On November 5, the Korea Fair Trade Commission (“KFTC”) issued an advance notice of the proposed amendment to the Guidelines for Fair Trade in Subcontracting Transactions (“Guidelines”), starting a 20-day public comment period that will end on November 25.

The primary focus of the amendment is to specify examples that do not constitute unfair management interference as prohibited by Article 18 of the Subcontracting Act. Through the amendment, the KFTC seeks to reflect changes in the business environment surrounding subcontracting transactions, alleviate regulatory burdens on companies, and encourage the businesses to enter into payment linkage contracts and adjust subcontracting payments in line with the recent implementation of the subcontracting payment linkage system.

The key points of the amendment are as follows:

First, the amendment clarifies that requiring the minimum necessary information to comply with Environmental, Social, and Governance (“ESG”) related laws and regulations does not constitute unfair management interference. This clarification is intended to reduce the regulatory burden and risks associated with ESG compliance for exporting companies, which often need to obtain information from their business partners to meet stringent ESG obligations abroad.

Under the existing Guidelines, it is unclear whether even unavoidable requests for information necessary for ESG compliance would be considered unfair management interference. However, by expressly exempting requests for minimum necessary information for ESG compliance purposes from unfair management interference, the amendment is expected to provide greater legal clarity and alleviate regulatory burdens for these companies. This amendment will particularly be useful for companies that need to require management information necessary for ESG compliance such as during supply chain due diligence.

However, it remains essential to thoroughly assess the reasonableness of the scope, procedures, and methods for requesting management information in advance, as excessive information demands would still not be justified under the amended Guidelines.

Second, the amendment also specifies that requiring the minimum necessary data to comply with the subcontracting payment linkage system does not constitute unfair management interference. This system, introduced on October 4, 2023, was enacted to support subcontractors who face increased costs for raw materials by encouraging primary contractors and subcontractors to agree on pricing adjustments based on these cost fluctuations.

However, during negotiations over the adoption of a payment linkage contract and its specific terms, primary contractors often need access to the subcontractor’s management information for reference, which could be misconstrued as engaging in unfair management interference. Therefore, by clarifying that requests for minimal and necessary information during those negotiations do not constitute unfair management interference, the KFTC expects to encourage broader adoption of the subcontracting payment linkage system.

Meanwhile, regardless of whether the parties decide to execute a subcontracting payment linkage contract, it remains crucial to assess the reasonableness (minimum necessary) of data requests, procedures, and business methods throughout the discussions leading to the contract’s conclusion.

The KFTC plans to finalize and implement the amended Guidelines after reviewing opinions from stakeholders and relevant ministries gathered during the public comment period.

[Korean Version]