President Lee Jae-myung on the 5th said, "Use the price adjustment order system for corporations that raised prices through collusion." The Korea Fair Trade Commission has the authority to order corporations that raised prices through collusion to cut prices. The formal name is "price redetermination order." Earlier, on the 3rd, Ju Biung-ghi, chairperson of the Korea Fair Trade Commission (FTC), also said, "The FTC has been very passive in using price redetermination orders, but from now on we will make sure they can be used actively." A price redetermination order has been issued only once before, in a 2006 flour company collusion case.
◇ Ahead of the Lunar New Year holiday, "price adjustment order for colluding corporations"… also mentioned during Chuseok last year
At a senior secretaries' meeting at the Blue House that day, President Lee Jae-myung pointed to the recent high inflation and said, "If you colluded to raise prices, you should lower them, but instead you briefly apologize, run a discount promotion, and then pretend nothing happened," adding, "This time I want thorough management to the end so that doesn't happen. Make good use of the price adjustment order system."
This is not the first time President Lee Jae-myung has mentioned a price adjustment order. While discussing price measures ahead of Chuseok last year, Lee asked Ju Biung-ghi, chairperson of the Korea Fair Trade Commission (FTC), "Prices of food items commonly used by ordinary people, such as flour and sugar, are high—can you also issue a price adjustment order?" Ju answered, "As I understand it, it is possible."
◇ Only once issued a "price adjustment order" over flour collusion in 2006
The price adjustment order system for colluding corporations is based on Article 42 of the Monopoly Regulation and Fair Trade Act. It requires corporations that colluded to cease and terminate the collusion, withdraw the collusive price, and newly set a legitimate price. Specifics are laid out in the Korea Fair Trade Commission (FTC)'s corrective action operation guidelines.
There has been only one actual case of invoking the price adjustment order system. In 2006, the Korea Fair Trade Commission (FTC) imposed a 43.4 billion won penalty surcharge and issued a price redetermination order on eight companies that colluded on flour quantities and prices. The companies then reportedly cut prices on major flour products.
One reason the Korea Fair Trade Commission (FTC) has used the price adjustment order system very sparingly can be seen as a judgment that it is undesirable for a government agency to intervene actively in price setting, which is, in principle, left to the market.
◇ No cases of ordering "price cuts" for monopolies… Ministry of Education lost in court over "textbook price cut order"
There are cases where a price cut can be ordered even when it is not a colluding corporation. Article 7 of the Monopoly Regulation and Fair Trade Act stipulates that "if a monopoly corporation applies product prices unjustly, a price cut can be ordered." But there has not been a single case so far where the Korea Fair Trade Commission (FTC) ordered a price cut for a food materials company under this clause. A legal expert specializing in the Fair Trade Act said, "Because it is not easy to prove that a price is unjust, if the company files suit, the FTC could lose."
There is a similar system to a price cut order in the education sector. In 2014, the Ministry of Education issued a price adjustment order for 34 textbooks for 3rd and 4th graders in elementary schools nationwide and 99 high school textbooks. At the time, the Ministry of Education added a proviso to the regulations on instructional books stating that "if there is a concern that textbook prices will be set unjustly, the Minister of Education may order a price adjustment."
But textbook companies filed suit to "cancel the price adjustment order," and the Ministry of Education lost. The court found that "the Ministry of Education presented only the instructional book regulations as the legal basis for the disposition without disclosing the method of calculating textbook prices or specific calculation details." In effect, the ministry failed to prove that textbook prices were unjustifiably high.