Reasons for Proposal 

Small and medium-sized manufacturers that supply goods to large enterprises are under mounting pressure due to the steep rise in the prices of raw materials such as crude oil, iron ore, and pulp. According to a recent survey on actual conditions conducted by the Korea Federation of SMEs, the prices of raw materials rose in 2021 by 47.6 percent on average compared with 2020, whereas the unit price of delivered goods increased only by 10.2 percent, and the operating profit ratio fell from 7.0 percent to 4.7 percent. 

According to the provisions on the adjustment of the price of delivered goods under the current Act, in cases where it is inevitable to adjust the price of delivered goods because of the fluctuations in the supply costs of goods, etc., commissioned enterprises may file an application for the adjustment of the price of delivered goods through small and medium enterprise cooperatives and the Korea Federation of SMEs. However, the requirements are excessively strict and, in reality, it is difficult for small and medium-sized enterprises to make use of the current system due to the concerns that their business relations might be severed. As a result, even though the burdens caused by higher raw materials prices should be borne equally by commissioning enterprises and commissioned enterprises, most of these burdens are being shouldered by small and medium-sized enterprises that are in an inferior position under the current structure of transactions effected on consignment and commission in Korea.

In this regard, the Amendment intends to contribute to mutually beneficial cooperation between commissioning enterprises and commissioned enterprises and also to the development of a fair market economy by lessening the burdens borne by small and medium-sized enterprises due to the steep rise in raw materials prices, and by reasonably adjusting the prices of delivered goods which are affected by changes in raw materials prices. To achieve these goals, the Amendment intends to prescribe that the methods for adjusting the price of delivered goods following the changes in raw materials prices shall be stated on the written agreement, and that commissioning enterprises and commissioned enterprises shall execute standard agreements through mutual consultation with regard to the major raw materials, requirements for adjustment, timing of reflection, the calculation formula, etc.

Major Provisions 

A. Prescribe that, for the adjustment of the price of delivered goods, the commissioning enterprise and the commissioned enterprise shall execute a standard agreement for linking the price of delivered goods that sets out the details regarding the major raw materials, requirements for adjustment, and the calculation formula for linking the price of delivered goods, etc. (Article 21 (2) newly inserted). 

B. Prescribe that, in the event that the changes in raw materials prices stated on the standard agreement fall under the category of the requirements for adjustment, the commissioning enterprise shall pay the adjusted price of delivered goods in accordance with the calculation formula for linking the price of delivered goods (Article 22 (7) newly inserted).

C. Prescribe that the Minister of SMEs and Start-ups may install an agency to support the linking of the price of delivered goods to promote the fairness of transactions effected on consignment and commission, with regard to such matters as the execution of standard agreements, consultation and training on the linking of the price of delivered goods, and mediation of the disputes arising out of the price of delivered goods, etc. (Article 22-3 newly inserted). 

D. Prescribe that the Minister of SMEs and Start-ups shall select and reward commission enterprises that have faithfully carried out the adjustment and payment of the price of delivered goods as “exemplary mutually beneficial cooperation enterprises (Article 16).” 

E. Prescribe that any person who fails to execute a standard agreement or fails to adjust and pay the price of delivered goods shall be subject to an administrative fine of not more than 50 million won (Article 43 (5) newly inserted).