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Since 1981, the enforcement of Monopoly Regulation and Fair Trade Act (hereinafter “the MRFTA” or “the Act”) has contributed greatly alleviating anti-competitive or unfair trade practices. However, the Act still does not play its role as a Magna Carta of market economy in Korea. Because it was hard to convert monopolistic or oligopolistic market structures into competitive ones, effectively prohibiting anticompetitive practices, and reducing the exercise of market power. In order to promote the effectiveness of the Act, this paper comprehensively analyzes the problems and find practical solutions to them. In this paper, the entire effort is called “MRFTA Modernization.” Such efforts may invite in-depth discussions and debates among experts in competition law and the interested parties.

The purpose of this paper is to stimulate such debates, thereby encouraging the start of the modernization process, especially from the perspective of legislature amendment. Below is a summary of this paper on current issues and solutions of the MRFTA on the substantive, procedural, and institutional aspects and the legal organization.

In order to improve the overall system of the Act, it is desirable to abolish Chapter 5(Unfair Trade Practices) of the Act. Also, Chapter 6(Trade Associations) and Chapter 8(International Contracts) could be abolished. Such restructuring is likely to contribute to make the Act function as the basis of economic order in Korea. Furthermore, in order to enhance the effectiveness of centralized management of economic power, it is highly recommendable that the sections concerning the concentrations of economic power under Chapter 3(Mergers and Concentration of Economic Power) be moved to a new separate chapter. In addition, the section that prohibits undue support practices between the undertakings or special interested persons under Chapter 5 may also be removed to the same new chapter. In this way, the incorporation of both ex ante and ex post regulations under single chapter may help to enhance the effectiveness of regulating concentration of economic power.

Substantive aspects of modernization encompass a broad range of subjects under the MRFTA, including the purpose and definition clauses. With regard to Article 1(Purpose), the unnecessary part of the sections should be deleted and change the term “consumer protection” to “consumer welfare.” Such revision clarifies the purpose of promoting consumer welfare by facilitating free and fair competition. In addition, Paragraph 6(Resale Price Maintenance) of Section 2(Definition) may be completely removed from the Section. The standard of extraterritorial application can be supplemented with more specific terms.

In order to promote the efficiency of the anticompetitive market transformation policy by the Korea Fair Trade Commission(hereinafter the “KFTC”), it is necessary to introduce a periodic monitoring and evaluation system that implements policy into Section 3(Transforming Monopolistic/Oligopolistic Market Structure) of the Act. Furthermore, in Section 3.2, which is a substantive provision on the abuse of market dominant position, terms defining what “abuse of market dominance” means should be introduced. Subcategories of such abusive conducts, such as exclusive and exploitative abuses, may be identified in the section that describe the most common types of conduct for each category.

Subparagraph 1 of the Section 4(Presumption of Dominant Position) of the Act can be left as it is. However, if the total market share is 75% or more (except for businesses with less than 25% market share), subparagraph 2 of the same Section must be changed on the assumption that there is a dominant position. Section 5 (Remedies for Abuse of Dominance) may also be revised to clarify structural relief such as divestiture and relaxing of entry barriers.

Section 7 of Paragraph 4(Presumption of Substantial Lessening of Competition) may be amended to allow the presumption of “substantial lessening of competition” if the total market share of the merging and merging parties satisfies the market share requirements for estimating market dominance status. In addition, Paragraph 1 of the Section 16(Remedies for Anti-competitive Mergers) may add clear legal grounds for taking remedial measures such as divestiture, sale of assets, and measures concerning intellectual property.

As for the Chapter 3, controlling “circular shareholdings” between three or more affiliates as a means of “general concentration” of economic power by large enterprises should be considered. In order to effectively restrain such circular shareholdings, it is necessary to revise Section 9.2(Circular Shareholdings). Prohibition of circular shareholdings under Section 9.2 should be revised not only prospectively applicable to newly formed circular shareholdings but also to already existing ones.

In order to effectively prohibit various types of collusive behaviors between undertakings, it is strongly recommended to extend the general definition of “unreasonable collusive behaviors” under Paragraph 1 of Section 19(Unreasonable Collusive Behaviors). New and broader definitions should be broad enough to cover both explicit and implicit agreements (consciously) parallelism and concerted practices.

The scope of Chapter 5 should be limited to conducts that damage the competition process or economic or social effects (e.g., abuse of superior bargaining power). Any other conducts excluded from Chapter 5 ay be regulated by other special civil law. The net effect of all amendments is to ease the current burden on the KFTC, which must deal with many “unfair trade practices.”

The independence of the KFTC and the strengthening of its expertise should be revised under the MRFTA. It is necessary to replace non standing commissioners with the standing commissioners. The number of commissioners should be reduced to 5 or 7, and the term of office should be extended to 5 or 6 years. A term system should be introduced to increase the independence of the Commission. As for expertise, it is necessary to study ways to improve the expertise of employees, as well as economic and legal analysis.

It is not easy to pursue the effectiveness and fairness of public enforcement at the same time. In the course of the KFTC’s investigation and internal review, better ways to ensure transparency and fairness must first be designated and implemented. On the other hand, the KFTC should give the authority to conduct compulsory investigations (such as hardcore cartel investigations) when necessary.

To ensure the procedural appropriateness of respondents, it is required to make the current case management system more adversarial in nature. The deadline for appeal against the KFTC’s final decision must also be extended to 90 days. Such reforms are the basis for designating the Seoul High Court with exclusive jurisdiction for appeals from the final decision of the KFTC, considered as a quasi-judicial body.

On the other hand, criminal legal enforcement should be limited to serious violations of the law, such as unreasonable collusive behaviors, abuse of dominant positions, concentration of economic power, and failures to comply with the KFTC’s cease and desist orders. However, it is important to expand the application of criminal penalties to natural persons (CEOs, executive officers, directors, etc.) who are directly or indirectly involved in illegal activities. Moreover, the KFTC currently has the right to file criminal complaint for violation of the Act. Such broad authority should be restricted only to cases that require decision-making policy by the KFTC.

Lastly, the effective enforcement of the Act can also be achieved through active private litigation. Therefore, major facilitators such as treble damages, class actions, and injunctive reliefs should be included in the legal provisions of the Act.