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Joseph Hur, Paul Rhee, Dec 15, 2008
The financial crisis that originated in the United States is spreading throughout the world and is now causing an economic crisis by infiltrating the real economy. This crisis is of a magnitude that has rarely been witnessed in the past.
This is also the case in Korea. Korea has a small but open economic system. It has heavily relied on exports and foreign investments for growth and jobs, and foreign investors have been active players in the Korean stock and investment markets. Accordingly, the current real economic crisis stemming from the global financial crisis is directly affecting the Korean economy. Stock prices have been cut in half compared to their highest point and the value of the Korean currency has plummeted by about 50 percent compared to earlier this year. Interest rates in the market are still going up despite interest rate cuts by the Korean central bank. Banks are luring deposits with high interest rates in order to increase capital, but their credit ratings are not getting better. As unemployment increases with the economic downturn, some pessimistic institutions in the private sector are starting to announce negative growth projections for next year. Companies are conducting layoffs and taking production cuts for granted and more companies are becoming insolvent. Korean industries are standing in the middle of an economic crisis.
The current economic crisis clearly shows that the market economy has failed in the real world. How should competition laws and policies that are based on the market economy, the key factor of which is competition, respond to this crisis? As in other countries, a new trend is emerging in Korea that looks to the government instead of the market for coordination and control by contending that the current crisis has been caused by a lack of regulation and supervision over the financial markets.
The new administration of Korea, which has been steering the economy into deregulation towards a smaller government by relying on the market instead of the government, and on the creativity of entrepreneurs instead of public officials, is now faced with a backlash due to this global financial crisis.
In this brief article, we will discuss how the Korean competition authorities faced with an economic crisis might change their enforcement policies or whether they will resist any change. We will first examine the systematic devices available under the Monopoly Regulation and Fair Trade Act of Korea (MRFTA) that may be used to incorporate industrial policy needs in times of an economic crisis. Since Korea already experienced a similar financial crisis in 1997, we will then review how the Korea Fair Trade Commission (KFTC) changed its enforcement policies during that financial crisis. In addition, we will try to predict how and to which direction the KFTC policies would change by analyzing the KFTC’s recent official positions, partial forecasts by some domestic experts, the level of the KFTC’s independence in the Korean government, and the political and economic power of competition policies.
