The franchise industry has demanded a comprehensive revision of the Fair Trade Commission's proposed amendments to the Enforcement Decree of the Franchise Business Act, which aims to strengthen the bargaining power of franchisees. The argument is that, contrary to the intent of the bill, allowing non-representative franchisee groups to proliferate and forcing headquarters to engage in consultations throughout the year could only exacerbate on-the-ground grievances and disputes.
Na Myung-seok, President of the Korea Franchise Industry Association, held a press conference at the association's office in Seoul Yeouido on the morning of the 8th and urged, "The proposed amendments must be comprehensively revised to fully reflect concerns from the field before being re-announced."
The Korea Fair Trade Commission announced legislative and administrative notices on the third of last month regarding a draft amendment to the Enforcement Decree of the Act on Fair Transactions in Franchise Business, which includes registration requirements for franchisee organizations and consultation procedures. Na (Chairman) identified four issues with the notice: △registration requirements for franchisee groups, △consultation targets with franchisee groups, △clauses allowing third-party participation, and △the time limit for re-consultations.
The association raised the most significant concern regarding registration requirements for organizations. According to the notice, an organization can be registered if more than 10% of all franchise business operators join and there are at least 30 members, or if there are at least 1,000 members. This is a significant reduction from the initial draft's 30% threshold proposed by the government in June. Na (Chairman) stated, "Up to 10 groups could proliferate; if they make other demands, franchise headquarters will be unable to establish normal policies or apply them across the board."
The association maintains that the basic registration ratio should be raised to a level of 30% to 40% of all franchise outlets. It argued that maintaining the 10th% threshold would require supplementary measures such as consolidating consultation channels, applying consultation results to all outlets, or obtaining consent from more than 40% of all franchisees.
The association also argued that the scope of consultation targets is excessively broad. Na (Chairman) stated, "(The current notice includes) all core aspects of franchise business operations, including franchise fees, business territories, supply of essential items, and price calculations." It added, "Specific lists must be drawn up for consultation targets and excluded items, and procedures for preliminary action followed by consultation should be established to prepare for unpredictable situations such as food safety issues or sudden spikes in raw material prices." The association also pointed out the ambiguity regarding the scope of "authorized agents" who can attend consultations. It cited concerns that allowing third parties and outsiders to participate could distort the consultation process and lead to leaks of various trade secrets.
Additionally, the burden of costs was identified as a concern. The time limits for re-consultation are 180 days for the same topic and 60 days for separate topics. According to the association's own estimates, a headquarters with 300 franchise outlets would incur annual costs of 43 million won if it responds to two consultations (one in each half-year), while headquarters with fewer than 300 outlets would see their operating profits eroded by 7% to 8%. The association maintains that the time limits should be extended to one year for the same topic, 90 days for separate topics, and 120 days if there are fewer than 100 franchise business operators in total.
The association proposed not attempting to solve all problems through regulation. Kim Sang-hoon, the secretary-general, stated, "If laws are violated, they should be punished firmly according to the law." He added, "Creating new regulations without properly enforcing existing penalty provisions becomes a major obstacle to industrial development."
Meanwhile, the association plans to propose at the meeting with Gong Jeong-geo-rae (Chairman) scheduled for the 11th: △ensuring representativeness of groups or consolidating consultation channels, △specifying consultation targets, △clarifying the scope and responsibility of external agents' participation, and △limiting repetitive consultations.
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