A Slightly "Flatter Playground"... "Improvement of Subcontracting, Franchise, and Distribution Transaction Practices"

[Asia Economy Reporter Joo Sang-don] It has been revealed that the transaction practices in subcontracting, franchise, and distribution?previously regarded as typical examples of a 'tilted playing field'?are improving. The Korea Fair Trade Commission (KFTC), the main agency responsible for the 'Fair Economy' initiative under the Moon Jae-in administration's national agenda, evaluated the progress of the fair economy efforts by stating that "gradual changes are appearing in the market."

On the 22nd, the KFTC published a collection of achievements titled "Fair Economy Performance Compilation" containing these details.

First, regarding the gap between dominant and subordinate parties (Gap-Eul issue), the perception of improved transaction practices among small and medium-sized enterprises (SMEs) and small business owners has increased. The percentage of respondents who answered that transaction practices had improved compared to the previous year rose from 86.9% in 2017 to 95.2% in 2019 in the subcontracting sector. During the same period, the franchise sector improved from 73.4% to 86.1%, and the distribution sector from 84.1% to 94.2%.

Specifically, the proportion of subcontractors who experienced unjustified demands for technical data without legitimate reasons decreased by 3.5 percentage points from 4.2% in 2017 to 0.7%. The proportion of subcontractors who experienced unfair reductions in delivery prices also decreased by 3.0 percentage points from 9.8% to 6.7% during the same period. In the franchise sector, the burden ratio borne by franchisors for franchise store environment improvement costs increased by 18 percentage points, while the proportion of franchisees who experienced infringement of their sales territories decreased by 13 percentage points. In the distribution sector, the proportion of suppliers reporting a reduction in demands for economic benefits and burdens such as sales incentives and sales commissions increased by 12 percentage points and 18.2 percentage points, respectively.

The circular shareholding chains have also significantly decreased. For publicly disclosed business groups, the number dropped from 282 in 2017 to 13 last year, and for groups restricted from mutual shareholding, the number decreased from 93 to 4. The KFTC assessed that circular shareholding chains have been virtually resolved.

The KFTC also cited the promotion of win-win cooperation between large and small-to-medium enterprises as an achievement. Through the mandatory implementation of the win-win payment system, which guarantees cash payments to SMEs on the payment date and allows discounts at the interest rates applied to large companies even before the payment date, the amount of win-win payments increased from KRW 96.9716 trillion in the first 10 days of 2018 to KRW 103.6012 trillion in the same period of 2019. The number of companies participating in the performance-sharing system increased by 22.2%, from an average of 54 between 2012 and 2016 to an average of 66 between 2017 and 2019.

Alongside this, institutional improvements were made to protect consumer rights and establish a foundation for fair taxation. The KFTC revised terms and conditions to allow refunds for professional baseball season tickets even after the season started and improved the non-refundable policies of overseas hotel reservation sites. It also amended related notifications to set the penalty fee limit for yoga and Pilates?previously without penalty fee standards?to within 10%, the same as for health clubs. Additionally, adjustments were promoted, including the highest income tax rate, an increase in the highest corporate tax rate, and an increase in the monthly rent tax credit rate.

A KFTC official stated, "The government has focused on establishing the institutional foundation for a fair economy and eradicating unfair practices so far," adding, "Going forward, we plan to continuously concentrate policy capabilities to ensure that citizens can tangibly feel changes in their daily lives through the fair economy."