Posted : 2017-08-13 18:26
Updated : 2017-08-13 23:46

FTC to root out unfair practices in retails

Punitive damages to be introduced to protect suppliers

By Yoon Ja-young

Huge retailers that cut payments for suppliers or force them to accept refunds may have to compensate them up to three times the amount of actual damages incurred by the suppliers. They will also have to pay suppliers if they want to mobilize employees of suppliers to work at their shops. These are part of the plans announced by the Fair Trade Commission (FTC) to root out unfair practices by big players in the distribution channel, thereby protecting suppliers.

"Currently, the law stipulates that the damaged can obtain compensation up to three times of the actual damage," FTC Chairman Kim Sang-jo said.

"When you look at the Clayton Act of the United States, on which our version of regulation was based, however, it just says three times the actual damage. Our law leaves it up to the judge to determine the compensation within the three times cap, and Korean courts are conservative in assessing the damage. Hence, it is difficult to expect a compensation effect as well as a deterrence effect that the law seeks to achieve," he said.

The FTC is seeking to introduce "three times punitive damages," making huge retail businesses compensate for serious unfair practices. It takes examples of cutting payments to suppliers, forcing them to accept refunds, using employees of suppliers, or other unfair activities they do as revenge on suppliers. It will require a revision of the related law.

Suppliers have been complaining that huge retail outlets force them to pay for promotion expenses, or send employees to help with promotional events. Such practices have been persistent because of the leniency of the law.

He said the FTC will plug the legal loopholes, focusing on enhancing the status of small merchants, protecting them from unfair practices and improving their bargaining power.

When mobilizing employees of suppliers to work at their stores, the huge retailers will have to shoulder the labor costs. The supply price will also be linked to costs such as the minimum wage, so that the retail conglomerates should share the burden of suppliers.

Currently, home shopping channels and department stores are obligated to disclose how much commission they are getting from suppliers. Retail outlets and online shopping malls will also be subject to the regulation.

The chairman noted Korea's retail industry is very complex, with traditional channels based on huge wholesalers and small merchants coexisting with the latest distribution channels such as home shopping and online. He also pointed to other channels such as distribution agencies and large merchandisers.

Such complexity makes it difficult for the country's retail industry to make progress, according to the chairman.

"We have two tasks that are conflicting with each other. First of all, the retail industry needs to improve productivity, but that means restructuring which could lead to damage to vulnerable players like small merchants. It stands against our other task of protecting and improving the rights of these small merchants."

He added the FTC will also focus on inducing the retail industry to make voluntary efforts for self-reform, to share the fruits of growth with their suppliers.

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