Almost all Korean franchisors breach fair trade rules

Almost all Korean franchisors breached the fair trade rule that requires them to deliver disclosure statements to their franchisees, the Fair Trade Commission said yesterday.

The anti-trust watchdog said 178 out of the 191 franchisors it checked were found to have failed to abide by at least one of 17 franchising regulations between October and December 2008.

It said violations were rampant in all industries, but the problem was the most serious among retailers and wholesalers including convenience stores and cosmetics shops.

Other service industries like internet cafes, cleaning businesses, fast food chains and private language institutes also breached franchising laws, according to the FTC.

About a third of all franchisors did not offer disclosure statements to franchisees 14 days in advance of them signing franchise agreements, and 27 percent did not offer statements at all.

Also, 44 percent of franchisors unfairly halted provision of their products or services without providing proper reasons, the FTC said.

Franchised restaurants were highly likely to be denied provision of productions and services from their franchisors, whereas franchised education businesses were likely to be forced to bear the burden of advertising and marketing costs instead of the franchisors.

The FTC report came as the revised Fair Franchise Transactions Act took effect in 2008. According to the revision of the law, a franchisor is required to prepare and register with the FTC a detailed disclosure statement.

The FTC opened a website at http://franchise.ftc.go.kr to disclose information on the franchising industry like franchises` sales and starting costs.

"Although about 80 percent of franchisors were aware of the changes in the franchising law, there needs to be more education and promotion about the changed law," an FTC official said.

By Kim Yoon-mi



(yoonmi@heraldm.com)