Soju makers face $23.6 million fine for price collusion

Korea’s antitrust agency slapped a 27.2 billion won ($23.6 million) fine on 11 local soju makers for colluding to raise prices.

But the amount of the fine was dramatically reduced from the agency’s initial plan for a 226.3 billion won fine after the soju producers pleaded that they were merely following a longstanding practice in the industry that has for decades been under tight control in pricing policies by the local tax authorities.

The soju makers said the latest dispute highlighted the bureaucratic mess they find themselves in, where the firms that are following one agency’s order may be at odds with another government body.

But the antitrust agency disputed this, saying the soju makers used the tax authorities’ intervention as an excuse for price collusion.

The Fair Trade Commission finalized on Wednesday night its ruling and fine on the soju producers, rejecting the soju makers’ argument.

Jinro, the industry leader, received a 16.6 billion won fine, while Daesun, a major brewery in Busan, was slapped with a 2.3 billion won fine and Kumbokju was fined 1.4 billion won. Others received lesser fines.

According to the Fair Trade Agency, the soju makers first colluded to reach an agreement that it was time to raise prices.

Jinro led the pack by raising the price first, an action soon followed by smaller players.

For instance, Jinro raised the wholesale price of its signature Chamisul soju by 4.92 percent in May 2007, a move followed in weeks by smaller players that lifted the prices by similar amounts.

Jinro raised the price again in December 2008 by 5.9 percent. Other companies did the same by 3.25 to 7.1 percent in a matter of weeks.

The agency also said the soju companies’ CEOs occasionally met together to exchange ideas about when to raise prices and by how much.

For the National Tax Service, the liquor industry has long been one of the biggest sources of tax revenue and thus for decades has been one of the most tightly-monitored sectors.

And the agency has exerted enormous influence on the major soju makers’ pricing practices.

It was common knowledge in the local industry that soju makers, before making any price changes, made sure the upcoming change was deemed allowable by the tax agency.

For instance, when the prices of soju ingredients rise, Jinro reports the range of possible price hikes to the tax agency, and, if the agency gives a green light, other smaller player then rush to follow suit.

Indeed, an official at the antitrust agency acknowledged that they are faced with a bureaucratic quandary when dealing with the issue.

“There was quite a heated debate over the problems due to the National Tax Service’s guidance and its liquor laws,” said one of the nine senior officials who attended Wednesday night’s meeting.

By Suh Kyung-ho, Jung Ha-won [hawon@joongang.co.kr]