U.S.-Korea Free Trade Agreement: Potential Economy-wide ... - USITC

of its members, the Korean government historically has failed to enforce its competition laws
in any substantive way against its large domestic industrial conglomerates, known as
chaebols, 63 which in turn has permitted these firms to engage in anticompetitive practices
that have made competition for U.S. investors very difficult or impossible. In addition, NAM
noted Korean regulators have at times acted in a nontransparent manner that disadvantages
foreign firms, such as investigating U.S. firms that have already been reviewed by U.S.
antitrust authorities or courts, and in some instances even imposing penalties on U.S. firms
that assist specific Korean competitors but disregard the competition authorities’ goal of
Korean consumer protection.
NAM stated that it views the antitrust chapter as providing greater transparency in the
application and enforcement of competition law in Korea, in particular preventing their
discriminatory application and enforcement. In addition, NAM said that the disciplines
negotiated in the agreement supporting the competitive process may act as a precedent for
other Asian countries where competition policy has in the past been applied in a
discriminatory manner against foreign investors, or to advance industrial policy goals that
differ from an open and transparent competitive process.
In a 2006 report, the U.S.-Korea Business Council and American Chamber of Commerce in
Korea stated that the major competition policy issue facing U.S. businesses in Korea was that
the KFTC did not actively investigate and discipline anticompetitive practices by Korean
firms—including the Korean chaebol conglomerates. 64 They also commented that the KFTC
in recent years appeared to be increasing enforcement efforts against U.S. and other foreign
firms; for example, targeting U.S. company behavior aimed at creating market efficiencies.
Whereas the council and the chamber stated that they recognized that the Korean government
has taken steps recently to improve the KFTC’s ability to enforce existing competition law,
they added that their U.S. member companies continued to experience nontariff barriers in
the marketplace in the form of anticompetitive behavior by Korean firms, particularly the
chaebol conglomerates.
63 The term “chaebol” refers in Korea to several dozen large corporate groups, often family-controlled,
that dominate the economy as business conglomerates. The largest chaebols in Korea include companies
such as Samsung Group, Hyundai Motor Company, LG Group, SK Corporation, Hanjin Shipping, and
Hyundai Heavy Industries. Most chaebol firms were established after the Korean war and, assisted by
government financing and economic planning, played a central role in rapidly building the South Korean
economy in the subsequent decades. Prompted in large part by the 1997–98 Asian financial crisis, the South
Korean government instituted a number of structural economic reforms—particularly in the areas of financial
markets and competition policy—moving away from the past government-directed industrial policy focused
on exports toward a more market-oriented economy based on open private-sector competition in order to
attract more foreign investment. As a consequence of these ongoing reforms (e.g. in such fields as merger
and acquisitions policy or a program of corporate restructuring intended to make operations of Korean
companies more transparent and accountable to shareholders), the chaebols are becoming less influential,
more transparent, and more competitive than before, although they nonetheless continue to dominate nearly
every area of economic activity in Korea. EIU, “Country Profile 2006: South Korea”; and USFCS, “Doing
Business in Korea: A Country Commercial Guide for U.S. Companies,” 2005.
64 USKBC and AMCHAM in Korea, “Competition Policy,” U.S.-Korea Free Trade Agreement Position
Paper, 2006, 27.
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