Antitrust Alert: Korea Considers Antitrust Exemptions for Certain Cartels to Assist Economic Recovery

In an effort to aid the country's recovery from economic crisis, the Chairman of the Korea Fair Trade Commission (KFTC) reportedly has announced that the KFTC may invoke its power to exempt certain cartels from the Korea antitrust laws, so long as the cartels do not engage in "direct price fixing." The Korea Monopoly Regulation and Fair Trade Act (MRFTA) and a Presidential Decree have authorized such exemptions, but so far none ever has been granted. The authorization of cartels now would represent a shift from the KFTC’s recent trend of punishing cartel behavior with increasing severity. Nevertheless, such exemptions would protect cartel members from liability only under Korean law. Therefore, the risk of antitrust liability elsewhere remains—including civil and criminal liability in the United States and some other jurisdictions—for both Korean cartel members and non-Korean companies collaborating with them, for sales of affected products outside Korea.

The cartel prohibition of the MRFTA already exempts "unfair collaborative acts" that are deemed by the KFTC to meet the requirements set out in the Presidential Decree on MRFTA enforcement and have as their purpose industry rationalization, research and technology development, overcoming economic depression, industrial restructuring, rationalization of trade terms and conditions, or enhancement of competitiveness of small and medium-sized enterprises.

For each of these purposes, the Presidential Decree provides separate, rather general, criteria for unfair collaborative conduct to qualify for exemption. For example, to justify an exemption for the "rationalization" of an industry, the KFTC must find that (1) effects from the cartel, such as technological enhancement, quality improvement, cost reduction, and efficiency increases are clearly manifested, (2) the rationalization of the industry using means other than a cartel is difficult, and (3) the beneficial effects of industrial rationalization outweigh the effects of prohibiting the restriction of competition.

An exemption for the purpose of overcoming economic depression would be available if the KFTC finds that (1) there has been a continuous decline in the demand for a particular product or service for a substantial period of time, due to a continued large oversupply, and the situation will most likely to persist in the future, (2) the transaction price of a particular product or service persistently has fallen short of the average production cost, (3) a considerable number of companies in a given area of trade will likely be unable to continue their businesses, and (4) the circumstances in criteria (1) through (3) cannot be overcome through the rationalization of enterprises.

These exemptions authorized under Korean law suggest the question of whether they would give rise to any of the special defenses that exist under U.S. law for conduct undertaken or compelled by foreign governments, including the act of state doctrine or the foreign sovereign compulsion defense. In addition, U.S. courts sometimes abstain from imposing U.S. law on foreign conduct in cases that would require an assessment of the validity of foreign government actions. It should be noted that such defenses generally do not apply where the conduct is undertaken by private companies and is authorized, but not compelled, by a foreign government entity.

Given the risk of antitrust liability outside Korea for members of an exempt Korea cartel and for companies collaborating with cartel members, any participant should monitor the conduct of an exempt cartel to carefully assess its risk of antitrust liability outside Korea for the cartel’s activities.

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