On October 22, 2020, the Korea Fair Trade Commission (the "KFTC") issued a press release announcing the enactment of the Guidelines for Subcontracting Transactions Involving Metal Molds (the "Guidelines"), aimed at increasing transparency and preventing disputes in transactions where the subcontractor manufactures products using industrial molds provided by the contractor.  By issuing the Guidelines as soft law, rather than as legally binding regulations, the KFTC's intent appears to be to prevent disputes in the field by encouraging companies to voluntarily engage in best practices.  According to the press release, the KFTC also plans to amend its Criteria for Evaluating Implementation of Fair Trade Agreements to give companies incentives to incorporate the Guidelines in new and existing subcontract agreements and amend its Model Subcontract Agreements for the automotive and electronics industries, where a large percentage of subcontracting transactions involve the use of industrial molds.  It is thus advisable for companies in the automotive and electronics industries and the machinery sector, which also has a high rate of subcontracting transactions involving molds that are treated as depreciable assets, to take note of the Guidelines when signing or renewing supply contracts and closely monitor further developments at the KFTC. 

The Guidelines were prepared as part of the government-wide effort to provide greater protection for smaller companies, based on the results of an earlier KFTC survey designed to detect violations of the Fairness in Subcontracting Transactions Act in the auto parts industry, which showed that a significant number of disputes concerned industrial molds.  In light of these developments, companies should look into their process for managing molds and settling payments, as well as the overall subcontracting transaction process (e.g., whether a separate agreement is signed for the molds, in addition to the main subcontract agreement for the finished goods).  Companies should also prepare for possible exercise of subcontractors' right of retention regarding the use, possession and storage of molds, which could cause difficulties in their business operation.  In particular, considering how disputes concerning molds could develop quickly, it will be important to devise in advance specific practical, legal, and preemptive measures for potential risk scenarios. 

Key details of the Guidelines are as follows. 
 

[Korean version]