Sugar Makers Get Smacked for Cartel

by Brendon Carr

The Korea Fair Trade Commission (KFTC) has slapped three Korean sugar manufacturers with a total of W51.1 billion (US$55.8 million) in fines for 15 years of price fixing, reports the Chosun Ilbo today. Faced with competition from imports, the Korean manufacturers decided solidarity and market manipulation would be preferable to real competition—thus costing consumers, according to the article, W520 billion (US$568 million) in higher prices they had to pay for sugar and products containing sugar during that period. Half a billion dollars sounds like a lot of money, but over 15 years and split between three companies, it probably wasn’t all that much in profit.

The KFTC is also referring criminal prosecutions against executives of two of the companies. The executives face fines or jail time. Interestingly, CJ Corporation, which has already been found to have engaged in price fixing in respect of three categories of staple foods, and which had the largest share (48%) of the fixed market, will enjoy the “whistleblowers’ leniency” for its cartel activity. Half the W22.7 billion that CJ was fined is being exempted, and CJ executives will not be prosecuted—because CJ rolled over on its erstwhile co-conspirators. Leniency is a powerful tool to crack cartels, and KFTC is smart to use it.

Is it me, or is the KFTC more active than ever before? It’s not just me. Yonhap News reports that the KFTC has slapped fines of W329 billion (US$360 million) on companies in the first six months of 2007. That’s against only W111 billion in all of 2006, and a total of W1.2 trillion in the 20 years since 1988 when the KFTC acquired the power to fine. So the first six months of 2007 has produced fines for collusion equal to nearly 25% of the preceding 19 years.

For law hounds, the relevant article of the Monopoly Regulation and Fair Trade Act (MRFTA) is Art. 19, which prohibits “Improper Cartel Activity”.

Paragraph (1) of this Article provides:

No business shall agree with other businesses by contract, agreement, resolution, or any other means to jointly engage in an act, or to permit others to engage in an act, which falls under the following subparagraphs and unfairly restricts competition (hereinafter referred to as “Improper Cartel Activity”):

1. Fixing, maintaining, or changing prices;

2. Determining terms and conditions for transactions of goods or services, or payments of prices therefor;

3. Restricting production, delivery, transportation, or transactions of goods or services;

4. Limiting the territory of trade or customers;

5. Preventing or restricting the establishment or extension of facilities or the installation of equipment necessary for the production of goods or the rendering of services;

6. Restricting the types or specifications of goods or services in producing or transacting goods or services;

7. Jointly carrying out and managing the main parts of a business, or establishing a company [or other organization] to jointly carry out and manage the main parts of a business; or

8. Any other practice not enumerated at subparagraphs 1-7 that substantially limits competition in a business sector by means interfering with or restricting the activities or scope of business.

These definitions are very broad. In a better environment, there would be many clear administrative-tribunal and court precedents to interpret what is meant by these categories. Unfortunately, in Korea the history of KFTC enforcement is fairly short (see the total fines cited above) and many of its past “successes” have been accomplished through “administrative guidance” or informal cautions to companies to do or not do something. These are not published.

Still, our experience with similar matters is broad enough that we can offer the following concrete examples of what not to do:

This doesn’t mean you can’t discuss matters of common concern. But give the KFTC’s sudden—and welcome—enthusiasm to enforce the law, anything that gives the appearance of collusion between companies to reduce competition is a strict no-no. Because the line between discussion of common concerns and collusive behavior is so difficult to gauge, we recommend anyone going into such a meeting keep a recording, so that the fact a certain topic was raised cannot be distorted into a conclusion that in fact there was agreement to take action in respect of that topic.

And given the leniency principle for whistleblowers, if there is any concern about becoming or having become involved in an unlawful scheme, talk to your lawyers and then run, don’t walk, to the KFTC.

UPDATE: After this, I tuned into China Law Blog and found the topic of today is price fixing—namely, how China Law Prof Blog (greetings to Prof. Donald Clarke!) reports five Beijing milk companies have issued a press release touting their collusion to prevent ill effects from an “undisciplined market.”

July 23, 2007 | Filed Under Competition and Fair Trade Law, Criminal Law, Economic News | 1 comments

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