South Korea Extends Hanwha-DSME Deal Oversight by Three Years

In a significant move impacting South Korea's defense industry, the Fair Trade Commission (KFTC) has decided to extend the corrective measures associated with Hanwha's acquisition of the former Daewoo Shipbuilding & Marine Engineering (now Hanwha Ocean) by an additional three years. This decision marks the first time the KFTC has prolonged such behavioral corrective measures, underscoring the complexities and sensitivities surrounding market competition in the critical naval sector.

The initial measures, implemented in May 2023, were designed to mitigate potential competition restrictions arising from Hanwha's increased market share in naval vessel and submarine parts. At the time, Hanwha subsidiaries held dominant positions in various component markets, while DSME was a leading player in the naval shipbuilding sector. The KFTC's primary concern was the possibility of Hanwha engaging in discriminatory pricing or unfairly sharing sensitive information with DSME, thereby disadvantaging competitors in the bidding process for naval contracts.

However, a recent analysis by the KFTC revealed that the competitive landscape has not sufficiently evolved to alleviate these concerns. Hanwha Ocean continues to be the top player in both surface vessel and submarine markets, and Hanwha Aerospace or Hanwha Systems remain dominant in eight out of ten key naval parts markets. This persistent market concentration led the KFTC to conclude that the original measures must remain in place to ensure fair competition and prevent monopolistic practices.

While the KFTC has eased restrictions in two specific parts markets where new entrants have fostered greater competition, the majority of the market remains under scrutiny. The commission has also stipulated that these measures could be extended further, for up to an additional two years, depending on future market conditions and regulatory changes. This prolonged oversight reflects the government's commitment to maintaining a level playing field in a strategically vital industry, ensuring that national defense capabilities are not compromised by monopolistic control.

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We determined that the concerns about competition restriction have not been resolved.