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No.533 2007.12.27 Korea National Council of Consumer Organizations
2007 Top Ten Consumer News

Press Release No. 533, Issued on 27 Dec. 2007

Korea National Council of Consumer Organizations

2007 Top Ten Consumer News

1. Collective Dispute Mediation and Litigation Systems Introduced by the Framework Act for Consumer Protection, Facilitating the Compensation of Identical or Similar Collective Interests

On March 27, 2007, the Framework Act on Consumer Protection went into force. The Fair Trade Commission is responsible for its enforcement, while the Finance and Economy Ministry is responsible for formulating the relevant policies. Collective dispute mediation, implemented since 2007, has the merit that consumer damages may be settled promptly without going through time-consuming court proceedings, as disputes on identical or similar damages may be mediated collectively if 50 or more consumers are involved [in one case]. Furthermore, the collective action lawsuit is also being introduced from 2008. It is expected that the Framework Act on Consumer Protection will play its role of practically protecting consumer interests effectively.

2. ROK-USA Reach Agreement on FTA Terms Which Still Require National Assembly Ratification

The ROK and the USA issued an official declaration to the effect that they reached full agreement on their FTA terms on April 2, 2007. The FTA is an acronym of Free Trade Agreement, which is a free trade treaty designed to ultimately eliminate all trade barriers for the free movement of tangible and intangible goods between countries. It is estimated that an average US$1.96 billion annual trade surplus will be earned by the automobile, textile, electric and electronics, general machinery, steel, chemical, and consumer appliances industries, among others, over the next ten years. Domestic prices will fall on the whole because markets will be opened with lowered import duties. In addition to any benefits accrued from such a direct price fall, it is also conceivable that consumers will benefit from a wider range of purchase options. On the other hand, the government should urgently introduce countermeasures against damages to the agricultural sector, which requires a new differentiated strategy in order to make our agricultural products more competitive.

3. Taean Peninsula Hit by Korea’s Worst Ever Oil Spill - Damages Tallied So Far Amount to Roughly 300 Billion Won

On December 7, 2007, 10,500 kiloliters crude oil was spilt into the sea to the northeast of Malli-po, Taean-gun, Chungnam. The local government of Chungnam Province has disclosed that the oil polluted an area covering 8,223ha, which includes 2,108ha of seashore belts, six beaches covering 221ha, and 5,894ha of fishing grounds (including fish farms).

Experts are concerned that the damages will continue to effect the area for several decades if the early oil removal operations fail, as far more oil was leaked in this incident than in the Sea Prince oil spill which hit the Yeosu area in 1995. Virtually irreparable damage has been inflicted on the area’s tidal flat because the oil slick permeated into sand and mud flats, killing the shells and angleworms there. Indeed, even if the early removal operation is executed well, 50% or more of the oil slick nonetheless appears to have sunken to the sea bottom. Sunken oil emits poisonous substances which accumulate in plankton and seaweed. It is reported that cultivated oysters and mother of pearl shells have suffered the most damage from the oil slick. According to fish retailers, the volume of fishery produce from fish farms in the Taean and Seosan areas has decreased by 20~30%, while auction prices have increased by 10~20% in general. It is expected that the consumer burden will increase accordingly.

4. Apartment Unit Ad Constitutes Part of Sale Contract, Meaning that Excessive Data Communication Service Charges Should Be Returned

The court ruling in 2007 is noteworthy in that it recognized for the first time that an apartment unit advertisement constitutes part of the unit’s sale contract. In June 2007, the court ruled that a developer who failed to perform his contractual obligations should be liable for damages caused by an apartment unit that was built differently from his original advertisement, because such advertisement details as those related to a unit’s external design, structure and building materials also constitute part of the terms of the material sale contract.

This is the second court decision on a lawsuit filed by nine consumers against SK Telecom last October claiming for compensation of damages amounting to between 200,000 and several million won as a result of excessive mobile phone bills. The court ruled that the defendant company should return the excessive mobile phone data communication service fees charged on minor users without offering a detailed explanation of the fees in advance. This was the first instance of a court issuing such a decision against a mobile phone service operator. The consequences of the other pending lawsuits filed against KTF and LG Telecom have also attracted our attention.

5. Commodity Prices Increase Sharply Due to High Oil Price, Raising Consumer Prices by 3.5%, the Highest Rise for Three Years and One Month, in November 2007

International oil price rises to a new high day after day, seriously affecting the entire economy from consumer spending to industrial growth and business operations. Korea has been especially hard hit by the rising oil price, as all her petroleum is imported from overseas. An oil tax cut was recently discussed as a countermeasure against the rising oil price: the government, however, expressed its objection to the proposed cut saying, “No country has countered the current oil price hike as it is a structural issue.”  It is urgently required to formulate policies for the more efficient usage of petroleum. There is also a strong appeal that measures should be developed to protect the environment, which is being damaged by oil.

6. Fund Managers’ Balance Exceeds Bank Term Deposits by 500 Billion Won amid Heated Fund Investments

On November 12, 2007, the equity investment fund balance exceeded the 100-trillion- won mark for the first time, although local share prices fell drastically. Money invested in equity funds last year hit 55 trillion won. Some investors have invested recklessly in China, Insight and certain other funds. According to the Bank of Korea, the balance of fund management firms’ receipts as of the end of September was 269.5433 trillion won, exceeding the total balance of bank term deposits by 500 billion won or more. It is said that the fund investment balance exceeded the bank term deposits for the first time in the seven and half years since the outbreak of “Buy Korea” investment fever in March 2000. Experts advise that composed investment is necessary as the 1999 Buy Korea Fund investment fever led to serious and protracted after effects.

7. JU Network and Other Illegal Pyramid Sales Firms Sentenced to Heavy Punishment Because of Fraudulent Acts

The appellate court sentenced Ju Su-do, the CEO and chairman of JU Network (CEO: Ju Su-do), to a 12-year prison term. Ju Su-do, was also sentenced by the first instance trial court to the same jail term after being convicted of committing fraudulent acts and causing 2.1 trillion won in damages through illegal pyramid sales. The court declared the fraud charges, saying, “It has been ascertained that the company deceived its members into believing they would be paid certain guaranteed allowances in proportion to their sales.” The heavy punishment of a 10-year prison term was passed on a former chairman of We Best (CEO: An Hong-heon), who was also found guilty of duplicaing the same pyramid marketing scheme as JU Network. Recently, a 9-year prison term was meted out to CEO Jang Dae-jin of Dynasty and DK Corporation, a subsidiary Dynasty. In view of the heavy punishments handed out to the agents of illegal pyramid sales companies, it looks likely that the pyramid sales circle will shrink substantially.

8. National Assembly Decides to Deliberate on the Proposed Amendment to the Healthcare Act Following a Tense Controversy between Government and Industry

The advertisement of healthcare services was legalized in 2007 following a Constitutional Court ruling that the regulation of healthcare service ads is unconstitutional, and the proposal of an amendment bill for the Healthcare Act, which the National Assembly finally decided to examine after a tense controversy between the government and the healthcare industry. The Healthcare Act amendment bill proposed by the government includes such key details as the healthcare service providers’ obligation to explain to patients compulsory entries on patient charts, the reinforced protection of medical records, and foundation for receiving prescriptions on behalf of patients. It also provides the violations be notified to healthcare service providers’ (trade) organizations, the improved classification of healthcare institutions, autonomy in displaying the nomenclature of healthcare service institutions, partial permission of patient inducement and recommendation, enhanced assignment of duty doctors and nurses, improvement of medical record transfer, permission for freelance healthcare service, and the introduction of merger processes between healthcare institutions.

9. Rapid Changes to the Financial Service Market and Controversy over Excessive Advertising by Moneylenders

The Capital Market and Financial Investment Service Act Bill virtually passed the legislature gateway after being unanimously approved by the financial service sub-committee of the National Assembly Finance and Economy Committee, which had been considered as the hardest obstacle to overcome. Amid the trend that is being accelerated by the free movement of capital funds, the opening and globalization of financial service markets, and the restructuring of the financial service industry, the industries regulated under the so-called capital market integration law are categorized into banking, securities, and insurance. It has been forecast that extensive reform will be brought about among the existing financial service market, where only individual companies competed with each other within the respective industries.

On the other hand, consumer damages continued because of excessive advertising by moneylenders on their so-called ‘interest-free’ loans, and home-shopping TV advertisements of insurance products which employ famous entertainers in their ad spots. Recently, the Fair Trade Commission imposed fines on some moneylenders for excessive advertising while issuing orders for correction. However, the public calls for policy measures for the reinforced regulation of false or excessive advertisements at a point of time when cable and satellite broadcasting have become ubiquitous.

10. KBS and MBC Air More Consumer Complaint Programs, Sharply Increasing Consumer Returns and Refund Requests

In 2007, many more consumer-related programs were aired on the major public broadcasting channels, including MBC’s ‘Zero Discontent’ and KBS’s Consumer Complaint Program, which is hosted by producer Lee Yeong-don. The consumer complaint programs offer such benefits as fostering a sense of awareness among consumers and preventing any further damages by informing them of product or service deficiencies in advance. However, after the program in which problems with mud packs were reported, some have been critical of it, stating what should be countermeasures against damages to the additional victims, or claiming that the extent to which consumers should rely on the press reports has become ambiguous. Public media services tend to complete with each other for their view or Internet logon rates in order to earn revenues comparable to the heavy investments required for their diversification of services and the increase of service scales. Indeed, they are broadcasting ever more provocative or violent programs in a bid to attract more viewers, and juvenile viewers in particular. Furthermore, many parents have expressed their concern, indicating that the current film grading scheme is deficient as it does not effectively block juveniles from viewing x-rated films or programs.

▶ Contact: Kim Eun-ok, Secretary, Korea National Council of Consumer Organizations (02-774-4050)



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