'Fines alone aren't enough': Ruling party, government push to codify market expulsion for repeat cartel offenders

The ruling party and government have reached for the harshest tools available — business suspension and license revocation — to crack down on repeat cartel offenders, driven by a recognition that existing penalties alone have failed to stamp out chronic collusion. The urgency grew after large-scale price-fixing schemes were uncovered in the first half of this year in everyday consumer sectors such as sugar and flour — industries that had already been sanctioned for the same conduct in the past.

According to the "Legislative Plan to Eradicate Repeat Collusion" announced Monday by the ruling party and government, cartel activity uncovered in the first half of this year in everyday consumer sectors — including sugar, flour, starch syrup and printing paper — involved combined sales of 20 trillion won ($14.8 billion). Among those cases, sugar, flour and paper products shared a common thread: all had been sanctioned for collusion before, only to be caught again in large-scale schemes.

The three major sugar producers were sanctioned in 2007 for price-fixing that had run for 15 years, yet this year a fresh four-year price-fixing scheme worth 3.2 trillion won was uncovered. The flour milling industry saw eight companies penalized in 2006 for five years of price and output collusion, followed by the discovery this year of a six-year cartel involving seven companies worth 5.8 trillion won. The paper industry has been sanctioned three times for collusion since 2004, but this year six companies were caught again in a printing-paper price-fixing scheme worth 4 trillion won.

In response, the ruling party and government said they would tighten the regulatory regime at every stage — from deterrence and detection to corrective action. Under the plan, if a company colluded twice or more within five years, the Fair Trade Commission would be empowered to request that the relevant authorities revoke its license or suspend its operations. The intent is to raise the stakes high enough that serial cartel participants face the prospect of being driven out of the market entirely.

The measure would apply to 17 sectors across four broad categories — safety and life, energy and industry, environment, and transportation — selected in consultation with the relevant ministries from industries where collusion is frequent and the impact on daily life is significant. Once the Fair Trade Commission identifies a repeat offender and makes a referral, the relevant ministry would impose license revocation or a business suspension order under the applicable sector-specific law.

More specifically, four sectors governed by individual laws — fire-protection facility businesses, electrical construction companies, design and supervision firms, and surveying companies — would be subject to both license revocation and business suspension. The remaining 13 sectors, including petroleum refining and sales, pharmaceutical manufacturing and imports, passenger and freight transport, and waste management, would gain a legal basis for business suspension orders.

Precedents already exist: construction companies that receive surcharge penalties for two or more instances of collusion within nine years can have their construction business registration canceled, and repeated violations by licensed real estate agents' trade associations can result in the cancellation of brokerage office registrations. The new plan extends that logic to the additional 17 sectors.

However, the food industry — including the sugar and flour sectors that prompted the crackdown in the first place — was left out of the 17 designated sectors. Those industries lack the licensing and registration frameworks needed to apply the new regime.

"For businesses that require a license, the government controls market entry, so it can sanction colluding companies by withholding the benefits of that license or registration," a Fair Trade Commission official said. "For other sectors where the state cannot apply license revocation or business suspension, different tools such as heavier surcharges will be used against repeat offenders."

The statute of limitations for cartel enforcement actions would be extended from a maximum of 12 years to 15 years. The limitation period running from the date a violation ends — applicable when an investigation has not yet been opened — would be lengthened from seven years to 10 years, while the five-year period that applies after an investigation has been launched would remain unchanged.

To strengthen oversight of bid-rigging in education-related procurement — covering items such as school uniforms and educational equipment — regional education offices would be formally designated by law as cooperating agencies required to submit bidding data to the Bid Rigging Indicator Analysis System, known as BRIAS. The system uses quantitative analysis of public procurement data to flag signs of collusion.

Measures to correct prices distorted by collusion would also be reinforced. Price-reset orders are currently issued on the basis of a catch-all provision in the Fair Trade Act allowing "other necessary corrective measures," supplemented by examination guidelines. Going forward, "price resetting to a level that restores competition to what it was before the collusion" would be codified as an explicit corrective measure under the law. The change addresses a longstanding ambiguity over whether a company that failed to lower prices sufficiently could be found in non-compliance with a corrective order. The Fair Trade Commission issued price-reset orders this year in the printing paper, flour and starch syrup cartel cases.

Surcharge and criminal referral benefits for leniency applicants would be retained, but immunity from corrective measures would be eliminated. The commission concluded that measures aimed at restoring competitive order — such as price-reset orders — must apply to all cartel participants regardless of whether they came forward voluntarily, in order to be effective.

The Fair Trade Commission has also been revising the leniency program itself in recent months. On Wednesday, it gave advance notice of amendments to the enforcement decree of the Fair Trade Act that would reduce the surcharge benefit for the first leniency applicant after an investigation has been opened — from full exemption to a 75 percent reduction — and extend the period during which leniency benefits are restricted for repeat offenders from five years to 10 years.

The ruling party and government plan to package the five institutional reforms announced Monday into a set of amendments to the Fair Trade Act and the 17 sector-specific laws and introduce them together as a legislative bundle.