Recently, a major topic of concern for consumers has been shrinkflation, a portmanteau of “shrink” and “inflation” that refers to the practice of raising of the unit price of a packaged product by reducing the product’s content size or volume while maintaining its retail price.
In response, the Korea Fair Trade Commission (“KFTC”), on December 27, 2023, issued an advance notice on a Proposed Amendment to the Notification on Designation of Unfair Conduct by Businesses in Consumer Transactions (the “Notification”) that will allow the KFTC to regulate shrinkflation as a type of deceptive conduct prohibited under Article 12 (2) of the Framework Act on Consumers (“FAC”), and ensure that consumers effectively receive information on important changes to a product (e.g., content volume) that is necessary to make reasonable purchasing decisions.
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Related Policy Developments
At the Emergency Economic Ministerial Meeting held on December 13, the KFTC announced its Plan to Expand Provision of Information on Product Volume Reduction, which aims to make it easier for consumers to recognize changes in product volume due to shrinkflation. In particular, the KFTC said it would (i) require companies to post a notice on their websites before changing the volume of a product and to separately notify the Korea Consumer Agency (“KCA”), and (ii) build a system for monitoring changes in product volume by encouraging companies to sign voluntary agreements to provide related information to the KCA.
The KFTC also said it would partake in the Government-wide effort to update the regulatory system to better ensure disclosure of information on important changes to a product. As part of this effort, the Ministry of Trade, Industry and Energy (“MOTIE”) announced that it will expand the current list of 84 items subject to the mandatory unit price labelling system, and additionally require online stores to list the unit price of products, while the Ministry of Environment and Ministry of Food and Drug Safety now require companies to indicate on the packaging of household chemical products or food products if there has been an increase in the unit price (based on the factory price) due to changes in the product volume. The KFTC said it would amend the Notification so companies are required to announce on the packaging of their products, company website or place of sale if a change has been made to the product’s volume, size or ingredients, and designate the failure to carry out such requirement as a type of unfair conduct.
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Overview of the Notification
The Notification is established pursuant to Article 12 of the FAC, which (i) obliges companies not to engage in conduct designated as unfair conduct in consumer transactions (Article 20 of the FAC), (ii) allows consumers to initiate a class action lawsuit if the illegal conduct directly infringes on their rights and interests regarding life, body or property and such infringement continues (Article 70 of the FAC), and (iii) allows the Government to impose corrective orders (Article 80 of the FAC) and administrative fines (Article 86 of the FAC).
Currently, major unfair conducts in consumer transactions designated by the Notification include conduct that causes misunderstanding, coercion to sign a contract, signing contracts that are significantly disadvantageous to consumers, obstructing consumers from exercising their rights and interests, and the abuse of a company’s own rights and interests. In a recent case where a consumer group filed a lawsuit against a mobile telecommunications service provider on the issue of whether customers can exercise their right to withdraw subscription for services not yet provided, the Court, in issuing its decision, mentioned Article 6, subparagraph 2, of the Notification, which prohibits “conduct aimed at maintaining a contract without a justifiable reason” (Supreme Court Decision 2018Da214746, June 15, 2023).
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Key Details of the Proposed Amendment
The proposed amendment to the Notification designates as a new type of unfair conduct the failure of companies (that either manufacture their own products or subcontract the manufacturing of products under their brand name) to notify consumers of important changes to their product (e.g., regarding volume, size, weight, quantity, and key ingredients).
The proposed amendment applies to staple items closely related to our daily lives, which are specified in the Attached Table 1 of the proposed amendment as (i) items requiring labelling of their unit price (excluding fresh foods) under the MOTIE’s Instructions on Price Marking System Implementation, and (ii) other prepared foods and household items.
A company subject to the proposed amendment is required, when an important change is made to its product (e.g., to the quantity of a key ingredient), to notify consumers of such change for at least three months (i) on the product packaging, (ii) on the company’s website, or (iii) at the product’s place of sale. The company is also required to separately notify the Korea Consumer Agency. Failure to do so may result in a corrective order or an administrative fine (KRW 5 million for the first violation, KRW 10 million for the second violation).
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After gathering feedback from interested parties and relevant Government agencies during the administrative notice period (period: ~January 16, 2024), the KFTC plans to finalize and implement the proposed amendment by obtaining the necessary approvals, including from the Ministry of Government Legislation and the Regulatory Reform Committee.
[Korean Version]
