FTC to control chaebol's brand commission fees

By Bae Hyun-jung
  • Published : Oct 20, 2017 - 18:13
  • Updated : Oct 20, 2017 - 18:13

Stepping up measures to reform corporate governance and alleviate market monopoly, the Fair Trade Commission is moving to tighten its grip over the brand commission which conglomerates collect from their affiliates.

Such a gesture was largely seen as an initiative of the FTC Chairman Kim Sang-jo, dubbed the “chaebol sniper” for his longtime activist stance against the country’s conglomerate-centered economy.

Fair Trade Commission Chairman Kim Sang-jo speaks during a parliamentary audit at the National Assembly in Seoul on Thursday. (Yonhap)

According to data submitted to the parliamentary national policy committee earlier this week, the FTC is currently working on establishing detailed rules and processes on the holding company’s commission collection.

A survey by the watchdog showed that of the 27 conglomerates which are subject to the prohibition of cross-shareholding, LG and SK topped in brand commission fees. Both groups charged over 200 billion won ($177 million) from their affiliates as of the end of 2014.

CJ and GS came next, collecting between 50 billion won and 100 billion won during the same year.

The brand commission payment, though not prohibited by the law, has often been pointed out as an expedient way for conglomerate heads to rake off profits as there is no detailed criteria for the due amount.

Trademark right fees usually account for 0.2-0.3 percent of the corresponding affiliate’s sales total, regardless of the net profit, which means that companies may end up paying a considerable amount to the holding company in spite of operating losses.

“The brand commission has always been prone to abuses, due to the lack of a uniform rate standard,” said Rep. Kim Hae-young of the ruling Democratic Party of Korea.

“It creates a business structure in which business profits are concentrated on the conglomerate chiefs and their families’ private use.”

The FTC had addressed the issue in 2015, carrying out a survey on key conglomerates and their affiliates but failed to follow up on its initiative. Rekindling the long-stalled issue was the appointment of Chairman Kim, who vowed to reform conglomerates and restore fair market order.

“Holding companies tend to gather all kinds of fees from their affiliates, with a share ratio as low as 40 percent or even 20 percent (in case the given affiliated is a listed company),” Kim said in a recent media interview, hinting at restricting such power monopoly.

In a gesture of compromise with the market resistance, however, the watchdog will first seek for a public announcement to call for companies’ voluntary participation, before moving onto more compulsory measures, officials said.

The conglomerate-affiliate commission fee is also expected to be a core issue in Kim’s meeting with the chiefs of the nation‘s top five conglomerates, an event slated for early November.

By Bae Hyun-jung