Ministry of SMEs and Startups Audit: Key Issues on 'Mothe Fund' and 'Payment Linked System'

[2022 National Audit] Questions Expected on Win-Win Measures Between Platform Companies and Small Business Owners

Lee Young, Minister of SMEs and Startups

[Asia Economy Reporters Kim Cheol-hyun and Choi Dong-hyun] This year’s National Assembly audit of the Ministry of SMEs and Startups (MSS) is expected to focus on issues such as the reduction of the Korea Fund of Funds (KFoF) and the implementation of the payment price linkage system. The KFoF has served as a financial lifeline for startups, while the payment price linkage system is considered a long-standing demand of small and medium enterprises (SMEs). With the investment market freezing and many startups facing crises, and rising raw material prices exacerbating management difficulties for SMEs, both the KFoF and the payment price linkage system are matters closely tied to the interests of various industries as well as the role of the MSS.

On the 6th, the National Assembly’s Industry, Trade, Energy, SMEs and Startups Committee will conduct an audit of the MSS. Following that, on the 13th, audits of MSS-affiliated organizations such as the Small and Medium Business Corporation, Korea Technology Finance Corporation, Small Enterprise and Market Service, Korea Institute of Startup & Entrepreneurship Development, and Korea Institute for Advancement of Technology will take place, with a comprehensive audit scheduled for the 24th.

A major issue in the MSS audit is the reduction of the KFoF. The MSS’s budget proposal for next year allocates 313.5 billion KRW for KFoF investments, which is nearly a 40% decrease compared to this year’s 520 billion KRW. Given the already contracted venture investment market, cutting the KFoF budget?which has played a catalytic role in investments?may be criticized as inconsistent with the Yoon Seok-yeol administration’s policy emphasizing startup growth.

The MSS plans to respond to the investment market contraction by transitioning to a market led by the private sector and assigning the KFoF to focus on sectors where investment is difficult. However, considering the significance and effects of the KFoF, there is a counterargument that its reduction could also lead to a decrease in private investments.

Budget cuts for smart factories and similar initiatives are also expected to be questioned. Smart factories were one of the key policies promoted by the previous administration. The MSS has stated that it plans to focus on qualitative advancement rather than quantitative growth of smart factories. Minister Lee Young also explained, "There are parts that need to be maintained and improved so that the 30,000 smart factories already established can be properly settled."

Regarding the payment price linkage system, one of the MSS’s major issues, various questions from lawmakers of both ruling and opposition parties are anticipated. The linkage system reflects increases in raw material prices in payment prices and has been discussed since 2008. The MSS has been conducting a pilot operation of the linkage system since last month with participating companies.

The key anticipated point of contention regarding the linkage system is whether to legislate it. Currently, the industry is divided between opinions that legislation could cause additional side effects and that it should be left to voluntary agreements, and opinions that without legally mandating price linkage, the system will lack effectiveness. Minister Lee is pushing for legislation as desired by the SME sector.

In the political arena, both ruling and opposition parties have submitted bills related to the linkage system, such as amendments to the Win-Win Cooperation Act and the Subcontracting Act, showing little disagreement on legislation itself. However, there are differing views on the method of price linkage. The ruling party proposes reflecting changes in raw material prices exceeding 10% in the unit price, while the opposition suggests setting a base price and applying a corresponding ratio. During the audit, questions are expected about what research and analysis the MSS has conducted on this matter.

Various inquiries are also expected regarding coexistence measures between platform companies and small business owners. At this audit, witnesses such as Kim Beom-jun, CEO of Woowa Brothers, Yoon Jong-ha, Vice Chairman of MBK Partners, Lim Young-rok, CEO of Shinsegae Property, and Kimberly Lyn Chang Mendes, President of Nike Korea, are scheduled to appear. Issues such as excessive commission fees charged by platform companies, their social responsibilities, and the necessity of regulatory legislation for platform companies are likely to be key topics. Minister Lee pointed out, "Platform companies are causing social problems due to conflicts with small business owners."

Additionally, issues such as the 52-hour workweek system, revisions to the Serious Accidents Punishment Act, and controversies over blind spots in compensation for losses of small business owners are also likely to be raised at the audit.

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