Franchise Business Act Ultimately Referred Directly to the Plenary Session... Distribution Industry Eyes the Fair Trade Commission

Standards for Establishing Business Associations Enforced by Enforcement Decree
Pain Expected During the Decree's Legislative Process

Concerns are pouring in from the distribution industry as the amendment to the Fair Transactions in Franchise Business Act (Franchise Business Act), which grants franchisees the right to form associations and negotiate collectively, has been directly referred to the National Assembly plenary session. The distribution industry hopes that the Fair Trade Commission's enforcement decree will reflect the industry's opinions.

The National Assembly's Political Affairs Committee held a plenary meeting on the morning of the 23rd and passed the agenda to directly refer the amendment to the Franchise Business Act to the plenary session. Members of the ruling party, the People Power Party, were absent that day.

The Franchise Business Act, which grants franchisees the right to collective bargaining, was passed as an alternative by the chairman of the Political Affairs Committee, integrating nine related bills pending at the commission as of last December. Subsequently, the Legislative and Judiciary Committee did not complete its review within 60 days, and on this day, the Political Affairs Committee, the relevant standing committee, directly referred the bill to the plenary session. The Democratic Party plans to hold a plenary session next month to pass the bill before the end of the 21st National Assembly.

This bill includes provisions such as ▲introduction of a registration system for franchisee business associations ▲negotiation rights of franchisee business associations with headquarters ▲obligation of franchisors to request consultation with franchisee business associations ▲hearing procedures upon cancellation of franchisee business association registration.

The distribution industry is greatly concerned following the news of the direct referral to the plenary session. A distribution industry official said, "Since the opposition party held an overwhelming majority of seats, the bill was bound to pass the National Assembly sooner or later," adding, "It is difficult for the president to exercise a veto, so concerns are even greater."

The distribution industry is focusing on the enforcement decree that the Fair Trade Commission will create after the Franchise Business Act passes the plenary session. The enforcement decree, a presidential decree, is a regulatory order enacted by the president. The relevant ministry drafts the decree, the minister recommends it to the president, and after deliberation by the State Council, it is promulgated. The Fair Trade Commission is in charge of this bill.

According to Article 14-3 of the amendment to the Franchise Business Act submitted to the plenary session, a franchisee business association can be registered with the Fair Trade Commission or each city/provincial governor only if a certain ratio or number of stores, which serves as a criterion, is exceeded. This criterion is delegated to a presidential decree.

The industry is concerned that if the store number criterion is too low, multiple franchisee business associations may proliferate. In such a case, the headquarters would have to negotiate with all multiple franchisee business associations, inevitably causing confusion. However, if the criteria for forming associations are set too high, the opposition party may resist, arguing it contradicts the purpose of the law. Additionally, the complexity of interests varies depending on the regions where franchises operate and the number of franchise stores, which is another variable.

Another distribution industry official said, "If the numerical criteria are lowered, large franchises with many stores nationwide may be disadvantaged," adding, "Conversely, if the ratio criteria are lowered instead of numerical criteria, small franchises operating on a small scale in certain regions may be disadvantaged."