Korea FTC curbs retailers' practice of passing ad costs to suppliers

Large retailers that want to charge suppliers for costs not specified in a contract — such as advertising or logistics fees — will now be required to notify them in advance of the cost breakdown and cost-sharing ratio at the time the contract is signed. The baseline date for calculating payment deadlines will also be clarified as the actual date of product delivery, regardless of whether an inspection has been completed.

The Korea Fair Trade Commission announced Friday that it had revised seven standard trade contracts used in the retail sector to reflect these changes.

The revisions are intended to reduce confusion over payment timing in transactions between large retailers and their suppliers, and to address the practice of unilaterally imposing additional costs on suppliers without prior consultation.

The most significant change clarifies that the start date for calculating payment deadlines — referred to in law as the "product receipt date" — means the date of delivery, not the date an inspection is completed. Four standard direct-purchase contracts covering department stores, hypermarkets, convenience stores, duty-free shops and online shopping malls are subject to this revision.

Under the current Large-Scale Retail Business Act, retailers must pay suppliers within 60 days of the product receipt date for direct-purchase transactions. The Fair Trade Commission said the existing contracts had required products to be received only after an inspection was completed, which created room for misinterpreting the post-inspection stocking date as the start of the payment clock.

In response, the commission revised the contracts to define the product receipt date as the day of delivery regardless of inspection status, and moved the inspection-related clause to a position after the payment clause.

In addition, retailers that wish to charge suppliers for logistics, delivery or advertising costs not specified in the original contract must now notify them — at the time of signing — of the cost items, cost-sharing ratios and procedures for any future changes, either in writing or through an electronic system that confirms transmission and receipt.

Any subsequent changes to costs or cost-sharing standards will also require advance notice and consultation. Retailers that fail to comply will be barred from billing suppliers for those costs.

Six standard contracts are covered by this provision: direct-purchase contracts for department stores, hypermarkets, convenience stores and online shopping malls; special-purchase contracts for department stores and hypermarkets; consignment contracts for online shopping malls; and TV home shopping contracts.

Some retailers had previously billed suppliers for costs not stipulated in contracts, or imposed excessive charges without agreement. The commission said it extended the advance-notification requirement — previously applied only to four contract types covering duty-free direct and special purchases, department store and hypermarket transactions, and store leases at complex shopping malls and outlet centers — to the major retail formats now included in the revision.

The seven contracts revised in total reflect four related to payment deadlines and six related to advance cost notification, with overlapping contracts counted once. The commission has developed and distributed a total of 10 standard contracts by transaction type and retail format since the Large-Scale Retail Business Act took effect in 2012.

Meanwhile, payment deadlines are set to shorten when revised legislation takes effect in October 2027 — from 60 days to 35 days for direct-purchase transactions, and from 40 days to 20 days for special-purchase and similar arrangements.

The commission said it plans to actively promote use of the revised contracts among major industry associations and related businesses, and will continue to update existing standard contracts to reflect changes in the retail market, industry needs and regulatory developments.