. /.WORLD TRADE
ORGANIZATIONG/C/W/307/Add.1/Corr.1
17 May 2002
(02-2764)
Council for Trade in Goods Original:  English
TRADE-RELATED INVESTMENT MEASURES AND OTHER PERFORMANCE
REQUIREMENTS
Joint Study by the WTO and UNCTAD Secretariats1
PART II
Corrigendum
Page 5, paragraph 17 should be supplemented with the following text:
Since the 1970s, Korea  has made consistent efforts in fully opening up the domestic market
for imported automobiles.  The measures taken to ensure an open market have dealt with the various
related taxes, tariffs, as well as standards and certifications.  Most notable is the reduction of taxes and
tariffs on automobiles.  Korea has drastically re duced the tariff on passenger cars from 50% in the
mid-1980s to the current 8%.  In addition, the reduction of the Annual Vehicle Registration Tax,
which took effect on 1 July 2001, significantly eased the tax burden on vehicle ownership.  It calls for
a 5% reduction annually after three years from the date of registration, which will continue up to the
maximum reduction cap of 50%.  Furthermore, the license fee has been repealed since 1 January
2001.  The Government's drive to reduce vehicle taxes is expected to continue on a long-term basis.
Another initiative is the simplification of standards and certifications for automobiles.  By
2003, the Korean Government will introduce a self-certification system, which will provide smooth
access to the Korean market for imported automobile s.  Along with the simplification of standards
and certification procedures for safety compliance and type approval, the Korean Government has
also streamlined the requirements related to environmental standards and certification.  As another
effort to open up the domestic automobile market, the Government lifted Korea's long-standingimport source diversification policies in 1999.
The local content requirements and export performance requirements, which had been applied
to a wide range of industries, were abolished in the mid-1980s and restrictions on FDIs were also
removed.  As a result, strategic alliances across borders are being formed in Korea (for example,Hyundai Motors launched a strategic alliance with DaimlerChrysler, in which DaimlerChrysler
invested a 10% equity stake in Hyundai Motors), and as of the end of 2001, a total of US$2.2 billion
has been invested in the autoparts and equipment industries.
                                                     
1 The terms of reference are as follows:  "To assist WTO Members to carry out the review called for in
Article 9 of the TRIMs Agreement, the WTO and UNCTAD Secretariats are requested to prepare a joint study
for the WTO Council for Trade in Goods.  The study should provide a factual and objective examination of theuse that governments have made of trade-related investment measures and other performance requirements aspolicy tools for industrial development, their effects on international trade and investment flows and oneconomic growth and development, and the treatment of them in other international agreements andinstruments.  The study should be based on a thorough review of the available literature, including the results of
analysis carried out on this subject by other intergovernmental organisations." (G/C/W/266).G/C/W/307/Add.1/Corr.1
Page 2
Page 14, paragraph 42 should be replaced by the following text:
Until the 1970s, Korea's  development strategy reflected a preference for foreign loan capital
and the acquisition of foreign technology through licensing arrangements, rather than through FDI.2
The regulation of the entry of FDI was closely coordinated with industrial development plans.  The
Foreign Capital Inducement Act of 1961 required prior authorization of FDI according to a positive
list of priority industries and sector-specific restrictions on foreign equity participation.  The
requirement to conclude agreements with the Kor ean authorities, setting forth the conditions under
which foreign investment was allowed, appears to have provided considerable scope for the
application of a variety of performance requirements.  Aside from joint venture requirements, such
agreements imposed conditions regarding the amount of capital invested, export performance, thelevel and type of technology used, the supply of raw materials, the provision of access to foreign
markets, and the divestiture of foreign equity within a specified period.
3  These regulations stemmed
from the Government's concerns over possible foreign control of Korea's developing industries.  As
some developing countries defaulted on foreign debts in the 1980s, Korea's foreign investment
policies were amended to attract FDI rather than loans.  In 1984, the positive list was replaced by anegative list approach and the application of performance requirements as a condition of investment
approval was abolished in 1989.  Consequently, until the early 1990s, an emphasis was placed on
establishing an overall framework and infrastructu re to attract FDI.  In the 1990s, a deregulatory
policy was adopted to improve the industrial structure and to attract foreign investment in the high-
tech areas. With Korea's accession to the OECD in 1996, the Government began to notably liberalizeits FDI policies. In addition, with the Asian Financial Crisis in 1997, there was a transition to actively
create an investment-promoting environment through various policies.  Such policies include broad
deregulation of foreign currency trading and M&As of Korean companies by foreigners, and the
enactment of the Foreign Investment Promotion Act.  Currently in Korea, foreign investors and
foreign-invested companies enjoy the same rights and privileges as local companies unless otherwise
legally specified, with a 99.8% openness of its industrial sectors.
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2 Conklin and Lecraw (1997) pp. 24-25;  Mardon (1990).
3 As a result of a policy of systematically requiring foreign investors to form joint ventures with Korean
firms, except in case of exclusively export-oriented projects and projects involving technology considered
necessary in the context of development plans, by 1985 only 13.3 per cent of FDI in Korea was accounted for bywholly-foreign owned firms.  Mardon (1990) pp. 127 and 129.