Reasons for Proposal

As the price of raw materials, such as iron ore, crude oil, and pulp, has recently soared, small and medium-sized enterprises (SMEs) that supply raw materials to large enterprises are experiencing great difficulties.  According to the announcement made by the Korea Federation of SMEs, only 4.6% of companies reported that the rise in prices of raw materials was reflected in the unit price of goods and services provided, and if the current pace continues, seven out of ten SMEs will have to cut production and reduce jobs.

The current Act allows commissioned enterprises to apply for an adjustment in the price of goods and services provided, through the Small and Medium Enterprise Cooperatives and the Korea Federation of Small and Medium Business, and reach an agreement on the price of goods and services provided with commissioning enterprises.  However, it is not easy to reflect the modified price of raw materials in the price of goods and services provided due to concerns over retaliatory measures, such as being excluded from future transactions, since commissioned enterprises, which are mostly SMEs, are in a vertical relationship with commissioning enterprises, which are large enterprises.  Therefore, it is necessary to introduce a unit price link system for goods and services provided to automatically reflect any change in the price of raw materials in the price of goods and services provided. 

Accordingly, the amendment will require standard agreements to prescribe how to adjust the price of goods and services provided and reflect changes in the price of raw materials so as to contribute toward revitalizing the growth engines of SMEs, and facilitating the mutually beneficial cooperation between commissioning enterprises and commissioned enterprises and enhance fairness of transactions.

Major Provisions

A. Require the agreement to prescribe how to adjust the price of goods and services provided according to changes in the price of raw materials (Article 21 (1)).

B. Require the Minister of SMEs and Startups to recommend drafting and using standard agreements for the mutually beneficial cooperation between commissioning enterprises and commissioned enterprises, and facilitate fairness of transactions (Article 21 (3) newly inserted).

C. Required commissioning enterprises to reflect changes in the price for goods and services provided if the prices of major raw materials change by three percent or more as prescribed under the agreement.  However, if the prices of major raw materials fall by three percent or more, require commissioning enterprises to adjust and pay the price of goods and services provided by SMEs only according to the adjustment method prescribed in the agreement (Article 22 (7) newly inserted).

D. If the commissioning enterprise fails to pay the amount that reflects the adjustment of the price of goods and services provided, impose an administrative fine of not more than three times the adjusted price of goods and services provided (Article 43 (5) newly inserted).