Detailed Coordination with the Fair Trade Commission on Scope of Consultations
Likely to Follow Franchise Business Act Model
"Maintaining Boundaries That Do Not Infringe on Managerial Decisions" Considered Most Probable
At a recent work report by the Ministry of SMEs and Startups, President Lee Jaemyung publicly pressured for the introduction of the right for small business cooperatives to request consultations, accelerating related legislative activities. While the relevant authorities have reached a consensus on the purpose and necessity of the bill, there are expected difficulties in determining the scope and content of the consultations in order to avoid conflicts with collusive acts under the Fair Trade Act.
President Lee Jae-myung is speaking at the work report held at the Government Sejong Convention Center on the 17th. Photo by Yonhap News Agency
According to the government and the National Assembly on December 23, the Ministry of SMEs and Startups and the Fair Trade Commission are in the final stages of discussions regarding the amendment to the Small and Medium Enterprise Cooperatives Act, which was sponsored by Democratic Party lawmaker Kim Won-i in February this year. Since the right to request consultations by small business cooperatives has been included as a key policy task of the Lee Jaemyung administration, and with President Lee's recent directive at the Ministry's work report to "prepare related response measures," both agencies appear to be expediting the process with the aim of passing the bill as soon as possible.
However, there are reported disagreements over the scope and content of the right to request consultations. The amendment introduces a new provision stating, "The provisions of Article 40(1) and Article 51(1)1 of the Fair Trade Act shall not apply to consultation requests by cooperatives," essentially excluding such consultations from being classified as collusive acts under the Fair Trade Act.
The Fair Trade Act prohibits collusive acts that unfairly restrict competition, but also stipulates that "acts deemed legitimate under other laws shall not be punished as collusion." The intention is to recognize the right to request consultations by small business cooperatives as legitimate collective action, while also defining the specific scope of such consultations to the minimum necessary so as not to disrupt market order.
An official from the Ministry of SMEs and Startups stated, "Although the purpose of the bill is to create exceptions to the collusive acts specified in the Fair Trade Act, the fundamental principle is to establish a minimum standard so as not to disrupt market order through unfair competition restrictions," adding, "We are continuing discussions with the Fair Trade Commission on how far to recognize the scope of the right to request consultations by cooperatives."
The details are likely to be designed similarly to the recently passed amendment to the Franchise Business Act. The Franchise Business Act amendment specifies that franchise business organizations may negotiate with headquarters over transaction terms such as contract changes, but also draws a line by prohibiting acts such as "demanding transaction terms that contradict the unity or essential matters of the business" and "unjustly interfering in the management of the headquarters."
For small business cooperatives, it is also being strongly considered to limit the scope of consultations to exclude demands for specific prices or rate increases, or acts that unjustly interfere with a company's management decisions or business operations, such as changing suppliers.
Lee Jinwook, an attorney at Palma Law Firm who mainly handles unfair trade cases in the franchise sector, said, "It is possible to clearly define the scope of consultations to include transaction terms such as the pricing structure, rather than specific prices or rate increases, or to narrow the scope to issues likely to be deemed unfair practices by large corporations, such as unilateral 'price cutting.' It is also worth considering that the voices of small businesses not included in cooperatives may be excluded."
Hwang Taehee, a professor at the Department of Law at Sungshin Women's University, emphasized, "If small business cooperatives are given the right to request consultations on all matters related to small businesses, there is a high risk of seriously infringing on corporate autonomy. The key is to set the scope in a limited way so as not to undermine the spirit of the Fair Trade Act."
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