Inter-affiliate Trading Plunges over 2 Years on Tough Rules | Be Korea-savvy

Inter-affiliate Trading Plunges over 2 Years on Tough Rules

The buildings of South Korea's major firms in Seoul. (Yonhap)

The buildings of South Korea’s major firms in Seoul. (Yonhap)

SEOUL, June 3 (Korea Bizwire)Transactions between affiliates of South Korea’s family-controlled conglomerates have fallen more than 30 percent over the past two years on tough regulations, data showed Wednesday.

The value of unfair in-house transactions by 208 conglomerate subsidiaries came to 8.8 trillion won (US$7.2 billion) last year, down 32 percent from two years earlier, according to the data by corporate tracker CEO Score.

Internal transactions accounted for 11.9 percent of their total sales in 2019, down 1.7 percentage point from 2017.

The current regulations ban inter-affiliate trading within a business group whose owner and family hold 30 percent or more of listed affiliates. For unlisted subsidiaries, the limit is 20 percent.

Such trading is blamed for allowing owner families to easily net large profits by having subsidiaries award lucrative contracts to each other, undermining the principle of fair competition.

Leading tuna fishing company Dongwon Industries Co. had the largest ratio of inside transactions to sales at 91.9 percent last year, followed by Samyang Foods Co. with 67.6 percent and major liquor maker Hite Jinro Co. with 39.4 percent.

Those family-oriented conglomerates, known as chaebol here, have been moving to sever ties with affiliates run by founders’ family members to avoid tougher regulations on intra-group deals.

There have been growing calls in the country to curb chaebol’s economic dominance and to level the playing field for small and medium enterprises.

Currently, violators of the fair trade law are subject to up to three years in prison or a maximum fine of 200 million won.


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