On March 5, 2024, the Korea Fair Trade Commission (“KFTC”) announced its proposed amendment to the Enforcement Decree and the proposed enactment of the Regulation on the Operation and Evaluation of the Fair Trade Voluntary Compliance Program (“CP Notification”), which contain details of the Fair Trade Voluntary Compliance Program (“CP”) that will be enforced from June 21, 2024 in accordance with the amended Monopoly Regulation and Fair Trade Law (“FTL”). The proposed changes are based on the CP System Improvement Plan announced by the KFTC in December 2023 (Link) and set forth certain details that have been of particular interest to companies, such as the standard and scope of fines reduction, exclusion from fines reduction, and changes in the rating evaluation criteria.
Key details of the proposed changes are as follows:
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Revision of CP Evaluation Criteria and Procedure |
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Requirements for Requesting CP Evaluation: If a company requests a CP evaluation after operating the program for at least one year pursuant to the KFTC Notification, the KFTC may evaluate the performance for the immediately previous one-year period based on the criteria in the CP Notification, considering factors such as whether the company has satisfied all of the requirements to establish and operate the CP.
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Adjustment of Scoring Criteria: Certain adjustments are made to the CP scoring criteria in the Guidelines for Operating the CP Rating Evaluation currently under the oversight of the Korea Fair Trade Mediation Agency, the agency currently authorized to conduct CP evaluations.
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Consecutive requests for CP evaluation: The maximum score is reduced from 3 points to 1 point, given that the frequency of requesting CP evaluations does not play a significant role in preventing legal violations and that there are already incentives in place, such as reduction of evaluation costs. |
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Assisting other companies’ adoption of CP: Companies may obtain a maximum score of 4 points (increased from 2 points), given that providing such assistance contributes to the expansion of the CP system. The scope of companies eligible for support (currently limited to subcontractors) is expanded to include affiliates and other companies, and add-on points will be uniformly set at 0.7 points per company without differentiating based on the size of the company (small, medium, or large). |
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Performance of Voluntary Dispute Resolution Body: Currently a single score (1 point) may be earned for satisfying this criterion, but as concerns have been raised about this standard’s potential for reverse discrimination against companies with no record of dispute resolution performance, the score will be split between the establishment of a voluntary dispute resolution body (0.7 points) and receiving/processing dispute claims (0.3 points). |
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Withholding or Adjusting Rating: Rating can be withheld, not granted, adjusted, or invalidated if there are inappropriate reasons or issues identified in a CP evaluation rating.
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Withholding and non-granting: If granting a rating is deemed inappropriate because the company is being investigated by the KFTC for alleged violation of the law, the rating can be withheld or not granted until the issue is resolved. |
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Adjustment: If the KFTC imposes sanctions against the company within the period during which the rating is considered valid and effective (“rating validity period”), the rating can be adjusted down by one level (for each administrative fine imposed) or by two levels (for each criminal referral). |
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Invalidation: If sanctions were imposed against the company for obstructing investigation during the rating validity period or if the company obtained the rating through false or illicit means, the rating will be invalidated. |
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New Requirements for Incentives |
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Scope of Fines Reduction: The maximum reduction of fines is up to 20%, and for a thorough evaluation, companies eligible for the fines reduction (i.e., with a rating of AA or higher) will be subjected to an in-depth interview/assessment in addition to the existing documentary and on-site evaluations.
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Fines reduction is allowed once during the rating validity period, and the reduction is up to 10% (for AA rating) or 15% (for AAA rating) based on the second fine adjustment criteria. |
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An additional fines reduction of up to 5% can be granted if the company proves, before an investigation’s commencement, that it was able to detect and cease the legal violation through an effective operation of its CP. |
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Mitigation of Corrective Order: A one-time mitigation during the rating validity period of a corrective order to publicly disclose the legal violation will be permitted.
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Public disclosure by publication: The size of the publication and the number of media in which public disclosure must be made is adjusted down to Level 1 (for AA rating) or Level 2 (for AAA rating). |
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Public disclosure on the business premise and electronic media: The public disclosure period is shortened. |
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Exclusion from Application: A legal violation is not eligible for the fines reduction or mitigation of corrective order if it involves the following factors that are not aligned with the purpose of implementing the CP system, which is designed as a preventive measure against legal violations:
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If the person in charge of CP at the company was involved in the legal violation at issue; |
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If the legal violation occurred before adopting the CP; |
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If the legal violation includes certain types of hardcore cartels (e.g., price fixing, output restriction, agreement on transaction/payment terms, market allocation, or bid rigging); and |
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If senior officers of the company (e.g., directors, executives) were directly involved in the legal violation. |
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Incentives for Rewards and Support: In December 2023, the KFTC announced that it will consider introducing new incentives (e.g., rewards and support) unrelated to legal violations, with specific details, criteria, and extent of the new incentives to be determined through KFTC notifications.
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Evaluation Costs and Designation of Evaluation Bodies |
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Evaluation Costs: Costs of the CP evaluation (KRW 660 million for the initial evaluation and KRW 440 million for subsequent evaluations) will be borne by the company requesting the evaluation, according to the “payment by beneficiary principle” (i.e., that the party benefitting from the relevant system should bear the costs). For medium-sized and small businesses, the evaluation cost is reduced as follows:
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For medium-sized companies or institutions with annual sales of less than KRW 300 billion, the cost is reduced by 50% (i.e., KRW 330 million for the initial evaluation and KRW 220 million won for subsequent evaluations). |
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For small businesses and companies with an AAA rating in the previous year’s CP evaluation, they enjoy full exemption from the evaluation costs. |
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Designation of Evaluation Organizations: The KFTC may designate the Korea Fair Trade Mediation Agency (currently authorized to perform CP evaluations) and other institutions that have been issuing and performing fair trade-related certifications and evaluations for at least two years as CP evaluation organizations.
As the revised CP evaluation criteria and incentives in the proposed changes will be effective from June 21, 2024, companies should ensure that the introduction and operation of their CP system align with the proposed changes in order to secure a high rating in the CP evaluation.
