Law tackles unfair retail practices

President Moon Jae-in is set to sign a bill into law that will require large retailers to specify on paper all orders, no matter how small, that they make with suppliers.

The law is meant to combat a common practice in Korea’s retail industry where big chains place orders over the phone, only to then cancel the order or return stock that they couldn’t sell without compensating the supplier.

The rule will apply to discount chains, department stores and even home shopping networks.

The Fair Trade Commission, which worked on the legislation, said Tuesday that it expects the president to sign the bill later this month. The commission hopes that by requiring retailers to specify purchases in contracts or invoices, suppliers will be able to prove when retailers renege on their orders.

Suppliers have long considered the practice a scourge in the industry, arguing that large retailers abuse their position in the supply chain to take advantage of them. In a meeting with the Fair Trade Commission’s chairman, Kim Sang-jo, last April, a group representing suppliers complained that they have no choice but to follow the demands of retailers and accept the leftover stock without compensation because of the retailers’ market dominance.

Under the new law, any retailers caught violating this regulation will have to pay a fine worth up to 100 percent of the products they return or a maximum fine of 500 million won ($470,000).

“We will continue to check if [retailers] have properly written the amount of orders on contracts the moment they placed the order,” said Moon Jae-ho, a director at the Fair Trade Commission. “We plan to push on with our projects that will prevent any unfair practices in the retail industry.”

However, the new law will not resolve another common headache for suppliers: covering products that are stolen or damaged during delivery. That burden currently falls entirely on the supplier, not the retailer.

The Fair Trade Commission has been working on the legislation since August in hopes of providing a fair playing field for small suppliers. Kim has called it one of the key goals of his tenure as commission chairman.

“The foundation that helps SMEs, the backbone of the Korean economy, become stronger and further expand is making the supply transactions [with conglomerates] fair,” Kim said at a news conference last month. “I promise that not only the Fair Trade Commission but also the overall government will focus our policies on normalizing supply transactions.”

Defending his reforms, Kim said hurting suppliers would also weaken the competitiveness of retailers.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]