Ministry finds 23 payment-linkage violations at 4 firms in plastic container probe

The government has found 23 violations related to the price-linkage regime for raw material costs at four companies, including food manufacturers and coffee franchises. The violations were uncovered in a direct probe into plastic container supply transactions.

The Ministry of SMEs and Startups said Wednesday it conducted the probe into compliance with the raw material price-linkage regime in plastic container transactions. It issued administrative sanctions against the four companies, including improvement orders, penalty points and fines.

The ministry launched the investigation urgently in April after the Middle East war drove up international oil prices and the cost of naphtha and ethylene, the raw materials for plastic. The price spikes strained small and medium-sized plastic container manufacturers with rising costs.

The ministry examined 15 companies across three industries with heavy demand for plastic containers -- food manufacturers, beverage manufacturers and coffee franchises -- with five companies from each sector.

The ministry first conducted a written review of contracts and transaction records for all 15 companies. It then selected seven companies for on-site inspections and surveys of their subcontractors. These included firms suspected of violations, those that submitted incomplete or careless documentation, and those with a large number of subcontractors.

The probe found violations of the Act on the Promotion of Mutually Beneficial Cooperation Between Large Enterprises and Small and Medium Enterprises at four companies. They included two food manufacturers and two coffee franchises. All four are mid-sized enterprises.

The violations totaled 23 cases. They included five instances of delayed issuance of standard agreements, six of delayed issuance of price-linkage agreements, and 12 of failure to issue price-linkage agreements at all.

Taking into account the severity of each violation, the ministry imposed administrative sanctions on the companies. These included improvement orders, two penalty points, fines of up to 10 million won ($7,450) and mandatory education.

Plastic container manufacturing is particularly sensitive to raw material price swings. Synthetic resin, the primary raw material for plastic containers, accounts for about 70 percent of total production costs. Prices for synthetic resin materials rose more than 30 percent in March, sharply increasing the cost burden on small and medium-sized manufacturers in the sector. Under such conditions, subcontracted small businesses are likely to shoulder the full brunt of rising costs if the increases are not properly reflected in supply prices.

The price-linkage regime requires that supply prices reflect changes in the cost of key raw materials once those costs move beyond a certain threshold. It has been in effect since October 2023 to prevent the burden of soaring raw material prices from falling disproportionately on subcontracted companies.

Lee Eun-cheong, director general of the ministry's mutually beneficial cooperation policy bureau, said, "It goes against a fair market economy for small, subcontracted businesses to unilaterally bear the burden of soaring global raw material prices." He added, "We will continue to monitor compliance with the price-linkage regime so that a trading culture in which large and small companies share the burden of raw material costs can take root."