Food industry backs cartel crackdown but urges clear rules on price-reset orders

South Korea's food industry is watching the ruling party and government's latest reform package with quiet anxiety. Companies caught in a string of price-fixing investigations this year managed to avoid the harshest proposed penalty — suspension of business licenses — but the measures, if enacted, would sharply raise the pressure on the sector. Concerns are particularly acute over a plan to formally codify price-reset orders.

An industry official said Monday, in response to the announcement, that the sector broadly supports the intent of the reforms. "We agree with the goal of deterring collusion and strengthening fair competition in the market," the official told The Herald Business, "but there are real concerns and burdens about how a price-reset order would actually be applied, given that raw material costs, the exchange rate, logistics expenses and many other factors all affect product prices."

The official stressed that clear criteria are needed before any price-reset mechanism is put into practice, given how heavily external variables such as exchange rates and oil prices influence food prices. "There needs to be a clear standard for judging what the appropriate market price would have been in the absence of collusion, and for determining how much weight to give to legitimate subsequent cost changes — such as raw material prices or exchange rate movements," the official said. "Specific application criteria and procedures must be laid out in sufficient detail so that companies can plan with some degree of certainty."

The price-reset order — which compels companies to reprice goods distorted by collusion — was revived earlier this year for the first time in two decades as part of the government's aggressive response to high inflation. The ruling party and government now plan to formally add "a price-reset order restoring pre-collusion competition levels" as a type of corrective measure under the Fair Trade Act. They also intend to apply active corrective measures, including price-reset orders, even to leniency applicants. The statute of limitations for sanctions would be extended from the current 12 years to a maximum of 15 years.

Some in the industry argue there is no need for a price-reset order at all, since companies already consult with the government before raising prices. "Collusion itself is dishonest and should absolutely be eradicated," one official said, "but the Fair Trade Commission also seems to have a tendency to define the scope of collusion too broadly." Another official pushed back more directly. "Private companies set prices based on their own strategy and judgment, and it is up to consumers to decide whether to buy," the official said. "The government should not be the one setting prices."

The industry broadly agreed on one point: legitimate price adjustments must be clearly distinguished from collusion. The concern stems in part from the frequency with which the FTC's penalty decisions are overturned in administrative litigation. Data obtained by People Power Party lawmaker Park Sung-hoon of the National Assembly's Political Affairs Committee from the FTC show that the commission refunded 106.54 billion won ($78.8 million) in surcharges to companies in the first seven months of this year — cases where courts rejected the FTC's methodology for calculating penalties. That figure already far exceeds last year's full-year refund total of 69.84 billion won.

"Hitting companies with massive surcharges costs more than it gains," one industry official said, warning that reputational damage in overseas markets could follow. "At a time when K-food is gaining national attention as a major export industry, being portrayed as an unethical company on the basis of one-sided logic could hurt us in global markets." Another official called for a more balanced approach. "Strengthening sanctions such as surcharges is important, but it would be even better if support measures that address the root causes came first," the official said.

Meanwhile, the toughest penalty in the ruling party-government package — license cancellation or business suspension for repeat offenders — does not apply to the food industry, since food businesses do not require a separate national-level operating license or permit. Under the plan, the measure targets four sectors: the safety and life sector, covering pharmaceutical manufacturing and fire-safety facility businesses; the energy and industry sector, covering oil refining and sales; the environment sector, covering waste disposal; and the transport sector, covering passenger and freight carriers. Businesses found to have colluded two or more times within five years would become subject to license cancellation or business suspension under the relevant sector-specific laws.