'Furniture, Book Publishing, and Boiler' Standard Agency Contract Established: "Delay Interest Reduction and Exemption Negotiations Required in Crises Such as COVID-19"

Minimum Contract Period, Reasons and Procedures for Contract Termination Specified
Fair Trade Commission "Plans to Establish for Home Appliances, Petroleum Distribution, and Medical Device Industries in the Future"

[Sejong=Asia Economy Reporter Ju Sang-don] The newly created standard dealership contracts for the three industries of furniture, book publishing, and boilers include provisions to reduce or exempt late payment interest through consultation in disaster and crisis situations such as the novel coronavirus infection (COVID-19).

On the 29th, the Fair Trade Commission (FTC) announced the establishment of standard dealership contracts for the three industries of furniture, book publishing, and boilers, based on the results of a survey conducted in July this year and opinions from suppliers and dealerships.

The FTC encourages the preparation and use of standard dealership contracts to voluntarily improve trading practices between suppliers and dealerships. So far, standard dealership contracts have been established for six industries: clothing, food and beverage, telecommunications, pharmaceuticals, automobile sales, and automobile parts. This year, the FTC has been promoting additional introduction for six industries: furniture, book publishing, boilers, home appliances, petroleum distribution, and medical devices.

The newly established standard dealership contracts for the furniture, book publishing, and boiler industries commonly stipulate that in disaster and crisis situations such as COVID-19, late payment interest should be reduced or exempted through consultation to ensure fair risk sharing. The late payment interest is set at the commercial statutory interest rate under the Commercial Act (6% per annum), and suppliers are obligated to notify dealerships when late payment interest occurs.

Additionally, the contracts require consultation regarding supply dates and quantities at the time of order, and stipulate that ordering, payment, and returns must be conducted transparently through appropriate methods such as computerized systems. In particular, unilateral modifications without reasonable grounds by the supplier and unfair modification demands to dealerships are prohibited.

At delivery, the type, quantity, price, and delivery date of goods must be specified through documents such as order requests, sales slips, and transaction statements. Detailed conditions such as delivery location, delivery date, and responsibility for delivery costs must also be agreed upon.

For returns, reasons such as product defects, discrepancies with order details, and supply of goods without purchase intent are specified. However, additional return reasons can be established through further consultation. Especially for the furniture and boiler industries, reflecting the reality that returns are relatively limited, dealerships are granted the "right to request consultation" regarding return-related matters.

Sales incentives must be pre-agreed in a separate agreement regarding payment conditions, timing, frequency, and methods. Changes unfavorable to dealerships during the contract period are prohibited.

Promotional events require cost-sharing considering the content and duration, required personnel and expenses, and increased sales from the promotion.

Dealerships are granted the right to request contract renewal to ensure contract security for a certain period from the initial contract date. For the furniture industry, the contract renewal request right is guaranteed until the total contract period reaches three years, and for book publishing and boilers, until the total contract period reaches four years. However, regardless of the guaranteed contract period, if there is no separate indication of intention 60 days before the expiration of each contract period, the contract is automatically extended.

Immediate termination reasons are limited to dishonored bills or checks, commencement of rehabilitation or bankruptcy procedures, compulsory auction of major assets, and suspension of production of major traded items. For serious breaches of contract other than immediate termination reasons, termination is allowed after requesting correction in writing twice over a period of 30 days or more, and if correction is not made within that period.

Separately, for the furniture industry, if the supplier proposes interior construction companies, they must provide information such as estimates from two or more companies. Also, if the supplier’s direct sales price is lower than the dealership’s supply price, the dealership can request adjustment of the supply price.

An FTC official stated, "Whether the standard contract is used accounts for the largest single score (20 points out of 100) in the fair trade agreement compliance evaluation in the dealership sector, and incentives such as exemption from on-site investigations and awards are provided based on the evaluation results. Going forward, the FTC plans to actively promote the purpose and content of the standard contract through briefings for supplier and dealership organizations and encourage its use in connection with the fair trade agreement system."