HindustanTimes.com

Monday, October 6, 2003

S Korea fines six conglomerates for unfair trade

Reuters
Seoul, October 6

South Korea fined six business groups on Monday a total of 32.6 billion won
($28.45 million) for unfair trading activities, but analysts said the
punishments appeared to have been watered down on fears a heavier clampdown
would further depress investors.

"In economic hard times, what companies need is incentives, and not
punishments," said So Jae-young, an economist at Daehan Investment Trust and
Securities Co.

"So, the penalties appear to be lighter than we expected them to be."

The Fair Trade Commission said 22 units of the country's six major
conglomerates -- Samsung, LG, SK, Hyundai Auto, Hyundai Heavy (shipbuilding)
and Hyundai Group (others) -- had been fined over unfair transactions worth
684.4 billion won and illegal provision of help to affiliates worth 90
billion won.

The fines represented just under five per cent of the adjudged amount of the
unfair transactions.

President Roh Moo-hyun, who took office in February, has promised to crack
down on the sprawling family-run conglomerates, known as "chaebol", which
were blamed for the 1997-98 financial crisis that drove South Korea to the
brink of bankruptcy.

Critics say a web-like ownership structure within units of the business
groups, whereby the owning family controls individual units through a chain
of stakeholdings, remains a key flaw in South Korean business structures.

Unsuccessful companies are often kept alive by heavy lending from viable
affiliates, and minority shareholders can lose out.

Financial markets shrugged off the commission's announcement, with the
benchmark stock index ending up just over one per cent.

UNIONS UNHAPPY

Unions also felt the probe had not gone far enough.

"Chaebol business practices need to become more transparent and more
democratised. But the result of the FTC investigation falls short of our
expectations," said Sohn Nark-koo, spokesman for the Korean Confederation of
Trade Unions, a hard-line umbrella union group.

The potential scale of problems in South Korean business became clear after
a $1.2-billion accounting scandal was unearthed at trading firm SK Global Co
Ltd in March.

Joh Hak-kuk, vice chairman of the FTC, told reporters the amount of unfair
trading practices had declined, but also conceded that the investigation
into the six chaebols had been scaled back because of an economic slowdown.

"Unfair trading practices have been on the decline as the FTC has made
strenuous efforts to fix them," Joh said.

Illegal financial support, such as unrepaid loans provided to affiliates,
were down from 120 billion won worth found in an investigation in 2000, Joh
said.

SK Group suffered the biggest penalties, with 29.7 billion won in fines
slapped upon it. The commission fined Hyundai Motor 2.5 billion won and
Samsung Group 222 million won.

The combined revenue of the six groups reached 319 trillion won in 2002, or
the equivalent of more than half the country's gross domestic product for
the year.

The chaebol dominate Asia's fourth-largest economy, although some of the
top-rankers collapsed under piles of debt at the height of the 1997-98
financial crisis.

Alarmed by militant labour unions and North Korea's nuclear weapons
ambitions, many South Korean companies have sought to move their plants to
cheaper-labour countries like China and the Philippines.

The trade watchdog conducted an investigation into the business groups in
June and July.

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