Group warns National Assembly's Political Affairs Committee bill could hurt small suppliers

Measure may trigger 'second Homeplus crisis,' association says

National Assembly Speaker Jo Jeong-sik delivers an opening address at the inaugural ceremony of the 439th regular session of the National Assembly at the main chamber in Yeouido, Seoul, on Tuesday afternoon. [Herald DB]
National Assembly Speaker Jo Jeong-sik delivers an opening address at the inaugural ceremony of the 439th regular session of the National Assembly at the main chamber in Yeouido, Seoul, on Tuesday afternoon. [Herald DB]

The Korea Online Shopping Association urged lawmakers to reconsider a proposed amendment to the Large-Scale Retail Business Act centered on shortening payment settlement deadlines, warning the measure could shrink sales channels for small and midsize suppliers.

In a statement issued Thursday, the association said it sympathized with the legislative intent to accelerate payment recovery for suppliers and improve transaction security, but warned that uniformly advancing payment deadlines could deliver a sudden shock to retailers' working capital and settlement systems.

The National Assembly's Political Affairs Committee approved the amendment at a subcommittee meeting Tuesday, cutting the deadline for direct-purchase payments from 60 days to 35 days after the date of goods receipt. For special-purchase, consignment and store-lease transactions, the deadline would be halved from 40 days to 20 days after the monthly sales cutoff.

The association said compressing the direct-purchase deadline by 25 days at once could force retailers to pay for goods before inventory is sold, raising concerns about increased short-term borrowing, higher interest costs, deteriorating financial structures and falling credit ratings. It argued the changes would ultimately push up costs and consumer prices.

The group also said the amendment could, contrary to its intent, reduce market access for small and midsize suppliers. If working capital tightens, retailers would have little choice but to prioritize popular products from large conglomerates or low-cost imports, the association said. It warned of a paradox in which smaller suppliers see their order volumes and trading opportunities shrink and their capacity for mutual growth weakened.

The association said that because the Large-Scale Retail Business Act applies uniformly to all suppliers, large conglomerates with strong negotiating power would receive the same benefits, while newly entering and small suppliers — the ones most in need of protection — could bear the brunt of reduced transactions first.

It also argued the amendment could trigger "a second Homeplus crisis." Protecting suppliers, the association said, can only be realized if retailers such as Homeplus are able to normalize operations and sustain their businesses. Imposing uniform early-payment obligations on financially vulnerable companies would instead erode the resources available for rehabilitation and bond repayment.

The association cited an academic paper analyzing the impact of shorter settlement cycles on suppliers, presented at this year's spring conference of the Korea Distribution Science Association. A one-year simulation cutting the settlement cycle from 60 days to 20 days estimated the overall transaction survival rate among partner companies at an average of 74.0 percent. For suppliers on direct-purchase platforms, the average was 68.9 percent, while those on platforms with weak working capital averaged 48.0 percent. The simulation also found that the market polarization index would rise to an average of 2.4 times the level seen under the 60-day scenario, and social welfare would fall by an average of 8.0 percent.

The association called on the National Assembly and the government to introduce an implementation grace period, phase in the deadline reductions gradually, apply differentiated standards by retail format, transaction type and company size, establish a monthly settlement benchmark, and create a reasonable returns-reserve system — all subject to thorough impact assessments and industry consultations.

"Protecting suppliers and sustaining the retail industry are not competing goals," the association said, urging the National Assembly to revisit the uniform 35-day standard for direct purchases and the 20-day standard for special-purchase and related transactions during the full Political Affairs Committee review and subsequent deliberations, and to enshrine in law clear safeguards that minimize market disruption and unintended harm to small and midsize suppliers.


spa@heraldcorp.com