Raising SME Negotiation Power and Increasing Large Corporation Fines... Public Debate on Profit-Sharing System

[Asia Economy Reporter Park Cheol-eung] A bill allowing the Korea Federation of SMEs to intervene and adjust payment for supplies when small and medium-sized enterprises (SMEs) trade with large corporations is expected to pass. The purpose is to enhance negotiation power. Considering cases like Costco, which proceeded with opening despite government recommendations for temporary suspension, related fines will be increased from 50 million KRW to 100 million KRW. A public hearing will also be held on a bill that shares profits generated through joint efforts between large corporations and SMEs.

According to the National Assembly on the 24th, the Industry, Trade, and Small and Medium Venture Business Committee decided to bring to the plenary session a chairman’s draft (alternative) that integrates three amendments to the "Act on Promotion of Mutual Cooperation between Large Enterprises and SMEs," each proposed by Democratic Party lawmakers Eo Gi-gu and Kim Kyung-man.

The current law allows SME cooperatives to apply as entrusted companies and negotiate payment adjustments with consigning companies. However, considering that cooperatives are also small-scale or lack negotiation power, the Korea Federation of SMEs is allowed to apply for adjustment. SME cooperatives must apply for adjustment to the consigning company or the Federation within 20 days of receiving the adjustment application, after passing a general meeting or board resolution.

The bill also includes provisions to enable the government to take a more active stance against unfair practices. The Minister of SMEs and Startups can order consigning companies that violate compliance requirements to take corrective measures such as payment of supply fees or cessation of illegal acts. Failure to comply with correction orders may result in imprisonment of up to one year or a fine of up to 50 million KRW.

Additionally, fines for violating temporary suspension orders by large corporations will be increased from 50 million KRW to 100 million KRW. If damage is expected due to the business entry of large corporations, SME organizations can apply for business adjustment, and the Minister of SMEs and Startups can recommend temporary suspension of openings. The background for the bill’s introduction is the repeated violations of enforcement orders by large retail companies such as Costco.

Furthermore, the Small and Medium Venture Business Subcommittee of this standing committee decided at a meeting the day before to hold a public hearing on the mutual cooperation profit-sharing system included in the Act on Promotion of Mutual Cooperation, to listen to stakeholders and experts before continuing deliberations.

The bill, proposed by lawmaker Cho Jung-sik, former chairman of the Democratic Party Policy Committee, expands the existing performance-sharing system. Cho said, "The fair distribution of mutual cooperation between large and small-medium enterprises and the spread of performance remain insufficient, and polarization has not been properly improved," adding, "There is a need to introduce a Korean-style profit-sharing system called ‘Cooperative Profit Sharing System,’ which shares profits of large corporations generated through joint efforts with partner companies based on prior agreements between the two parties."