Fair Trade Act

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Authorities have decided to amend the Fair Trade Act for the first time in 38 years in a bid to prevent unfair business practices and protect consumers. By revising the law, the Fair Trade Commission seeks to prevent conglomerates from benefiting from loopholes in the law.

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The Samsung Life Public Welfare Foundation, where Samsung Electronics Vice Chairman Lee Jae-yong serves as a director, bought two million shares of Samsung C&T back in 2016. As a result, Samsung was able to get rid of cross-holding stemming from the merger between Samsung C&T and Cheil Industries. At the time, Lee Jae-yong's ownership in Samsung C&T surged from 16.5 percent to 17.2 percent. It aroused speculations about the use of a public service corporation to expand the governance of a conglomerate owner. In particular, the stock-to-asset ratio in public service corporations run by conglomerates is four times as high as the overall ratio in all public service corporations. What's more, about three-fourths of them belong to subsidiaries. When exercising their voting rights on subsidiaries' shares, all of such corporations voted in favor. The Fair Trade Commission has decided to prohibit public service corporations owned by conglomerates from exercising their voting rights on subsidiaries' shares. However, if subsidiaries whose shares are owned by public service corporations are listed on the stock exchange, an exception will be given so that the voting rights can be exercised for 15 percent of shares owned by affiliated persons, and a grace period will be granted. Ownership in the subsidiaries of newly established holding companies will be raised as well. This will be done to encourage holding companies to produce revenues through dividends rather than internal trading. Authorities will also strengthen regulations regarding the illegal practice of awarding lucrative contracts to subsidiaries. The new regulation will apply both to listed and non-listed companies in which the owning families hold more than 20 percent of the companies' shares.