firmly in place has been confirmed through an abundance of historical evidence.
The core of the Fair Trade Law is to Promote Competition
Reasonable choice of sophisticated consumers will boost the competitiveness of a company.
December 3rd is ‘Consumers' Day.' Consumers are the very flowers of a market economy since all the economic powers of a market economy originate from ‘consumers.' If a company is not chosen by consumers in the product market, it cannot create cash flow and therefore, has no choice but to be liquidated from the market. The characteristics of a market economy are expressed in a brief work, ‘consumer sovereignty.'
However, what is more important here is how to exercise this. If ‘the eyes of consumers' are not accurate enough to read a market and review a company, a company to be liquidated might survive and a company to be maintained might be liquidated. Therefore, ‘consumer sovereignty' should be coupled with ‘consumers' ability to choose.' Italian shoes dominate the world and France is leading in global fashion, because the eyes of Italian people and the fashion sense of the French are wide regarded as the world's best. Recently, Korean mobile phone handsets became recognized as top class products, which was thanks to the eye of consumers, who willingly tried using new products with new functions, and evaluated them properly. The more sophisticated the taste a consumer develops the higher quality of products and services will be provided, as companies are trained to meet the consumers' standards. As shown above, company competitiveness is attributed to, in part, reasonable choice of consumers. Therefore, companies have to accept critical consumers as friends. Clearly, the more sincere attitude a company takes about consumer protection, the more trust it will obtain.
We always recall ‘consumer protection' from the world of consumer policy. Consumer protection reflects a concept that consumers are weak. More specifically, consumers are regarded as an ‘economic minority' because they are ‘scattered and it is often difficult to unite individual power.' Under this recognition, consumer policy has focused on consumer protection only, such as consumer damage prevention and consumer complaint matters, etc. More specifically, the key contents of consumer policy so far include: prevention of deceiving or exaggerated advertisements of manufacturers, compensation for damage due to deceiving behaviors and non-performance, and lower quality products that consumers deserve to expect.
However, prevention and relief of consumer damage and taking care of consumer complains cannot be the only policy objectives. Consumer policy should establish a goal of optimum market environments where consumers can exercise their rights and 'sovereignty,' by minimizing transaction cost for reasonable choices and eliminating factors that hinder consumers from making reasonable choices. Accordingly, the ultimate goal of consumer policy can be to make ‘sophisticated' consumers. Reasonable consumption choice by sophisticated consumer groups will boost the effect of market performance by making market principles work. Credit card delinquency, one the most controversial matters, is attributable to the absence of reasonable choice of financial product consumers.
Consumer policies should do something beyond consumer protection, because ‘excessive' consumer protection can cause irresponsible consumer behaviors and in the end, increase the burden on all consumers. This is the same principle as maintaining a limited company with no competitiveness to match economic efficiency. Therefore, it is not a sound way of consumer protection to recognize such rights for excessively long periods for consumer refunds or contract cancellation.
The most important factor in nurturing sophisticated consumers is to provide accurate information for them as the foundation for their decisions. Recently, in the advertisement APT presale, important information such as floor ratio, the most significant fact, is not found. Of course you still see a problematic expression like ‘five minute walk from subway station,' despite the fact that distance to the subway station must be marked in meters and not time. Additionally, it is also important to raise the countervailing forces of consumers against businesses. This bears an important meaning of institutionally securing the path of expressing collective opinions of consumers. Once ‘a safety net to prevent abusive lawsuits' is created, the consumers collective lawsuit system should be reviewed proactively.
Competition promotion and consumer benefit increases are two sides of a coin
The most effective way to increase consumer benefits is to promote competition among enterprises. From the perspective of consumers, hectic competition among a number of bad companies is more beneficial to consumers than one good, but monopolistic, company. Moreover, any consumer protection institute cannot contribute to consumers as much as competition among businesses. Therefore, competition promotion policy and consumer protection policy have a relationship like double sides of a coin.
From the perspective of consumers, the purpose of competition promotion policy is to widen the scope of consumer choice. Companies will make efforts to meet diversified needs of consumers to get the choice of consumers, and as a result, the menu of consumer choice becomes various. Like this, competition policy is something designed to expand the scope of competitive products that consumers can choose, while consumer policy is something designed to help consumers to make the best choice among the products they can choose between.
Despite sophisticated choices of consumers in their consumption life, if various menus of products cannot be provided due to unfair transaction behaviors or unreasonable regulations by the government, the choice that consumers make under those environments would not be as good as the best choice that consumers can make in competitive markets. The basic foundation for punishing behaviors aimed at limiting competition, such as unfair transaction or illegal price-fixing is that those behaviors are highly likely to bring a loss in consumer benefits.
Competition policy should be reinterpreted in connection with consumer policy. Generally, competition behaviors have a precondition of ruling out competitors, and the more threats that are put on the position and survival of competitors, the more efficiency and consumer benefits they will enjoy. Competition is something to which you have to devote all your energy; it's not a game for different weight classes. Therefore, a mere loss due to discrepancy of interests between two businesses cannot be the foundation for judging fair competition. This means that the fair usage of competition resources based on efficiency of the strong in a competition between the strong and the weak cannot be regarded as an ‘economic abuse (of more favorable position.)' Of course considerations and protection for small and medium-sized companies are needed. However, his kind of affirmative action should be applied in finance, taxation and support of human resources first. Anti-competition behaviors that authorities should put restrictions on should be limited to government control, illegal fixed price and despoliation of competitors, aimed at dominating markets regardless of efficiency. Authorities have designated ‘proprietary business items only available for small and medium businesses.' The razor business is one of the most representative cases. All roads are blocked such that large Korean companies have not been able to advance into the razor business, but the measures were not able to stop foreign players like ‘Gillette' from coming into the Korean market. Apart from its original intention, proprietary business items only for small and medium size businesses have been working as competition restrictive measures that go against consumer benefits.
Consumer policy should be adjusted from the perspective of competition policy. If a consumer policy is tilted too much towards the prevention of consumer damage or securing safety, these control measures run the possibility of limiting, or even blocking, the provision of products beforehand and therefore, narrowing the scope of consumer choice. This can create an effect of falling in a trap set by themselves, narrowing the scope of choice.
Consumer policy and competition promotion policy are the two core policies of the Fair Trade Committee.
Article 1 of the Fair Trade Law ends with, "……is designed to promote the balanced development of national economy." This seems to be why the Fair Trade Committee calls itself a competent judge and all-around player. However, the Fair Trade Law should be something to ‘promote competition and consumer benefits' as it originally states.
A market economy is controlled in accordance with the logic of each market, in principle. More specifically, the finance market is supposed to be controlled through finance-related regulations such as Bank Law. The capital market is to be controlled through the Stock Exchange Law and the Disclosure system. However, the Fair Trade Law gives the impression that it covers all the regulations in the market. For example, it deals with such detailed items as dynamics of share holders (corporate governance), resolution of the board over internal transactions and its disclosure as well as restrictions on decision making rights of financial institutes. Incorporated control mechanisms like this new law may well cause a problem of overlap. This can be compared to the fact that the Fair Trade Committee does not put importance on the governance of national policy, but on corporate governance. With this type of incorporated control mechanism, fair trade policies might be misunderstood as currency or finance policy, which will be controlled in accordance with economic status. The exercise of the Fair Trade Policy should be consistent all the time, which should be focused on ‘promoting competition' and ‘increasing consumer benefits'.
The Fair Trade Committee has been controlling competition, rather than promoting competition, with its arbitrary interpretation (protection of the weak) over ‘the prevention of abuse in market dominance and economic power.' What is clear here is that disadvantages of competitor and transaction parties cannot be the criteria for judgment. Fair competition should be defined and applied to the relationship between consumers and businesses, not between businesses. Therefore, the designation of proprietary item only for small and medium business is a measure that goes against competition promotion. Furthermore, it is true that the core of the market competition law such as efficiency boost and increase of consumer benefits is not activated by stipulating a kind of ‘social objective' on the Fair Trade Law such as constraining economic power concentration.
Now is the time for the Fair Trade Committee to streamline its functions as a key department comprehensively managing and exercising consumer policy and competition policy. Therefore, from the perspective of the governance of consumer policy, the Ministry of Finance and Economy or the Consumer Protection Institute shall take care of institutional measures aimed at consumer protection. The principle of ‘Choose and Focus' therefore can, and must be, applied to government policy and authorities.
Cho, Dong-Geun (Professor, Economics Department of Myeongji University, email@example.com)