FTC permits suppliers to renegotiate contracts

Suppliers will be able to charge retailers more for their products later this year as the Fair Trade Commission plans regulations to spread the burden of the minimum wage hike.

The FTC on Monday said it is working on reforming five retail-related regulations in hopes they will ease the burden imposed on suppliers due to the minimum wage hike. Retailers impacted will include department stores, discount stores, convenience stores, online malls and even TV home shopping channels. The antitrust agency said it is hoping to have the new reform bill take effect in the first half of this year.

Under the new regulations, suppliers can request a change in the supplied good price stipulated in an agreed existing contract in order to reflect increased costs due to the change in the minimum wage and raw material prices.

Retailers have 10 days to start negotiations once the request is made. If the two parties fail to reach an agreement in 30 days of negotiations, the price can be adjusted by the Korea Fair Trade Mediation Agency.

“This year due to the hike in minimum wage, we are concerned about the increased burden on suppliers so we are changing the regulations that will specify in the contract that both the major retailers will share the burden,” said Moon Jae-ho, an FTC official.

“We hope this change will contribute largely to reducing the burden imposed on suppliers. “

In the past the burden of increased costs due to rising inflation and labor prices mainly fell on suppliers. Major retailers would often use their influence over smaller suppliers to force them to take on any additional costs, rather than passing them on to the retailers.

The reform bill will not stipulate any punishment on retailers that fail to sign the new contracts. However, companies that do not follow the new regulations could face several disadvantages including being moved straight to the top of the list of FTC investigations for unfair business practices.

This year the minimum wage has been raised 16.4 percent from 6,470 won ($6.08) per hour last year to 7,530 won. The burden is expected to rise further with the Moon Jae-in administration planning to raise the rate to 10,000 won per hour by 2020.

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