'Daegum Hullyeochigi' Sejin Heavy Industries Fined with Heavy Penalty

Fair Trade Commission Issues Corrective Order and Imposes 220 Million Won in Fines

[Image source=Yonhap News]

Sejin Heavy Industries, which has been engaging in 'payment undercutting' in transactions with small and medium-sized enterprises for years, will face sanctions from the Fair Trade Commission.

On the 9th, the Fair Trade Commission announced that it would impose corrective orders and a fine of 220 million KRW on Sejin Heavy Industries, the nation's top company in the ultra-large shipbuilding equipment manufacturing sector, for violating the Subcontracting Act.

According to the Fair Trade Commission, from May 2018 to December 2019, Sejin Heavy Industries subcontracted interior woodwork installation such as ship toilets, ceilings, and wall panels to in-house subcontractors and unilaterally reduced subcontracting unit prices without justifiable reasons.

Specifically, in 2018, when labor costs?which account for most of the subcontracting payment?increased by about 5.1%, Sejin Heavy Industries renewed contracts with subcontractors but uniformly lowered the unit price by 10% compared to the previous year. They also pressured subcontractors by warning that failure to cooperate with the price reduction could result in termination of transactions.

In 2019, Sejin Heavy Industries again unilaterally reduced subcontracting unit prices by 0.6% to 4.7% depending on the ship type. Through this method, Sejin Heavy Industries cut payments worth approximately 130 million KRW across 70 subcontracting transactions.

According to the Subcontracting Act, unit prices can be reduced uniformly only if there are justifiable reasons. However, the Fair Trade Commission explained that Sejin Heavy Industries had no justifiable reasons to reduce prices uniformly.

Ultimately, the subcontracting company could not endure the difficulties caused by continuous price reductions over several years and closed down in February 2021.

The Fair Trade Commission determined that Sejin Heavy Industries' contract practices constituted unfair subcontract payment decisions and decided to impose sanctions.

The Fair Trade Commission stated, "Even if the act concerns only one subcontractor, if the principal business operator unilaterally reduces subcontract payments without justifiable reasons, it can be subject to punishment," and added, "We will continue to monitor the principal business operators' cunning and diverse unfair subcontract payment decision practices."