FAIR SUBCONTRACT TRANSACTIONS ACT

Transcription

1 FAIR SUBCONTRACT TRANSACTIONS ACT Enacted by Law No. 3799, Dec. 31, 1984 * Monopoly Regulation and Fair Trade Act No. 4198, Jan. 13, 1990 * Fire Services Act No. 4419, Dec. 14, 1991 Amended by Law No. 4514, Dec. 8, 1992 Amended by Law No. 4860, Jan. 5, 1995 * Act on the Protection of the Business Sphere of Small and Medium- Sized Enterprises and Promotion of their Cooperation No. 4898, Jan. 5, 1995 Amended by Law No. 5234, Dec. 30, * Act on Information and Communications Corporation No. 5386, Aug. 28, 1997 * Law on the Abolition of the Interest Ceiling Act No. 5507, Jan. 13, 1998 Amended by Law No. 5816, Feb. 5, 1999 Amended by Law No. 7107, January 20, 2004 Article 1 Purpose The purpose of this Act is to promote the sound development of the national economy by establishing a fair order for subcontracting so that Contractors and Subcontractors may enjoy a balanced development on an equal footing in a mutually complementary manner. Article 2 Definitions For the purpose of this Act - (1) "Subcontracting" means a transaction whereby a Contractor entrusts a subcontractor with a commission to manufacture (including a commission to process), to repair or to construct (hereinafter, "Commission to Manufacture, etc."), or entrusts a subcontractor with a Commission to Manufacture, etc. with respect to things for which the Contractor was entrusted with a Commission to Manufacture and the subcontractor who is so entrusted manufactures, repairs or constructs the things that were entrusted to him (hereinafter, "Objects") and supplies and delivers

2 (hereinafter, "Supply") the objects to the Contractor and receives compensation therefor (hereinafter, "Subcontract Payment"). (2) "Contractor" means any person who is - 1. an Enterpriser other than small-and-medium-sized Enterpriser (referred to those prescribed in Article 2 (1) of the Framework Act on Small and Medium Enterprise, including SME cooperative associations pursuant to the Sma ll and Medium Enterprise Cooperative Association Act; hereinafter, the same shall apply) who entrusts a small and medium Enterpriser with a Commission to Manufacture, etc.; 2. A small and medium Enterpriser whose annual turnover in the immediately preceding business year (in the case of trade which is subject to the construction capability appraisal amount under relevant laws, the total sum of such construction capability appraisal amount for the current year; if there is no annual turnover or construction capability appraisal amount, the total amount of assets; the same shall apply in this subparagraph) or the number of regular employees exceed twice (a) the annual sales volume or (b) the number of regular employees of the subcontracting small and medium Enterpriser, and who entrusts such other small and medium Enterpriser with a Commission to manufacture, etc. However, a small and medium Enterpriser whose annual sales comes within the scope set forth in the Presidential Decree is excluded. (3) "Subcontractor" means a small and medium Enterpriser entrusted with the Commission to Manufacture, etc. from a Contractor as defined in Subparagraph 2 above. (4) In the event an Enterpriser entrusts an Affiliated Corporation, as defined in Paragraph (3) of Article 2 (Definitions) of the Monopoly Regulation and Fair Trade Act, with the Commission to Manufacture, etc. and the Affiliated Corporation recommissions to a third party all or a substantial part of the manufacturing, repairing, or constructing work it is entrusted with, even though the Affiliated Corporation does not fall under any of the categories in Paragraph (2) above, the Affiliated Corporation and such third party will be deemed as a Contractor and a Subcontractor, respectively, for the purposes of this Act if the third party would have become a Subcontractor as defined in Paragraph (3) had the third party been commissioned from the Enterprise which had entrusted the Affiliated Corporation with the Commission to Manufacture, etc. (5) In the event a corporation which belongs to the Business Conglomerates subject to the regulation setting the ceiling on total amount of shareholdings in other domestic companies, as provided for in Paragraph (1) of Article 9 (Prohibition on Cross-equity Investment) of the Monopoly Regulation and Fair Trade Act, entrusts or is entrusted with a Commission to Manufacture, etc even if the said corporation entrusting the Commission to Manufacture, etc. does not fall under any subparagraph of Paragraph (2), it shall be deemed as a Contractor for the purposes of this Act; and 2. even if the said corporation entrusted with the Commission to Manufacture, etc. falls under Paragraph (3), it shall not be deemed a Subcontractor for the

3 purposes of this Act. (6) "Commission to Manufacture" means commissioning by an Enterpriser which engages in any of the following activities as a business to another Enterpriser to manufacture goods with such business. In this case, the scope of goods in conjunction with such business shall be determined by the notification of the Fair Trade Commission. 1. manufacturing of goods (development of software as set forth in Subparagraph 2 of Article 2 (Definitions) of the Software Development Promotion Act, engineering activities as set forth in Article 2 (Definitions) of the Engineering Technology Promotion Act, and design work as set forth in Subparagraph 3 of Article 2 (Definitions) of the Licensed Architect Act are included; the same shall apply hereinafter); 2. sale of goods; 3. repair of goods; and 4. construction. (7) Notwithstanding Paragraph (6), with respect to goods specified under the Presidential Decree, the provisions of the said Paragraph shall apply to geographic areas such as Metropolitan Cities, etc. determined by the Presidential Decree. (8) "Commission to Repair" means commissioning by an Enterpriser engaging in repairing goods as its business on an on-order basis or in a repairing business for the goods it uses of such repair work, whole or in part, to another enterpriser. (9) "Commission to Build" means commissioning by an Enterprise falling under any of the following (hereinafter, "Builder") to another Builder with the whole or a part of the construction work in conjunction with its business, or by a Builder to another Enterprise with construction work as provided for in the Presidential Decree: 1. A Builder as defined in Subparagraph 3 of Article 2 (Definitions) of the Construction Business Act; 2. An engineer as defined in Subparagraph 3 of Article 2 (Definitions) of the Electrical Works Business Act; 3. An information and telecommunication engineer as defined in Subparagraph 4 of Article 2 (Definitions) of the Telecommunication Work Business Act; 4. A person who has obtained the license for a fire fighting facility construction business as provided for in Paragraph (1) of Article 52 (License for a fire fighting facility, etc.) of the Fire Fighting Act; and 5. An Enterpriser as determined in the Presidential Decree. (10) "Principal" refers to a person who gives out a contract to a contractor for manufacturing, repair or construction; provided, however, that if the contractor

4 re-entrusts another enterprise with a Commission to Manufacture, etc., principal refers to the contractor. Article 3 Delivery of Writings and Maintenance of Documents (1) Upon commissioning manufacturing, etc. to a Subcontractor, a Contractor shall, unless due causes arise, deliver to the Subcontractor a document (including electronic document pursuant to the provisions of Article 2 Paragraph 1 of the Act on Basic Framework of Electronic Transaction, hereinafter the same within this Article) containing certain matters before the Subcontractor sets to work for the supply of objects in the case of manufacturing assignment, or the Subcontractor starts to go into the construction in the case of construction assignment. (2) The document provided for in Paragraph (1) shall contain the matters prescribed in the Presidential Decree, inc luding Subcontract payment and the method thereof, and the Contractor and Subcontractor shall sign (including the official electronic signature under the provisions of Article 2 Paragraph 3 of the Digital Signature Act) and affix their seals thereon. (3) The Contractor and Subcontractor shall maintain documents relating to the Subcontracting Transaction in accordance with the conditions prescribed in the Presidential Decree. Article 3-2 Preparation and Use of Standard Subcontract Form The Fair Trade Commission may recommend Enterprises or Trade Associations to whom this Act applies to prepare and use standard subcontract forms. Article 4 Prohibition against Determining Unreasonable Subcontracting Prices (1) A Contractor shall not, by unfair means, fix the Subcontract Payment at a level substantially lower than the price usually paid for those that are identical or similar to the Objects (hereinafter referred to as Unreasonable Determination of the Subcontract Payment) or force a Subcontractor to accept Subcontracting on such basis. (2) Any act of a Contractor which falls under any of the following Subparagraphs shall constitute the Unfair Determination of Subcontract Payment as provided for in Paragraph (1) above: 1. Without justifiable reason, setting the Subcontract Payment by reducing unit prices at a uniform rate; 2. Setting the Subcontract Price by unilaterally allocating a certain sum of money, regardless of what it is called, such as a request for cooperation, etc; 3. Without justifiable reason, setting the Subcontract Payment in a discriminatory manner against certain Subcontractors;

5 4. Fraudulently setting the Subcontract Payment by causing the Subcontractor to err on transaction terms such as the quantity of orders or by deceiving a Subcontractor by presenting the quotation of another business or a falsely created one; 5. Unilaterally Setting the Subcontract Payment based on an unfairly low unit price. Article 5 Prohibition of Compulsory Purchase of Goods, Etc. In entrusting a Commission to Manufacture, etc., a Contractor shall not force a Subcontractor to purchase or use its designated goods, equipment, etc., except when necessary to maintain or improve the quality of the Object or unless otherwise justified. Article 6 Tender of Advance Payment (1) When a Contractor entrusting a Subcontractor with a Commission to Manufacture, etc. receives an advance from the owner, the Contractor shall also pay an advance to the Subcontractor in proportion to the items and rate of received advance within fifteen (15) days from the date of receiving such advance (or if such advance is paid prior to the Commission to Manufacture, etc., the date of Commission to Manufacture, etc.) so that the Subcontractor may commence manufacturing, repairing or constructing. (2) If a Contractor delays the advance payment received from the Principal after the time such payment is due as prescribed in Paragraph (1), the Contractor shall pay interest corresponding to the period exceeding the due date at the interest rate as determined and notified by the Fair Trade Commission considering the economic situation, such as deferred interest rates applied by financial institutions pursuant to the Banking Act, within the scope of 40%. (3) In the event a Contractor gives the advance payment by note, the provisions of Paragraphs (6) and (8) of Article 13 (Payment of the Subcontract Payment, Etc.) shall apply mutatis mutandis to both the payment of discount charges and discount rates of a note. In this case, sixty (60) days after the receipt of Objects shall mean fifteen (15) days from the date the Contractor receives the advance payments from the Principal. Article 7 Opening a Local Letter of Credit If a Contractor entrusts a Subcontractor with a Commission to Manufacture goods for export, it shall open a local letter of credit to the Subcontractor within fifteen (15) days from the date of such commission unless there are justifiable reasons not to do so; provided, however, that in the case of a letter of credit-based export, if a Contractor entrusts a Commission to Manufacture prior to the receipt of an master letter of credit, it shall open the local letter of credit within fifteen (15) days from the date of receiving the master letter of credit. Article 8 Prohibition of Undue Refusal of Acceptance and

6 Delivery of Receipt (1) A Contractor shall not arbitrarily cancel or change a Commission to Manufacture, etc. nor refuse nor delay the receipt of acceptance of Supply of the Object; provided, however, that this shall not apply where there are reasons attributable to the subcontractor. (2) A Contractor shall immediately, upon Supply of the Object, deliver a certificate of receipt to the Subcontractor even before the inspection of the Object (in case a local letter of credit was opened in accordance with the provision of Article 7 (Opening a Local Letter of Credit), then immediately after the completion of inspection. However, in the case of a Commission to Build, the Contractor shall accept the Object immediately after the completion of inspection. (3) "Receipt" as referred to in Paragraph (1) means that a Contractor has received and holds under its de facto control an Object which has been supplied by a Subcontractor; provided, however, that if the Object is difficult to move, the date of the commencement of inspection shall be deemed to be the date of receipt. Article 9 Criteria, Method and Time for Inspection (1) The criteria for and methods of inspection for the Object supplied or delivered by a Subcontractor shall be determined by mutual consultation between a Contractor and a Subcontractor; provided, however, that they shall be objective, fair and reasonable. (2) Unless otherwise justified, a Contractor shall notify a Subcontractor of the results of the inspection in writing within ten (10) days from the date of receipt of the Object from a Subcontractor (in the case of a Commission to manufacture, including the date the notice of the portion of manufacturing performed is received; in the case of a Commission to Build, the date the notice of completion of construction or the constructed portion is received), and the Object shall be deemed to have passed the inspection if such notice is not given within the above period. Article 10 Prohibition of Unreasonable Return of Object (1) A Contractor shall not, upon having received or accepted an Object from a Subcontractor, return it to the Subcontractor without a reason attributable to the Subcontractor (hereinafter referred to as "Unreasonable Return"). (2) Any act on the part of the Contractor which falls under any of the following Subparagraphs shall constitute an Unreasonable Return as provided for in Paragraph (1) hereof: 1. Return the Object because of the cancellation of order by the principal or of economic circumstances; 2. Returning the Object, having determined unfairly, on the basis of unclear criteria and inspection methods, that the object is not up to standard; 3. Returning the Object which is disqualified due to the poor quality of raw materials furnished by the Contractor; or

7 4. Returning the Object on the ground of delayed delivery, even though the delay is caused by the Contractor's delay in furnishing raw materials. Article 11 Prohibition of Unreasonable Reduction of Price (1) A Contractor shall not, without causes attributable to the Subcontractor, make an unreasonable reduction of Subcontract Price (hereinafter referred to as Unreasonable Reduction), which was fixed at the time of the Commission to Manufacture, etc. (2) Any act on the part of a Contractor which falls under any of the following Subparagraphs shall be deemed to be an Unreasonable Reduction as provided for in Paragraph (1) hereof: 1. Reducing the Subcontract Payment on unfair grounds, such as a request for cooperation, cancellation of order from the Principal, changes in economic circumstances, etc., after commissioning without clarifying the conditions of reduction in the Subcontract Payment at the time of the commissioning; 2. Unilaterally reducing the Subcontract Payment by means of retroactively applying an agreement concerning reduction in unit prices made with a Subcontractor to the portion commissioned before such agreement is made; 3. Excessively reducing the Subcontract Payment on grounds that the Subcontract Price is paid in cash or before the designated date of payment; 4. Unilaterally reducing the Subcontract Payment because of insignificant breaches on the part of the Subcontractor which have no substantial adverse effect on the Contractor; or 5. Where a Contractor makes a Subcontractor purchase goods, etc. from itself or use its equipment for manufacturing, repairing or constructing the Object and deducts from the Subcontract Payment more than is the appropriate amount of payment for such purchase or use. (3) In the event the Contractor pays the unreasonably reduced price more than sixty (60) days after receipt of the Object, the Contractor shall pay interest charges accrued for the period exceeding sixty (60) days in accordance with interest rates determined and notified by the Fair Trade Commission considering the economic situation, such as deferred interest rates applied by financial institutions pursuant to the Banking Act, within the scope of 40%. Article 12 Prohibition of Settlement of Payment of the Purchase of Goods, Etc. Where a Contractor makes a Subcontractor purchase goods, etc. from itself, or use its equipment for manufacturing, repairing or constructing the Object, the Contractor shall not, without justifiable reasons, demand the whole or part of the payment for such purchase or use prior to the payment date of the Subcontract Price for the Object concerned, nor shall the Contractor make the Subcontractor pay the price on significantly unfavorable terms and conditions compared to those under which the

8 Contractor itself purchases, uses or distributes goods, etc. to a third party. Article 13 Payment of the Subcontract Payment, Etc. (1) A Contractor shall, upon entrusting a Subcontractor with the Commission to Manufacture, etc., pay the Subcontract Payment, within sixty (60) days from the date of receipt of the Object, by the earliest possible set date (in the case of a Commission to Build, the date of acceptance; if a Contractor and a Subcontractor have mutually fixed a set date to issue a VAT invoice for one or more times a month because of the frequency in the delivery of Supply, then the fixed date: Hereinafter, the same shall apply); provided, however, this shall not apply when- 1. it is acknowledged that the Contractor and the Subcontractor agreed on the date of payment with comparable negotiating power and on an equal footing; or 2. it is established that the agreed date of payment is reasonable in light of the characteristics of the business concerned and the economic circumstances. (2) If the Subcontract Payment date is not fixed, the date of receipt shall be the payment date. If the payment date of the Subcontract Payment has been fixed sixty (60) days after the date of receipt (excluding cases which fall under the proviso of Paragraph (1) hereof), the 60th day shall be deemed to be the Subcontract Payment date. (3) When a Contractor entrusts a Subcontractor with a Commission to Manufacture, etc. and receives the completion payment or a progress payment from the Principal, the Contractor shall pay to the Subcontractor the subcontract payment or the amount proportional to the part of construction done by the Subcontractor respectively within fifteen (15) days from the date the payment was received from the Principal. (If the Subcontract payment date comes earlier, the payment shall be made within the Subcontract payment due dates.) (4) When a Contractor pays the Subcontract Payment, the payment shall not be made less than the cash ratio received by the Contractor from the Principal in return for the Commission to Manufacture, etc. (5) When a Contractor pays the Subcontract Payment by a note, the payment period of the note (from the date of issuance through the expiration date) shall not exceed the payment period of the note received by the Contractor from the Principal in return for the Commission to Manufacture, etc. (6) When a Contractor pays the Subcontract Payment by a note, the note shall be qualified for a discount from the banking institution established by the Act, and the Contractor shall bear the discount charges for the period from the delivery date to the maturity date of the note. If a note is delivered within 60 days from receiving the Object (where the payment date is fixed pursuant to the proviso of Paragraph (1), then the fixed date is used; where a completion payment or progress payment is received from the principal, then the date as provided for in Paragraph (3) is used. The same shall apply in this Article), the Contractor shall pay within 60 days from receiving the Object the discount charge from the date exceeding 60 days since receiving the Object to the maturation date thereof.

9 (7) If a Contractor pays the Subcontract Payment after sixty (60) days from receiving the Object, the Contractor shall pay interest during the period exceeding the 60-day period, which shall be determined and notified by the Fair Trade Commission considering the economic situation, such as deferred interest rates applied by financial institutions pursuant to the Banking Act, within the scope of 40%. (8) The Fair Trade Commission shall decide and issue a notice of the discount rate applicable in accordance with Paragraph (6) considering the discount rate of commercial paper applied among commercial banks. Article 13-2 Performance and Payment Guarantees of Construction Subcontract (1) With regard to the Commission to Construct, the Contractor shall guarantee subcontract payment to the Subcontractor in accordance with each of the following categories and the Subcontractor shall guarantee the performance of ten percent (10%) of the subcontract price to the Contractor; provided, however, that the provisions herein shall not apply when it is acknowledged that such guarantee may be unnecessary or inappropriate based on the financial structure of the Contractor or the scale of construction work, etc. pursuant to the Presidential Decree. 1. The amount deducting advance payment from the subcontract price, in case that the construction work period does not exceed four (4) months. 2. The amount computed by the following formula, in case that the construction work period exceeds four (4) months but the progress payment period is within two (2) months. Guarantee Amount = Subcontract Price - Advance payment on the Subcontract Payment Construction Work Period (months) 4 3. The amount computed by the following formula, in case that the construction work period exceeds four (4) months and the progress payment period exceeds two months. Guarantee Amount = Subcontract Price - Advance payment on the Subcontract Agreement Construction Work Period (months) Progress Payment Period 2 (2) The mutual guarantee between the Contractor and the Subcontractor pursuant to Paragraph (1) shall be executed in cash (including cashier checks issued by post offices or by financial institutions under the Banking Act) or in guarantee bond(performance and payment bonds) issued by - 1. Korea Construction Financial Cooperatives by the Korea Construction

10 Financial Cooperative Act, Korea Specialty Contractor Financial Cooperative by the Korea Specialty Contractor Financial Cooperative Act, and Financial Cooperatives by type of work; 2. insurance companies pursuant to the Insurance Act; 3. Korea Credit Guarantee Fund by the Korea Credit Guarantee Fund Act; 4. financial institutions pursuant to the Banking Act; or 5. other guarantee institutions prescribed in the Presidential Decree. (3) In furnishing the payment guarantee bond pursuant to Paragraph (2), the Contractor may make a lump sum payment with a single payment guarantee bond for the payment guarantee of the entire construction work commissioned during the subcontract work time or during one fiscal year. (4) Besides the provisions set forth in Paragraphs (1) through (3), the additional necessaries of subcontract performance and payment guarantee shall be made by the Presidential Decree. Article 14 Direct Payment of Subcontract Payment (1) The Principal shall directly pay a Subcontractor the Subcontract Payment equivalent to the portion manufactured, repaired or constructed by a subcontractor in the cases falling under one of following subparagraphs; 1. When there is any suspension of payment, bankruptcies and other similar reasons from the Contractor, or the Contractor cannot pay the subcontract payment 2. When there is an agreement among the Contractor, Principal and Subcontractor that the Contractor directly pays the subcontract amount to the Subcontractor. 3. When the Contractor did not pay the two times of subcontract payment that should be paid under the provisions of Article 13 Paragraph1 or Paragraph 3 to the Subcontractor concerned. 4. When the Contractor did not implement the obligation to guarantee the subcontract payment under the provisions of Article 13-2, Paragraph 1. (2) In the case of the occurrence of any event specified in the provisions of Paragraph (1), the payment obligation of the Principal to a Contractor and the obligation of a Contractor to pay the Subcontract Payment to a Subcontractor shall be deemed extinguished to the extent of the amount paid. (3) Notwithstanding Paragraph (1), when a Contractor makes a request, with regard to the subcontract concerned, to discontinue direct payment with written documents verifying the fact that the Subcontractor has been delinquent in making payment of labor or materials, the Principal can stop directly paying the subcontract payment. (4) In Principal s paying of subcontract payment to subcontractor concerned under the

11 provisions of Paragraph 1, the subcontract amount, which was already sent to the Contractor by the Principal, shall be deducted. (5) For the Subcontractor to directly receive the subcontract payment from the Principal under the provision of Article 1, the Contractor shall implement the necessary measures without any delay when confirmation of any progress of construction is required. (6) Any necessary processes, such as the payment methods and procedure in case of direct payment of subcontract amount under the provision of Paragraph 1, shall be set under the Presidential Decree. Article 15 Payment of Refund of Customs Duty, etc. (1) When a Contractor receives refunds of the customs duty, etc. pursuant to the Special Act for Refund of Customs Duty, Etc. Levied on Raw Materials for Export in the cases where the Contractor entrusted a Subcontractor with the Commission to Manufacture goods to be exported, the Contractor shall, according to the nature of the refund, pay the Subcontractor within fifteen (15) days from the date of such refund. (2) Notwithstanding Paragraph (1), the payment of an amount equivalent to the refund of customs duty, etc. to a Subcontractor shall not be any later than sixty (60) days from the date of receiving the Object unless there are reasons attributable to the Subcontractor. (3) When a Contractor pays the amount equivalent to a refund of customs duty, etc. exceeding the time limit as provided for in Paragraphs (1) and (2), it shall pay interest thereon for such period exceeded at the rate determined and notified by the Fair Trade Commission considering the economic situation, such as deferred interest rates applied by financial institutions pursuant to the Banking Act, within the scope of 40%. Article 16 Adjustment of the Subcontract Price According to Changes in Design, Etc. (1) If a Contractor is paid an additional amount from the Principal due to changes in the design or economic circumstances after entrusting a Commission to Manufacture, etc. it shall increase the Subcontract Payment in accordance with the content and rate of the additional amount received if additional costs are required for the completion of the Object for the same reason. If the payment for the Contractor is reduced by the Principal for the same reasons, the Contractor may reduce the Subcontract Payment in proportion to the content and rate of such reduction. (2) An increase or decrease in the Subcontract Payment in Paragraph (1) shall be made within thirty (30) days from the date the payment to a Contractor is raised or lowered. (3) The provisions of Paragraph (7) of Article 13 (Payment of the Subcontract Payment, Etc.) shall apply mutatis-mutandis to the interest applied to the Contractor paying after fifteen (15) days from the date of receiving the additional amount prescribed in Paragraph (1), and Paragraphs (6) and (8) of the same Article shall apply mutatis-mutandis to the payment of discount charges of notes and discount rates when additional amounts are paid by note. In such a case, ixty (60) days from the date of

12 receipt of the Object_ shall mean "fifteen (15) days from the date of receipt of the additional amount. Article 17 Prohibition against Undue Payment in Kind No Contractor shall substitute goods for payment of the Subcontract Payment against the will of a Subcontractor. Article 18 Prohibition against Undue Interference with Management No Contractor shall interfere with the management of a Subcontractor by means of adjusting the subcontracting trade volume, etc. Article 19 Prohibition against Retaliatory Measures No Contractor shall restrict the opportunity to receive orders, suspend trade or take other retaliatory measures against a Subcontractor if the latter has reported to the relevant agency violations of this Act by the Contractor. Article 20 Prohibition of Evasion of the Act No Contractor shall use circumventing methods in subcontracting in order to avoid being subject to this Act. Article 21 Particulars to be Observed by Subcontractors (1) A Subcontractor shall, when entrusted with a Commission to Manufacture, etc. by a Contractor, carry out such commission in good faith. (2) A Subcontractor shall not cooperate with a Contractor in any action that violates this Act. (3) When making a report under this Act, the Subcontractor shall submit, without delay, documentary evidence to the Fair Trade Commission. Article 22 Reporting of Violations (1) Any person who has knowledge of any violation of this Act may report it to the Fair Trade Commission. (2) When the Fair Trade Commission receives a report under Paragraph (1) hereof or acknowledges an act of violation of this Act, it may conduct the necessary investigations. (3) When the Fair Trade Commission receives a report of violation by a Contractor from a Subcontractor and notifies the Contractor, it is deemed that a notice under Article 174 of the Civil Code has been made; provided, however, that if the reported case is dismissed, rejected or withdrawn, this shall not apply.

13 Article 23 Limit on Initiation of Investigations A Subcontracting Transaction subject to investigation in accordance with the provision of Paragraph (2) of Article 22 (Reporting of Violations) shall be limited to those which do not exceed three (3) years from the completion thereof: Provided, however, that an investigation may be commenced for the subcontracting transactions for which a report is filed before the three (3) year period, even if three (3) years have passed since the completion thereof. Article 24 Dispute Mediation Council for Subcontract Disputes (1) Trade Associations prescribed in the Presidential Decree shall establish a Dispute Mediation Council for Subcontract disputes (hereinafter referred to as the "Council"). (2) The Council shall verify facts or resolve disputes with respect to Subcontracting between Contractors and Subcontractors as requested by the Fair Trade Commission or the parties immediately concerned. (3) The Council shall submit a report of the results if the dispute has been successfully mediated or the details of the case if mediation was unsuccessful. (4) The composition and operation of the Council shall be prescribed by Presidential Decree. Article 24-2 Advisor (1) When the Fair Trade Commission deems it necessary for carrying out affairs relating to Subcontracting Transactions pursuant to this Act, it may commission an advisor. (2) Matters necessary for commissioning an advisor under Paragraph (1) or for other matters shall be determined by Presidential Decree. Article 25 Corrective Measures (1) The Fair Trade Commission may recommend or order a Principal and/or a Contractor who violates Article 3 (Delivery of Writings and Maintenance of Documents) or Article 4 (Prohibition of Determining Unreasonable Subcontracting Prices) through Article 20 (Prohibition of Evasion of the Act) hereof to deliver the Subcontract Payment, to cease the violation or take other necessary measures to rectify the violations in question. (2) When a dispute has been mediated by the Council under Paragraph (2) of Article 24 (Dispute Mediation Council for Subcontract Disputes) hereof, it shall be deemed that the Fair Trade Commission has taken the measures necessary for correction under Paragraph (1). (3) < Deleted >

14 (4) When issuing corrective measures (excluding those under Paragraph (2), hereinafter in this paragraph, the same shall apply), the Fair Trade Commission may order the Contractor to publicly announce the corrective order that was issued. Article 25-2 Deposit with the Court A Contractor to whom corrective measures were issued in accordance with Paragraph (1) of Article 25 (Corrective Measures) may be exempted from the obligation to take such measures by depositing the payment as required for the benefit of a Subcontractor if the Subcontractor does not or cannot receive the payment. This shall also apply where a Contractor cannot identify the Subcontractor after having made reasonable efforts to do so. Article 25-3 Surcharge (1) The Fair Trade Commission may impose surcharges against Principals, Contractors or Subcontractors falling under one of the following categories amounting to no more than twice the subcontract amount for entrusting a Subcontractor with a Commission to Manufacture, etc., or the subcontract payment for receiving a Commission to Manufacture, etc. from a Contractor: 1. A contractor that has failed to deliver a document or has delivered a false document in violation of the provisions of Paragraph (1) or (2) of Article 3 (Delivery of Writings and Maintenance of Documents); 2. A person who fails to maintain documents in violation of Paragraph (3) of Article 3 (Delivery of Writings and Maintenance of Documents), or a Contractor or a Subcontractor that prepares and delivers false documents relating to subcontracting transaction; 3. A Contractor that has violated the provisions of Article 4 (Prohibition of Determining Unreasonable Subcontracting Prices) through Article 13-2 (Performance of Subcontract Terms and Payment Guarantee); 4. A Principal that has violated the provisions of Article 14 (Direct Payment of Subcontract Payment) Paragraph 1; 4-2. A Contractor who violates the provisions of Article 14 (Direct Payment of Subcontract Payment), Paragraph A Contractor that has violated the provisions of Article 15 (Payment of Refund of Customs Duty, Etc.) through Article 20 (Prohibition of Evasion of the Act). (2) The provisions of Article 55-3 (Imposition of Surcharge) through Article 55-5 (Collection of Surcharge and Disposition of Payment by Proxy) of the Monopoly Regulation and Fair Trade Act shall apply mutatis mutandis to the surcharges in Paragraph (1).

15 Article 26 Cooperation of the Head of the Administrative Agency Concerned (1) The Fair Trade Commission may, when deemed necessary to enforce this Act, hear the opinions of the head of the relevant administrative agency or request the head of the administrative agency concerned the assistance of personnel or other cooperation necessary for the investigation. (2) The Fair Trade Commission may request the chief of the relevant administrative agency to prevent those Contractors or Subcontractors who habitually violate the provisions of this Act from entering bids and to suspend operations in accordance with Subparagraph 5 of Article 50(1) of the Construction Business Act, or to take other necessary measures to ensure fairness in subcontracting. Article 27 Application of the Monopoly Regulation and Fair Trade Act (1) Articles 42 (Proceedings of the Meeting and Decision Quorum) to 45 (Affixing Name or Seal of Commissioner) and 52 (Opportunity to State Opinion) of the Monopoly Regulation and Fair Trade Act shall apply to the deliberation and decisions of the Fair Trade Commission under this Act, and Article 53 (Appeal) to 55-2 (Procedures for Processing Cases) of the same Act shall apply to the request for appeal, institution of lawsuits, and the exclusive jurisdiction over lawsuits for appeal with respect to measures taken by the Fair Trade Commission under this Act. (2) With respect to investigations, the hearing of opinions and recommendation of correction, etc. for the enforcement of this Act by the Fair Trade Commission, Articles 50 (Investigation of Violations and etc.) and 51 (Recommendation to Comply with a Corrective Measure) of the Monopoly Regulation and Fair Trade Act shall apply. (3) Article 62 (Duty to Preserve Confidentiality) of the Monopoly Regulation and Fair Trade Act shall apply to commissioners of the Fair Trade Commission, officials who are entrusted with duties under this Act, or Council members who take or have taken charge of the mediation of subcontracting disputes. Article 28 Relation to the Monopoly Regulation and Fair Trade Act Subparagraph 4 of Paragraph (1) of Article 23 (Prohibition on Unfair Business Practices) of the Monopoly Regulation and Fair Trade Act shall not apply to subcontracting matters to which this Act applies. Article 29 Penal Provisions Any person who violates Paragraph (3) of Article 27 (Application of the Monopoly Regulation and Fair Trade Act) hereof shall be punished by imprisonment not exceeding two (2) years or a fine not exceeding 2 million Won. Article 30 Penal Provisions (1) Any Contractor who falls under any of the following subparagraphs shall be

16 punished by a fine not exceeding twice the amount of the Subcontract Payment at which he entrusts a Subcontractor with a Commission to Manufacture, etc.: 1. < Deleted > 2. < Deleted > 3. Any person who has violated any of Articles 4 (Prohibition of Determining Unreasonable Subcontracting Prices) through 13 (Payment of the Subcontract Payment, Etc.); 3-2. Any person who did not guarantee the payment of construction amount violating the provisions of Article 13-2 (Performance and Payment Guarantees of Construction Subcontract); 4. Any person who has violated any of Articles 15 (Payment of Refund of Customs Duty, etc.) through 17 (Prohibition against Unfair Payment in Kind). (2) Any person who falls under any of the following subparagraphs shall be punished by a fine not exceeding 150 million Won: 1. Any person who has violated any of Articles 18 (Prohibition against Unfair Interference with Management) to 20 (Prohibition of Evasion of the Act); 2. Any person who has failed to comply with a corrective order as provided in Paragraphs (1), (2), or (4) of Article 25 (Corrective Measures). (3) Any person who conducts a false appraisal in violation of Subparagraph 2 of Paragraph (1) of Article 50 (Investigation of Violations and etc.) of the Monopoly Regulation and Fair Trade Act, which applies in accordance with Paragraph (2) of Article 27 (Application of the Monopoly Regulation and Fair Trade Act) of this Act, shall be punished by a fine not exceeding 30 million Won. Article 30-2 Fine for Negligence (1) Any person who falls under any of the following subparagraphs shall be punished by a fine for negligence not exceeding 30 million Won: 1. Any person who fails to comply with a request to appear in court without just cause in violation of Subparagraph 1 of Paragraph (1) of Article 50 (Investigation of Violations and etc.) of the Monopoly Regulation and Fair Trade Act, which applies in accordance with Paragraph (2) of Article 27 (Application of the Monopoly Regulation and Fair Trade Act); 2. Any person who fails to report or present the necessary material or object, or who makes false reports or presents false materials in violation of Subparagraph 3 of Paragraph (1) or Paragraph (3) of Article 50 (Investigation of Violations and etc.) of the Monopoly Regulation and Fair Trade Act, which applies in accordance with Paragraph (2) of Article 27 (Application of the Monopoly Regulation and Fair Trade Act); or 3. Any person who refuses, interrupts or evades an investigation under Paragraph

17 (2) of Article 50 (Investigation of Violations and etc.) of the Monopoly Regulation and Fair Trade Act, which applies in accordance with Paragraph (2) of Article 27 (Application of the Monopoly Regulation and Fair Trade Act). (2) Any person who fails to comply with an order for maintenance of order and violates the provisions of Article 43-2 (Maintenance of Order in the Trial Court) of the Monopoly Regulation and Fair Trade Act which is applied mutatis-mutandis by Paragraph (1) of Article 27 (Application of the Monopoly Regulation and Fair Trade Act) shall be punished by a fine for negligence not exceeding 1 million won. (3) Fine for negligence in Paragraph (1) or (2) above shall be imposed and collected by the Fair Trade Commission as prescribed in the Presidential Decree. (4) Any person who appeals the imposition of fine for negligence under Paragraph (3) above may raise an objection to the Fair Trade Commission within thirty (30) days from the notification of such imposition. (5) If a person upon whom a fine for negligence is imposed under Paragraph (3) above has raised an objection in accordance with Paragraph (4) above, the Fair Trade Commission shall notify without delay the competent court which shall, upon receiving the notification, adjudicate the case concerning the administrative fine under the Non-Contentious Case Litigation Procedure Act. (6) If neither an objection is raised nor a fine for negligence paid within the period specified in Paragraph (4), the fine for negligence shall be collected pursuant to the procedures for the disposition of national tax in arrears. Article 31 Concurrent Punishment If a representative of a juridical person, or an agent, an employee or any other person working for a juridical person or an individual has committed a violation as provided in Article 30 (Penal Provisions) with regard to the business of the said juridical person or individual, the said juridical person or individual shall also be subject to such fine as provided in each respective Paragraph of the same Article in addition to the punishment imposed on the perpetrator. Article 32 Filing of Complaint With respect to crimes under Article 30 (Penal Provisions), a public action may be instituted only upon the filing of a criminal complaint by the Fair Trade Commission. Article 33 Mitigation of Liability Any fault on the part of a Subcontractor with regard to a Contractor's violation of this Act may be taken into account in the issuance of corrective measures, filing of complaint or application of penal provisions. Article 34 Relation to Other Acts

18 This Act shall prevail when the provisions of the Act Regarding the Preservation of Small-and-Medium-Sized Enterprise Business Areas and Promotion of Cooperation Among Enterprises, the Electric Works Business Act, the Construction Business Act, or the Telecommunications Business Act violate this Act. Article 35 Enforcement Decree Other necessary matters for the enforcement of this Act shall be prescribed in the Presidential Decree. ADDENDUM(Dec. 8, 1992) 1. Effective Date This Act shall take effect on April 1, Interim Measure The amended provisions of Articles 6, 7, 13, and 15 shall not apply to subcontracting agreements which were entered into before the Effective Date of this Act. 3. Amendment of Other Acts Article 13(2) of the Act Regarding Promotion of Serialization of Small-and-Medium-Sized Enterprises shall be amended as follows: "The Minister of the Economic Planning Board" therein shall read "Fair Trade Commission", "Unfair Business Practices as provided in Subparagraph 4 of Article 15 of the Monopoly Regulation and Fair Trade Act" therein shall read "acts as provided in Articles 3 to 13 and 15 to 20 of the Fair Subcontracting Transactions Act" and "the provisions of Article 16 of the same Act" shall read as "the provisions of Article 25 of the same Act_. 1. Effective Date ADDENDUM(Dec. 30, 1996) This Act shall take effect on April 1, Interim Measure to subcontract agreements which have already been entered into Notwithstanding Article 13-2 (Performance of Subcontract Terms and Payment Guarantee) and Article 25-3 (Surcharge), previous provisions shall apply to the

19 subcontract agreements which have already been entered into before the effective date of this Act. 1. Effective Date ADDENDUM(Feb. 5, 1999) This Act shall take effect on April 1, Interim Measure to subcontract agreements which have already been entered into Notwithstanding revised provisions of Article 13, previous provisions shall apply to the subcontract agreements which have already been entered into before the effective date of this Act. 1. Effective Date ADDENDUM (January 20, 2004) This Act shall take effect three months after the promulgation of this Act. 2. Application of punishment The amended provision of Article 30, Paragraph 1, Subparagraph 3-2 shall be applied from the first subcontract signed since the enforcement of this Act.