Ⅰ. Purpose

The purpose of these principles is to establish reasonable and fair transaction practices by presenting content to be observed in concluding a subcontract agreement, in order to ensure that partner companies can properly reflect their interests in concluding a contract with Kumho Petrochemical, and to prevent Kumho Petrochemical from violating the principle of freedom of contract by abusing its superior bargaining power in transactions with partner companies.

Ⅱ. Composition of Practices

These practices consist of ‘contract conclusion infrastructure’ to be built by Kumho Petrochemical prior to conclusion a contract, ‘conclusion of a contract protecting the right to self-determination’ in which desirable content shall be presented by the contracting parties in a situation where the right of self-determination is guaranteed, and ‘faithful fulfillment of a contract according to the contract and related laws’ in which provisions to be complied are presented.

III. Establishment of Contract Conclusion Infrastructure

1. Preparation of Selection Standards for Contract Conclusion Methods
A. The contract conclusion method is chosen in consideration of the trading position and its influence on the market. In this case, the types of contract conclusion methods are as follows:
① Private Contract: A contract signed by arbitrarily selecting an appropriate counterparty without competitive methods such as bidding.
② Contract of Public Competition: When a contract is concluded by determining the successful bidder after a free competition without restricting the qualifications of participants or appointing participants in the bidding.
③ Contract of Restricted Competition: When a contract is concluded by determining the successful bidder after competition with restrictions on eligibility requirements in the bidding.
④ Contract of Selective Tendering: When a contract is concluded by selecting participants in the bidding, making the selected participants compete, and then determining the successful bidder.

B. Due to characteristics of the business, based on private contracts with existing clients, contract methods can be selected/operated in consideration of the characteristics of the transaction (including importance, transactable partner companies, transaction amount).

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Contract Conclusion Methods	Requirements
Private Contract	In case when there is no room for competition due to a rise in price of raw materials or other similar reasons In case when there is no choice but to conclude a contract with the current counterparty In case when competition is virtually impossible In the case when it is impossible to compete due to the technology/service of another specific person or a specific location/quality/efficiency or other reasons
Contract of Public Competition	No special criteria
Contract of Restricted Competition	Contracts requiring special technology/equipment/performance/quality, etc. In case when the financial condition of a participating company is necessary to prevent poor contract performance ※ In case of a public notification, restrictions and standards shall be specified
Contract of Selective Tendering	In case when it is difficult to achieve the purpose of a contract unless a person has special facilities/technology/quality or performance in light of the nature/purpose of the contract In case of purchasing a product certified for standard marking or environmental labeling

※ The above requirements can be changed in consideration of special characteristics of each company.

2. Operation of Registration Process for Companies Desiring for Contraction
The registration process for new companies wishing for transaction is operated by the contract related business department.

3. Establishment of PRM (Partner Relationship Management)
A. Kumho Petrochemical shall establish PRM, and promote win-win growth with its partner companies through open management practices rather than closed partner management ones.
B. Kumho Petrochemical shall provide a cyberspace for its partner companies or organize meetings to share practical suggestions and requests them to support cooperation necessary to establish fair transaction practices.

4. Operation of a Small and Medium-sized Enterprises (SMEs) Support Organization
Kumho Petrochemical shall operate an organization exclusively in charge of technical/financial/educational support for its business partners.

IV. Conclusion of a Contract Guaranteeing the Right to Self-determination

1. The parties to transaction shall comply with the following matters in concluding the contract.
A. Pre-issuance of Documents

• In principle, the contract is signed in advance, and is concluded at least with Kumho Petrochemical’s signature and seal before starting works such as delivery.
• The contract shall contain details such as the subcontract price and payment methods.
• and content stipulated in the Enforcement Decree including the requirements for adjustment of the subcontract price according to changes in raw material price.
• In the case of frequent transactions, the basic contract is issued first, and then transactions for a certain period of time are settled and a settlement statement is issued.
• If transaction volume is clearly expected to change due to minor and frequent additional works, a settlement agreement is issued after works such as delivery are completed.
• If additional requests are made within a period significantly shorter than a normally permitted period, a written agreement on the main content is made in advance.

B. Determination of the Unit Cost by Reasonable Calculation Methods

• The unit price is decided through consultation with a reasonable calculation method that considers. quantity/quality/specification/delivery date/payment method/material price/labor cost or market price trend, as well as includes appropriate management costs and profits.
• If there is a reason for change in the initial unit price during the contract period, a unit price adjustment can be applied to the other party. In this case, it will be decided again through mutual consultation within 30 days (can be extended by 30 days) from the date of application.
• In case of a delayed determination of the unit price due to special reasons, a temporary unit price determined by consultation is applied, and in this case, the difference between the temporary unit price and the fixed unit price is settled retroactively when the fixed unit price is determined.
• Through a periodic investigation of labor cost rates which are standards for calculating production costs, a realistic unit cost shall be suggested while the wage rate shall be set according to the characteristics of each company, such as working conditions, business size, and technology level, considering labor costs of other businesses in the industry.
• In case of change in the initially set unit price, standards and procedures that can be negotiated between the parties are stipulated in the contract.
• Specific details such as reasons for unit price change (including changes in prices, raw material prices, exchange rates), consultation periods, and payment conditions are stated.

C. Definite Delivery Dates

• In consideration of characteristics of each business type, a delivery date suitable for normal practices is determined after sufficient consultation with partner companies.
• When a contract is concluded, a delivery date shall be set and when the delivery date is changed, it shall be clarified. In case of a shorter delivery time than usual in the name of an emergency order or other reasons, agreement is reached after consultation with the partner companies.

D. Objective Inspection Criteria

• In inspection of finished/delivered products, through consultation with partner companies, standards and methods for fair/reasonable inspections are determined.
• Inspection is promptly carried out in accordance with pre-determined inspection regulations and procedures.
• Inspection results are notified within 10 days from the date of receipt of the delivery, except for justifiable reasons.
• Before or during the inspection periods, ordered parts are managed with due diligence.

E. Determination of a Reasonable Payment Due Date

• In case of consigning works such as manufacturing to a partner, payment shall be made by the payment due date, which is as short as possible within 60 days from the date of receipt of the delivered product (in case of construction, from the date of acceptance; in case of service, from the date of completion of the entrusted service; or in case when a partner has set the issuance date of a tax invoice more than once a month due to reasons such as frequent delivery, from the fixed date.)
• In case of payment by bill, the bill shall be possible to be discounted by a financial institution established with a legal basis, and the discount amount for the period from the date of issuance of the bill to the maturity date of the bill (the discount rate determined and announced by Fair Trade Commission) is paid on the day the bill is issued.
• If bills are issued within 60 days from the date of receipt of the delivered goods, the discount fee for the period from the date exceeding 60 days from the date of receipt of the delivered goods to the maturity date shall be paid within 60 days from the date of receipt of the delivered goods, etc.
• The fee (including interests on the loan) for the period from the date of payment when payment is made with an alternative payment method (in case of a corporate purchasing credit card, the date of approval of the card payment; in case of a loan secured on accounts receivable bond, the transmission date of work details such as delivery; in case of a purchase loan, the payment date) to the subcontract payment date shall be paid on the payment date.
• If payment is made with an alternative payment method within 60 days from the date of receipt of delivery, the fee for the period from 60 days exceeding from the date of receipt of deliverables to the subcontract payment date shall be charged within 60 days from the date of receipt of deliverables.
• If payment is made after the elapse of at least 60 days from the receipt of subject matter, etc., the interest for the excess period is paid based on the interest rate determined and announced by Fair Trade Commission.

F. Reasonable Return Procedures for Defects Found After Works such as Delivery
Returns are processed based on the agreement between the parties which stipulates the identification of the cause of the defect, a type of a cause for the defect, and the proportion of liability for it. However, if repeated defects occur due to reasons attributable to the partner companies, measures by agreement between the parties such as temporary order suspension may occur.

G. Cancellation · Termination of Contract

• The reasons shall be determined by agreement between the parties and divided into ‘cases that are possible without notice’ and ‘cases where notice is necessary’, and if there is a reason for cancellation or termination, it shall be notified in writing without delay.
• The Possible Cases without Notice Are:
  - In case when the other party has received a transaction suspension disposition from a financial institution or dispositions such as cancellation or suspension of a business license imposed by the supervisory authority.
  - When the other party decides on dissolution, transfer of business, or merger with another company, or when both parties acknowledge that it is difficult to fulfill the basic contract or individual contract due to natural disasters or other reasons.
• Cases where notification is required are as follows; in this case, the other party shall set a period of one month or longer for performing the contract, giving a notice to the other party, and if the contract is not performed within the period, it shall be possible to cancel or terminate it.
  - In case when the other party violates important details of the formal contract or individual contract or when Kumho Petrochemical delays the implementation of details in the contract necessary for production of ordered parts without justifiable reasons, causing disruption to works of the partner companies.
  - In case when it is deemed difficult to deliver within the due date as the partner company refuses to manufacture ordered parts or delays initiation of work without justifiable reasons.
  - In case when a significant reason is recognized that the contract cannot be smoothly performed due to lack of technology, production and quality control capabilities of the partner company.

2. The parties to a transaction shall refrain from the following matters in concluding the contract.
A. Non-issuance and Non-preservation of Documents

• The act of issuing a document without stating the relevant details for matters that are difficult to determine at the time of entrustment without justifiable reasons, and issuing them without stating the reasons for the undetermined matters and the expected date for determining the matters;
• Delays in issuing or refusals to issue a new document to a partner, even though the relevant matter has been confirmed after issuing a document without some details.
• Refusal to acknowledge or reply in writing within 15 days of receiving a request for confirmation of details of a work entrusted by a partner company for a verbally consigned work (order) details such as consigned work content, the subcontract price, the date of consignment.
• Failing to sign or seal under the name of Kumho Petrochemical (the person in charge of the company contract, such as a contract officer) while acknowledging the details of the verbal consignment (order) or replying with denial of the details.
• Failing to issue documents such as a specific supplementary contract or work order for the additional work, even though the scope of the additional work is divided and the cost for it is considerable.
• In case of construction, failing to issue a change contract or settlement statement due to a dispute over settlement between the parties, although the amount of construction added or changed during the construction process has been proven.
• Arbitrary disposals of legal documents within 3 years in accordance with regulations of the party to the contract without retaining them for 3 years.
• Acts of preserving written letters (documents) for 3 years from the date of completion of the transaction, but preparing and preserving false letters (documents) or documents with false contents after work.
• Failing to preserve documents related to subcontract price determination, such as a bidding statement, report on a successful bidder, estimate; in case of construction consignment site, descriptions on the field, specifications.

B. Unreasonable Decision Making on Subcontract Payment

• Deciding a subcontract price by reducing the unit price at a uniform rate without any justifiable reason.
• Determining a subcontract price by unilaterally allocating a certain amount of money regardless of reasons such as a request for cooperation, and then subtracting the amount.
• Discrimination against a specific partner without justifiable reasons to determine the price, or unilaterally determining the price based on a low unit price without agreement with the partner.
• Acts of deceiving business partners by causing an error in terms of transact conditions such as order volume or by providing estimates or false estimates of other business, and using them to determine the price.
• Determining the price at an amount lower than the sum of the values of provisions on direct construction costs without justifiable reasons in concluding a private contract.
• Determining the price at a lower price than the lowest bid price without justifiable reasons in concluding a contract through competitive bidding.
• Deciding the price by lowering the unit price uniformly without objectively justifiable reasons for the unit price reduction such as decreases in material prices or in wages.
• Acts of discriminating against a specific partner and determining the price to be low, even though there is no difference in matters including conditions for payment, transaction quantity, levels of difficulty of work.
• After making a quotation on the premise of placing a large quantity order, determining the price based on the quoted price while placing a small quantity order.
• After entrusting works such as manufacturing without setting the price, determining the price to be lower than normally paid without consulting with the partner company.
• Requesting and receiving information including delivery-related technical data, and then providing it to another business operator and lowering the price based on the price quoted by the other business operator.
• Setting a significantly lower execution budget than the original contract price and determining the price to be low on the grounds that construction shall be carried out within the same execution budget.
• Determining the price to be significantly lower than the price normally paid for reasons such as export, special discount sale, sample use.

C. Verbal Request for Proposals or Development Request
After completion of equipment or production preparation, the acts of canceling the development or requesting a reduction in the unit price presented verbally.

D. Unfair Intervention in Business Management

• Acts of interfering in personnel management by having a partner company obtain its direction or approval in appointing or dismissing executives and employees or by making the partner company hire a specific person against the will of the partner company.
• Regardless of the purpose of the subcontract transaction, restricting content of re-subcontract transactions such as maintaining the quality of consigned deliverables and delivery within the due date.
• Mobilizing field workers to execute construction against the will of a partner company, even though construction is being carried out normally.
• Acts of restricting the production list and facility size of partner companies or preventing transaction with competitors of Kumho Petrochemical or of its affiliates.
• Acts of requesting and providing information including construction-related technical data to a partner company without justifiable reasons.
• Acts of coercing business partners to participate in special sales events such as giveaway promotion, or forcing them to purchase products.

E. Non-adjustment of Subcontract Price Based on Changes in Specification or Raw Material Price

• Failing to respond to requests for consultation or failing to execute substantive consultation procedures such as holding a meeting, exchanging opinions, or presenting a unit price adjustment plan after notifying that consultations will be initiated.
• In case when a person in charge with unit price adjustment authority does not engage in consultation even after 30 days have passed since the consultation request.
• Repeatedly suggesting a price that cannot be accepted by the other party without objective grounds such as market research for unit price adjustment or production cost estimates.

F. Requests for Exclusive Transaction
Preventing partner companies from transacting with Kumho Petrochemical and companies designated by Kumho Petrochemical (except a case when an exclusive transaction with a partner company is agreed based on the reason that technology development is jointly performed with the business partner).

G. Unilateral Shift of Responsibility for Complaint Management
Deducting all expenses from the completed amount after handling a complaint if the complaint is not resolved and the possibility of dispute continues, while bearing all economic and administrative responsibilities for the occurrence of various complaints during construction.

H. Acts of Unfair Special Contracts

• Setting contract terms which unfairly infringe or limit interests of a partner company.
• Setting a stipulation which makes a partner company bear the financial burden incurred by requesting matters not stipulated in the contract.
• Establishing a provision to make costs related to matters which are responsible for Kumho Petrochemical such as complaint management and industrial accidents borne by a partner company.
• Making a provision in which a partner company bears costs incurred by requesting matters not included in the bidding statement.

V. Faithful Implementation of Contract Based on the Contract and Related Laws

1. The parties to a transaction shall comply with the following matters in executing the contract
A. Fulfillment of Related Laws including Civil Law
Relevant laws such as the principle of good faith, Subcontracting Act and Fair Trade Act shall be complied, however, in case of a dispute, it is resolved based on written letters.

B. Sufficient Pre-Agreement and Document Issuance in Case of Unit Price Reduction
In case of a unit price reduction caused by reasons such as falling raw material prices or growing quantity, it is resolved with reasonable grounds for decreasing unit price due to increasing quantity.

C. Price Adjustment Based on Contract Changes
If additional costs are incurred by contract changes such as request for additional specifications, the corresponding price shall be paid.

2. The parties to a transaction shall refrain from the following matters in implementing the contract.
A. Unreasonable Refusal for Receipt

• The act of refusing to receive even though it is difficult to identify whether the details of delivered or constructed goods are different from the consigned content due to unclear details of consignment.
• Refusal to receive products that have already been consigned due to reasons such as complaints of an ordering company, foreign importer or customers, or sluggish sales.
• Refusing to receive due to delivery delay, even though delivery or construction is impossible within the period for delivery or construction because of late supply of materials which are supposed to be supplied such as raw materials or building materials.
• Applying higher standards than normal standards without setting inspection standards.
• In case when the content of inspection standard is unclear, even though it is set, or in case of refusing to receive by applying a higher standard than the inspection standards set in the original contract.
• Refusal to receive without justifiable reasons such as lack of storage space, even when a partner company requested for receipt of works such as delivery.
• Arbitrary refusal to receive pre-ordered goods based on a judgement that a stable supply is difficult due to reasons such as bankruptcy of a partner company.
• Acts of consigning manufacturing of several items and refusing to receive other items due to defects in some items, or refusing to receive based on reasons such as cancellation or suspension of order by the ordering company.

B. The Acts of Unreasonable Return

• Returning the subject matter, etc. by reason of cancellation of order from the other party to the transaction, or any change in economic circumstances, etc.
• Returning the subject matter, etc. by vaguely determining the criteria and method of inspection, and thereby judging unjustly that the subject matter, etc. failed to pass inspection.
• Returning the subject matter, etc. although they have been judged to have failed to pass inspection due to the inferior quality of the raw materials supplied by the prime contractor.
• Returning the subject matter, etc. by reason of delay in the supply, although it is caused by delay in the supply of raw materials.
• Returning the subject matter, etc. based on reasons such as complains of an ordering company, foreign importer, customers, or poor sales.
• Returning the subject matter, etc., a partner company delivered after completion of inspection by a third party as the inspection is entrusted to a third party aside from partner companies.
• Returning the subject matter, etc. based on reasons such as delay in delivery or construction even though there is an objective fact that delayed delivery or construction by a partner company was accepted.

C. Unreasonable Reduction in Payment

• The act of reducing payment based on irrational reasons such as request for cooperation or order cancellation by the other party to a transaction after consignment, or a changed economic situation without specifying the conditions of payment reduction at the time of consignment.
• In case when agreement on unit price reduction has been achieved, the acts of retroactively applying the agreement without consent of the other party and of reducing payment on works entrusted before the agreement.
• The act of excessively reducing price on the grounds that payment is made in cash or before the due date.
• The act of unilaterally reducing price due to minor errors which don’t incur actual damages.
• In case of having Kumho Petrochemical purchase goods necessary for manufacturing or performing service or using its equipment, the act of deducting more than appropriate purchase prices or costs of usage from payment.
• The act of reducing payments based on the reason that the price or material price has fallen at the time of payment compared to the time of delivery.
• The act of unreasonably reducing payments due to irrational reasons such as deficits in business or a reduction in selling price.
• The act of reducing expenses such as indirect labor costs, general management costs, profits, or, VAT, which is different from the original contract.
• The act of making partner companies pay employment insurance premiums, occupational safety and health management expenses, other expenses that shall be borne by Kumho Petrochemical in accordance with the Act on the Collection of Insurance Premiums for Employment Insurance and Industrial Accident Compensation Insurance and the Occupational Safety and Health Act.
• In case when materials or equipment are promised to be supplied, the act of reducing payments based on failure to deliver or construct within an unreasonable due date for delivery or construction after delaying the supply or setting the impossible due date.
• The act of lowering already determined subcontract fees based on the reason of continuous ordering or of cutting costs after making a contract on total payments on the ground of specific manufacturing or construction details.
• The act of reducing payments differently from the original contract due to the reasons including receiving orders for delivery at a low price.
• The act of reducing payments as a result of conducts such as changing contract details, although the details and conditions of consignment remain unchanged.
• The act of reducing payments by having a partner company bear expenses such as foreign change loses, which is different from the original contract terms.

D. Unreasonable Requests for Economic Interests

• The act of requesting economic benefits such as sponsorship money, incentives or subsidies on conditions of initiation of a transaction or large-scale transaction.
• The act of demanding economic benefits such as sponsorship money, incentives or subsidies based on irrational reasons such as falling profits or deteriorating business conditions.
• The act of demanding economic benefits such as sponsorship money, incentives or subsidies, even though there is no legal obligation for the partner company.

E. Shifting Costs Incurred by Kumho Petrochemical to a Partner Company
The act of passing on costs incurred by wage increases or delay in internal consultation procedures of Kumho Petrochemical to a partner company.

F. Unreasonable Payment in Substitutes
Unlike the initial contract, the act of paying a fixed price with substitutes against the will of a partner, and requesting the partner to accept them.

G. Retaliatory Actions
Acts of imposing disadvantages on a partner company, such as restricting opportunities to win orders or suspending transactions based on the reason that the partner company reported Kumho Petrochemical to Fair Trade Commission as a violation of the Subcontracting Act.

H. Evasion of the Law

• Acts of substantially getting away with the application of the Subcontracting Act in relation to subcontract transactions with indirect methods.
• The act of collecting the payment after paying it to a partner company in accordance with the corrective measures taken by Fair Trade Commission, or of retrieving the money by deducting it from payments for delivery.
• After paying expenses such as bill discounting charges or penalty interest to a partner company, the act of lowering the unit price uniformly by an amount corresponding to the payment.

I. Compulsory Purchase of Goods or Service

• Acts of compelling partner companies to purchase or use products or service of Kumho Petrochemical without justifiable reasons.
• Acts of repetitively requesting the other party to a transaction to purchase without justifiable reasons, even though the company already showed its unwillingness to buy, or it is recognized to have no intention to purchase.

J. Acts of Requesting Unfair Settlement for Payments such as Prices for Purchasing Goods

• The act of having a partner company buy Kumho Petrochemical’s goods which is necessary for delivery or use its equipment, and making the partner pay all or part of the payments for the purchase or usage before the payment due date.
• The act of having a partner company purchase Kumho Petrochemical’s goods which is necessary for delivery or use its equipment, and making the partner pay the payments for the purchase or usage under conditions significantly unfavorable to the partner, compared to the condition when Kumho Petrochemical purchases, uses or provides the goods or service to a third party.

K. Prohibition on Forcing Partner Companies to Provide Technical Data

• Acts of forcing a partner company to provide the following technical data to Kumho Petrochemical or a third party without justifiable reasons.
  - Data on ways to manufacture, repair, construct or perform services which have been kept confidential with considerable effort.
  - Information related to patent rights, utility model rights, design rights, copyrights, and intellectual property rights.
  - Other technical or management information useful for business activities and having independent economic values.
• Acts of misusing technical data acquired from partner companies for itself or a third party.

Ⅰ. Purpose

The purpose of these principles contributes to the establishment of a fair subcontract transaction order by enhancing transparency and fairness of Kumho Petrochemical’s partner companies selection and management processes, and is to set general matters for prevention of violation of ‘Fair Transactions in Subcontracting Act’ (hereinafter referred to as ‘Subcontracting Act’) of in ‘Guidelines for Fair Subcontract Transactions.’

II. Definition of Terms

1. Partner companies include not only subcontractors stipulated in Subcontracting Act, but also general consigned companies, which are expected to be the counterparties to transactions with Kumho Petrochemical such as manufacturing, construction, service outsourcing businesses.
2. The pool of partner companies means a group of partners registered, managed and operated by Kumho Petrochemical according to certain standards.
3. Selecting a partner company means the registration of the company in Kumho Petrochemical’s partner pool.
4. Partner company management means that Kumho Petrochemical manages the partner pool based on certain standards by selecting partner companies, providing an opportunity to initiate a transaction to a registered company, and canceling registration of partner companies.

III. Practices in Selection and Management of the Partner Pool

1. Basic Principles
These practices are presented with general matters which are minimum necessary to secure autonomy, transparency, and fairness in selection and management of Kumho Petrochemical’s partner pool, and as for other matters not included in the practices, Kumho Petrochemical can manage individual specific details considering the overall conditions.

2. Practices in Selection and Management of the Partner Pool
A. Disclosure of Standards, Processes and the Result for Partner Selection

• Matters concerning the standards or processes for selecting partner companies shall be disclosed at the workplace or through electronic media.
• In case of changing the partner selection standards, the details are individually notified in advance through means including notice of the partner companies’ portal system, e-mail, or written notice to the companies subject to renewal registration.
• The results of partner selection can be individually notified through the partner companies’ portal system, e-mail, or written notice, and unselected companies are notified with the reasons for the results.

B. Specification and Clarification of Standards for Partner Selection
Kumho Petrochemical shall specify and clarify standards for partner selection to ensure that there is no fear of arbitrary interpretation .

C. Fairness of Partner Selection Standards and Procedures

• The partner selection standards shall be related to details of future consignment transactions, and the reflection weight for each detailed selection criteria shall be appropriately distributed.
• As to companies judging that they were excluded from the partner selection due to reasons attributable to Kumho Petrochemical, they are given an opportunity to file objections for at least 15 days from the date of notification of non-selection.
• There shall be no discrimination in the selection standards between existing and new registrants without justifiable reasons.

D. Provision of Fair Opportunities for Initiating Transactions
Companies selected or registered as partner companies, opportunities such as bidding chances shall not be restricted or discriminated against without justifiable reasons.

E. Disclosure of Criteria and Procedures for Cancellation of Partner Registration
Criteria and procedures for registration cancellation as well as standards and processes for partner selection shall be simultaneously disclosed to partner companies.

F. Specification and Clarification of Criteria for Cancellation of Partner Registration
Kumho Petrochemical shall make standards for canceling registration of partners specific and clear so that there is no fear of arbitrary interpretation.

G. Fairness of Standards and Procedures for Partner Registration and Cancellation

• Standards for partner registration shall be established based on objective and appropriate reasons.
• In case of canceling the registration of a partner, the reason shall be informed with written notice, and the relevant company shall be able to raise related objections. If the cancellation is attributable to Kumho Petrochemical, re-registration measures for the company shall be executed.

Ⅰ. Purpose

The purpose of these principles is to contribute to establishment of a fair subcontract transaction order with a prior deliberation on fairness and legality of subcontract transactions with larger than a certain scale, and is to present general matters for prevention of violations of ‘Fair Transactions in Subcontracting Act’ (hereinafter referred to as ‘Subcontracting Act’) of in Guidelines for Fair Subcontract Transactions’.

II. Establishment and Management Practices of Internal Deliberation Committee

1. Composition of Internal Deliberation Committee

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Chairperson	Commissioner	Supporting Department
Executives of Strategic Planning Team	Leaders of Procurement Team Ⅱ and Business administration Teams of Each business site (Subcontractor Contracting Department)	Strategic Planning Team, Legal Affairs Team

2. Operation of Internal Deliberation Committee
It shall be held regularly once a month, and can be held at any time when an issue arises.

3. The Content of Deliberation

• The fairness in contracting and a pricing process and the legality of related laws such as the subcontracting law are deliberated in advance.
• Subject to Deliberation: Transactions which are expected to be worth more than 3 billion won or more in the previous year or in the current year
• Matters of Deliberation
  - Whether the obligation to issue a written contract is complied with
  - Whether the obligation to guarantee subcontract payments is complied with
  - Whether the prohibition of unfair decision on subcontract payment is violated
  - Whether the prohibition of unfair entrustment cancellation is violated
  - Whether the prohibition of forced purchase of goods is violated.
  - Check in advance whether the partner selection criteria and procedures are appropriate
  - Deliberation of objections on matters such as cancellation of partner registration
  

4. Deliberation Results

• As a result of deliberation, if there is a possibility of violating relevant laws or regulations, Kumho Petrochemical shall correct the matters by itself and in case of intentional or gross negligence by its relevant executives or employees, sanctions corresponding to the degree of the violation shall be imposed. Documents related to the results of deliberation or corrective measures shall be kept for at least 3 years from the date of completion of deliberation.

Ⅰ. Purpose

The purpose of these principles is to promote an advanced practice of issuing documents and to establish a fair subcontract transaction order by presenting specific matters that Kumho Petrochemical shall comply with or make efforts in relation to issuance and preservation of documents during subcontract conclusion or transaction, and by suggesting policies for Fair Trade Commission to promote the spread and productive settlement of a desirable culture of issuing documents, to ensure that Kumho Petrochemical and its partner companies can clearly recognize the matters related to the issuance of documents from ‘Fair Transactions in Subcontracting Act’ (hereinafter referred to as ‘Subcontracting Act’), which will facilitate the exercise of related rights and fulfillment of associated obligations.

II. Matters Concerning Issuance of Various Documents during Subcontract Transaction

<Table 1: Documents Subject to Issuance>

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NO.	Documents Subject to Issuance	Note
1	Basic contracts (including additions/changes)	Article 3 of the Subcontracting Act
2	Fees for subcontract confirmation documents	Article 3 (6) of the Subcontracting Act
3	Documents of subcontract considerations reduction	Article 11 of the Subcontracting Act
4	Written requests for technological data	Article 12-3 of the Subcontracting Act
5	Certificates of receipt of subject matter, etc.	Article 8 of the Subcontracting Act
6	Written notices of the inspection result	Article 9 of the Subcontracting Act
7	Written notices of contract change history	Article 16 of the Subcontracting Act

1. Issuance of Subcontract Agreements
A. Arising of the Duty of Issuing Documents (Article 3 of the Subcontracting Act)

• In case of entrusting manufacturing, repair, or construction of subject matter etc., or performance of services (hereinafter referred to as 'manufacturing, etc.') to a partner company under the Subcontracting Act, Kumho Petrochemical shall issue a written subcontract agreement to the partner company after determining main content of the contract such as the content, quantity and unit price of the entrusted object through agreement with the partner company.
• If the content of the original contract is changed due to reasons such as design change or additional construction entrustment, a written document on the addition or modification shall be prepared and issued unless there are special circumstances.

B. Matters to Be Specified in Documents

• In the subcontract document, content which is consistent with the actual transaction shall be reflected, and in principle, each of the following items shall be described.
  - Consignment date, the content, quantity and unit price of consigned objects; time and place of supply, delivery or provision of objects; method and time for inspection on objects, subcontracting payments (such as advance fee, payment on finished works before completion of the whole construction work and completion money for construction work) and payment methods and the date of payment.
  - In case when Kumho Petrochemical intends to provide materials required to manufacture objects such as raw materials to the partner company, the name and quantity of provided materials, date of provision, payment method and payment due date.
  - Requirements, methods and procedures for adjustment of subcontract price according to price fluctuations of materials such as raw materials after the consignment of works including manufacturing objects.

C. Time of Document Issuance

• In principle, Kumho Petrochemical shall decide the main contents of a consignment contract after agreement with a partner company and issue a written contract without delay.
• Even if it is difficult for Kumho Petrochemical to issue the written contract to the partner company without delay, unless there is a special reason, the contract shall be issued in writing at least by the deadline specified in each of the following paragraphs.
  - Entrustment with manufacturing: before the partner company starts work for entrusted jobs such as product delivery.
  - Entrustment with service: before the partner company starts performing service on the concluded contract.
  

D. Methods of Issuing Documents

• Kumho Petrochemical shall issue a contract signed by the company or its representative (including a certified digital signature according to Article 2, 3 of the Digital Signature Act) or signed and sealed contract to the partner company.
• If a document without the signature or sign and seal of the party to subcontract transaction is issued, the document is regarded as unissued.
• A written document may be issued by providing an electronic record as follows:
  - A method of transmitting through a telecommunication line and recording it in a file provided in an electronic recording device used by the partner company
  - A method of providing information of documents to the partner company through a telecommunication line and recording it in a file provided in an electronic recording device used by the partner company (e.g., the Web)
  - Ways to deliver electronic records such as floppy disks and CD-ROMs to the partner company, etc.

E. Exceptions

• As exemplified below, if a document is issued in a reasonable manner consistent with the actual subcontract transaction, the obligation to issue the document may be fulfilled, unlike the above stated matters and the time of issuance of the document.
  - In case when there is a matter difficult to confirm at the time of entrustment, Kumho Petrochemical may issue a document without stating the relevant matter only if there is a justifiable reason for it.
  * However, even in this case, the reason why the relevant matter was not determined and the expected date for determining the relevant matter shall be specified, and when the relevant matter is confirmed, a document stating the relevant matter shall be issued without delay.
  - In case of frequent subcontract transactions due to the transaction’s characteristics, when there is no major problem in establishing and maintaining the contract in light of the characteristics of the industry or reality.
  ① In case when the basic contract is issued and the content of an order is objectively clear as the order has been placed with methods such as facsimile (FAX) or other electrical/electronic forms.
  ② In the case when some of matters to be stated according to the law are omitted in a contract, but it is possible to identify the omissions with data such as the quantity table and work order provided when placing an order for each case.
  ③ In the case an individual contract can be substituted for an offer-sheet submitted by a partner company to Kumho Petrochemical while the partner company sends the basic contract and manufactured goods for export.
  ④ In case when a contract is replaced with a settlement agreement immediately after construction is completed for a type of work in which quantity changes are clearly expected due to minor and frequent additional works related with consignment of additional construction.
  * However, in the following cases, it is regarded as non-issuance of documents.
  ① Even though the scope of additional construction has been determined and price of the additional works is considerable, in case of non-issuance of a related specific additional contract or work order.
  ② In case when a changed contract or settlement document is not issued due to a dispute between the parties, even though the quantity of added or changed construction during the construction process has been proven.

F. Special Rules

• Estimates of Subcontracting Agreement
  - In case when Kumho Petrochemical does not issue a subcontract document stating the matters in accordance with Article 3 (2) of the Subcontracting Act (including a case of issuing documents in which some of the matters were not stated in accordance with Article 3 of the Subcontracting Act ), entrusting works such as manufacturing, the partner company can request confirmation by notifying a written notice that contains the details of the entrusted work, subcontract payment, the date of entrustment, the business name and address of Kumho Petrochemical and its partner company, and other details of the consignment by Kumho Petrochemical.
  - Kumho Petrochemical shall reply to the partner company in writing of its intention to acknowledge or deny the content within 15 days after being notified by the partner company of the request for confirmation of the consignment details.
  - If Kumho Petrochemical fails to reply within 15 days, the consignment is presumed to be made as notified by the partner company, except in cases where a reply is not possible due to natural disasters or other uncontrollable events.
  - The written notice of the request for confirmation of the above-mentioned consignment details and written reply to the request for confirmation of the consignment details shall be sent to the address of Kumho Petrochemical and the partner company, through contents-certified mail or other methods (e-mail is excluded) the content of and receipt of the notice and reply shall be checked.

2. Issuance of a Subcontract Price Reduction Document
A. Arising Obligations to Issue Documents (Article 11 of the Subcontracting Act)

• If Kumho Petrochemical does not pay the subcontract price set by the ‘consignment’ for works such as manufacturing to the partner company and wants to pay a price reduced from the set amount, the company shall issue a reduction letter to the partner company.
• In concluding subcontract agreements, transactions are frequent, so the basic contract contains general information related to transaction conditions such as payment, transportation, inspection, and return; specifications, materials, and manufacturing process. In addition, content related to subcontract payment such as the unit price or quantity is entrusted to documents such as a special agreement or purchase order, and if the price is determined based on a separate special agreement or order content, the time of notification of the special agreement or order content to the partner company is deemed ‘the time of consignment’.

B. Stated Matters in Documents
When Kumho Petrochemical intends to reduce the subcontract price, reasons and standards for the reduction, the quantity of objects subject to the reduction, the amount and method of the reduction such as deductions, and other matters proving justification of the reduction shall be described in the document to be issued.

C. Time of Issuing Documents
When Kumho Petrochemical intends to reduce the amount, it shall issue a reduction letter to the partner company in advance before the reduction.

D. Methods for Issuing Documents

• When Kumho Petrochemical requests a subcontractor to reduce the subcontract price in writing, a document signed by the company or its representative (including a certified digital signature in accordance with Article 2 (3) of the Digital Signature Act) or a written signed and sealed letter shall be issued.
• A written document may be issued by providing an electronic record.

E. Exception

• As for matters that are difficult to determine at the time when Kumho Petrochemical issues the reduction letter, only if there is a justifiable reason, a document excluding the relevant matters may be issued.
• * Provided, that in such cases, the reason why the relevant matters were not determined and the expected date for determining the relevant matters shall be specified, and when the relevant matters are confirmed, a document stating the details thereof should be issued without delay.

3. Issuance of a Witten Request for Technical Data Provision
A. Arising Obligations for Issuing Documents (Article 12-3 of the Subcontracting Act)
If Kumho Petrochemical requests a partner company to provide technical data based on a justifiable reason, a written request shall be issued to the partner company.

B. Matters to Be Specified in Documents
In a written request for technical data provision, matters such as the name and scope of the technical data, the purpose of the request, matters related to confidentiality, the relationship of rights attribution, the price of the technical data, the date of request and delivery, the delivery method, and other matters including a matter proving justification of Kumho Petrochemical‘s request for technological data provision shall be stated.

C. Time of Document Issuance
When Kumho Petrochemical requests any technical data, in principle, shall consult, in advance, with the relevant partner company about matters such as the name and scope of the requested technical data, the purpose of request, date of request, date and method of provision, confidentiality provisions, reversion of rights, and a cost, etc., and provide the relevant partner company with a document stating the details thereof.

D. Method for Document Issuance

• Kumho Petrochemical shall issue a written request for technical data with signatures (including an official digital signature under subparagraph 3 of Article 2 of the Digital Signature Act) or seals affixed by the company or its representative to the partner companies.
• Kumho Petrochemical can request technical data as prescribed in a separate contract document, Special Agreement, etc. aside from the standard form contract. Provided, that in the separate contract document, the mentioned items above in 2.A. should be included.
• The document can be issued in an electronic format.

E. Exceptions

• As exemplified below, if a document is issued in a reasonable manner consistent with the actual subcontract transaction, the obligation to issue the document may be fulfilled, unlike the matters specified above and the time of issuance of the document.
  - Among matters to be specified in a written request for technical data, the ones difficult for Kumho Petrochemical and partner companies to determine in advance can be excluded when issuing the document only under a reasonable cause.
  * Provided, that in such cases, the reason why the relevant matters were not determined and the expected date for determining the relevant matters shall be specified, and when the relevant matters are confirmed, a document stating the details thereof should be issued without delay.
  - Reflecting on the characteristics or reality of business, when it is inevitable to frequently request for technical data, after writing down the general items such as the name and scope of the requested technical data, the purpose of request, confidentiality provisions, reversion of rights, and a cost, etc. in a document with signature or seal affixed by the party, additional items such as date of request, date and method of provision, etc. can be decided through a separate written request.

4. Issuance of Other Documents
A. Certificates of receipt of subject matter, etc. (Article 8 of the Subcontracting Act

• Unless there is any reason attributable to a partner company, Kumho Petrochemical shall issue a receipt on the concerned subject matter etc. to the partner company when the partner company delivers, hands over or provides subject matter etc. (except for entrustment of the supply of labor).
• Even if it is before the inspection of the concerned subject matter etc., the receipt should be issued to the partner company promptly (if domestic L/C is established, it is right after the inspection is completed as prescribed in Act 7 of the Subcontracting Act).

B. Issuance of Inspection Results of Subject Matter (Article 9 of the Subcontracting Act)

• To determine a reasonable payment due date, after carrying out the inspection necessary upon Kumho Petrochemical’s receipt of subject matter etc. from the partner company, the inspection results are notified to the subcontractor in the document.
• In principle, Kumho Petrochemical shall notify the partner company with inspection results within 10 days from the date of receipt of the delivery.
• Provided, that as exemplified below, for justifiable reasons, inspection results can be notified after the elapse of at least 10 days.
  - When it is difficult to end the inspection within 10 days because there is too many objects to be inspected
  - When the required time of the inspection is long, the judgement of pass or fail can be made after the elapse of a considerable amount of time
  - When clear consent has been made between Kumho Petrochemical and the partner company on the extension of inspection period
• If Kumho Petrochemical does not issue a document containing the inspection results within 10 days of receipt of subject matter etc. without a justifiable reason, the inspection is considered to pass.

C. Issuance of Notification of Adjustment of Subcontract Consideration due to Change in Design, etc. (Article 16 of the Subcontracting Act)

• If the contract value is increased or decreased due to any change in design or economic situation or other reasons after entrustment with manufacturing, etc., Kumho Petrochemical shall notify the relevant partner company of the reasons for and details on such increase or decrease.
• The notification document should be issued within 15 days from the date he/she receives an increase or decrease of the contract value from the person placing an order.

D. Method for Document Issuance

• Kumho Petrochemical shall issue documents with signatures (including an official digital signature under subparagraph 3 of Article 2 of the Digital Signature Act) or seals affixed by the company or its representative to the partner companies.
• The document can be issued in an electronic format.

Ⅲ. Retention of Documents

• Kumho Petrochemical and the partner companies must all retain documents listed above in Ⅱ. and prescribed in Article 6 (Retention of Documents) (1) of the Act. Documents to be retained shall be those stating the following matters in Table 2

<Table 2: Documents to be retained>

테이블

NO.	Documents to be Retained	Note
1	Basic contracts (including additional/change contract)	Article 3 of the Subcontracting Act
2	Written confirmations of subcontract	Article 3 (6) of the Subcontracting Act
3	Documents of subcontract considerations reduction	Article 11 of the Subcontracting Act
4	Written requests for technical data	Article 12-3 of the Subcontracting Act
5	Receipt of subject matter, etc.	Article 8 of the Subcontracting Act
6	Written notices of inspection results	Article 9 of the Subcontracting Act
7	Written notices of contract change history	Article 16 of the Subcontracting Act
8	Documents stated with information such as outcomes of inspections of the subject matter, etc., and the date when such inspections are completed	Article 6 (1) 2 of the Enforcement Decree
9	Documents stated with date, amount, and means of payment of the subcontract consideration (including the date of issuance, amount and due date of the bills, where the subcontract consideration is paid in bills)	Article 6 (1) 3 of the Enforcement Decree
10	Documents stated with the date and amount of such payment where any advance and late-payment interest, any bill discount commission, fees, and late-payment interest, or the refund of the customs duties, etc. and late-payment interest are paid	Article 6 (1) 4 of the Enforcement Decree
11	Documents stated with the details of such raw materials, etc., and date and amount of and reasons for the deduction, where a prime contractor provides a subcontractor with raw materials, etc. required to manufacture, etc. for the subject matter, etc., and deducts the price thereof from the subcontract consideration	Article 6 (1) 5 of the Enforcement Decree
12	Documents stated with the adjusted amount and the reasons for the adjustment where the subcontract consideration is adjusted due to change in design, etc.	Article 6 (1) 6 of the Enforcement Decree
13	Documents stated with the details of the application and consultations, the adjusted amount, and the reasons for the adjustment where subcontractor files an application for the adjustment of the subcontract consideration such to circumstances such as price fluctuation caused by raw material	Article 6 (1) 7 of the Enforcement Decree
14	Documents related to a decision on subcontract considerations, such as bid specifications, requests for consultations on the decision of a successful bidder, estimates, site descriptions, design specifications, etc.	Article 6 (1) 8 of the Enforcement Decree