Home Appliances, Petroleum Distribution, and Medical Device Industries Also 'Negotiate to Reduce or Exempt COVID-19 Payment Delay Interest'... Fair Trade Commission Establishes Standard Contract

Specification of Payment Calculation and Return Obligations…Sharing of Promotional Event Costs
Granting Contract Renewal Request Rights to Dealerships

In the Home Appliances and Medical Devices sectors, if the direct sales price is lower than the dealership supply price, dealerships can request price adjustments
Prohibition of Exclusive Trading in Petroleum Distribution

[Sejong=Asia Economy Reporter Joo Sang-don] Going forward, the home appliances, petroleum distribution, and medical device industries are expected to include provisions in their contracts to reduce or exempt delay interest on payments through mutual consultation in cases of disasters or crises such as the COVID-19 pandemic.

The Korea Fair Trade Commission (KFTC) established and announced the standard dealership contracts for the three industries of home appliances, petroleum distribution, and medical devices on the 30th.

The KFTC encourages the use of standard dealership contracts to promote voluntary improvement of trading practices between suppliers and dealerships.

By 2019, standard dealership contracts had been established for six industries, and following the introduction in October this year for furniture, book publishing, and boilers, the addition of home appliances, petroleum distribution, and medical devices brings the total to twelve industries with established standard dealership contracts.

The standard contracts for the three industries of home appliances, petroleum distribution, and medical devices were prepared reflecting the trading practices and characteristics identified in the industry-specific surveys. First, common to all three industries, it is stipulated that in the event of disasters or crises such as COVID-19, delay interest on payments should be reduced or exempted through consultation. The delay interest rate is set at the commercial statutory interest rate under the Commercial Act (6% per annum), and suppliers are obligated to notify dealerships when delay interest occurs.

Regarding orders, it is stipulated that delivery dates and quantities should be negotiated, and transparent ordering, payment calculation, and return obligations are specified. In particular, unilateral modifications without reasonable grounds by the supplier and unfair modification demands to dealerships are prohibited.

In cases where delivery is not possible, suppliers must notify dealerships at least three days before the delivery date. However, considering the high volume of same-day or previous-day orders in the petroleum distribution sector, immediate notification is required.

Reasons for returns such as product defects, discrepancies with order details, and supply of products without purchase intent are specified, and additional return reasons can be set through further consultation. In such cases, costs arising from returns due to supplier fault and costs caused by the supplier’s unfair refusal, delay, or restriction of returns must be borne by the supplier.

Sales incentives must be pre-agreed in a separate agreement specifying payment conditions, timing, frequency, and methods, and unfavorable changes to dealerships during the contract period are prohibited. Promotional event costs should be shared considering the content and duration of the event, required personnel and expenses, and increased sales resulting from the event.

To ensure stable transactions, dealerships are granted the right to request contract renewal for a certain period from the initial contract date, and unless there are special circumstances such as serious contract violations, suppliers must accept contract renewal requests.

Immediate termination without correction requests but with written notice is limited to cases such as ▲dishonor of bills or checks ▲initiation of rehabilitation or bankruptcy procedures ▲compulsory auction of major assets ▲discontinuation of major product lines ▲unfair practices ▲illegal acts ▲acts contrary to social norms. For serious contract violations other than immediate termination reasons, termination is allowed if correction requests are made in writing at least twice over a period of 30 days or more and corrections are not made within that period.

By industry, in the home appliances sector, if the supplier’s direct sales price online or otherwise is lower than the dealership supply price, dealerships can request supply price adjustments. Also, if the supplier requests reinstallation of interior work, the cost-sharing ratio must be pre-agreed.

In the petroleum distribution sector, exclusive trading is prohibited, and if supply prices change after ordering, dealerships can request confirmation of the supply price calculation basis.

In the medical device sector, if the supplier’s direct sales price is lower than the dealership supply price, dealerships are granted the right to request supply price adjustments, and suppliers are prohibited from demanding trade secrets such as client status and sales prices.

A KFTC official stated, "Whether the standard contract is used accounts for the largest single score in the fair trade agreement evaluation in the dealership sector (20 points out of 100), and incentives such as exemption from ex officio investigations and awards are provided based on the evaluation results. Along with this, we plan to promote various institutional improvements to increase the usage rate of standard contracts and promptly reflect trading conditions, including legislating so that suppliers and dealerships can directly request the KFTC to establish or revise standard contracts."

This content was produced with the assistance of AI translation services.