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Newsletter | December 2016, Issue 4
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ANTITRUST & COMPETITION
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KFTC Announces Two Proposed Regulations in Hopes of Preventing Unfair Trade Practices in Supplier-Distributor Transactions
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One year ago, on December 22, 2015, the Korean National Assembly passed the Fairness in Distributor Transactions Act (the “FDTA”). The aim of passing the FDTA was to prevent unfair trade practices in supplier-distributor transactions, or such practices in transactions between large and smaller enterprises.
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On December 23, 2016, the FDTA became effective. As such, the Korean Fair Trade Commission (the “KFTC”) recently announced two proposed Regulations subsidiary to the FDTA:
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| 1) |
Proposed Enforcement Decree to the FDTA (“Proposed Enforcement Decree”) and
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| 2) |
Proposed Notification of the Penalty Surcharge Guideline for Enterprises in violation of the FDTA (“Proposed Surcharge Notification”).
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Proposed Enforcement Decree
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Under the proposal, the following four are worth noting.
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| 1) |
For items to be included in a distributorship agreement, detailed description of each item is required for more in-depth explanation.
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Detailed explanations of the types of unfair trade practices and guidelines are included.1
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| 3) |
Dispute resolution methods (e.g., the secretariat for resolving disputes in supplier-distributor transactions) have been developed and included.
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| 4) |
Penalty surcharges imposed on violations of the FDTA, and the calculation formula have been incorporated.
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Proposed Surcharge Notification / Assessment: 3 Levels
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The Proposed Surcharge Notification shows how to calculate and impose penalty surcharges on those in breach of the FDTA and the Enforcement Decree.
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According to the proposal, a penalty surcharge will be assessed based on the harm incurred by the relevant distributor due to its supplier’s unfair trade practice in breach of the relevant laws and regulations. This is then multiplied by the standard rates, depending on the gravity of the violation.
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Where it is difficult to assess the exact amount of the relevant harm, a liquidated amount of the surcharge will be imposed (up to KRW 0.5 billion), with the gravity of such violation taken into account. Here, the adjustment of the surcharge amount may be made, taking into account various factors, such as a violator’s prior violation history or self-correction efforts.
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Depending on the factors, (e.g., illegality of the relevant trade practice, extent of harm suffered by the relevant distributor, ratio of the distributors suffered to the entire distributor group), the gravity of such a practice is divided into three levels:
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Gravity
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Range of the standard rate
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Liquidated surcharge amount
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Significantly grave violation
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60% to 80%
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KRW 0.4 billion to 0.5 billion
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Grave violation
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40% to 60%
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KRW 0.2 billion to 0.4 billion
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Less grave violation
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20% to 40%
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KRW 5 million to 0.2 billion
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In addition, the proposal provides for aggravating factors (e.g., repeat violators (50%), long-term violators (50%), retaliatory unfair trade practices (20%)), as well as mitigating factors (e.g., a violator’s self-correction (20%) or cooperation in investigation (20%)).
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Relating to practices such as forced purchases, imposition of undue sales target, imposition of terms or conditions disadvantageous to a distributor, and interference with another’s business activity
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