Fair Trade Commission Eases Requirements for Exceptions to Preferential Business Allocation Rules

The Fair Trade Commission (FTC) has decided to ease the exemption requirements for preferential treatment of work to the family members of conglomerate owners.

On the 29th, the FTC announced that it has prepared a revision of the "Guidelines for Reviewing Unfair Profit Provision to Special Related Parties" and will hold an administrative notice period from the 30th of this month until the 20th of next month. The FTC explained that through this revision, it will relax the 'efficiency' and 'urgency' requirements, which are exceptions to preferential work allocation, to resolve legal uncertainties faced by companies.

The current guidelines exclude the application of the law in cases where transactions of considerable scale are unavoidable to achieve purposes such as 'efficiency' and 'urgency.' The guidelines have strictly presented transaction conditions with efficiency improvement effects as those where "it is objectively clear that procedures such as competitive bidding or proposal submission themselves cause inefficiency." The FTC stated that it views these requirements as excessively limiting the scope of exceptions compared to the law and has newly established the judgment criterion as "cases where the efficiency improvement effect is objectively clear."

Furthermore, the current guidelines limit the 'urgency' condition to "cases of force majeure," making it practically difficult to apply exceptions except for natural disasters or hacking incidents. Economic factors such as the 2008 financial crisis were not recognized as force majeure. Accordingly, the FTC decided to include cases of urgency exceptions as "cases where, even if not reaching force majeure, it is objectively and reasonably difficult to foresee from the company's perspective or it is difficult to avoid without incurring significantly unreasonable costs."

Additionally, the requirement of "transactions of considerable scale without reasonable consideration or comparison," which is one of the criteria for judging preferential work allocation, will also be relaxed. The current law stipulates that if either "comparison with other businesses" or "reasonable consideration" is satisfied, it is not considered preferential work allocation. However, the current guidelines were written as if both must be satisfied, which could be interpreted as a stricter requirement than the law. Through this revision, companies will be able to receive exceptions for preferential work allocation if they satisfy either "reasonable consideration" or "comparison with other businesses" regarding transaction conditions.

Along with this, the FTC will also specify the criteria for judging "unfair profit" in the regulation of "private interest appropriation." Recently, the Supreme Court recognized illegality in private interest appropriation cases involving corporate groups such as Hanjin and HiteJinro only when it was additionally proven that the profit provided to special related parties was unfair. However, the current guidelines lack specific criteria for what constitutes "unfair profit," causing difficulties in law enforcement.

Therefore, the FTC has concretized detailed criteria for judging the unfairness of the provided profit by comprehensively considering "the relationship among the provider, recipient, and special related parties; the purpose, intention, and circumstances of the act; the economic situation of the recipient; transaction scale; and the size and duration of the attributed profit," ultimately focusing on "whether there is a risk of maintaining or deepening economic concentration centered on special related parties of large corporate groups through irregular wealth transfers."

The FTC stated, "Unfair profit provision to special related parties has relatively low predictability in law enforcement due to insufficient precedents compared to other Fair Trade Act provisions," and "especially in the case of preferential work allocation, some regulations were stricter than the law, which was considered unreasonable." It added, "This revision of the guidelines was promoted to rationally organize some provisions that were excessively regulated beyond the intent of the law."