Barriers to Trade in the Korean Franchising Industry

The Office of the United States Trade Representative issues an annual report that details issues that concern the ability of United States companies to do business abroad.  One interesting component of the this report, that may concern some international franchise systems in Korea, is addressed in the report.  The 2018 National Trade Estimate Report on Foreign Trade Barriers notes under Korean Franchising that:

“U.S. stakeholders have raised concerns for several years about the activities of the National Commission on Corporate Partnership, now renamed the Korea Commission on Corporate Partnership (KCCP), which imposed restrictions on the expansion of some U.S.-owned restaurant franchises and opened proceedings looking into numerous other sectors as well. The KCCP is a partially government-funded organization, created by Korea’s National Assembly with a mandate to mediate complaints of unfair or unequal competition between large and small businesses. The KCCP’s mission, according to its government appointed chairperson, is to level the playing field between large businesses and SMEs in two ways. First, it annually issues a “win-win scorecard” on how large businesses co-exist with SMEs. Second, and of most concern for U.S. businesses, the KCCP can “designate suitable industries for SMEs.”

In 2013, the KCCP designated the family restaurant sector as reserved for SMEs. This imposed restrictions that affected U.S. franchising companies in the sector, by forcing them to choose between significant geographic restrictions on the opening of new stores, or accepting a limit of only five new stores a year nationwide for the next three years. In 2014, the KCCP also opened proceedings looking into U.S.-based restaurant chains and systems integration businesses, potentially affecting significant U.S. investors in Korea. The United States has raised concerns about the KCCP’s activities and has urged Korea to consider carefully the effect that the KCCP has on Korea’s business climate and on foreign investors. In 2015 and 2016, the KCCP reserved additional sectors for SMEs, but these have not affected U.S. companies. The United States will continue to monitor KCCP’s activities closely in 2018 and raise concerns where they arise.”

The full report may be found at: National Trade Estimates Report on Foreign Trade Barriers.

We find, often, that proactive representation, in Korea, is necessary for success in most industries including in the Korean franchising industry.  When doing business in Korea it is best to have a proactive and street-smart local guide with significant experience in your industry.  Some lawyers have these skills and are willing to use these skills, but, regrettably,many don’t have the skills or refuse to use the skills for all clients.

For a list of Korean franchise articles from the The Korean Law Blog, please see: Franchising in Korea

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