[Viewpoint] Conflicting rules taint price-fixing cases

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[Viewpoint] Conflicting rules taint price-fixing cases

The Fair Trade Commission began operating about 30 years ago. Shortly after it opened, the phones rang endlessly with calls from business owners claiming that their competitors were engaging in unfair practices.

Of the complaints, the most frequent were reports about nearby competitors.

“My neighboring store is selling goods below what all the others are,” many reported to the commission.

Officials, troubled by the numerous reports, would then ask: “So, do the rest of the stores agree to keep their prices higher rather than match prices at the cheaper shop?” The reply in many cases? “Of course.”

The business owners apparently admitted, albeit in a roundabout way, that they participated in price-fixing. If the officials handled everything as they should have according to the law, the shop owners that lodged complaints as well as the other businesses that agreed to keep prices higher would have been punished. The stores that sold goods at lower prices would have therefore emerged unscathed.

These days, complaints of this nature have dropped off to some degree.

Officials, however, said they are seeing more and more complaints filed by companies challenging the actual price-fixing punishments handed down by the Fair Trade Commission. Many businesses claim that they did not participate in price-fixing schemes but rather were just following government guidelines. They assert that government authorities must coordinate their positions first, saying that there are numerous conflicting policies.

At the center of such complaints is “administrative guidance.” Companies, depending on the industry, operate under a certain authority. Insurance companies are under the watch of the Financial Supervisory Service, while mobile communication companies are under the Korea Communications Commission and gas companies are under the Ministry of Knowledge Economy.

Administrative guidance refers to directives given by these authorities. When banks scale back loans to small companies, for instance, the FSS takes steps to pressure them into pumping more money into these enterprises.

Administrative guidance is given under the justification of customer protection. There is no way to avoid it. The measures can be extremely strict, and many of the directives are legally binding.

The problem is that companies have no immunity from being punished for price-fixing even if they’re simply following administrative guidance.

The FTC has been strengthening its monitoring of companies and industries, citing the fact that price-fixing techniques have become more advanced and difficult to detect.

At the same time, the FTC has even said that the directives amount to unnecessary regulations and that companies do not have to follow them.

The business community is now caught in the middle of this perplexing situation.

One company that was ordered to pay a massive fine last year said it was punished severely by the Fair Trade Commission for following Knowledge Economy Ministry polices on gas prices.

“It’s like being punished by the father for following the mother’s order,” the company complained. The business is currently preparing a lawsuit, saying that the Fair Trade Commission’s decision was unreasonable.

That’s just one example out of many. Banks, insurance companies and cinemas are also filing lawsuits over what they claim are unjust punishments.

In 2007, 13.8 percent of the firms that were fined filed lawsuits challenging the punishment. The figure jumped to 31.2 percent in 2008.

Interestingly, the FTC is also increasingly losing these types of lawsuits. In 2008, the commission returned about 80 percent of the fines collected, the result of lawsuits it lost. In these cases, courts ruled that the companies had either not engaged in price-fixing or that the fines had been too high.

Critics of the policies said this proves that money and time were wasted for unnecessary lawsuits. But the FTC remains firm on its position.

“Cartels are a cancer in a market economy,” Fair Trade Commission Chairman Chung Ho-yul said recently.

Based on Chung’s remarks, the business community believes that it will have to continue to walk a fine line between following administrative directives and avoiding price-fixing.

The first test comes this week in a case involving the soju industry.

The Fair Trade Commission is set to announce possible penalties on soju makers for alleged price-fixing.

The industry believes that the commission will levy 226.3 billion won ($196.2 million) in fines, which is the preliminary amount the FTC stated at the end of last year.

“Under the law, the National Tax Service gives directives regarding soju prices,” said an industry official. “We have raised the price under the directives, and now we are being punished for it.”

The National Tax Service has not denied that it had given directives on soju prices.

“We’ve always looked to make sure that the prices go up by a lesser degree than what the industry is demanding,” said a tax official. “We protect consumers through our price guidance.”

The Fair Trade Commission and the National Tax Service are pressuring companies under the same justification: the interests of consumers.

But the companies cannot accept this argument, as the policies are conflicting. That’s why they spend energy, time and money to complain and file lawsuits.

Consumers will eventually have to pay for the time and money that companies spent on these endeavors when the price goes up the next time. Now it’s the consumers who are confused. Who, exactly, is on their side?

*The writer is the business news editor of the JoongAng Sunday.

By Yi Jung-jae
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