COMPETITION POLICY: AMBASSADOR'S MEETING WITH

UNCLAS SEOUL 001868 SIPDIS SENSITIVE SIPDIS PASS USTR FOR CUTLER, AUGEROT AND KI JUSTICE FOR STU CHEMTOB AND RENATA HESSE STATE FOR EB/TPP/IPE, EB/OIA, EB/TPP/BTA AND EAP/K COMMERCE FOR 4431/MAC/OPB/EAP/DUTTON TREASURY FOR IA/ISA/BUCKLEY AND ITT/CHANG E.O. 12958: N/A TAGS: ETRD EINV PGOV KS SUBJECT: COMPETITION POLICY: AMBASSADOR'S MEETING WITH KOREA FAIR TRADE COMMISSION CHAIRMAN KWON OH-SEONG SUMMARY -------------- ¶1. (SBU) Newly-appointed Korea Fair Trade Commission (KFTC) Chairman Kwon Oh-seong told the Ambassador on May 25 that he is planning to redirect KFTC policy toward a stricter approach toward anti-competitive commercial practices, while taking a lighter touch toward limiting the overall economic power of Korea's family-run "chaebol" conglomerates. The Ambassador cautioned Chairman Kwon that over-zealous regulatory pursuit of foreign firms could dampen the enthusiasm of foreign investors to put more capital into Korea. End Summary. FTA COMPETITION POLICY CHAPTER AND "COMITY" -------------- ¶2. (SBU) Chairman Kwon was appointed Chairman of the KFTC in March, capping an illustrious career as one of Korea's leading academic experts on competition policy issues. He welcomed the Ambassador, noting that Korea has a lot to learn from the United States' 125-year history of anti-monopoly policies. Kwon said he enjoyed hosting U.S. Fair Trade Commission Chairman Majoras in early April, and learned a lot from her lecture. Kwon said that he expects that the competition policy chapter of the U.S.-Korea Free Trade Agreement will be negotiated without much difficulty. ¶3. (SBU) The Ambassador noted that fair anti-trust adjudication is an important element of an attractive investment environment. Observing that Microsoft is appealing the KFTC's decision against it to the Korean courts, the Ambassador encouraged Kwon to consider the benefits of respect for "comity" and the usefulness in situations like that of Microsoft to respect international precedent, especially when that precedent is set in a multinational corporation's home market and the plaintiff itself is a foreign company. Access to the latest information technology innovations is an important "public good," the Ambassador explained, and said he hoped that Korean consumers will not be disadvantaged by the KFTC decision. He also expressed concern about a potential chilling effect on investment in Korea's high-technology sector, particularly software development. ¶4. (SBU) Chairman Kwon responded that both sides claim to be defending the best interests of consumers. He explained that Korean anti-trust law differs from that of the United States in that it mandates the KFTC to explicitly prevent the "abuse of a market dominant position." This is why Korea used the European Union approach in the Microsoft case. Kwon admitted that it was a difficult decision, but added "we did our best." Concerning KFTC's ongoing investigation of Intel Corporation, Kwon confirmed that the KFTC was acting based on a tip-off by AMD. The investigation is still in its early stages, but thus far Kwon said there appears to be some evidence of wrongdoing and damage to Korean companies. NEW FOCUS ON ANTI-COMPETITIVE PRACTICES -------------- ¶5. (SBU) Kwon volunteered to explain his own approach to competition policy issues, and how that would differ from his predecessor Kang Chul-kyu. Whereas former Chairman Kang took a broad view of his responsibility to rein in the economic power of the "chaebol," based on "market distortions" resulting from an excessive concentration of capital, Chairman Kwon said that he would focus more narrowly on actual anti-competitive practices. Kwon said he hoped to de-politicize the Korean government's approach toward the chaebol. For example, even as he tries to prevent chaebol affiliates from unfairly leveraging the market power of their parent companies, he would not seek to break up the chaebol nor try to explicitly fight family ownership. ¶6. (SBU) The Ambassador praised the Roh Administration's anti-corruption efforts, which are particularly welcomed by foreign investors. Kwon then inquired about the U.S. Government view of the Lone Star investigations. The Ambassador responded that Korean investigatory authorities seem to be "piling on" to Lone Star to win political points. This has created uncertainty among potential foreign investors as to whether Korea still wants foreign investment. Kwon defended the investigations, stating that many in Korea believe that after the financial crisis "some foreign companies are taking more from Korea than they contributed." EconMinCouns explained Lone Star's perspective: the company saved a dying bank and added to its value, and simply wants recognition of the value of its investment. COMMENT -------------- ¶7. (SBU) Kwon's statements about his chaebol policy are consistent with statements coming from Financial Supervisory Commission Chairman Yoon Jeung-hyun calling for easing of Roh Administration efforts to limit intra-chaebol cross-investments. It would appear that three years of complaints from Korean big business have started to wear down Roh Administration resolve to seek greater "justice" in the socio-economic realm. End Comment. VERSHBOW