[Hopes for the 22nd National Assembly] Dual Regulation of Large Stores... The 'Nail in the Coffin' of the Win-Win Law Must Be Removed

The 22nd National Assembly Opens Today... Top Priority Task for Distribution Regulation Improvement
Reconsideration of Large Mart Operation and Store Opening Regulations

The Yoon Suk-yeol administration announced earlier this year that 76 local governments nationwide would change the mandatory closure days for large supermarkets to weekdays and allow online delivery during restricted business hours (0 a.m. to 8 a.m.). The Distribution Industry Development Act, which includes regulations on large supermarket operations introduced in 2013, has been subject to revision attempts every time the National Assembly's term changes, but has repeatedly failed to pass the parliamentary hurdle.

The distribution industry regards the easing of these large supermarket business regulations, along with improvements to the business adjustment system applied when opening large-scale stores, as the most pressing "thorn under the fingernail" to be addressed in the 22nd National Assembly, which convenes on the 30th.

KEF’s No.1 Distribution and Food Regulation Improvement: 'Business Adjustment'

The business adjustment system, stipulated in the Act on the Promotion of Mutual Growth between Large and Small Enterprises, is a mechanism where the Ministry of SMEs and Startups mediates and may recommend or delay the commencement of business for a certain period if a large company’s entry is likely to negatively impact the management stability of local small businesses. The Korea Employers Federation selected this as the top regulatory innovation task in the distribution and food sectors when it submitted over 70 regulatory reform tasks to the government in February this year.

Currently, to open a new large-scale store, the business operator must submit a regional cooperation plan containing win-win cooperation measures with local small distribution companies to the relevant local government in accordance with the Distribution Industry Development Act. However, separately, if local small business owners apply for business adjustment against the large-scale store operator, additional negotiations on win-win measures must be conducted again. If mediation fails, the Ministry of SMEs and Startups can recommend or order strong sanctions such as imposing fines or enforcing business adjustment. In the worst case, business suspension orders may be issued, leading the distribution industry to criticize this as "double regulation."

A representative case is Lotte Mall Gunsan branch. The Gunsan branch, which opened in 2018, had agreed with nearby merchants in December 2016 to establish a 2 billion KRW win-win fund to register the opening of the large-scale store. However, just before opening, another group of local merchants requested an additional 26 billion KRW win-win fund and applied for business adjustment through the Korea Federation of SMEs. Lotte claimed, "We have already concluded consultations with merchants and are operating the fund," but the Ministry of SMEs and Startups, which initiated the business adjustment, recommended a "temporary suspension of business." The Gunsan branch opened as scheduled on April 27, 2018, but the Ministry issued a "temporary suspension" order a month later. The order was lifted after the merchants’ group withdrew the business adjustment, allowing normal operations.

9 out of 11 Business Adjustments Concern the Distribution Industry

The business adjustment system has been particularly concentrated in the distribution industry. From last year to this year, out of a total of 11 business adjustments, 9 involved the distribution sector.

The distribution industry points out that even though they have followed proper procedures, signed win-win agreements, and obtained local government approval when opening large-scale stores, anyone can apply for business adjustment afterward, which may restrict business operations, calling this double regulation. According to the Ministry of SMEs and Startups, anyone from related local areas or small business groups in the relevant industry can apply for business adjustment. If there is no small business group, a small business with the consent of more than one-third of the small businesses in the relevant industry can apply.

Also, applications for adjustment can be made up to 180 days after business entry, meaning that restrictions such as business hour adjustments can be imposed even after the store has opened. According to the Ministry, from 2009 to 2022, a total of 1,045 business adjustment applications were submitted, with 832 adjustments completed. Nearly 75 business adjustments are applied for annually. A distribution industry official said, "The fact that anyone can practically apply for business adjustment makes things more difficult," adding, "If rumors spread that a certain group raised a certain amount of cooperation funds through business adjustment, other groups often apply for additional business adjustments, which can be troublesome."

This overlapping regulation of large-scale stores was pursued for revision in the 19th National Assembly but did not gain attention afterward. Although large supermarket business regulations have been pushed every parliamentary term amid criticism that they infringe on consumer choice, the opening restrictions have not been publicized due to controversy over "preferential treatment for large corporations." Kim Jae-hyun, head of the regulatory reform team at KEF, said, "Large-scale stores have positive effects such as revitalizing local commercial districts, expanding sales channels for small businesses, creating jobs, and enhancing consumer welfare, yet unreasonable double regulations undermine business predictability, investment, and employment stability for related companies," adding, "We need to consider excluding large-scale stores opened outside traditional industry preservation zones under the Distribution Act from the business adjustment targets under the Win-Win Act."