KLRI : KOREA LEGISLATION RESEARCH INSTITUTE

Ⅰ. The Need for and Methods of Legislative Evaluation

○ As the franchise business has made a huge quantitative growth in recent years, conflicts and disputes between franchisors and franchisees are also increasing, which adversely affect the franchisees, seriously deteriorating their business stability.

○ To regulate unfair trade practices in the franchise business, the Fair Trade Commission enacted the Fair Transactions in Franchise Business Act (hereinafter “the Franchise Business Act”) in 2002 and has tightened its monitoring, supervision and regulation over the franchise business through several amendments to said Act.

○ Methods of legislative evaluation

 

Ⅱ. Major Content 

▶ Status of the franchise business and major issues in legislative evaluation

○ Status of the franchise business

○ Major issues in the legislative evaluation of the Franchise Business Act

▶ Legislative Evaluation (1) of the Franchise Business Act: Analysis on the practicality and effectiveness of the legislative purpose

○ Legislative evaluation based on the analysis of questionnaires and in-depth interviews

 1. Ex-post evaluation as to whether the scope exempting from coverage of the Franchise Business Act (Article 3) is proper

 2. Ex-post evaluation as to whether franchisors fulfill their obligation to furnish a franchise disclosure document (Article 7)

 3. Ex-post evaluation on matters related to obligatory purchases and a margin on products (Schedule 1 of the Enforcement Decree)

 4. Ex-post evaluation on matters related to encroach franchisees’ exclusive territory (Article 12-4)

 5. Ex-post evaluation on matters related to prior-consent to advertising and promotional activities (Article 12-6)

 6. Ex-post evaluation on matters about renewal rights of franchise agreements (Article 13)

 7. Ex-post evaluation on effectiveness of the provision on the right to form an association (Article 14-2)

 8. Ex-post evaluation on matters related to dispute resolution methods and procedures (Articles 22 through 24)

 9. Ex-ante evaluation on the measure of mandating company-owned stores

○ Legislative evaluation through quantitative analysis of franchise disclosure documents and franchise agreements

 1. Analysis of the relationship between operation of company-owned stores and performance of franchising system: ex-ante evaluation on the measure of mandating company-owned stores

 2. Analysis of efficiency in the structure of collecting franchise fees (a margin on products vs. a royalty)

 3. Analysis of the relationship between prior consent to advertising and promotional activities and performance of the franchising system: ex-ante legislative evaluation on the prior consent system to advertising and promotional activities

○ Legislative evaluation through comparative analysis of laws

 1. Ex-ante evaluation of the bill to improve the scope exempting from coverage of the Franchise Business Act

 2. Ex-ante evaluation of the bill mandating company-owned stores

 3. Criteria for determining whether there is a margin on products of franchisors

▶ Legislative evaluation (2) of the Franchise Business Act: Fairness of regulation

○ A need for considering whether there are persons or a class of persons that suffer from or are discriminated by the legislation 

○ A need for considering whether there is a class of persons who might suffer damage from new regulation.

○ A need for considering the claim made by a group insisting on adverse effects of new regulation

 

Ⅲ. Expected Effects

○ Ex-post legislative evaluation of the current Franchise Business Act and ex-ante legislative evaluation of the proposed amendment will contribute to making desirable alternatives available.