FTC to spare suppliers from ‘thank you’ subsidies

To make for a fairer business environment among retailers and protect consumers from paying too much, the Fair Trade Commission (FTC) is seeking to discourage suppliers from paying subsidies to retailers as a sign of appreciation for selling their wares.

In a new road map presented yesterday, the agency also pledged to promote competition among retailers in a bid to lower prices. Detailed measures will be announced throughout the year.

The moves are partly aimed at raising the productivity levels of local retailers. Data from 2005 shows that while employees in the U.S. retail industry were producing $69,200 worth of goods a year, their Korean counterparts were only managing $16,400 worth.

Retail workers also produce less added-value than manufacturing employees or logistics laborers, the data shows. While they created 69 million won ($63,735) worth that year, manufacturers were responsible for 83 million won and laborers 93 million won.

“We think low productivity is due to the fact that large retailers have forced their suppliers to pay high subsidies, and transferred any extra financial burden on to the suppliers,” said Kim Seok-ho at the FTC’s business cooperation division.

“Despite the commission’s continuing efforts to set up fair trade in retail, 66.5 percent of small and medium size suppliers said they have experienced unlawful treatment, according to the results of a survey released early this month. As such, we came up with a new plan,” the FTC said.

It will first move to clarify the shadowy system of giving subsidies, as the law currently provides for a “reasonable” amount to be to retailers to boost sales. It will also clear up which cases are lawful and what kinds of subsidies are considered fair.

The commission will also adopt an ombudsman system to help smaller suppliers report wrongdoing directly to the FTC so it can stay up to date.

Moreover, it will distribute written surveys to 10,000 suppliers this year, up from 4,807 last year, in a bid to collect more extensive comments from the industry.

The watchdog also pledges to seek stricter punishment for any violation of the fair trade law.

“We will make the measures strong enough to rid companies of the misapprehension that they can get away with illegal profit-taking activities without being punished once they’ve been detected,” said the FTC.

It will also monitor department stores and large supermarkets to see if they are abusing their power in the oligopolistic domestic market. If the same unlawful activities are spotted repeatedly, the FTC may consider prosecuting the executives in charge instead of the company, it said.

As the number of commercial transactions on TV and online shopping channels are rising rapidly, it will check what regulations should be implemented to prevent unfair trade from burgeoning in newly expanding fields, it said.

Industry officials say they are refraining from commenting on the matter until the FTC releases more concrete details on its planned reform of the retail sector.

“Although some of the practices mentioned in the plan have been in place for a long time, rooting them out may cause some confusion as it’s going to be done on a case-by-case basis,” said an official working at a large supermarket chain.

“As many of the risks can be shared [among retailers and suppliers, concerning low sales], we are reviewing what position we will take regarding the FTC’s plan.”

Although many of the suppliers welcome the FTC’s moves, they also worry it may rattle the large retailers to which they sell their products.

“I fear they may cancel contracts,” one local supplier told the JoongAng Ilbo.

By Lee Sun-min [summerlee@joongang.co.kr]