Is South Korea practicing protectionism?

During Jeong Jae-chan’s visit to Washington, DC last week, he didn’t receive the attention or draw the crowds that Pope Francis will at the end of the month.  But his appearance will be an important one nonetheless, because it could have a lasting impact on the ability of American businesses to compete in the global economy.

As the chairman of South Korea’s Fair Trade Commission (KFTC), Jeong has substantial control over the South Korean economy and the companies that drive it. But over the past several years, South Korea’s anti-trust agency has exhibited alarming behavior that threatens the viability of companies doing business in South Korea, including such major American corporations as Apple, Google, Intel, Microsoft, Oracle and Qualcomm.  As the meetings with officials at the American antitrust agencies (DOJ and FTC) last week, serious issues about their actions needed to be raised.

{mosads}There is a growing concern that the Korean agency is using its competition and antitrust policies to target American companies in order to protect their domestic companies.  A practice that raises serious international trade implications.  As Roger Kay of Endpoint wrote in Forbes earlier this summer, “The KFTC has pretty much run amok in recent years, slapping spurious charges on foreign companies as it attempts to execute a protectionist agenda that it thinks benefits entrenched South Korean manufacturing interests.”

Simply put, the KFTC investigates and fines companies at an alarming rate with many American companies becoming the targets, with an apparent emphasis on those in the high-tech sector.  Between 2012 and 2014 alone, the commission issued nearly 1,200 rulings. According to one observer, “there are an increasing number of cases where the line of illegality is ambiguous.”  That uncertainty is evident by how often the KFTC’s findings are appealed.  In 2014, the KFTC issued 345 rulings; 71 (or over 20 percent) of those rulings were contested.  And these appeals to South Korean courts have often succeeded and resulted in KFTC decisions being overturned.  Also in 2014, courts issued decisions on 132 appeals and ruled in either partially or fully in favor of appellants 20 percent of the time.  And over the past five years, the KFTC has been ordered by South Korean courts to reimburse 326.7 billion won in fines levied against businesses.

It’s not just the number of rulings and reversals, or the amount of the fines; observers are also alarmed by the KFTC’s questionable tactics.  A preferred method is the so-called “dawn raid.” The KFTC conducted unannounced raids of Google’s South Korea’s offices in 2010—and again in 2011.  As if it’s not bad enough for a trade commission to raid a corporation’s office for documents, Global Investigations Review reports that the KFTC often does so without a warrant–a basic due process safeguard against government bullying and overreach. 

In another instance, the KFTC took an unusually long time to approve Microsoft’s acquisition of Nokia.  The acquisition was announced in September 2013, approved by the United States the following April and Europe in December 2014, but by South Korea only last month, many months after the acquisition closed.

Experts suggest that a major problem with the agency is that it is simply under resourced and insular in its thinking.  One former employee explains that the agency’s work force is stretched to handle the volume of investigations, which creates situations in which “a judge and a prosecutor are working in the same department.”  He also pointed out that many KFTC staff lack economics and legal training and, therefore, do not adequately understand the market dynamics or laws at issue, or the impact and high-stakes of the rulings they make.  South Korean Congressman Lee Jong-geol has even suggested establishing a Citizen Judgment Committee to review the KFTC’s rulings.

During his visit last week, KFTC Chair Jeong and the FTC’s Chair Ramirez and DOJ Assistant Attorney General Baer signed a Memorandum of Understanding detailing cooperation between the U.S. and Korean agencies.  The U.S. government should use this MOU and apparent increased relationship to ensure that the Korean authorities are treating U.S. companies fairly and pursuing real antitrust enforcement, rather than inappropriately using their law as a protectionist tool.

It is crucial for all nations hoping to compete in a free and global marketplace to have transparent and reliable regulators and monitoring agencies.  As partners in the historic U.S.-Korea free trade agreement, it’s critical that U.S. officials pay close attention to an “ally” and trading partner using aggressive antitrust law to unfairly help their own companies at the expense of ours.  Jeong’s visit was a lost opportunity because our FTC and DOJ officials didn’t effectively express concerns over the KFTC’s structure, motives and practices. It would have been a valuable opportunity to stand up for free trade, defend American businesses and jobs, and protect the important historical relationship between the United States and South Korea.

Telford ispresident of the Franklin Center for Government & Public Integrity.