FTC gives contractors new powers

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FTC gives contractors new powers

Contractors in Korea, who are often exploited by their larger and more powerful clients, will be able to charge more for products and services supplied to clients when their labor costs go up.

The Fair Trade Commission (FTC), Korea’s antitrust watchdog, said on Monday that a revision to the fair transaction act establishes legal grounds for contractors to share the burden of rising labor costs with their clients, such as Korea’s powerful conglomerates. The revision will go into effect today.

“This measure will help relieve small businesses of the burden that comes from the minimum wage increase,” said Kim Sang-jo, chairman of the FTC, during a press briefing on Monday at the government complex in Sejong. “In detail, [contractors themselves or] cooperatives that the contractors are members of could request the clients to raise payments if the minimum wage increases by more than seven percent.”

Before today, contractors could only request a raise in payments for goods and services if the prices of raw materials, such as petroleum, increased during the contractual term.

Korea’s minimum wage is being raised as part of the Moon Jae-in income-led growth policy. The rise this year was 16.4 percent from 2017 and next year’s will be 10.9 percent.

Kim explained that the revision to the existing law - dubbed the Fair Transaction in Subcontracting Act - was a part of the watchdog’s effort to improve unfair relations between the country’s conglomerates and small and mid-sized companies, who are often the former’s contractors or subcontractors.

The focus was particularly on the contractors as they are most vulnerable to gapjil.

Gapjil means abuse of power or bullying, used in this context as contractors or subcontractors who must accept unfair terms by their clients who are often conglomerates.

Employers will also not be allowed to demand details of their contractors’ businesses, according to the watchdog.

They will no longer be able to ask about the prices of raw materials or the prices charged by competitors of the contractors. The chief of the watchdog explained that clients can exploit such information to unfairly cut the prices they pay to their contractors.

For franchise companies, headquarters will be restricted from unilaterally changing the areas where franchisees can operate their businesses starting from today.

Once the minimum wage hike of 10.9 percent goes into effect next year, franchise owners will be able to ask headquarters to slash their licensing fee, a policy that the FTC thinks would allow franchisors and franchisees share the burden of the minimum wage hike.

The FTC is currently investigating the headquarters of 81 different franchises to see if they forced operating costs and expenses on their franchisees.

“But policies by the FTC will be not enough to resolve the concerns that stem from the rise in the minimum wage,” the FTC chairman admitted, adding that the government will come up with mid to long-term measures that address difficulties faced by small and mid-sized businesses.

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