The Fair Trade Commission began looking into whether Lotte Group pushed suppliers of Lotte Confectionery to cut costs, laying a possible touchstone for the Park Geun-hye administration’s much-played-up initiative to help out small and medium-sized firms.

Lotte Group recently sent its auditing staff to suppliers of Lotte Confectionery and demanded they submit materials on management.

After reviewing the submitted data, Lotte concluded that the suppliers collected about 1 billion won ($880,000) in profits by not reflecting the lowered cost of raw materials in the delivery price despite having agreed to do so.

The suppliers say, however, that they are not allowed to raise delivery prices when raw material costs rise, and are forced to immediately cut delivery prices when raw material costs drop.

Even when they manage to reduce production costs through their own efforts, they are told to lower delivery prices, the suppliers said.

According to a recent report by the Korea Federation of Small and Medium Business, production costs of small and medium-sized manufacturers have climbed more than 8 percent since 2011, but their delivery prices rose less than 1 percent.

“We will find out after the probe whether Lotte Group attempted to unfairly push down delivery prices or whether it unreasonably interfered with the suppliers’ management,” said an official at the FTC.

Small businesses expect the antitrust watchdog’s inquiry to serve as a barometer of the new administration’s determination to root out conglomerates’ abusive behavior toward suppliers.

The large companies have been evading responsibility for keeping down suppliers’ delivery prices.

They avoid what is prohibited by the law on subcontracting, and instead scrutinize the suppliers’ management records to demand them to reflect the entire amount saved through their own management efforts in setting the delivery price.

Such practice raises the conglomerates’ profit ratios but lowers the suppliers’ and further limits their investment in research and development, making them dependent on large firms forever.

“Not a single supplier would be able to refuse a large company’s demand to submit management data or openly speak against unreasonable demands to cut delivery prices,” said Lee Dong-joo, research head for corporate partnership at the Korea Small Business Institute.

“Related rules should be tightened to prevent sneaky attempts to cut prices and improve the culture of corporate partnership.”

By Kim So-hyun (sophie@heraldcorp.com)