Antitrust Implications of Defense Development Projects in South Korea: The Case of the KSS-III Project

Abstract

Following almost three years of an in-depth investigation, the Korean Fair Trade Commission (KFTC) has recently issued a decision on February 5, 2012 penalizing four domestic defense contractors for perpetrating bid-rigging in connection with the KSS-III submarine development project. This KFTC decision is quite significant in that it is the first-ever collusion case involving a defense research and development (R&D) project in the history of the Republic of Korea (ROK). The purpose of this paper is to attempt a critical appraisal of the KFTC’s Definitive Decision. Toward this end, the paper will first describe the KSS-III project, which is the first indigenous submarine development project in the ROK, and its bidding process. The paper will go on to survey the KFTC’s investigation process including the onset of the investigation and pertinent legislative framework, leading up to the agency’s preliminary report, plenary session, and, finally, the Definitive Decision. The paper will then attempt to critique the KFTC decision including a comparative analysis of the U.S. government procurement process and its legislative framework. The paper will finally end with certain policy recommendations for the ROK government relative to teaming arrangements in the defense R&D setting.