Assembly approves chaebol legislation

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Assembly approves chaebol legislation

Lawmakers yesterday approved flagship legislation of the economic democratization initiative that will impose stronger punishment on conglomerates and their founding families who use unfair internal transactions for personal gain.

Banning internal transactions among subsidiaries of the major family-run groups like Samsung, Hyundai Motor and SK has been a hot potato issue in the political and business communities.

Politicians criticized family members of group owners for reaping personal rewards via undisclosed transactions among affiliates and using their stakes to control management of them.

On the other hand, large companies have called for withdrawal of the bill, since such internal transactions within groups have been regarded as a means to boost efficiency and productivity. Many large businesses with multiple subsidiaries have established a so-called “vertical production structure” based on transactions among affiliates. The business community has accused lawmakers of excessive regulation.

In response to such criticism, the Fair Trade Commission slightly altered the scope of the legislation.

Initially, the FTC wanted to crack down on all subsidiaries involved in unfair internal transactions, but it now applies only to subsidiaries in which chaebol family members hold a certain level of stakes to be determined later by the president.

According to the adjusted bill, the number of subsidiaries of large businesses to be put under the microscope of the antitrust agency will be cut from 1,768 to 417, the FTC said.

The government will track transactions with unusually favorable terms, large-scale contracts signed without a legitimate decision-making process and transactions made between a controlling unit and a subordinate.

Last week, when the Ministry of Strategy and Finance raised its growth forecast to 2.7 percent, Hyun Oh-seok, deputy prime minister for economy, mentioned that the government has decided to rethink the timing of economic democratization policies, since it believes the economy is at a crossroads.

“The scope, level and timing of each policy related to economic democratization will be discussed among government branches in order to prevent those policies from affecting the economy,” Hyun said. “The economy is all about confidence. The government will create an environment where companies can invest more in the second half.”

The minister also said that “economic policies shouldn’t contract businesses’ operations in the market,” referring to the controversy over excessive legislations at the National Assembly to regulate conglomerates under the economic democratization initiative.

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