Fair Trade Commission: "Ordinances such as 'Priority Purchase of Local Agricultural and Marine Products for School Meals' with Significant Competition Restriction Concerns Must Be Improved"

'Operational Status of Local Government Ordinances and Rules Restricting Competition' Research Service Results
Step-by-step Improvement to be Promoted in Consultation with Relevant Local Governments over the Next Three Years

[Sejong=Asia Economy Reporter Joo Sang-don] The Korea Fair Trade Commission (KFTC) has decided to initiate improvements after recognizing concerns that ordinances prioritizing the purchase of local agricultural and marine products in school meals or prioritizing support for local enterprises with local government budgets may restrict competition.

On the 7th, the KFTC announced the findings of the 'Operational Status of Local Government Ordinances and Rules Restricting Competition,' which was commissioned to the Korean Society for Regulation Studies.

The research identified a total of 672 competition-restricting ordinances and rules: 236 cases (35.1%) from metropolitan local governments and 436 cases (64.9%) from basic local governments. By type of regulation, there were 270 cases (40.2%) of entry restrictions, 316 cases (47.0%) of business discrimination, 21 cases (3.1%) of business activity restrictions, and 65 cases (9.7%) of others.

A KFTC official explained, "When a specific local government enacts or revises ordinances or rules favoring in-region businesses, neighboring local governments imitate these to introduce similar regulations favoring their own local businesses, causing regional restrictions to spread nationwide. Previously, mandatory purchase provisions and minimal social protection clauses for vulnerable groups (such as the disabled and small business owners) have expanded to protect other public interests, including the elderly, youth, national merit recipients, social enterprises, and local enterprises."

In fact, 165 metropolitan and basic local governments, including Daejeon, Gwangju, and Ulsan, operate business-discriminatory ordinances and rules that require prioritizing the purchase of local agricultural and marine products in school meals or define the scope of local enterprises and prioritize support for selected local enterprises with local government budgets.

The KFTC views the prioritization of local agricultural and marine products in school meals as causing discriminatory treatment between producers within a specific administrative district and those from other regions. Schools are deprived of opportunities to procure excellent and inexpensive agricultural and marine products produced elsewhere, and there is an increased risk of collusion among a small number of local meal material suppliers.

There were also ordinances restricting entry. A total of 161 metropolitan and basic local governments, including Seoul, Busan, and Incheon, operate ordinances and rules that give preferential treatment to local residents when appointing local government legal advisors or patent attorneys, or prioritize national merit recipients over taxi driving experience when issuing individual taxi licenses. However, many lawyers and patent attorneys exist outside these regions, and in some cases, more competent individuals may be found outside the local area. Since the scope of activities for professionals is not legally limited to specific regions, improvements are deemed necessary.

Additionally, an ordinance stipulating that local construction associations must strive to prevent excessive competition and promote a sound local construction industry was found to potentially provide grounds for competition-restricting acts by business associations. This is because local governments may demand self-regulation from the construction industry under the pretext of preventing excessive competition, eliminating incentives for efficient competition based on quality and price, and encouraging collusion among local companies.

Accordingly, the KFTC plans to continuously improve the competition-restricting ordinances and rules identified in this study in collaboration with the relevant local governments between 2022 and 2024. A KFTC official stated, "Even if discriminatory support is initially necessary for certain public interests, we will review whether the support purpose has already been achieved or if excessive support eliminates incentives for innovation and causes excessive disparities in market competition conditions. We will also closely examine the introduction effects and side effects of competition-restricting ordinances and rules introduced and spread for specific classes, statuses, or positions for various public interests, and guide decisions on whether improvements are needed."