[Viewpoint] An important lesson at a high price

LG Display: $400 million. Samsung Electronics: $300 million. Korean Air: $300 million Hynix Semiconductor: $185 million.

With Korean companies posting record performances even in the midst of a global recession, you’d be forgiven for thinking those were profit figures or perhaps new overseas contracts. In fact they’re the fines levied on each of those companies by United States fair trade authorities for price fixing over the past few years. Of the top-10 price-fixing fines handed out by the U.S. Department of Justice, four were to Korean companies. Altogether, the U.S. authorities have penalized Korean companies to the tune of over $1.24 billion for price fixing. Thus, large sums of hard-earned export dollars disappear into thin air.

But the fines aren’t the worst part. In the litigation-happy United States, an even more punishing reckoning awaits companies that formed price cartels. Separately from the fines, the Korean conglomerates also face class-action suits from local competitors seeking enormous compensation. Although the defendants have been reluctant to make public just how much they’ve lost in court, the settlements and legal fees are believed to be sufficient to double the amount of the fines.

Corporate executives who participated in cartels also face increasingly stern punishments. In a price-fixing case surrounding DRAM memory chips that involved Samsung Electronics and Hynix, 10 executives at the two companies were found guilty and ordered to pay $250,000 each in fines. They were also ordered to serve prison terms ranging from five to 14 months.

When a company is found guilty of price fixing in one country, other nations tend to follow suit. In any country, a price cartel is considered the worst form of anti-competitive market practice, and punishments are severe. In the aftermath of the U.S. cases, Korean companies are being investigated by the European Union on charges of having formed price cartels for international air freight shipments, DRAM chips and thin film transistor liquid-crystal displays, also known as TFT-LCDs.

The efforts to regulate price cartels are also spreading to the so-called BRIC nations (Brazil, Russia, India and China) and other developing countries. In 2008, Brazilian President Luiz Inacio Lula da Silva declared a war against price cartels. Recently, the fair trade authority of the small Baltic nation of Latvia, which employs just 45 officials, fined Samsung Electronics $8.5 million.

Korean companies are being fined because their exports are immense - the country is now the world’s ninth-largest exporter. Because they engage in a wide range of activities, Korean companies are often caught up in foreign watchdogs’ monitoring networks.

Korean-style sales practices, which are heavily dependent upon human networks, are also part of the problem. A simple exchange of information between sales representatives can be punished as price fixing in other countries. That makes Korea’s corporate culture, which largely depends on regional, school and even military ties, extremely vulnerable to accusations of price fixing.

The Korean Fair Trade Commission recently decided to tour Europe, the United States and China to provide cartel prevention education to Korean companies operating there. Conglomerates that have been fined by foreign antitrust authorities have already learned a serious lesson, but smaller companies that are focusing on exports must also be educated about the situation to prevent a recurrence of similar incidents in the future.

The Fair Trade Commission also needs to be more alert about policing international price cartels based in this country. We should avoid an emotional reaction to the severe fines levied on Korean companies in other countries. After all, when non-Korean companies form cartels and control prices and supplies, import prices here soar, disrupting Korea’s national competitiveness.

The Fair Trade Commission likes to remind everyone that it was ranked the seventh-best antitrust body around the world by the Global Competition Review. Now is the time to show us why.

*The writer is an economic news reporter of the JoongAng Ilbo.
Translation by the JoongAng Daily staff.

By Suh Kyung-ho