Fair Trade Commission warns against incomplete paperwork practices, vows tougher oversight

Kyungdong Navien, the country's top manufacturer of residential heating equipment, has been sanctioned by the Korea Fair Trade Commission for failing to meet its legal obligation to issue proper written documents in subcontracting transactions.

The Fair Trade Commission said Sunday it decided to issue a corrective order and impose a fine of 52 million won (about $34,100) on Kyungdong Navien for violating the Act on Fair Transactions in Subcontracting while outsourcing the manufacturing of parts for residential heating equipment.

The Korea Fair Trade Commission at the Government Complex Sejong in Eonjin-dong, Sejong [Newsis]
The Korea Fair Trade Commission at the Government Complex Sejong in Eonjin-dong, Sejong [Newsis]

According to the Fair Trade Commission, Kyungdong Navien omitted signatures or name seals from a total of 436 unit-price agreements while outsourcing the manufacturing of residential heating components — including ignition transformers, heating supply pipes, temperature sensors and thermal fuses — to 98 subcontractors between June 17, 2021, and June 14, 2024.

Unit-price agreements are documents specifying the delivery price, a core element of subcontracting transactions. Under the subcontracting act, such documents must bear the signatures or name seals of both the primary contractor and the subcontractor before being delivered to the subcontractor.

The investigation found that Kyungdong Navien had either omitted its corporate seal from the agreements or had non-representative staff members sign the documents in their personal capacity. In some cases, the company used agreement forms that did not include a signature field for the primary contractor at all.

The Fair Trade Commission determined that such documents could not be recognized as legally valid written instruments. The commission's guidelines on fair subcontracting transactions also stipulate that issuing a document without the name seals of both parties constitutes a failure to issue proper written documentation.

The commission said it decided on the corrective order and fine in light of the repeated nature of the violations, with the aim of preventing the same or similar conduct from recurring.

However, the commission said the current ceiling on fines under the subcontracting act is too low relative to the severity of violations, limiting the effectiveness of sanctions. It is pursuing regulatory reforms, including raising the base amount for fixed-sum fines and rationalizing the criteria for imposing them.

"This action is a case of detecting and sanctioning the practice of issuing incomplete written documents that has become routine in subcontracting transactions," the commission said. "We plan to continue monitoring and strictly addressing failures to issue proper documentation, including the omission of signatures."


y2k@heraldcorp.com