The purpose of this paper is to analyze the problems of equity investment regulations in Fair Trade Act and to suggest a new alternative.

In the middle of 1980s', the Korean government has introduced the equity investment regulations into Fair Trade Act for diminishing the concentration of economic power by the big business groups. The equity investment regulations prohibit direct cross ownership between the big business groups's subsidiaries, and allow for each subsidiary of the big business groups the equity investment in other domestic companies not exceeding 25% of its net assets. We can say that these regulations is focusing on pressing down the negative effects of equity investment

It is important to note, however, that these regulations have prevented the big business groups from utilizing the management resources efficiently and restructuring their business freely. Now we need to abolish the equity investment regulations in Fair Trade Act for removing the obstacles to restrict the positive effects of equity investment, and for recovering the competitive power. The problems of these regulations, we think, is that they restrain the competition and the function of market mechanism, and severely restrict the creativity of the private sector.

Instead of abrogating the equity investment regulations in Fair Trade Act, however, it is necessary to work out a countermeasure for catching up with the negative effects of equity investment. In conclusion, we suggest to put the goods and the control market competitive, to prohibit the anti-competitive business integration strictly and additionally to set a rule for adjusting the conflict of interests between parent and subsidiaries.