Overview

Purpose of the Act on Fair Transactions in Large Retail Business

Large retail business entities, such as department stores, large supermarkets, television home shopping business, online shopping malls have a strong bargaining power. The abuse of superior position by large distributors against suppliers and sales floor tenants has been prevalent.

The purpose of the Act on Fair Transactions in Large Retail Business (“the Large Retail Business Act”) is to contribute to the balanced national economic growth and development by maintaining fair transactional order in the large retail business and by enabling large retail business entities, suppliers, or sales floor tenants to prosper on an equal footing in a complementary relationship (first enforced in Jan. 1. 2012).

Types of Transaction by Suppliers

Direct purchase

A transaction in which a large retail business entity purchases goods from a supplier and takes responsibility for the sale of unsold goods among the goods he/she has purchased;

Purchase under a special contract

A transaction in which a large retail business entity purchases goods on credit from a supplier on condition that he/she is allowed to return unsold goods among the goods he/she has purchased, and pays a sales amount after subtracting profit of a specific margin or of a specific amount after selling such goods;

Consignment sale

A transaction in which a large retail business entity sells goods supplied by a supplier under his/her name and afterwards pays proceeds from the sales to the supplier, subtracting a rate of charge or an amount of charge.

Key Provisions

Subjects of Application of the Large Retail Business Act

Large Retail Business Entity

• Large retail business entity means any of the following persons (including “franchisers”), who source goods used by consumers from multiple business entities and sell them
  1. ① A person whose retail sales for the immediately preceding business year are at least 100 billion won (for business entities recognizing revenues by a net method under the corporate accounting standards, “retail sales” refer to the total sales and, for franchisers, the sum of retail sales and sales of goods sold to franchisees);
  2. ② A person who uses any store, at which the total area of sales floors (referring to the sum of the area calculated by multiplying the floor space of each sales floor by 95/100) is at least 3,000 square meters, for retail business.
• A person who falls under either of the following, from among business entities who lease a sales floor and receive turnover rent or any economic benefit corresponding thereto from the tenant
  1. ① A person who has leased any sales floor, the total retail sales of which are at least 100 billion won for the immediately preceding business year;
  2. ② A person who has leased any sales floor, the total area of which is at least 3,000 square meters.

Matters to be taken into Account when Applying the Large Retail Business Act

Exclusion from Application

A transaction not deemed to give a large retail business entity a superior bargaining position over a supplier or sales floor tenant; Where a business entity deemed a large retail business entity under Article 2-2 fails to receive turnover rent, etc. from some of his/her multiple sales floor tenants, the transaction between such tenants and the business entity deemed a large retail business entity.

Relationship with Other Statutes

1. ① This Act shall apply to transactions between large retail business entities and suppliers, etc., notwithstanding Article 45 (1) 4 and 5 of the Monopoly Regulation and Fair Trade Act (excluding acts which obstruct the business activities of other business entities);
2. ② The Fair Transactions in Subcontracting Act shall prevail over this Act if the transactions between large retail business entities and suppliers, etc. constitute entrustment with manufacturing under Article 2 (6) of the Fair Transactions in Subcontracting Act.

Key Provisions of the Act

Issuance of Documents

Immediately after entering into a contract with a supplier (sales floor tenant), a large retail business entity shall give to the supplier (sales floor tenant) documents in which the transaction type, and other relevant matters are specified.

Presumption that the contract has been made

Large retail business entities shall send a written reply specifying whether they approve or disapprove the content of notification of the suppliers (sales floor tenants) within 15 days from the receipt of such notification; where they fail to send a reply within such period, it shall be presumed that the contract has been made as notified by the suppliers (sales floor tenants).

Period for the retention of Documents

Large retail business entities shall preserve documents concerning transactions between large retail business entities and suppliers (sales floor tenants) for five years from the date a contract with suppliers (sales floor tenants) terminates.

Prohibition of Reduction in Payment of Goods

A large retail business entity shall not reduce the payment of goods being supplied without just cause.

Payment of Proceeds from Sale

In any of the following cases, large retail business entities shall pay the suppliers, etc. the proceeds from sale of the relevant goods within 40 days from the monthly closing date

1. ① Where goods supplied according to a purchase transaction under a special contract are sold;
2. ② Where they manage proceeds from sale given by floor tenants;
3. ③ Where they are entrusted with the sale of goods by suppliers, and receive and manage proceeds from sale.

Prohibition of Refusal or Delay of Receipt of Goods

After a large retail business entity and a supplier enter into a contract concerning the supply of goods, the large retail business entity shall not refuse or delay receipt of all or any of the relevant goods without just cause.

Prohibition of Return of Goods

A large retail business entity shall not return all or any of supplied goods without just cause.

Prohibition on Unjustly Shifting Burden of Sales Promotional Expenses

Unless the burden of expenses incurred in a sales promotional event is agreed upon with suppliers (sales floor tenants) before any sales promotional event is held, no large retail business entity shall impose such expenses on a supplier (sales floor tenant).

Sharing Sales Promotional Expenses

The ratio of sharing sales promotional expenses shall be determined according to the ratio of economic profit a large retail business entity and a supplier (sales floor tenant) are expected to directly earn respectively through sales promotional event; and the share of sales promotional expenses to be assumed by a supplier (sales floor tenant) shall not exceed 50/100.

Prohibition against Using Employees by Suppliers

A large retail business entity shall not request a supplier (sales floor tenant) to dispatch employees to work in the workplace of the large retail business entity, unless there are just causes, such as where large retail business entities bear all the expenses including labor costs of the dispatched employees.

Prohibition of Forcing Exclusive Dealing

A large retail business entity shall not unduly have a supplier (sales floor tenant) do exclusive transactions and shall not interfere with the supplier (sales floor tenant) in their transactions with other business entities.

Prohibition of Request for Management Information

A large retail business entity shall not unduly request a supplier to provide any of the following information

1. ① Information concerning the supply terms (including supply price) for the goods which suppliers supply to other business entities;
2. ② Information concerning the lease terms (including rental rate) to open a sales floor in other business entities' stores.

Prohibition of Requests for Economic Profits

A large retail business entity shall not have a supplier (sales floor tenant) provide money, articles, services, or other economic profits to him/her or a third party without just cause.

Prohibition against Undue Restrictions on Business Hours

A large retail business entity shall not put undue restrictions on business hours of a sales floor tenant, for instance by denying the tenant’s request for a reduction in business hours by the minimum extent necessary on account of an illness and the treatment thereof.

Compensation for Costs of Equipment for Sales Floor

Where a large retail business entity performs any of the following acts, he/she shall pay compensation for equipment costs of the supplier (sales floor tenant), the amount of which shall be at least an amount obtained by multiplying the total equipment costs, paid by a supplier (sales floor tenant) for the relevant sales floor, by the ratio of the period to the whole contract period

1. ① Interrupting or rejecting a transaction with the supplier (sales floor tenant);
2. ② Changing the location, size or facilities of the sales floor of the supplier (sales floor tenant).

Prohibition against Giving Disadvantages

A large retail business entity shall not make the supplier (sales floor tenant) purchase merchandise coupons or articles; make the supplier (sales floor tenant) participate in a sales promotional event contrary to the will of the supplier; and other acts that give disadvantages to the supplier (sales floor tenant) or cause the supplier (sales floor tenant) to provide advantages without just cause.

Prohibition against Retaliatory Measures

on the ground that the supplier (sales floor tenant) have engaged in filing a report or cooperating with the KFTC in its investigations (including submitting data in response to its documentary inspection of actual condition).

Policies

Dispute Mediation

In order to settle disputes between large retail business entities and suppliers (sales floor tenant), a dispute mediation council for transactions in large retail business is established in the Korea Fair Trade Mediation Agency.

The Process of the Dispute Mediation

Sanctions for Violation of the Act

Administrative Sanctions

Corrective Measures

Where a large retail business entity violates the Act, the Fair Trade Commission may order corrective measures including ceasing such violation, prevention of further violation, payment of proceeds from sale, compensation for expenses for equipment on the sales floor, removal or revision of contract provisions, public announcement of the fact of receiving corrective measures, notification to the other party of the transaction such as a supplier(or sales floor tenants) of the fact of receiving corrective measures, and reporting on plans or actions for rectifying the violation.

Penalty Surcharges

The KFTC may impose a penalty surcharge on a large retail business entity who violates the Act, within the extent not exceeding the amount of supplied goods.

Criminal Sanctions

A person who imposes exclusive dealing on a supplier (sales floor tenant), requests a supplier (sales floor tenant) for management information, or any other practice in violation of the Large Retail Business Act shall be punished by imprisonment with labor for not more than two years or by a fine not exceeding 150 million won.