As the Ministry of Trade, Industry and Energy is undergoing the liquidation process of its affiliated research institute, the Korea Fashion Industry Research Institute, the institute has claimed the illegality of the process and has initiated legal action. The conflict surrounding the liquidation has escalated into a courtroom battle, leading to an unusual lawsuit between the government and its affiliated research institution.
According to the government on the 20th, the Daejeon District Court recently accepted a lawsuit filed by the Korea Fashion Industry Research Institute against the Ministry of Trade, Industry and Energy, seeking the cancellation of the 'decision to revoke the establishment approval,' which was filed on the 16th of last month, and has begun the substantive hearing. Currently, positions from both parties have been submitted to the court, and the date for the first hearing has not yet been set.
◇ The Ministry of Trade, Industry and Energy judged that 'the establishment purpose cannot be achieved,' to which the institute responded, 'planned dissolution.'
The Korea Fashion Industry Research Institute is the only research institution specializing in the fashion and sewing industry in Korea, established in April 2010 by integrating the functions of the Korea Sewing Technology Institute (established in 2004) and the Korea Fashion Center (established in 2000).
After its establishment, funded with 6 billion won from the Ministry of Knowledge Economy (now the Ministry of Trade, Industry and Energy), Daegu Metropolitan City, and Gyeongsangbuk-do, it has been under the legal supervision of the Ministry of Trade, Industry and Energy. It has played a role in developing the textile and fashion industry in the Daegu region into a high-value-added industry, providing technical support to small and medium enterprises, including prototype production (1,675 cases as of 2021).
However, the Ministry of Trade, Industry and Energy notified the institute on February 27 of this year that it would revoke the approval for the establishment of the specialized production technology institute and nonprofit corporation, believing that the purpose of establishment could not be achieved due to a lack of management and the resignation of numerous employees.
In fact, the institute has been operating without a director since March 2019, when Director Joo Sang-ho resigned two years ahead of schedule. However, there has been ongoing conflict between the institute and the government regarding responsibility for this situation.
The government explained that Director Joo resigned due to opposition from the union and that both the board member and the auditor to form a director recommendation committee for a new director were also vacant. A Daegu city official noted, "All 10 incumbent board members resigned, and without them, the new director could not be appointed."
On the other hand, the institute claims that it merely recommended Director Joo to resign through an evaluation of management capabilities by the board and that there was no relationship with the union. It also argued that even though candidates for board members were selected and reported to the Ministry of Trade, Industry and Energy afterward, they were not permitted to appoint them.
The Ministry of Trade, Industry and Energy applied to the court in 2023 for the appointment of a temporary director and constituted a temporary board of directors composed of six officials, including representatives from the Ministry of Trade, Industry and Energy and Daegu City. The decision to dissolve the institute was made by this temporary board.
The institute has protested that the process of the Ministry of Trade, Industry and Energy's dissolution decision lacked procedural legitimacy. In particular, it asserts that no acting officer was appointed to exercise the right to defense on behalf of the vacant director, and there was no discussion regarding 'the normalization of the institute' during the temporary board's operation. It claims that the government predetermined the conclusion of institutional dissolution and merely went through formal procedures.
An official from the institute stated, "The Ministry of Trade, Industry and Energy has made it so that internal staff or the corporate entity of the institute cannot raise issues during all administrative processes," adding, "The composition of the board is also filled with people subject to the Ministry of Trade, Industry and Energy's budget and supervision, eventually leading to a situation where we had no choice but to follow the Ministry's policies."
Earlier, employees filed for an injunction and a lawsuit against the cancellation of the establishment approval in the name of the institute in March, but all were dismissed due to lack of standing. Instead, a lawsuit filed by a sewing company that had received support from the institute was accepted by the court.
◇ Business difficulties intensified after subsidies were cut, leading to a blame game.
The Ministry of Trade, Industry and Energy has also cited that the institute has not engaged in substantial research or corporate support activities for a long time and that liabilities have surged as reasons for the dissolution. However, the institute countered that the suspension of subsidies from the government and local governments is the cause of its operational difficulties.
Firstly, the government decided not to extend support for numerous specialized production technology research institutes, including the institute, in 2018, leading to the cessation of approximately 300 million won in support from the Ministry of Trade, Industry and Energy.
After the government cut off its subsidies, the institute faced wage arrears starting in 2019. Ultimately, it received orders for account seizure and debt collection from the court in 2022, and Daegu City cut off support of around 4 billion won annually, stating that "the account seizure made it impossible to execute private consignment fees and subsidy business expenses."
An official from the institute remarked, "Traditionally, the labor cost budget from Daegu City's project budget was set at 130%, and the exceeding 30% was being used for operational expenses, but Daegu City has blocked this since 2019," adding, "Since the Ministry of Trade, Industry and Energy's subsidies had also been used for operational expenses, operational paralysis worsened as this support was halted. The Ministry of Trade, Industry and Energy and Daegu City have gradually driven the institute to its current state."
In response, a government official stated, "Other research institutes, whose support was cut like the Korea Fashion Industry Research Institute, successfully secured new projects to replace their sources of income, while the fashion research institute failed to do so."
The institute's liability has ballooned from 320 million won in 2021 to approximately 3 billion won as of June 2024. As wage arrears continued, the number of employees, which once exceeded 50, has now decreased to just 10.
An official from the institute claimed, "Since the sectors and corporations supported by the institute are small-scale, it was a structure where it was difficult to generate revenue from R&D and other areas," adding, "The main work of the institute was to support corporations by securing government budgets, and now they have halted this support. How can we solve the problem?"
The institute has also argued that the government is overlooking the wage arrears issue. It stated that its headquarters real estate was sold at auction for about 5.1 billion won, but it was prohibited from using it for wage payments. An official from the institute noted, "Without a director, even borrowing against major assets as collateral was impossible, and although there were assets like buildings, we were unable to use them for wage payments."
In response, the Ministry of Trade, Industry and Energy explained, "The money obtained from the auction was used first to settle debts related to the institute, and there is now no income available to cover wage arrears."
The institute recently reported details related to the situation to the Democratic Party of Korea's corruption reporting center and requested a national audit from the Board of Audit and Inspection. The Ministry of Trade, Industry and Energy has stated that it will focus on responding to the lawsuit without issuing a separate position.