Reasons for Proposal

The recent series of increases to the prices of iron ore, crude oil, pulp, and other raw materials has reduced operating profits and otherwise caused serious financial difficulties for small to medium enterprises that supply larger businesses.

Although the current Act prescribes a system that allows the price of delivered goods to be adjusted according to fluctuations in supply costs, the reality is that due to the nature of the relationship between large enterprises and small to medium enterprises, only a small number of small to medium enterprises are able to use this system and as a result, the burden of fluctuating prices for raw materials mostly falls on small to medium enterprises.

Accordingly, the Amendment prescribes that the written agreement required when a large enterprise commissions a small to medium enterprise with the manufacture of goods, etc. shall include provisions on adjustment of the price of goods delivered according to fluctuations in raw materials prices, thereby aiming to reduce the burden on small to medium enterprises caused by fluctuations in raw materials prices.

Major Provisions

A. Require written agreements issued by commissioning enterprises to specify the types and prices of the main raw materials and include provisions on adjustments to the price of goods delivered according to fluctuations in the prices for raw materials (Article 21 (1)).

B. Prescribe that where the price of a main raw material has fluctuated by the percentage specified by Presidential Decree or more, the price of delivered goods shall be paid after being adjusted as stipulated in the written agreement (Article 22 (7) newly inserted).

C. Impose an administrative fine of up to two times the adjusted portion of the price of delivered goods on any person who fails to adjust and pay the price of delivered goods as stipulated in the written agreement (Article 43 (5) newly inserted, etc.).