their top managers well enough and these companies can command (squeeze) price concessions without needing in most cases to risk legal jeopardy.

Recently someone was passing around on the Internet a “Korea business unmasked”-type English language tips on doing business here – many of which suggested the wisdom of bribes, etc. I would guess that person has not been doing business long enough or perhaps operates on a small enough scale to avoid getting him or herself entangled in the law so far. Perhaps I should have passed on those suggestions. I might have been able to drum up some new business for a lawyer buddy of mine.
In any case, while some business continues to be done unethically, we should remind ourselves that ethics are not morals based on some kind of religious foundation. Rather, ethics are based on accumulated wisdom based on the centuries’ observations of what is likely to succeed and what is almost certain to fail – in the end.

As such, many of my friends & colleagues and I have reputations of being straight arrows when it comes to doing business. Again, it is not because we are so moral (we probably are not!), but it is because we are a bit street wiser than those business folks who are too often cutting corners and getting away with it – for now.


A Wall Street Journal article on this issue can be found at:  With Wal-Mart Claims, Greater Attention on a Law
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Sean Hayes, IPG's Co-Chair of the Korea Practice Team, may be contacted at: SeanHayes@ipglegal.com