FTC to tighten control on chaebol’s overseas units

2013-10-31 17:03

FTC to tighten control on chaebol’s overseas units

By Kim Tae-jong
The Fair Trade Commission (FTC) is considering regulating conglomerates’ intra-affiliate deals involving overseas units amid growing criticisms of a loophole in the nation’s anti-trust law. The move came about after lawmakers criticized the nation’s anti-trust watchdog. So far it has strengthened rules against inter-affiliate deals taking place domestically, although there are growing intra-group transactions through offshore affiliates.“With the growing criticism, we will review measures on how to tackle intra-group deals involving foreign units,” an official from the anti-trust watchdog said.
But the FTC is very cautious about the matter, citing difficulties in probes and ineffectiveness.
“It’s very difficult to regulate conglomerates’ intra-transactions with their overseas units, and we don’t believe it will be very effective in doing so,” he said.
But the regulator is obviously in a dilemma as it cannot overlook the practices of intra-group trading through overseas business units, especially as the Park Geun-hye administration is aggressively pushing forward its “economic democratization” policies aimed at curbing conglomerates’ abuse of power, and offering more business opportunities to small-sized firms.
The recently revised anti-monopoly and fair trade law, which will take effect in January, aims at banning families of chaebol owners from accumulating wealth by unfairly favoring their subsidiaries when awarding contracts.
As chaebol family members are the largest shareholders of most of the “favored” subsidiaries, there are concerns that such transactions have helped owning families amass wealth too easily.
But there are currently no rules prohibiting intra-group transactions involving overseas deals.
Rep. Park Min-shik of the ruling Saenuri Party raised the need to apply the law even to foreign affiliates during a parliamentary audit session into the FTC on Oct. 15, because of growing intra-trading deals with offshore affiliates.
The portion of inter-affiliate domestic deals of six major conglomerates such as Hyundai Motor, Samsung Electronics and LG dropped by 1.94 percent or 800 billion won last year from 2011, but the portion increased by 2.6 percent or 27.8 trillion won when including deals between its offshore affiliates, according to Park.
By firm, the portion of Samsung’s domestic intra-group deals was estimated at 9.0 percent and worth 28.2 trillion won last year, down from 13.2 percent and 35.3 trillion won from the previous year, but the figures soared to 48.45 percent and 151.4 trillion won when including deals involving offshore affiliates.
Intra-group deals among local affiliates at Hyundai Glovis, the shipping unit of Hyundai Motor Group, accounted for 35 percent of its total sales last year, but if deals taking place among its offshore affiliates are included, the ratio could jump to 81.9 percent
“Large conglomerates can take advantage of their offshore affiliates in order to avoid regulations on inter-group deals that only focus on trading taking place domestically,” Park said. “FTC should strengthen its monitoring on intra-group deals involving conglomerates’ overseas units.”