FTC not slacking off, leader says

Economy

Published: 25 Sep. 2011, 22:27

FTC not slacking off, leader says

Kim Dong-soo
Fair Trade Commission Chairman

The country’s antitrust agency is currently investigating potential international cartel activities by liquid crystal display firms based in Korea, Taiwan and Japan. Kim Dong-soo, chairman of the Fair Trade Commission, told the JoongAng Ilbo in an exclusive interview that the watchdog is closely looking into suspected price and quantity fixing by about 10 LCD manufacturers.

“We will complete the investigation by the end of this year,” Kim said.

His comments came after accusations that Korea’s business watchdog had been loose in chasing illegal activities by global firms because the chairman had been focused on stabilizing prices by strengthening its monitoring of the prices of consumer goods.

“We are steadily keeping an eye on international cartel activities,” he said.

The rumors of LCD-manufacturing companies fixing prices and colluding to limit production quantities isn’t new. LG Display, the world’s second-largest maker of flat-screen panels, was hit with fines of $400 million in 2008 by the U.S. Justice Department for fixing prices of LCD panels with Japanese and Taiwanese firms from 2002 to 2006. Last year, the same company was hit with a fine of 215 million euros ($290 million) by the European Union for fixing prices. U.S. prosecutors based in New York state sued about 20 LCD firms, including Korea’s Samsung Electronics and LG Display, for allegedly fixing prices.

Kim also said, “Besides LCD firms, cases were found of some multinational pharmaceutical companies offering local pharmaceutical producers exclusive sales rights of a certain medical product to keep them from releasing generic drugs.” He added, “We are also closely monitoring several global firms, including Google and Apple.”

He also noted his suspicions about unfair practices by large conglomerates, who allegedly favor their subsidiaries and take away business opportunities from small and midsized firms, saying those practices should be rooted out.

Q. The FTC has been aggressive in monitoring firms over price fixing to help stabilize prices. Despite those efforts, however, there has been criticism that the government is going against free-market principles.

A. I’m very well aware that prices don’t tend to stabilize by putting pressure on firms. We are not trying to go against market principles. What we’re trying to do is block prices from going up unfairly.

For example, as a restaurant owner, even though the cost of ingredients remains the same, if nearby restaurants raise the prices of their dishes, the owner could be tempted to raise his food prices also. We’re trying to block such practices.

The monitoring measures don’t seem to have worked, though.

I have no comment on that, because consumer price growth for last month was high. [Korea’s consumer price index rose 5.3 percent last month compared to the previous year, the largest gain in three years.]

Don’t you feel that the pressure the FTC put on Shin Ramyun Black was too direct, perhaps too harsh?

The controversy surrounding Shin Ramyun Black was mounting. It was a big issue because ramen, instant noodles, is one of the common food products for ordinary households, and we decided to look into this product because the price was three times more expensive than other ramen products. [The FTC fined Nongshim, the maker of Shin Ramyun Black, for false and exaggerated product labeling in June. The FTC said Shin Ramyun Black was priced unreasonably high compared to the input costs.]

Apple, the U.S. maker of the popular iPhone, also changed the terms of its after-sales service recently when the FTC convinced Apple to change its global policy in this market. Is the FTC that powerful? [This month, Apple agreed with the FTC to extend its initial replacement period for those phones from seven or 14 days to one month.]

I don’t think it’s the power of the FTC. Instead, it’s the power of Korean consumers or iPhone users, who continuously complained to the Korea Consumer Agency that the company’s limit on initial replacement of iPhones was too short. So we took a look at the terms and told Apple about the complaints and about the different legalities in Korea.

How has the investigation of large conglomerates giving favors to their subsidiaries gone?

We have partial results of the investigation, and I must say the situation is more serious than expected. We took a look at 20 conglomerates and their business orders given in the sectors of advertising and systems integration, and more than 90 percent of the conglomerates’ subsidiaries’ orders were placed without bidding. Large conglomerates would have much to say about this, but public sentiment is far different.

Is there a solution?

Most importantly, there should be self-regulation efforts. The overall culture should change. Currently, we are in the process of personally meeting the heads of Korea’s four largest conglomerates to lead them to announce their willingness to promote shared growth.

The FTC also recently advised large retailers to cut the commission fees they receive from their in-store vendors.

I’ve had the chance to meet with small and midsize companies located outside of Seoul, and those that supply products to department stores have all complained that the stores are too harsh on them [in commission rates].

A retailer said it is more difficult for retailers to do business now than in the last administration. What is your opinion on that?

I want to ask that owner two things. First, if the retailer raised its commission charges on its in-store vendors in this administration; and second, if its operating profits dropped or increased. I’m sure its commission charges were raised and operating profits surged.

By Lim Mi-jin [angie@joongang.co.kr]