Reasons for Proposal

Recent sharp rises in the prices of crude oil, iron ore, pulp, and other raw materials have added to difficulties faced by small and medium manufacturers that supply large enterprises. According to a survey conducted by the Korea Federation of Small and Medium Business, the price of crude oil (naphtha) at the end of 2021 had jumped by 55.3% (from $508.50 in January 2021 to $789.50 in October 2021), and iron ore and pulp showed fluctuations of 172.2% and 55.5%, respectively. Of small and medium enterprises, 86.2% cannot reflect increased supply costs in their price of delivered goods.

 In such cases where it is inevitable to adjust the price of delivered goods due to supply cost fluctuations, the “Price of Delivered Goods Adjustment System” allows a firm to apply to the commissioning enterprise for an adjustment in the price of delivered goods. In reality, however, it is difficult for small and medium enterprises to utilize the system as the requirements for adjustment negotiations are overly complex and there are concerns over loss of business and other retaliations.

 Accordingly, the Amendment aims for fair trade on equal grounds between commissioning enterprises and commissioned enterprise by: ① Requiring the use of a standard agreement that specifies base prices for raw materials and the method of adjusting the price of delivered goods in any case where the price of raw materials makes up a high proportion of the price of delivered goods; and ② Requiring the Minister of SMEs and Startups to recommend the preparation and use of the standard agreement; thereby reducing the burden on small to medium enterprises facing difficulties caused by sharp increases in the prices of raw materials, and achieving fair development of the market economy.

Major Provisions

A. Prescribe that where the proportion of the price of raw materials making up the price of delivered goods is higher than or equal to the threshold set by Presidential Decree, the commissioning enterprise shall determine the base prices of the main raw materials and specify in an agreement the method for adjusting the price of delivered goods according to increased raw material prices (Article 21 (2) newly inserted).

B. Require the Minister of SMEs and Startups to recommend the preparation and use of a standard agreement to ensure commissioning enterprises and commissioned enterprises engage in fair trade on equal grounds (Article 21 (3) newly inserted).

C. Prescribe that where the base price of raw materials increases within a limit of 3/100 at a rate higher than or equal to that prescribed by Presidential Decree, the commissioning enterprise shall pay the additional cost arising from the increased raw material prices as part of the price of delivered goods (Article 22 (7) newly inserted).

D. Prescribe that any person who fails to pay an amount that reflects the adjusted price of delivered goods shall be punishable by an administrative fine equivalent to two times the difference between the amount that reflects the adjusted price of delivered goods and the price of delivered goods under Article 21 (1) (Article 43 (5) newly inserted).