Purpose of the Fair Agency Transactions Act
The purpose of the Fair Agency Transactions Act (“the Agency Act”) is to contribute to the sound growth of the national economy by establishing a fair trading order for agency transactions and by ensuring the mutually complementary and balanced growth of suppliers and agencies on equal footing (first enforced in Dec. 23. 2016).
- Agency Transactions mean transactions conducted between a supplier and an agency for the resale or consignment sale of goods or services which are provided repeatedly by entering into a contract with a fixed period.
- Supplier means a business entity that supplies produced or purchased goods or services to agencies.
- Agency means a business entity that is supplied with goods or services by a supplier and resells or sells them on consignment to many and unspecified retailers or consumers.
- Resale means an agency purchasing goods or services from suppliers (the ownership of the goods and services are transferred to the agency) and selling them to retailers or consumers.
- Consignment Sale means an agency selling goods or services on behalf of suppliers (the ownership of the goods and services does not get transferred to the agency) and getting commission for the sale.
Application of The Agency Act
- The Agency Act shall apply where all three requirements are met:
- ① Where a supplier does not fall under a small and medium entrepreneur. However, this Act shall not apply where a supplier fall under Article 2 (1) or (3) of the Framework Act on Small and Medium Enterprises;
- ② Where an agency is a small and medium entrepreneur (referring to a person falling under Article 2 (1) or (3) of the Framework Act on Small and Medium Enterprises);
- ③ Where a supplier is acknowledged as holding a superior bargaining position to an agency. In such cases, whether a supplier holds a superior bargaining position to an agency in transactions shall be determined after the following matters are taken into a comprehensive consideration:
- ⓐ Structures of the commodity market and distribution market;
- ⓑ Business capability gap between the supplier and the agency;
- ⓒ Dependence of the agency on trade with the supplier;
- ⓓ Characteristics of goods or services to be traded.
- ① Transactions that fall under any franchise business defined in subparagraph 1 of Article 2 of the Fair Transactions in Franchise Business Act;
- ② Transactions that fall under any financial investment business defined in Article 6 (1) of the Financial Investment Services and Capital Markets Act;
- ③ Transactions between a large franchise and retail business entity and a supplier defined in Article 2 of the Act on Fair Transactions in Large Franchise and Retail Business;
- ④ Other transactions prescribed by Presidential Decree as requiring to be excluded from agency transactions, taking into consideration their nature, need for the protection of agency, etc.
Relationship to the Monopoly Regulation and Fair Trade Act
With respect to agency transactions conducted between a supplier and an agency, the Agency Act shall apply in preference to Article 23 (1) 4 of the Monopoly Regulation and Fair Trade Act.
Key Provisions of the Agency Act
Duty to Prepare Agency Transaction Contract in a written form
- Immediately after concluding a contract with an agency, the supplier shall provide the agency with a written contract in which the following matters are specified and a supplier shall retain the agency transaction contract for three years from the date the agency transactions conducted with the agency terminate (the Article 5 of the Agency Act and the Article 2 of the Enforcement Decree of the Agency Act):
- ① The forms, items, and period of transactions;
- ② The methods, places, and dates and time of delivery;
- ③ The means and timing to pay price of goods;
- ④ The conditions for return of goods;
- ⑤ The transfer of business;
- ⑥ The grounds and procedures for termination of the contract;
- ⑦ The payment of sales incentives;
- ⑧ In cases of consignment sale transactions, matters concerning the scope of the business entrusted to the agency by the supplier, and the price to be paid by the supplier to the agency, irrespective of its name, such as commission.
Prohibition on Compelled Purchases
- No supplier shall compel an agency to purchase any goods or services that the agency has no intention to purchase by unduly taking advantage of his or her position in a transaction, or cause his or her affiliated company or any other business entity to engage in such conduct. Conduct prohibited under the Act shall be any of the following (the Article 6 of the Agency Act, the Article 3 of the Enforcement Decree of the Agency Act, and the Article 2 of the Public Notification on the Designation of the Types and Criteria of Unfair Trade Practices Forbidden in Transactions Involving Agencies):
- ① Compelling an agency to purchase any specific goods or services by compelling it to place an order or by creating a situation in which there is no choice but to place an order;
- ② Supplying goods or services that an agency has no intention to purchase, by unilaterally modifying the details of an order placed by the agency;
- ③ Compelling an agency to purchase goods or services against an agency’s intention;
- ④ In the light of normal trading practices, unduly making an agency to purchase any goods or services in bundles.
Prohibition on Compelled Provision of Economic Benefits
- No supplier shall compel an agency to provide money, goods, services, or other economic benefits for him or her by unduly taking advantage of his or her position in a transaction, or cause his or her affiliated company or any other business entity to engage in such conduct. Conduct prohibited under the Agency Act shall be any of the following:
- ① Compelling an agency to bear the cost, provide human resource, etc. for a sales promotional event arranged in accordance with the needs of the supplier;
- ② Compelling an agency to bear all or part of the labor costs for executive officers or employees employed by the supplier;
- ③ Compelling any executive officer or employee employed by an agency to work in the supplier's place of business, another place of business or similar place designated by the supplier;
- ④ Compelling an agency to provide economic benefits unrelated to agency transactions, irrespective of the name, such as donations or sponsorship;
- ⑤ Compelling an agency to bear an excessive financial burden compared to the economic benefit the agency is expected to get from sales promotional events;
- ⑥ Compelling an agency to bear the cost incurred by the agency transactions without any reasonable reason.
Prohibition on Compulsion of Meeting Sales Targets
- No supplier shall compel an agency to achieve a trade target of the goods or services supplied by him or her after proposing it to the agency by unduly taking advantage of his or her position in a transaction, or cause his or her affiliated company or any other business entity to engage in such conduct. The types of or criteria for the compulsion of meeting sales targets shall be any of the following conduct:
- ① Early terminating agency contract;
- ② Suspending the supply of goods or services;
- ③ Failing to pay all or part of an amount payable to an agency;
- ④ Significantly reducing or slowing down the supply of goods or services;
- ⑤ Setting or altering any terms and conditions of transactions to be disadvantageous to an agency.
Prohibition on Imposing Disadvantages
- No supplier shall establish or alter any terms and conditions of transactions to give any disadvantage to an agency or impose any disadvantage on the agency in the course of implementing the transactions by unduly taking advantage of his or her position in a transaction, or cause his or her affiliated company or any other business entity to engage in such conduct. The types of or criteria for conduct of imposing disadvantages are as follows (the Article 9 of the Agency Act, the Article 6 of the Enforcement Decree of the Agency Act, and the Article 5 of the Public Notification on the Designation of the Types and Criteria of Unfair Trade Practices Forbidden in Transactions Involving Agencies):
- ① Concluding a contract interpreted in supplier’s favor, where the supplier and an agency fail to agree on the contents of the contract;
- ② Altering any terms and conditions of transactions during the term of the contract, against the intention of an agency;
- ③ Preventing an agency from claiming damages even if the contract is terminated fully or partially;
- ④ Suspending or restricting the supply of goods or services or the sales support agreed with an agent, without any reasonable reason;
- ⑤ Reducing or failing to pay sales incentives even though an agent does not fall under any ground for restricting the payment of the sales incentives under the agency transaction contract;
- ⑥ Requiring an agency to compensate any equipment or fixtures leased to the agency at a price without considering depreciation, when they are lost or damaged due to any cause attributable to the agency;
- ⑦ Refusing to accept returned goods even though the goods have been destroyed or damaged due to a cause attributable to the supplier;
- ⑧ Requiring an agency to bear the cost of transport incurred for returning goods, even though the return is due to a cause attributable to the supplier;
- ⑨ Signing a contract on the condition that a part or all of the contract can be unilaterally terminated without prior consultation or notification with the agency, except when prior consultation or notification is not possible;
- ⑩ Giving a penalty by stopping the transaction without any reasonable reason during the contract period;
- ⑪ Unilaterally changing the terms and conditions of payment agreed by the parties, such as the criteria for the payment of sales incentives and commission, unfavorably to the agency, without any reasonable reason;
- ⑫ Unfairly restricting returns, such as limiting the products that can be returned, without any reasonable reason, or allowing returns only within a certain percentage of products supplied;
- ⑬ Refusing the return of a product that cannot be resold normally due to reasons attributable to the supplier, without any reasonable reason.
Prohibition on Interference with Management Activities
- No supplier shall interfere in the management activities of an agency by unduly taking advantage of his or her position in a transaction, or cause his or her affiliated company or any other business entity to engage in such conduct. Conduct prohibited under the Act shall be any of the following (the Article 10 of the Agency Act, the Article 7 of the Enforcement Decree of the Agency Act, and the Article 6 of the Public Notification on the Designation of the Types and Criteria of Unfair Trade Practices Forbidden in Transactions Involving Agencies):
- ① Requiring an agency to obtain a prior instruction or ex post facto consent from the supplier, where it appoints or dismisses any of its executive officers or employees or determines the working area or working conditions of such executive officer or employee;
- ② Requesting an agency to provide information that constitutes business secrets, such as the status of its customers and details of sales, without just cause;
- ③ Requesting an agency to comply with a unilateral instruction issued by the supplier as to the customers, business hours, sales territory, sales promotional activities, etc. of the agency;
- ④ Requesting the improvement of the store environment of the agency without any reasonable reason.
Prohibition on Refusal or Evasion of Requests for Confirmation of Details of Orders Placed
- No supplier shall refuse or evade a reasonable request of an agency to verify details of an order, such as product and quantity that the agency has offered or expressed his or her intention to purchase by unduly taking advantage of his or her position in a transaction, or cause his or her affiliated company or any other business entity to engage in such conduct.
Prohibition on Retaliation
- No supplier shall suspend any transaction, reduce any quantity, or give any other disadvantage to an agency which engages in any of the following conduct, for reasons of having conducted such conduct, or cause his or her affiliated company or any other business entity to engage in such conduct:
- ① Filing an application for mediation of a dispute;
- ② Reporting to the KFTC;
- ③ Cooperating with the KFTC’s investigation;
- ④ Cooperating with the KFTC’s written fact-finding investigation.
The Agency Dispute Mediation Council, established in the Korea Fair Trade Mediation Agency, Seoul-si, Incheon-si, Busan-si, and Gyeonggi-do, is in charge of the dispute mediation of agency transactions. The dispute mediation proceedings aim to settle disputes voluntarily and quickly through the settlement between the disputing parties.
The dispute settlement shall be have the same effect as a court settlement.
The Process of the Dispute Mediation of Agency Transactions
Dispute mediation proceedings are normally completed in 60 days, however it could take more than 60 days depends on the additional fact checking required.
The dispute mediation proceedings are terminated in the following cases:
- ① Where a disputing party files a lawsuit;
- ② Where the applicant withdraws the application for mediation;
- ③ Where the applicant fails to supplement the application for dispute mediation within the deadline without just cause.
Dispute mediation proceedings are as follows:
Fair Transaction Agreement between Supplier and Agency
The KFTC recommends that a supplier and an agency conclude a voluntary agreement to comply with statutes and regulations relating to agencies and to pledge mutual assistance and cooperation. The KFTC formulates and implements assistance policy including rewards to encourage the implementation thereof.
Written Fact-finding Investigations on Agency Transactions
The KFTC conducts the written fact-finding investigations pursuant to the Article 27-2 of the Agency Act to establish fair trading practices in transactions between suppliers and agencies. The KFTC may request the persons to be investigated to present materials necessary for the fact-finding investigation.
Standard Agency Transaction Contract
The KFTC may recommend a supplier subject to the application of this Act or a trade association consisting of suppliers to prepare and use a standard transaction contract pursuant to the Article 5(4) of the Agency Act.
Sanctions for Violation of the Agency Act
- In the event of any violation of any of the Agency Act, the KFTC may order the supplier to discontinue the relevant violation, to publish the fact that it has received a corrective measure, and to take other necessary measures to correct the violation.
- In the event of a violation of the Agency Act, the KFTC may impose a penalty surcharge on the supplier to the extent of not exceeding the amount associated with the violation of the Agency Act.
The KFTC may file a criminal charge against a supplier and the supplier can be punished by imprisonment with labor for not more than two years or by a fine not exceeding 150 million won.
A supplier who refuses, obstructs, or evades an investigation conducted; a supplier who submits false documents; a supplier who does not provide the written contract shall be punished by an administrative fine not exceeding 200 million won.