Fair Trade Commission confronts bully retailers

Large retailers could soon face tougher penalties for engaging in unfair business practices against their small and medium-sized suppliers.

The Fair Trade Commission, which regulates economic competition in Korea, proposed on Sunday a set of stronger penalties on retail conglomerates that take advantage of their suppliers. They include a fine of up to three times the amount of damage caused to small companies.

“Existing regulations and policies have been deemed insufficient to curb unfair activities by large retailers and protect and provide damage relief to small and medium-sized suppliers,” the commission said in a statement.

Korea’s retail industry is dominated by conglomerates like Emart and Lotte Mart, and a common practice known as gapjil forces small and medium-sized suppliers to be beholden to large companies. The bullying can take on different forms depending on the type of retailer.

At large discount chains, for example, a supplier might be forced to take on the full cost of labor for running promotional events for products even though both the supplier and retailer benefit from them. At department stores and outlets, where conglomerates rent out space to small vendors, employees of the conglomerate might monitor the sales of lessees and meddle in their operations.

The Fair Trade Commission has sought to take aim at gapjil practices in the retail industry after tackling the same issue in the franchise industry last month. Unfair activities that might fall under the threefold penalty include reducing payments for received goods, acts of retaliation against suppliers and exploitation of suppliers’ employees.

To address the issue of promotional events at discount chains, the Fair Trade Commission proposed a policy of splitting the labor cost between retailers and suppliers based on how the profit is distributed between two. In the event that profit calculation is too difficult, the commission said the costs should be split in half.

The revised guidelines will put department stores and outlets under the scope of fair trade rules for retailers and enforce regulations dictating how they can treat small vendors. Previously, some department stores and outlets fell under rules governing commercial real estate because they registered as leasers.

One manager at a small vendor that sells imported oil and vinegar at a department store said staff would constantly monitor his sales performance and even practices. At one point, he was told by a department store employee that he wasn’t allowed to sit down when there were no customers around “because it would hurt the reputation of the department store.”

“[The current system] lacks measures to protect small businesses from abnormal transactions that infringe on their rights and from unpredictable risks,” the Fair Trade Commission said. “We must strengthen the institutional framework to remove any blind spots in the law and policies and to protect suppliers’ rights.”

The commission is working with lawmakers in the National Assembly to pass the proposed rules into law.

Kim Sang-jo, the commission’s chairman, called on the retail industry to cooperate in overturning gapjil practices. “We cannot expect to completely eradicate unfair transactions just with regulations,” he said. “Voluntary effort from the industry is the most important .?.?. and we hope that conglomerates specializing in distribution actively come up with measures to coexist.”

BY CHOI HYUNG-JO [choi.hyungjo@joongang.co.kr]