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May a foreign supplier establish its own entity to import and distribute its products in your jurisdiction?
Yes, except for a few limited types of business for which foreign investment is restricted under the Foreign Investment Promotion Act (‘restricted businesses’). For example, in a meat wholesale industry, a foreign investor is only permitted to own less than 50 per cent of the equity interest in the said business.
May a foreign supplier be a partial owner with a local company of the importer of its products?
Yes, except when the local company is engaging in a restricted business (see question 1).
What types of business entities are best suited for an importer owned by a foreign supplier? How are they formed? What laws govern them?
The two most popular forms of entity used by foreign investors (as well as domestic investors) are joint-stock company and limited company (whose liability is limited at the entity level). Due to administrative convenience in business operation, such as increase of capital, a larger number of foreign-invested enterprises have adopted joint-stock company over limited company. At the same time, since joint-stock companies whose total assets exceed 12 billion won are currently required under the Act on External Audit of Stock Companies (the Act) to receive an external audit and to publicly disclose their balance sheets to the Securities and Futures Commission, many foreign investors have also adopted the limited company form. However, the Act was amended on 31 October 2017 to the effect that both the joint-stock company and the limited company would be subject to the audit and disclosure requirement beginning 1 January 2020.
Does your jurisdiction restrict foreign businesses from operating in the jurisdiction, or limit foreign investment in or ownership of domestic business entities?
Except in case of ‘restricted businesses’ (see question 1), there are no Korean laws and regulations that place restriction on the foreign business’ ability to invest in Korea. Rather, the Foreign Investment Promotion Act has adopted various measures to encourage more foreign investment, such as (i) guaranteeing overseas remittance between the foreign investor and the foreign-invested company; (ii) ensuring the foreign investor is treated in the same way as Korean national or domestic entity (subject to some exceptions); and (iii) providing other types of benefits such as tax benefits and assistance in securing a business site.
May the foreign supplier own an equity interest in the local entity that distributes its products?
Yes, by either establishing a joint venture in Korea or acquiring the equity interest of a local entity (subject to restrictions explained in question 1).
What are the tax considerations for foreign suppliers and for the formation of an importer owned by a foreign supplier? What taxes are applicable to foreign businesses and individuals that operate in your jurisdiction or own interests in local businesses?
In principle, foreign investors and foreign-invested companies are treated in the same way as local companies in terms of tax benefits. However, under the Restriction of Special Taxation Act, certain types of business (eg, high-technology businesses, businesses located within a free economic zone, etc) that are operated based on foreign investment are eligible for reduction in, or exemption from, corporate tax and income tax.
Local distributors and commercial agents
What distribution structures are available to a supplier?
Foreign suppliers may distribute their products in Korea through various distribution structures, including direct distribution, use of independent distributors, sales agents, franchising, and licensing trademark and manufacturing rights. Among these structures, the most popular choice for the foreign suppliers has been the use of independent distributors or sales agents.
Legislation and regulators
What laws and government agencies regulate the relationship between a supplier and its distributor, agent or other representative? Are there industry self-regulatory constraints or other restrictions that may govern the distribution relationship?
The Korean Commercial Code (KCC) applies to the basic contractual relationship between a supplier and its distributor or agent. Contractual disputes arising out of the distribution agreement are usually brought before the courts or arbitration tribunal depending on dispute resolution provision under the distribution agreement.
The Monopoly Regulation and Fair Trade Law (FTL), which is Korea’s primary body of competition law, mandatorily applies to supplier-distributor relationships. FTL regulates anticompetitive behaviors and abuse of superior bargaining position in the market.
Furthermore, in order to strengthen regulation of unfair trade practices in supplier-distributor transactions, the Fairness in Distributor Transactions Act (FDTA), a special law accompanying the FTL, came into effect as of 23 December 2016. The FDTA sets forth the types of abuse of superior bargaining position that are prohibited in the context of a supplier-distributor relationship. On 31 October 2017, the FDTA was amended so that it can be retroactively applied to all types of distribution agreements (including ones entered into prior to 23 December 2016). Also, on 29 December 2017, the National Assembly passed amendments to the FDTA that would (i) include a monetary reward programme for whistle-blowers, and (ii) provide statutory basis for the Korea Fair Trade Commission (KFTC) to conduct a market survey and prohibiting any retaliation against cooperation with the market survey.
The KFTC is the primary regulatory agency in Korea that enforces the FTL and the FDTA. Also, there are certain industries (eg, pharmaceutical and medical devices) in Korea that impose self-regulatory constraints that govern the supplier-distributor relationships by adopting operational guidelines approved by the KFTC.
Are there any restrictions on a supplier’s right to terminate a distribution relationship without cause if permitted by contract? Is any specific cause required to terminate a distribution relationship? Do the answers differ for a decision not to renew the distribution relationship when the contract term expires?
In principle, any contractual terms agreed between the parties, including termination without cause, are valid and thus enforceable in Korea, subject to the restrictions explained below.
First, if the distribution agreement is executed in a standardised contact form that was prepared by a supplier in advance with the objective of entering into the same with multiple parties, the Standardised Contracts Act (SCA) applies. Under the SCA, any clause that runs against the principle of trust and good faith shall be null and void. Therefore, a contract provision which allows termination without cause can be made null and void. Meanwhile, the SCA does not specifically provide for any permissible causes of termination, so whether the ‘termination without cause’ clause is valid should be determined on a case-by-case basis in light of whether the cause of termination is unreasonably unfavourable to distributor.
In addition, the ‘termination without cause’ clause may be scrutinised under the FTL if the terminated distributor files a complaint with the KFTC, arguing that the supplier unreasonably refused to transact in violation of the FTL. In determining whether a supplier’s termination of distribution relationship constitutes unfair refusal to deal, the KFTC will consider various factors, including whether the termination would put the distributor at such disadvantage that the very existence of the distributor would be threatened and the market competition would be impeded as a result.
While there are no Korean laws that differentiate between termination and non-renewal of the distribution relationship, it is generally understood from a practice standpoint that the exposure to legal risk is lower in case of non-renewal as opposed to termination.
Is any mandatory compensation or indemnity required to be paid in the event of a termination without cause or otherwise?
The KCC provides that a company (principal) pay reasonable compensation to its agent upon termination of an agency relationship if the following conditions are met: (i) the agent brought in new business or the transaction volume of the principal’s business has increased significantly as a result of the agency relationship; (ii) the principal will continue to enjoy the results of the agent’s contributions following the termination; and (iii) the termination is not due to the agent’s wrongdoing. The maximum amount of compensation that can be paid to an agent under the KCC is the average annual commission paid to the agent over the preceding five years or the period of the relevant agreement (whichever is shorter).
While this statutory compensation provision appears to apply only to principal-agent relationship, it may also apply to a supplier-distributor relationship based on a Supreme Court decision in 2013, which held that the statutory compensation provision under the KCC is applicable to a supplier-distributor relationship if the distributor’s sales activities are substantially influenced by the supplier similar to a principal-agent relationship (Supreme Court Decision 2011 Da 28342 of 14 February 2013).
Transfer of rights or ownership
Will your jurisdiction enforce a distribution contract provision prohibiting the transfer of the distribution rights to the supplier’s products, all or part of the ownership of the distributor or agent, or the distributor or agent’s business to a third party?
In principle, any contractual terms agreed between the parties are valid and thus enforceable in Korea. For example, the parties can agree to grant one party the right to unilaterally terminate the contract in the event that the other party transfers its business in whole or in part to a third party, merges with another enterprise, or undergoes change of control (ie, change in the shareholding status of its largest shareholder). However, such prohibition may be viewed as ‘imposing disadvantages’ which is prohibited under the FTL and FDTA if it is exercised in a manner unfair to the distributor depending on the underlying circumstances.
Regulation of the distribution relationship
Are there limitations on the extent to which your jurisdiction will enforce confidentiality provisions in distribution agreements?
A confidentiality provision agreed between the parties is generally enforceable and is not subject to any specific limitation under the Korean law.
Are restrictions on the distribution of competing products in distribution agreements enforceable, either during the term of the relationship or afterwards?
The FTL prohibits a company from unreasonably requiring the counterparty not to transact with the competitors of the company or its affiliates. The KFTC and the courts will determine whether this type of exclusive dealing constitutes an unfair trade practice based on various factors including: (i) whether such arrangement would prevent the counterparty from using other purchase or distribution channels; (ii) whether any existing or potential competitors would be excluded from the market as a result of this arrangement; or (iii) where there is any justifiable rationale behind the arrangement (eg, advanced technology or in-depth expertise are required for after-sales services).
May a supplier control the prices at which its distribution partner resells its products? If not, how are these restrictions enforced?
In a supply-distributor context, the FTL prohibits suppliers from engaging in resale price maintenance (RPM), which is defined as designating a resale price and coercing the distributor to maintain such resale price. RPM can be further classified into ‘minimum RPM’ and ‘maximum RPM’, depending on whether the price restriction sets a minimum or maximum product price. Both types of RPM may be allowed if supported by a justifiable rationale, such as improvement of consumers’ welfare or enhancement of efficiency; however, in practice, it is very difficult to meet such threshold. A supplier enforcing RPM in violation of the FTL may be subject to sanctions including corrective orders, administrative fines and criminal sanctions. (Criminal sanctions are applicable to serious violations.)
In the context of a consignment relationship, however, principals are permitted to impose a resale price on their consignees.
May a supplier influence resale prices in other ways, such as suggesting resale prices, establishing a minimum advertised price policy, announcing it will not deal with customers who do not follow its pricing policy, or otherwise?
The supplier’s act of simply notifying a reference resale price or recommending a resale price without any coercion or penalty (in case the distributor does not comply with such recommendation) is generally not viewed as RPM and is deemed acceptable under the FTL. On the other hand, the Korean Supreme Court has stated that RPM can be found where contractual obligations to observe the resale price are imposed and the breach of such obligations would result in termination or damages.
May a distribution contract specify that the supplier’s price to the distributor will be no higher than its lowest price to other customers?
In principle, a distribution contract that allows the supplier to sell the products to the distributor at a price no higher than that charged to its other customers is permitted under Korean law. However, the FTL prohibits suppliers from restraining competition in the relevant market by implementing considerably different price policies based on location and types of counterparty without any reasonable grounds as discussed in question 17.
Are there restrictions on a seller’s ability to charge different prices to different customers, based on location, type of customer, quantities purchased, or otherwise?
The FTL prohibits suppliers from restraining competition in the relevant market by applying considerably different prices from their counterparties based on location or type of counterparty unless such a price policy can be reasonably justified. The illegality of the supplier’s differential price policy can be determined based on the following: (i) the respective market situations; (ii) differences in marginal costs that can be calculated based on factors, such as quantities purchased, transportation costs involved, responsibilities of the counterparty and the level of perishable inventory, or (iii) whether the anticompetitive effect is considerably outweighed by efficiency and customer welfare improved through the implementation of a differential price policy.
Geographic and customer restrictions
May a supplier restrict the geographic areas or categories of customers to which its distribution partner resells? Are exclusive territories permitted? May a supplier reserve certain customers to itself? If not, how are the limitations on such conduct enforced? Is there a distinction between active sales efforts and passive sales that are not actively solicited, and how are those terms defined?
The FTL prohibits suppliers from unfairly restricting the sales territory in which their distributors can operate its business, assigning exclusive territories to distributors and restricting categories of customers to which the distributor can resell. The illegality of such a restriction is determined under the rule of reason analysis that takes into consideration its anticompetitive effect (eg, restraint from intra-brand competition) and its pro-competitive effect (eg, promotion of inter-brand competition). If a restriction is found to be in violation of the FTL, the supplier may be subject to sanctions, including corrective orders, administrative fines and criminal sanctions. (The criminal sanctions are applicable to serious violations.)
While a supplier is permitted to reserve certain customers to itself, the act of prohibiting its distributors from not transacting with the supplier’s direct customers could be viewed as unfair restriction on the distributor in violation of the FTL absent any justifiable reason. Finally, there is no law or precedent that specifically differentiates between active sales and passive sales in Korea.
May a supplier restrict or prohibit e-commerce sales by its distribution partners?
The distributors’ act of limiting or prohibiting online sales can be deemed as a ‘transaction based on restrictive conditions’ prohibited under the FTL. The illegality of the prohibition on online sales is determined based on the rule of reason analysis under which the following factors may be considered, among others: (i) the market share of the supplier; (ii) whether the supplier is a new market entrant; (iii) the purpose and effect of the prohibition on online sales (eg, maintain resale price); and (iv) the effect of permitting online sales. For example, if a supplier is a new market entrant wanting to expand its market position based on ‘offline’ sales, one could argue that allowing unlimited online sales of the supplier’s products at such a stage may create a huge disadvantage to the growth of the supplier’s business and restrain the overall level of market competition.
Under Korean court precedents, a supplier’s act of receiving sales information from its distributors, by itself, does not constitute a violation of the FTL. On the other hand, companies that actually used such information to impose unfavourable terms onto the distributor (eg, forced discounts) were found to be in violation of the FTL. In addition, if a retail price can be inferred from the information provided by the distributor, such as inventory levels and sales revenue, it may raise an issue whether or not the supplier is using that information to maintain the retail price.
Refusal to deal
Under what circumstances may a supplier refuse to deal with particular customers? May a supplier restrict its distributor’s ability to deal with particular customers?
In principle, a supplier is free to deal with any customer or distributor of its choice. However, the FTL prohibits the supplier from unreasonably refusing to deal with a particular customer or distributor. In order to determine whether a particular case constitutes unfair refusal to deal, the KFTC will consider various factors, including whether the supplier’s act would put the counterparty at such a disadvantage that the very existence of the counterparty would be threatened and the market competition would be impeded as a result.
The act of requiring distributors not to transact with particular customers could be viewed as an unfair restriction prohibited under the FTL. The illegality of such act would be determined based on the rule of reason analysis (discussed in question 18).
Under which circumstances might a distribution or agency agreement be deemed a reportable transaction under merger control rules and require clearance by the competition authority? What standards would be used to evaluate such a transaction?
In general, a distribution or agency agreement does not trigger the KFTC filing obligation. However, when a foreign entity (i) acquires 20 per cent or more of the domestic target’s voting shares or (ii) establishes a joint venture (JV) and becomes the largest shareholder of the JV, the KFTC filing obligation may be triggered if:
- either the foreign entity or the domestic target (or the JV) has total consolidated worldwide assets or turnover during the most recent complete fiscal year of 300 billion won or more and the other party has such assets or turnover of 30 billion won or more; and
- the turnover in Korea of each of the foreign entity and the domestic target (or the JV) is 30 billion won or more in each case.
Do your jurisdiction’s antitrust or competition laws constrain the relationship between suppliers and their distribution partners in any other ways? How are any such laws enforced and by which agencies? Can private parties bring actions under antitrust or competition laws? What remedies are available?
The FTL and FDTA are the primary bodies of law that govern the supplier-distributor relationship. The KFTC, as the primary regulatory agency that enforces the FTL and FDTA, has the authority to investigate at its own initiative or upon filing of a complaint alleging a violation of the FTL or FDTA. When the KFTC concludes that the supplier has violated the FTL or FDTA, it may issue a corrective order, impose administrative fines or refer the case to the prosecutors’ office for criminal prosecution. Separately, the distributors can also file a civil action against the supplier on grounds of the FTL or FDTA violation to seek compensation for damages.
Are there ways in which a distributor or agent can prevent parallel or ‘grey market’ imports into its territory of the supplier’s products?
Parallel importation is generally permitted in Korea. Rather, the FTL prohibits distributors or agents of a supplier from unreasonably restricting the parallel importers’ business.
What restrictions exist on the ability of a supplier or distributor to advertise and market the products it sells? May a supplier pass all or part of its cost of advertising on to its distribution partners or share in its cost of advertising?
A supplier and distributor engaging in advertisement of products should comply with the Act on Fair Labelling and Advertising, which prohibits false and exaggerated labelling and advertising that is likely to be deceptive or misleading to consumers.
A supplier may pass its advertising cost on to its distribution partner to a reasonable extent but, under the FDTA, is prohibited from transferring to a distributor the cost arising from the promotional activities conducted by the supplier due to its own needs.
How may a supplier safeguard its intellectual property from infringement by its distribution partners and by third parties? Are technology-transfer agreements common?
In practice, a distribution agreement may include a clause requiring the distributor not to infringe the supplier’s intellectual property rights. Technology-transfer agreements are not usually used in the context of a supplier-distributor relationship.
What consumer protection laws are relevant to a supplier or distributor?
The Framework Act on Consumers sets forth the basic mechanisms for consumer protection. In addition, the following laws aim to enhance consumer protection and promote fairness in transactions: the FTL, the SCA, the Installment Transactions Act, the Act on Door-to-Door Sales, the Act on Consumer Protection in Electronic Commerce and the Product Liability Act (which protects consumer rights when a product defect causes death or injury).
Briefly describe any legal requirements regarding recalls of distributed products. May the distribution agreement delineate which party is responsible for carrying out and absorbing the cost of a recall?
In general, recall of distributed products is governed by the law applicable to the relevant product type (eg, the Framework Act on Product Safety, the Pharmaceutical Affairs Act, the Food Sanitation Act). These laws generally require companies (eg, manufacturers, importers, distributors and service providers) to recall products supplied in the market if the products are likely to cause death or injury to customers or damage to customers’ property.
The distribution agreement can provide that the distributor will bear the recall obligation if the defect has been caused during the distribution process. However, if a defect has been caused at the design stage or during the manufacturing process, the manufacturer or the supplier should, in principle, bear the costs necessary for the recall. Therefore, the supplier’s act of transferring to the distributor the recall costs arising from defects attributable to the supplier without reasonable cause could be viewed as an act of unfairly imposing disadvantages, which is prohibited under the FTL and FDTA.
To what extent may a supplier limit the warranties it provides to its distribution partners and to what extent can both limit the warranties provided to their downstream customers?
In principle, the parties can freely decide on the scope of warranties the supplier provides to the distributor by mutual agreement. However, if the supplier provides different types of warranties to distributors without reasonable cause, the supplier may be found to be in violation of the FTL on the basis that it unfairly discriminated against certain counterparty. In addition, in the event that the distribution agreement can be deemed as ‘standardised contract’ as defined under the SCA, any provision thereunder that limits the scope of warranties provided to the distributor can be scrutinised under the SCA. The SCA prohibits parties from including a clause in the standardised contract that either (i) excludes or limits the warranty liability of a company to the customer or (ii) tightens the requirements that customers need to satisfy in order to exercise their rights under the warranty.
Furthermore, if the supplier and the distributor agree to limit the scope of warranties provided to certain customers only without reasonable cause, that agreement could be viewed as discriminatory treatment prohibited under the FTL.
Are there restrictions on the exchange of information between a supplier and its distribution partners about the customers and end-users of their products? Who owns such information and what data protection or privacy regulations are applicable?
The Personal Information Protection Act allows a person to transfer another’s personal information to a third party only where the information principal’s consent is obtained or a transfer is specifically required under the applicable laws. In addition, a customer’s information can be stored and kept only by a person or entity that has obtained the customer’s consent. In that sense, a distributor must obtain customers’ and end users’ consent before sharing their personal information with the supplier. In addition, an act of supplier requiring the distributor to provide customers’ information (whether personal or not) unilaterally without any reasonable cause could constitute unfair interference with another’s business, which is prohibited under the FDTA.
May a supplier approve or reject the individuals who manage the distribution partner’s business, or terminate the relationship if not satisfied with the management?
Unless there is any reasonable cause, an agreement granting the supplier the right to (i) approve and reject the appointment or dismissal of the distributor’s employees, directors or officers or (ii) terminate the distribution contract if the supplier is not satisfied with the distributor’s management of its distribution business may be viewed as unfair interference in another’s business prohibited under the FDTA and may thus not be enforceable absent any justifiable reason.
Are there circumstances under which a distributor or agent would be treated as an employee of the supplier, and what are the consequences of such treatment? How can a supplier protect against responsibility for potential violations of labour and employment laws by its distribution partners?
The Korean courts determine whether a person is an employee by considering various factors, such as (i) whether the company supervises or controls the person’s work; (ii) whether the person can independently operate the business on his or her own account; (iii) whether remuneration provided to the person is performance-based compensation paid irregularly or fixed salary regularly paid; (iv) how long the relationship has existed and will be continued; and (v) whether the person exclusively works for the company. Based on the foregoing standard, a distributor is not generally deemed to be the employee of the supplier. However, if a distributor receives compensation from the supplier for the labour he or she provides and is under the supplier’s supervision as in an employer-employee relationship, the distributor or agent could be viewed as an employee of the supplier.
Is the payment of commission to a commercial agent regulated?
In principle, the payment of commission to a commercial agent is not regulated in Korea.
Good faith and fair dealing
What good faith and fair dealing requirements apply to distribution relationships?
There is no standardised set of good-faith or fair-dealing requirements that are applicable to a supplier-distributor relationship. Instead, the KFTC and the courts tend to review the totality of the circumstances to determine whether the parties have engaged in transactions in good faith or otherwise treated each other unfairly. The factors considered include whether the parties have reached an agreement based on sufficient mutual discussions and whether profits and losses (or advantages and disadvantages) as a whole are fairly shared between the parties under the agreement.
Registration of agreements
Are there laws requiring that distribution agreements or intellectual property licence agreements be registered with or approved by any government agency?
In general, there are no laws or regulations in Korea that require distributors to register with or obtain approval from the government in respect of their distribution agreements or intellectual property licence agreements. However, there are certain industries, such as the medical devices or cosmetics industries, which require distributors to register their distribution business with, make a declaration to, or obtain approval from the government before distributing the products.
To what extent are anti-bribery or anti-corruption laws applicable to relationships between suppliers and their distribution partners?
The FDTA prohibits a party from coercing another to provide economic benefits (eg, money, goods or services) to itself or a designated third party for its own benefit. In addition, a supplier’s act of improperly requesting and receiving economic benefits from a distributor in the context of the supplier-distributor relationship may constitute a crime of commercial bribery, which is punishable under the Criminal Code.
Prohibited and mandatory contractual provisions
Are there any other restrictions on provisions in distribution contracts or limitations on their enforceability? Are there any mandatory provisions? Are there any provisions that local law will deem included even if absent?
The FTL and FDTA prohibit a supplier from unreasonably establishing a minimum sales target and coercing the distributor to meet the sales target by, for example, imposing penalties or disadvantages (eg, termination of the distributorship, forfeiture of sales commission) when the distributor fails to meet the sales target. However, the Korean courts deemed the sales targets as not coercive where the distributors would receive certain benefits or incentives upon satisfaction of the targets in addition to the distribution margin.
Governing law and choice of forum
Choice of law
Are there restrictions on the parties’ contractual choice of a country’s law to govern a distribution contract?
While parties are free to choose the governing law by mutual agreement, the FTL and FDTA still mandatorily apply to the supplier-distributor relationship regardless of the governing law provision.
Choice of forum
Are there restrictions on the parties’ contractual choice of courts or arbitration tribunals, whether within or outside your jurisdiction, to resolve contractual disputes?
The provision requiring the parties to resolve disputes before a foreign court or arbitration tribunal would be deemed effective if:
- the Korean courts do not have exclusive jurisdiction over the subject matter in dispute;
- the foreign court or the arbitration tribunal designated under the contract has appropriate international jurisdiction;
- the matter in dispute is reasonably related to the designated foreign jurisdiction; and
- the parties’ agreement to the exclusive jurisdiction is not substantially unreasonable or unfair in light of public order and good morals.
In addition, the foreign judgment or arbitral award can be enforced in Korea after obtaining an enforcement order from the Korean court.
Dispute resolution procedures
What courts, procedures and remedies are available to suppliers and distribution partners to resolve disputes? Are foreign businesses restricted in their ability to make use of these courts and procedures? Can they expect fair treatment? To what extent can a litigant require disclosure of documents or testimony from an adverse party? What are the advantages and disadvantages to a foreign business of resolving disputes in your country’s courts?
To the extent that jurisdictional grounds exist, a foreign national (including a foreign entity) can bring a lawsuit before a Korean court. For all court procedures, the foreign national shall be treated in the same way as Korean national. One critical procedural difference is that the US-type discovery is not required in Korea, making it hard for a litigant to require disclosure of materials from an adverse party. Under the Korean Civil Procedure Act, a party can request the production of a document to the court under a limited set of circumstances, including where (i) the said document was cited by the adverse party to support its arguments; (ii) the requesting party has the legal right of access to the said document (eg, ownership right, statutory right of access); or (iii) the said document was prepared to the benefit of the requesting party or the requesting party is a contractual party to the said document.
Alternative dispute resolution
Will an agreement to mediate or arbitrate disputes be enforced in your jurisdiction? Are there any limitations on the terms of an agreement to arbitrate? What are the advantages and disadvantages for a foreign business of resolving disputes by arbitration in a dispute with a business partner in your country?
An agreement to mediate or arbitrate disputes is valid and enforceable in Korea as long as the parties’ intention to mediate or arbitrate is clearly stated in the agreement. Since Korean nationals and foreign nationals (including foreign entities) are treated equally before the Korean courts, there is no advantage or disadvantage for a foreign business to resolve disputes by arbitration in Korea.
Update and trends
Update and trends
Updates and trends
As noted in question 8, on 31 October 2017, the FDTA was amended so that it can be retroactively applied to all types of distribution agreements (including ones entered into prior to 23 December 2016). Also, on 29 December 2017, the National Assembly passed amendments to the FDTA that would (i) include a monetary reward programme for whistle-blowers, and (ii) provide a statutory basis for the Korea Fair Trade Commission (KFTC) to conduct a market survey and prohibiting any retaliation against cooperation with the market survey.
The above amendments reflect the President Moon Administration’s commitment to address problems arising from the abuse of bargaining position by an economically superior party against an economically weaker party, which has been set as one of the main policy agenda. KFTC chairperson Sang-Jo Kim has also emphasised that the eradication of the abuse of superior bargaining position will be instrumental in achieving economic democratisation and has vowed to take necessary steps as quickly as possible.
With the amendments to go into effect in 2018, we expect to see a higher number of whistle-blowing instances as well as KFTC enforcement activities to address the abuse of superior bargaining position.