Complete Fair Trade Law Guide for SMEs in South Korea: 8 Key Areas and Response Strategies

For small and medium-sized enterprises (SMEs) in South Korea, fair trade law is no longer just a “concern for large corporations.” As the Korea Fair Trade Commission (KFTC) expands its enforcement scope, companies of all sizes can become investigation targets. For SMEs with limited financial resources, a single violation can pose critical threats to business survival. With the expansion of online business, platform commerce growth, and startup ecosystem development, South Korean SMEs face new types of fair trade issues requiring systematic preparation.

1. Critical Consequences of Fair Trade Law Violations for SMEs in South Korea

The consequences of fair trade law violations in South Korea extend far beyond surcharge payments. For SMEs, these violations can pose existential threats to business operations.

From an economic sanctions perspective, the Korea Fair Trade Commission imposes surcharges calculated as a percentage of related sales, which can amount to substantial sums that SMEs struggle to bear. SMEs with limited financial resources may experience cascading business deterioration including operational fund shortages, delayed investment plans, and abandoned new business ventures due to surcharge impositions.

Corporate image and trust damage is particularly devastating for SMEs in South Korea. When KFTC sanctions are reported in media, brand value decline and customer attrition occur. Unlike large corporations, SMEs lack brand recovery capabilities, making it extremely difficult to recover from such setbacks. SMEs depending on a few major business partners face particular risks, as losing partner trust can lead to contract cancellations and new business avoidance, potentially endangering the entire business.

Financing is also severely affected. Financial institutions negatively evaluate fair trade law violation histories during loan assessments, potentially leading to loan rejections or interest rate increases, significantly constraining SME growth momentum.

Criminal punishment risks for SME representatives or executives cannot be overlooked. When the KFTC refers cases to prosecution, individuals face criminal trials, delivering fatal blows to SME management both personally and professionally. Given SMEs’ heavy dependence on individual management capabilities, such situations can cascade into company-wide crises.

2. Essential Fair Trade Law Understanding for South Korean SMEs

South Korean SME managers often find fair trade law challenging not due to complex legal principles, but because of uncertainty about whether “laws apply to small companies like ours.” The bottom line is that fair trade law applies to all business entities regardless of size in South Korea.

Fair trade issues facing South Korean SMEs differ from those of large corporations. While large companies primarily deal with market dominance abuse or major corporate combinations, SMEs more frequently encounter unfair trade practices in online business, suspected collusion with competitors, and position abuse in subcontracting relationships.

Particularly increasing are fair trade issues for South Korean SMEs utilizing online platforms. Operating online shopping malls can involve problems like competitor review manipulation, false or exaggerated advertising, and customer information misuse, all potentially violating fair trade law.

When SMEs participate as subcontractors in South Korea, they risk unfair treatment from prime contractors. Conversely, when SMEs become prime contractors outsourcing work to others, they must properly fulfill subcontracting law obligations.

For startups and venture companies in South Korea, rapid growth processes can generate fair trade issues through intellectual property disputes, technology theft allegations, and unfair investment attraction processes.

3. 8 Ways to Protect SMEs from Unfair Trade Practices in South Korea

Unfair trade practices represent the fair trade law area that South Korean SMEs encounter most frequently in daily business operations. Let’s examine response methods for each of the 8 types from an SME perspective.

First, responding to refusal to deal. SMEs often become victims. When large corporations or major retailers refuse transactions or avoid new business without justifiable reasons, this may constitute refusal to deal. SMEs can report such situations to the Korea Fair Trade Commission for relief.

Second, discriminatory treatment issues. When specific companies receive favorable conditions or unfavorable treatment despite similar SME conditions, this constitutes discriminatory treatment. SMEs can demand transparent and fair transaction standards to prevent such discrimination in business processes.

Third, competitor exclusion can make SMEs perpetrators. When SMEs in similar industries unite to drive competitors from markets or obstruct new entrants, such actions are prohibited. Gaining market recognition through fair competition is important.

Fourth, improper customer inducement requires particular attention from South Korean SMEs conducting online business. Customer inducement through false or exaggerated advertising, competitor defamation, or dumping sales can be problematic.

Fifth, coercive transactions represent areas SMEs must be careful about as they grow. When SMEs in superior bargaining positions force counterparts to purchase unnecessary products or use services, this is illegal.

Sixth, abuse of superior bargaining position often victimizes SMEs, but can also occur in SME-to-SME transactions. Being in relatively superior positions doesn’t justify making unreasonable demands.

Seventh, conditional transactions require attention from SMEs operating franchise or agency businesses in South Korea. Imposing excessive restrictions on franchisees or agents can be problematic.

Eighth, business interference represents actions SMEs might occasionally commit in highly competitive markets. Poaching competitors’ employees, leaking customer information, and business obstruction are all prohibited.

4. Resale Price Maintenance Issues SMEs Must Address in South Korea

Resale price maintenance involves manufacturers controlling distribution or retail prices, an area where South Korean SME manufacturers can certainly face problems.

When SME manufacturers request agents or retailers to “not sell our products below this price,” this constitutes minimum resale price setting, which is principally prohibited in South Korea. Such price controls become more problematic amid fierce online shopping mall price competition.

A common SME mistake involves excessive price control under the guise of “brand image protection.” While understandable desires to protect quality product brand values exist, using this to fundamentally block distributor price competition is illegal.

As online sales channels proliferate, new forms of price control emerge. Restricting discount coupon usage in online shopping malls, prohibiting price comparison site registration, or forcing sales through specific platforms only can also be problematic.

However, SMEs can legally operate pricing policies. Suggesting recommended consumer prices, setting service quality standards, and adjusting supply prices to ensure appropriate margins are permitted. The key is operating without coercion.

SMEs operating franchise businesses in South Korea must also be careful about franchisee pricing policies. Considering franchisees as independent business operators, excessive price control should be avoided.

5. Leveraging Special Laws to Protect SMEs from Abuse of Superior Bargaining Position

South Korean SMEs often become victims of superior bargaining position abuse. Multiple special laws exist to protect against this, requiring active utilization.

The Subcontracting Transaction Fairness Act is the law South Korean SMEs most frequently utilize. Subcontractors receiving work from large corporations can receive protection under subcontracting law. When experiencing improper subcontracting payment decisions or reductions, improper returns, or technology data demands, reports can be filed with the Korea Fair Trade Commission or Ministry of SMEs and Startups.

Delayed subcontracting payment represents another important relief mechanism. Prime contractors must pay subcontracting fees within designated periods, paying delayed interest when late. SMEs should actively exercise these rights.

The Large-Scale Retail Business Transactions Fairness Act can be utilized by South Korean SMEs supplying to large marts or department stores. Relief can be requested when experiencing improper sales promotion cost transfers, improper returns, or supplier employee dispatch demands.

The Franchise Business Transaction Fairness Act protects SME business operators participating in franchise businesses in South Korea. Key contents include franchisor information disclosure obligations, contract termination restrictions, and business territory protection.

The common feature of these special laws is that government agencies directly investigate and provide relief when SMEs report issues. Unlike civil litigation, relief can be obtained without cost burden, making active utilization advisable.

However, securing sufficient evidence when reporting is important. Objective evidence such as contracts, emails, messenger conversations, and recordings are necessary for effective relief.

6. Consumer Protection Laws for SME Customer Relations in South Korea

South Korean SMEs conducting business with end consumers must comply with consumer protection laws. SMEs conducting online business require particular attention.

The Consumer Protection in Electronic Commerce Act represents essential law for South Korean SMEs operating online shopping malls. Key obligations include telecommunications sales registration, product information provision, guarantee of withdrawal rights, and personal information protection.

SMEs commonly overlook product information provision obligations. Product quality, performance, capacity, and origin must be accurately displayed, with false or exaggerated information provision leading to punishment.

Guaranteeing withdrawal rights is also important. When consumers request exchanges or refunds within designated periods after receiving products, these must be accommodated. Refusing or demanding excessive fees is problematic.

Personal information protection becomes increasingly important. Customer personal information collection and use requires obtaining consent, with use limited to collection purpose scope. Immediate notification is required upon personal information leaks.

The Fair Labeling and Advertising Act also requires SME attention in South Korea. Advertising products or services must not include false or exaggerated content. Online review manipulation or false advertising particularly faces strong sanctions.

Recently, South Korean SMEs providing subscription services are increasing, requiring particular attention to cancellation right guarantees. Procedures enabling easy consumer cancellation must be established, with making cancellation difficult being problematic.

7. Market Dominance Abuse Concerns for SMEs in South Korea

While market dominance abuse seems like a large corporation issue, South Korean SMEs with high market shares in specific fields must also be cautious.

SMEs with monopolistic positions in regional markets in South Korea may be recognized as having market-dominant positions. For example, if the only hospital, pharmacy, or gas station in a specific region abuses its monopolistic position, problems can arise.

SMEs providing unique technologies or services in specialized fields face similar situations. If providing irreplaceable services in relevant fields, market-dominant positions may be recognized, with abuse through excessive pricing or imposing unfair transaction conditions being illegal.

For South Korean SMEs operating online platforms, position abuse within platforms can be problematic. This includes demanding unfair fees from tenant businesses, arbitrarily manipulating search rankings, or restricting competitive platform usage.

SMEs operating franchise headquarters in South Korea also require attention. Forcing franchisees to purchase unnecessary goods, demanding excessive franchise fees, or inappropriately restricting business territories may constitute position abuse.

For SMEs to avoid position abuse, maintaining fairness in relationships with business partners is important. Superior positions shouldn’t be abused; instead, transaction relationships should develop toward mutual benefit.

8. Building SME-Tailored Fair Trade Compliance in South Korea

Fair trade compliance for South Korean SMEs requires different approaches from large corporations. Effective systems must be built with limited personnel and budgets.

First, SME representative commitment is most important. Representatives must have firm commitments to fair trade compliance and continuously emphasize this to employees. For South Korean SMEs, representative influence is absolute, so representative commitment determines company direction.

Establishing simple and practical guidelines is important. Rather than complex legal interpretations, specific and practical guidelines like “don’t do these things” and “respond like this in these situations” for daily work are effective.

Regular education is essential but must be conducted realistically for South Korean SMEs. Cost-efficient methods must be found, including inviting external experts, utilizing online education programs, and participating in free government agency education.

Concentrated management of risk areas is necessary. High-risk areas based on company business characteristics must be identified, with special attention paid to these areas. For example, companies conducting online business should particularly focus on advertising-related regulations, while subcontracting businesses should emphasize subcontracting law compliance.

Systems enabling immediate response to problem situations must be established. Systematic responses to Korea Fair Trade Commission investigations or reports should be prepared in advance to avoid panic.

Building expert networks is also important. Since South Korean SMEs find it difficult to resolve all legal issues independently, establishing relationships with experts who can provide assistance when needed is advisable.

Atlas Legal provides practical fair trade compliance solutions tailored to South Korean SME realities. Rather than complex legal interpretations, we present specific and practical guides immediately applicable in actual business settings, supporting SMEs in protecting themselves from fair trade law violation risks.