Trade regulator becomes toothless

FTC's whack-a-mole policies fail to stabilize consumer prices

By Kim Tong-hyung

As the clock ticks down the final hours of the Lee Myung-bak government, its legacy of inflation policies looks worse than the findings of a colonoscopy. And the latest group of people to become infuriated by the ghastly scenes, caused by ineptitude, is the country’s wine lovers, who have for years endured the frustration of overpaying for watery Bordeaux and cheap Chilean plonk.

Only a few months ago officials from Cheong Wa Dae were talking casually as if allowing wines to be sold on the Internet was a done deal and customers will no longer have to put up with paying a premium for mediocre vintages. But now all hands seem ready to bail as the government increasingly loses its ability to bulldoze through changes as Koreans prepare to elect a new president.

``It’s true that there haven’t been any discussions on the wine issue since related policymakers attended the May meeting at Cheong Wa Dae. The talks have halted,’’ said one government source.

``Wine prices have been dropping in recent months due to fair trade agreements (FTAs) with wine making nations having more effect and increased competition between retailers. There is less urgency now and it’s hard to expect a conclusion on whether or not to allow online wine sales by the end of this year.’’

It wasn't long ago that the country looked to be quickly earning its stripes as a wine-drinking nation. But then Lehman Brothers collapsed and credit-crunched consumers were suddenly uneasy about spending too much on fermented grape juice.

The country's FTAs with major wine-making regions like the Europe Union, the United States and Chile made little difference to prices on the shelves with the lowered tariffs negated by heavy taxes and a complex web of importers and retailers.

The country had long prohibited liquor from being sold through electronic commerce, although the ban has been lifted on traditional beverages such as makgeolli and other peasant wines to provide extra income sources for struggling agricultural communities.

The Fair Trade Commission (FTC), which emerged as an unorthodox but critical weapon against inflation for the Lee administration, appeared to be successfully suppressing resistance from tax authorities and wine importers to expand the exceptions to wine. The lifting of the online sales ban will touch off a price competition that would ``rationalize’’ wine prices, according to FTC officials.

For a government desperate to sell FTAs to the public, the wine market was perhaps the Goldilocks opportunity: not too big, not too small, just the right size to inspire headlines but not something to spark hard-to-control industry revolts. But much to the dismay of credit-crunched oenophiles, the FTC now seems unable to get anything going.

Watchdog is all bark, no bite

With the Bank of Korea (BOK) pressed to continuously put growth before inflation in previous years and waste away its influence on consumer prices, Korea’s fight against inflation had depended entirely on the government’s ability to bully private firms and prevent them from raising the prices of their products.

The FTC emerged as the main enforcer in the process with Cheong Wa Dae granting it license to liberally use its powers to conduct pricing investigations to keep companies toeing the government line.

Since last year, the anti-trust watchdog successfully pressured energy firms to lower gasoline prices, mobile-phone carriers to cut their voice call rates, national retailers to shave commissions for suppliers and close their stores on alternate Sundays, and prevented bakery chains from establishing stores too close to one another.

It also conducted anti-trust investigations on food companies, which effectively kept them from raising the price of instant noodles, airlines from altering plane ticket tariffs, and fined electronics companies and wireless carriers over collusion in mobile phone costs.

Its biggest target was banks, which it believes have been manipulating the interest rates on household and corporate loans by colluding on the rates of certificate of deposits (CDs), which are used as benchmark figures.

However, with President Lee degenerating into something between a lame duck and a fried one, the ``whack-a-mole’’ approach to inflation now seems dead as an effective strategy. The FTC, which companies complained had turned into the ``economy prosecution,’’ is now more like a rubber hammer.

If the FTC didn’t know how it felt to be on the wrong side of the interrogation table, it certainly does now. The real prosecution recently raided the agency on suspicions it went easy on wrongdoing construction companies involved in the redevelopment project of the nation’s four major rivers.

The FTC fined eight builders a combined 111.5 billion won in June over contract-rigging of key works in the disputed national project to ``renew’’ the country’s four biggest rivers _ the Han, Nakdong, Geum and Yeongsan. Then it made an unexpected decision to lower the fines earlier this month, drawing the interest of prosecutors.

With the FTC suddenly looking toothless, there has been a blitz of price increases from food companies recently, with consumers finding themselves paying more for instant noodles, beer, canned tuna, microwaveable rice, milk, soda, bottled coffee and chips.

The significant rise in fresh food prices over recent weeks, owing to the abnormally hot summer and typhoons hurting fruit and vegetable crops, add to the frustrations of grocery shoppers.

Transportation companies took their cue as well. Korean Air and Asiana Airlines recently elevated their ticket prices by nearly 10 percent. Increases in fares for taxis and intercity buses are also imminent.

Government officials are alarmed over the recent developments and have raised concerns on whether food companies have been colluding over prices.

Too bad the FTC appears reluctant to hit them hard and its chairman Kim Dong-soo now looks like a ghost of his former supremely confidence self. It’s safe to say that banks are not worrying too much about the CD-rate investigating blowing up to be the Korean version of the Barclays Libor scandal. And consumers will continue to pay as much as tennis shoes for wine that tastes like vinegar.

``It’s awkward to see Strategy and Finance Minister Bahk Jae-wan declaring that `stern measures’ will be taken against the alleged price-fixing between food companies met by a muted response from the FTC, which in previous months jumped at government orders like a hunting dog,’’ said one bureaucrat-turned-private business executive.

``The FTC just let the companies raise prices and claimed there were no suspicions of collusion. After supposedly taking flak from Bahk, the FTC belatedly said it will look into the claims but it’s hard to expect anything to come from it.’’