WT/TPR/S/137 Trade Policy Review 
Page 38 
 
 
III. TRADE POLICIES AND PRACTICES BY MEASURE 
(1) OVERVIEW  
1. Since the previous Trade Policy Review of Korea,  in 2000, the general thrust of its trade and 
investment policies has been greater liberalizati on, including the further opening of its economy to 
international trade and foreign investment.  This  has exerted additional competitive pressure on 
domestic producers to improve producti vity, and contributed to a more efficient allocation of Korea's 
resources.  Nevertheless, some protectionist me asures continue to shield domestic producers, 
especially farmers, from foreign competition. 
2. The tariff is Korea's main instrument of tr ade policy and provides significant tax revenue.  
The applied MFN rate averaged 12.8% in 2004;  falling slightly, from 13.8% in 2000, owing to 
implementation of WTO commitments.  No unilate ral tariff cuts occurred during the period under 
review.  High tariffs, averaging 52.2% in 2004 (com pared to 54.8% in 2000), apply to agriculture 
(WTO definition);  out-of-quota tariffs, often exceed ing 200%, apply to many other commodities.  By 
contrast, industrial tariffs (WTO definition) aver aged 6.7% in 2004 (7.5% in 2000).  The multiplicity 
of tariff rate bands (often invol ving small rate differe nces and decimal points) not only distorts 
competition, thus resulting in an inefficient allo cation of Korea's resources, but adds to tariff 
complexity.  Almost all tariffs are ad valorem , contributing significantly to tariff transparency.  On 
the other hand, alternate specific rates (mainly as out-of-quota duties) tend to conceal relatively high 
ad valorem  equivalents, which vary between the sa me commodities (depending upon quality) and 
over time, providing greatest protection when world prices are lowest.  These non- ad valorem  duties 
undermine economic efficiency, transparency, an d tariff predictability.  Other measures (e.g. 
"autonomous" tariff quotas, usage tariffs, and duty concessions) that selectively reduce tariffs on inputs, often according to end-use, are also likely to constitute a potential impediment to efficient resource use and add to tariff complexity and uncer tainty.  Although 91% of tariff rates are bound, the 
predictability of the tariff is eroded by the considerab le leeway to raise applied tariffs provided by the 
substantial gap between applied and bound MFN rates.  Korea has used this gap to apply higher 
"adjustment duties" as "flexible tariffs" on several products. 
3. Limited tariff preferences, r estricted generally to certain manufactured goods from several 
developing countries, and all LDCs, means that Korea applies MFN rates on almost all (95%) 
imports.  However, the relevance of MFN rates to  Korea's trade may have begun to erode with the 
recent granting of widespread preferential duties to  Chilean imports, based on substantial and varied 
rules of origin.  This trend looks set to continue, with other FTAs in the pipeline, such as those with 
Singapore and Japan.   In 2004, imports from Chile were subject to average (unweighted) tariffs of 
6.9%, just over half of Korea's average MFN rate .  Most reductions occurred on industrial goods;  the 
average agricultural tariff (WTO definition) on imports from Chile only fell to 49.8%, reflecting 
minimal liberalization at least to date of  farm products under the Korea–Chile FTA.   
4. Whereas tariff quotas for beef were replaced by  a tariff (currently 40%) from January 2001, 
rice imports are still subject to quantitative restri ction.  State-trading enterprises and producer 
associations still administer tariff quotas affecting many agricultural imports, although greater auctioning of import entitlements has introduced gr eater market discipline in quota management.  
Import licensing and prohibitions apply mainly for health, safety or security reasons.  Korea has 
harmonized many voluntary standards and mandatory technical regulations with international norms 
to improve transparency and reduce unnecessary obst acles to trade, and continues revising food codes 
and related regulations in line w ith international requirements.  However, significant differences, 
including in conformity testing, inspection, and acceptance of overseas results, seemingly remain, 
mainly for pharmaceuticals, cosmetics, and possi bly food.  Quarantine arrangements, especially for Republic of Korea WT/TPR/S/137 
 Page 39 
 
 
fruit, and SPS requirements also appear relatively stri ct, despite Korea's continuing efforts to comply 
with international norms.   
5. Anti-dumping provisions have protected a number of industries from competitive imports.  
General safeguard measures have been used only fo r garlic since the last Review.  While sector-
specific safeguards on textiles have never been used, those on agricultural products are used 
frequently.  
6. A member of the WTO Government Proc urement Agreement, Korea has largely 
computerized its government procurement system , including operating the e-Procurement System 
since September 2002.  This has increased transpar ency and access by foreign suppliers.  However, 
certain procurement is not covere d by Korea's multilateral commitments;  for example, procurement 
from SMEs where private (non-competitive) te ndering prevails.  Alt hough no domestic price 
preferences apply, government procurement is s till seemingly used as an in strument of economic 
policy, including regional and industrial developmen t.  Procurement has become more decentralized. 
7. A range of financial measures are intended to support trade and production, including R&D 
investment.  These include tax incentives and provision of credit and equity, including venture capital, 
largely channelled through various government-operate d funds and state-owned financial institutions.  
SMEs are major beneficiaries, esp ecially those engaged in informa tion technology activities.  Direct 
export subsidies to reduce marketi ng costs apply to several agricultural goods, and the sector also 
benefits from substantial domestic financial s upport under the WTO Green Box or the de minimis 
provisions. 
8. Although privatization is behind schedule, th ere has been considerable progress, and the 
Government remains committed to further divestment, including to foreign interests.  Application and 
enforcement of Korea's extensive competition policy has been strengthened, including extra-
territorially, against cartels and other anti-compe titive behaviour.  Chaebols are subject to special 
regulation, including ceilings on shareholdings in ot her domestic firms.  Certain collusion by SMEs 
remains exempt from competition legislation.  Ko rea has continued to strengthen protection of 
intellectual property through extensions of its comp rehensive legislation in line with international 
developments, and enhanced enforcement.  It is  currently acceding to the WIPO Copyright Treaty, 
which is expected to take effect on 24 June 2004.  
(2) MEASURES DIRECTLY AFFECTING IMPORTS  
(i) Customs procedures 
9. Korea has streamlined and modernized custom s procedures to reduce importers' costs by 
accelerating import clearances.  Customs formalities have been further automated and "e-customs" 
introduced.  Korea Customs Service (KCS) was re-o rganized to provide a "one-stop" service by 
integrating import/export clearance operations a nd cargo management systems.  A Customs 
Ombudsman in each customs house handles compla ints.  KCS processed 10 million e-customs 
transactions in June 2003, saving W 2. 5 trillion in handling costs annually.  
10. Korea acceded to the revised Kyoto Conven tion in February 2003, subject to certain 
reservations.1  The Three Year Master Plan for Intelligence-Oriented Administration (2001-03) 
                                                      
1 Korea accepted 14 out of the 25 Chapters in Specific Annexes of the Pr otocol, and maintained 
reservations on 16 recommended practices, mainly relating to  areas unsuitable to Korea' s trade environment.  It 
had adopted the core principles of the revised Kyoto Convention in July 1999, and accepted further principles by amending the Customs Act in 2000, 2001 and 2002.   WT/TPR/S/137 Trade Policy Review 
Page 40 
 
 
improved the KCS's customs data warehouse (CDW ) for managing high-risk transactions, and the 
customs knowledge management (CKM) system to e nhance staff access to information.  It has 
developed a comprehensive risk-management syst em, and expanded the post-audit system.  KCS 
established an Audit Bureau and a Differentiate d Management System by Companies to target 
suspected "high-risk" importers.  A Code of Conduct for the Integrity of Customs Officers took effect 
in May 2003.  
11. In August 2003, the KCS introduced more rigorous customs inspections on agricultural 
products, including especially peppers, garlic, ses ame seeds, onions, carrots, and seasoning powders, 
to help protect local farmers and producers against increased imports.2  The import sample inspected 
to check prices was also raised to 20%.  Th e authorities indicate that these measures were 
implemented not to restrict imports, but to prevent illegal importation and duty evasion from under-invoicing, and to meet the need for increased labor atory analysis under paperless customs clearances.  
The sample size used for analysis was lowered for qualified importers with good compliance records 
from March 2004. 
(a) Registration, documentation, and clearance requirements  
12. Only consignors, customs brokers, associations or corporations can make import declarations.  
Required documentation includes the commercial invoice,  price declaration, duplicates of the bill of 
lading, detailed packing list, import approval doc ument (if applicable), sanitary and phytosanitary 
certificates for most agricultural goods and processed foods, and certificate of origin for goods subject to tariff preferences.  Qualified importers (approved by Customs based on their import record) receive 
expedited customs clearance and more  convenient methods for paying duties.
3 
13. Import clearance, including declaration procedures, and cargo management systems are fully 
computerized.  The KCS is linked to all 68 agenci es responsible for approvin g certain imports (e.g. 
Ministry of Health and Welfare and Ministry of Maritime Affairs and Fisheries) to enable import requirements to be electronically verified.  The number of tariff items needing such checks has 
decreased from 5,435 items under 55 laws in April 1999 to 4,810, and is planned to fall below 4,000.  
The paperless clearance system has expanded.  In January 2003, cargo management was 100% 
paperless and import declarations 75%. 
14. In early 2003, declarations we re processed on average in 1.3 hours (2.4 hours in 2000).  Prior-
entry import declarations (up to five days for sea and one day for air) are allowed.  Most (90%) 
imports are cleared after bonded storage;  the aver age clearance times from port entry to their release 
from bond was 9.6 days (4.6 days for air and 16.2 days for sea cargo) in early 2003.  A cargo 
selectivity system automatically selects high-risk  cargo for documentary and possible physical 
inspection.  The KCS operates, on request, an "on- dock" immediate clearance system at the major 
ports of Busan, Incheon, and Gwangyang, to allow im ports of reputable companies to be released 
before submission of import declarations (required within 10 days).  Some 60% of inward cargo uses 
this system. 
15. The Regulatory Review Commission (RRC) sel ected import and export customs clearance 
procedures as a strategic priority area of trade-rela ted regulatory reform in 2003.  It aims to shorten 
clearance times from port entry to release of g oods to five days, and reduce logistic costs by 
                                                     
 
2 KCS News Release, 11 August 2003, Agency Tightens Customs Insp ection over Agricultural 
Products .  
3 Benefits include immediate release of goods before submitting the import declaration, paying customs 
duties and taxes after release of the goods or on a monthly basis, and exemption from collateral deposit requirements. Republic of Korea WT/TPR/S/137 
 Page 41 
 
 
simplifying clearance procedures.  The RRC is worki ng closely with the KCS to introduce measures 
that would reduce cargo inspection times and lower the number of items covered by inspection from 
4,810 to 4,000, and to cut unloadi ng times of vessels in ports from fi ve to three days.  These include 
installing on-dock immediate clearance systems in a ll major ports, expanding the scope of simplified 
clearance of express cargo, simplifying trans-shipment procedures, expanding and improving the 
electronic clearance system, and establishing a "single window" for customs clearances. 
16. Korea does not require preshipment inspection of imports. 
(b) Customs-free zones 
17. These zones provide simplified customs procedures for certain activities (Act on Designation 
and Management of Customs Free Zones for Fosteri ng International Logistics Centres, 1999).  They 
are exclusive areas outside the national customs boundary, exempt from customs requirements.  They facilitate flows of goods and services, including di stribution, at busy airports, seaports and storage 
complexes/cargo terminals.  The Minister of Fina nce and Economy (in consultation with the Customs 
Free Zone Committee) designates such zones upon requ est from regional governments.  Activities in 
the zone are exempt from import procedures and cust oms duties, and receive tax advantages (e.g. no 
value-added tax (VAT) and reduced income tax).  Foreign cargo may enter and leave freely.  Simple 
processing is allowed.  Korean goods entering the z one are treated as exports and entitled to tariff 
drawback.  Goods entering or processed in these zones are principally intended for export, but if sold 
domestically, are subject to import duties and domestic taxes, such as VAT.  The main customs free 
zones are Incheon International Airport, and the ports of Busan, Gwangyang, and Incheon.  
(ii) Customs valuation 
18. According to the authorities, Korea's custom s valuation legislation (sub-section 2 of the 
Customs Act 1949) complies with the WTO Agreement on Customs Valuation.  Imports are valued at 
their c.i.f. (cost, insurance, freight) price.  Th e main method used is transaction value (based on the 
"price actually paid or to be paid by the buyer").  When this cannot be used, valuation is determined 
using, in order, identical goods, similar goods, domestic sales price or computed value.    
19. While the KCS may, in principle, set sp ecial customs valuation and documentary 
requirements for used imports (Presidential Decree  of the Customs Act), it applies the same customs 
valuation methods (i.e. transaction value or where im possible in sequence one of the other alternative 
WTO-consistent valuation methods) for second-hand imports.  However, as a last resort, Customs 
may determine their valuation using "reasonable sta ndards", whereby prices paid are adjusted based 
on appraised prices from certified appraisal institut es, domestic wholesale prices, or other recognized 
price lists.  To prevent tax evasion, the KCS tight ened checks on declared values of imported used 
cars, including comparisons with reference prices from the Kelley Blue Book.
4  According to the 
authorities, however, the transaction value is accep ted where significant differences exist, unless there 
is reason to suspect the authenticity or accuracy of  the declared value, wh en an alternative WTO-
consistent valuation method is used.  The Kelley Blue Book price would be applied only as a last 
resort.  Documentary requirements were also cha nged to include a letter of technical inspection from 
an automobile performance-testing institute.5 
20. Customs duties (including domestic taxes) must be paid within 15 days from acceptance of 
the import declaration (where security has been lodge d).  Late payments are subject to an additional 
5% of the amount owed for the first month, and 12% for each month thereafter (up to a maximum of 
                                                      
4 KCS News Release, 8 June 2003, Customs Service Tightens Price Check on Foreign Used Cars . 
5 KCS News Release, 12 May 2003, Documentary Requirements for Import of Used Cars to Change . WT/TPR/S/137 Trade Policy Review 
Page 42 
 
 
77%).  Criminal penalties (up to three years imprison ment or a fine of five times the evaded duty) 
apply for fraudulent declaration of dutiable value or incorrect tariff classifications.  Importers who voluntarily rectify declarations within six months of importation must pay the duty difference plus 5% 
additional duty (10% after six months).  If such  under-payments are detected by the KCS, the 
importer pays the outstanding duty plus an additional 20%.  
21. Customs decisions can be appealed to the KCS Commissioner or to the National Tax 
Tribunal.  The Tariff Review Commission assists the Commissioner on appeals and comprises five customs officers and seven (previously six) expe rts.  Decisions can be appealed to the courts. 
(iii) Tariffs 
22. Korea has reduced tariff rates since its previous Review by implementing WTO 
commitments.  It eliminated tariffs on 98 tari ff lines from 1 January 2003 and abolished remaining 
duties under the ITA.  There have been few unilate ral reductions or increases in MFN tariffs.  Tariffs 
of 10% were imposed on cigarettes in July 2001 and raised annually, to 40% by 2004.
6   
23. Although tariffs, the key trade policy instrume nt, provide significant central government 
revenue (6% of total tax receipts in 2002), there app ears to be considerable scope to reform tariffs 
without eroding government revenue.  This is espec ially the case if allowance is made for likely 
increases in tariff revenue from more food imports if  high, and often prohibiti ve, agricultural tariffs 
were lowered. 
24. Korea adopted the 2002 version of the Harmonized System of Tariff Classification (HS) from 
1 January 2002 (with 11,261 ten-digit tariff lines in 2004).   The tariff schedule is set from January to 
December;  most tariff changes are introduced annually.  Requests to  modify tariff rates are submitted 
by the relevant ministries and interested parties to the Ministry of Finance and Economy (MOFE), which presents the case to the Customs and Tariff Deliberation Committee.
7  If accepted by the 
Committee, it is considered by a meeting of econo mic ministers, which submits recommendations to 
the State Council.  If approved, the tariff cha nge is implemented by Presidential decree.   
25. The tariff comprises several different rates accord ing to the source of imports.  These are the 
MFN tariff from non-preferential sources, and several  preferential tariffs, such as duties extended to 
imports from other members of the Bangkok Agreement and recently to Chile.  There are also a number of different MFN rates (e.g. basic/gene ral rate, internationa l cooperation rate, WTO 
concession (i.e. bound) rate).  This adds to the complexity of the tariff schedule.   
(a) Applied MFN rate 
26. The Korean tariff structure has changed little sinc e the last Review of Korea.  The average 
(unweighted) MFN tariff in 2004 is 12.8% (13.8% in 2000) (Table III.1  and Chart III.1).
8  Tariff 
                                                      
6 Tariffs were introduced when the domestic monopoly was abolished and foreign firms allowed to 
manufacture cigarettes. 
7 This consists of academics, customs officials, jo urnalists, and representatives from non-governmental 
groups, including consumer and business organizations, and from relevant ministries.  
8 The tariff analysis follows the Secretariat's practi ce of including out-of-quota duties for tariff quotas 
(i.e. excluding the in-quota rate) and the ad valorem  part of specific-type duties when ad valorem  equivalents 
are unavailable, as for Korea.  As ou t-of-quota rates are much higher than in-quota rates, this is likely to 
overstate tariff protection where no out-of-quota imports occur.  However, using the ad valorem  rate of Korea's 
alternate tariffs, which apply "whichever is the greater" rate, will understate tariff pr otection when the alternate 
specific rate is operative.  Higher adju stment tariffs are also excluded.  Al so, the average MFN rate of 12.8% is Republic of Korea WT/TPR/S/137 
 Page 43 
 
 
protection varies substantially across and within sectors, averaging 52.2% for agricultural products) 
and 6.7% for industrial goods  in 2004 (WTO definitions).9  Average tariffs are highest for vegetable 
products (HS section 2), at 100%.  Manufacturing tari ffs are highest for footwear and headgear (HS 
section 12) at 10.2%, and for textiles and articles (H S section 11) at 9.9%.  By according varied and 
substantial levels of protection to selected industri es, especially agriculture, tariffs distort competition 
by favouring some activities over others.  Reduci ng high tariffs (mainly out-of-quota agricultural 
duties) would therefore improve Korea's r esource allocation and national welfare.   
Table III.1 
Structure of Korean MFN tariffs, 1996 to 2004 
(Per cent)  
  1996 2000 2004 Final bounda 
 Bound tariffb     
1. Bound tariff lines (% of all tariff lines) 91.0 91.7 91.5 91.5 
2. Simple average bound rate 27.6 20.2 17.2 17.0 
 Agricultural products (HS01-24) 72.4 65.5 61.1 61.1 
 Industrial products (HS25-97) 20.0 12.8 10.0 9.7 
 WTO agricultural products 71.3 65.4 61.1 61.1 
 WTO non-agricultural products 19.8 12.5 9.7 9.5 
 Textiles and clothi ng 28.5 23.1 18.5 18.5 
3. Tariff quotas (% of all tariff lines) 1.7 1.7 1.7 1.8 
4. Duty free tariff lines (% of all tariff lines) 2.0 7.0 14.2 14.4 
5. Non- ad valorem  tariffs (% of all tariff lines) 0.9 0.7 1.0 1.0 
6. Non- ad valorem  tariffs with no AVEs (% of all tariff lines) 0.9 0.7 1.0 1.0 
7. "Nuisance" bound rates (% of all tariff lines)c 0.6 1.6 2.1 2.1 
 Applied tariff     
8. Simple average applied rate 14.4 13.8 12.8 .. 
 Agricultural products (HS01-24) 51.8 50.3 47.9 .. 
 Industrial products (HS25-97) 7.7 7.5 6.6 .. 
 WTO agricultural products 56.2 54.8 52.2 .. 
 WTO non-agricultural products 7.7 7.5 6.7 .. 
 Textiles and clothing 7.8 9.8 9.8 .. 
9. Domestic tariff "spikes" (% of all tariff lines)d 2.4 2.3 2.5 .. 
10. International tariff "spikes" (% of all tariff lines)e 8.7 8.7 8.9 .. 
    Table III.1 (cont'd) 
                                                                                                                                                                     
substantially above the average rate of customs duty collected on total imports, of about 4% (in 2003).  
Although this difference is partly explained by the much  lower in-quota duties levied on many agricultural and 
other goods subject to tariff quotas, duty concessions and non-MFN (i.e. preferential) imports, conceptual 
differences in the two averages also co ntribute to the discrepancy.  The aver age MFN rate of 12.8% used in this 
report is unweighted, while the average collected rate is import-weighted.  Like all import-weighted tariff averages, it is therefore biased downwa rds.  This is because the import weig ht is inversely related to the tariff 
rate (e.g. a high prohibitive tariff will not be reflected in an import-weighted average because there are no 
imports).   
9 WTO definition of industrial products used by the Secretariat covers all non-agricultural products i.e. 
products not covered by the WTO Agreement on Agriculture.  "WTO agricultural products" include all 
processed and unprocessed agricultural commodities (HS Chapters 1 to 24, less fish and fish products, plus some additional HS items). WT/TPR/S/137 Trade Policy Review 
Page 44 
 
 
  1996 2000 2004 Final bounda 
11. Overall standard deviation (SD) of tariff rates 57.5 54.4 52.0 .. 
12. Tariff quotas (% of all tariff lines) 1.7 1.7 1.7 .. 
13. Duty free tariff lines (% of all tariff lines) 2.0 6.7 13.3 .. 
14. Non- ad valorem  tariffs (% of all tariff lines) 0.5 0.5 0.6 .. 
15. Non- ad valorem  tariffs with no AVEs (% of all tariff lines) 0.5 0.5 0.6 .. 
16. "Nuisance" applied rates (% of all tariff lines)c 2.7 3.0 2.7 .. 
.. Not available.  
a Final bound calculations are based on the 2004 tariff schedule.    
b Calculations are only based on bound tariff lines. c "Nuisance" rates are those greater than  zero, but less than or equal to 2%. 
d Domestic tariff spikes are defined as those exceeding th ree times the overall simple applied rate (indicator 8). 
e International tariff spikes are defined as those exceeding 15%. 
Note:  Includes out-of-quota rates for tariff quotas  (thereby excluding lower in-quota rates) and the ad valorem  part of alternate duties.  
The 1996 and 2000 tariffs are based on 10-digit HS96 nomenclatu re;  the 2004 tariff is based on 10-digit HS02 nomenclature. 
Source:  WTO Secretariat calculations , based on data provided by  the Korean authorities. 
 
0102030405060708090100110
Live animal & prod.
Vegetable products
Fats and oils
Prepared food, etc.
Mineral prod.
Chemicals & prod.
Plastic & rubber
Hides & skins
Wood & articles
Pulp, paper, etc.
Textiles & articles
Footwear, headgear
Articles of stone
Precious stones, etc.
Base metals & prod.
Machinery 
Transport equipment
Precision instruments
Arms & ammunition
Misc. manufactures
Works of art, etc.
Total Chart III.1
Average (unweighted) applied MFN tari ff rates, by HS section, 2000 and 2004
Per cent
Includes out-of-quota rates for tariff quotas (t hereby excluding lower in-quota rates) and the ad valorem  part of 
alternate duties.  The 2000 estimates are based on HS96 nomenclature and 2004 on HS02.  
WTO Secretariat calculations, based on data provided by the Korean authorities.Note:
Source :2000 
2004
 
 Republic of Korea WT/TPR/S/137 
 Page 45 
 
 
27. Over 99% of tariffs are ad valorem  duties.  This simplifies the tariff structure and improves 
transparency.  However, there are some 90 different  rate bands, mainly associated with agricultural 
tariffs, of which about 40 have decimal duties10;  alternate duties apply to 0.5% of total tariff lines 
(about 50).  Tariff rates range from free to 887.4% (Table AIII.1).  Some 86% of rates were 10% or 
below in 2004 (the same as in 2000);  62% of rat es are between 5% and 10%;  the modal rate is 8% 
(Chart III.2).  Rates of over 30% apply to 2.8% of  tariff items in 2004 (2.7% in 2000);  "nuisance" 
applied MFN rates (2% or less) applied to 2.7% of tariff lines in 2004, and 2.5% of lines had domestic 
tariff "peaks" (rates over 38.4%).  Although the shar e of duty free tariff lines almost doubled between 
2000 and 2004, to 13.3%, scope remains to rationalize the Korean tariff, for example, by reducing the 
large number of rate bands and removing decimal du ties.  This too would improve transparency and 
provide some gains to economic efficiency. 
2.7%2.0%12.9%6.7%
66.7%
4.8%
3.5%
0.4%
2.8%2.1%13.3%
11.2%
61.7%
4.8%
0.5% 3.6% 
01,0002,0003,0004,0005,0006,0007,0008,0009,000
Duty free >0- 5 >5-10 >10-15 >15-20 >20-25 >25-30 >30
Includes out-of-quota rates for ta riff quotas (thereby excluding lo wer in-quota rates) and the a d valorem  part of 
alternate duties.   Percentages denote the share of total li nes.  Totals do not add to 100% as no tariff rates are 
available for 0.4% (representing specific lines and import restrictions) and 0.1% (import restrictions) for 2000 and 2004, respectively.  The 2000 estimates are based on HS96 nomenclature and 2004 on HS02.
WTO Secretariat calculations, based on da ta provided by the Korean authorities.MFN 2000
MFN 2004Number of tariff linesChart III.2
Distribution of MFN tariff rates, 2000 and 2004
Tariff rates
Note:
Source : 
 
28. Non- ad valorem  tariffs consist of "alternate" dutie s on several manufacturing tariff items, 
mainly cinematographic film, diagnostic or laborat ory reagents, raw silk, and recorded video tapes 
(Table AIII.2).  These generally apply the greater of an ad valorem  or a specific duty, whereby the ad 
valorem  alternate rate sets a floor import duty rate.11  Alternate duties also apply to a number of 
                                                      
10 Excluding tariff quotas and alternate tariffs, Kor ea's tariff rates still range from zero to 72%, and 
have many different (over 30) bands, often with very sm all rate differences and deci mal rates.  For example, 
there are over 15 ad valorem  rate bands of 10% or below, and the rate of 6.5% applies to 10% of tariff lines. 
11 Tariff protection would be higher if world prices were sufficiently low for the specific duty to 
become operative.  Such duties ther efore provide greatest protection when world prices are lowest.  Exceptions 
include cinematographic film and diagnostic or laboratory reagents, where the importer apparently chooses WT/TPR/S/137 Trade Policy Review 
Page 46 
 
 
agricultural tariff items as out-of-quota duti es, which also provide very high minimum ad valorem  
rates, generally of well over 100% (exceeding 500% on sesame seeds and oil, Jujubesi and pine nuts).  
Korea has no plans to re place alternate duties with ad valorem  rates.  Tariff quotas apply to 
approximately 190 agricultural tariff lines (2% of total items)12;  where there is no alternate out-of-
quota duty the ad valorem rate is generally high, frequently  exceeding 200% (as high as 887.4% on 
manioc), and many also having decimal rates. 
(b) MFN tariff dispersion and escalation 
29. Efficiency losses from tariffs depend not just on the average applied MFN rate, but also on 
the dispersion of rates across products and sectors.  Summary indicators of overall tariff dispersion 
show relatively wide dispersion in applied MFN ta riff rates (ranging from zero to 887.4%), with little 
narrowing of disparities between 2000 and 2004.  While  the standard deviation fell from 54.4 to 52.0, 
the coefficient of variation rose slightly from 3.9 to 4.1 (Table AIII.3).  Most tariff cuts since 2000 have seemingly reduced low rates (e.g. elimina ting minimal duties).  Reducing low tariffs while 
leaving high rates relatively unchanged risks creatin g a more distorting tariff structure, even though 
average tariffs are reduced.  Economic efficiency and resource allocation would be improved most if 
high tariffs were reduced first and fastest. 
30. The pattern of tariff escalation has changed little  since 2000 (Chart III.3 and Table AIII.3).  
Tariff escalation remains most pronounced in sem i-processed food, beverages and tobacco and 
throughout all production stages of textiles and leather, basic metal products, and non-metallic 
mineral products.  However, higher tariff protec tion persisted for semi-manufactures compared to 
finished items (tariff de-escalation) mainly for food, beverages and tobacco, and fabricated metal 
products and machinery. 
(c) "Flexible" tariffs 
31. Korea applies temporarily higher MFN duties, or  flexible tariffs, within its WTO bindings.  
These duties include adjustment, emergency, special emergency, and seasonal rates.
13   
Adjustment duties 
32. Adjustment duties protect domestic, including competitively weak, industries from import 
surges that threaten to disrupt the domestic market (Customs Act).  They are set annually by MOFE after "examining the protection of domestic industry, international trade relations and their impact on 
the national economy as a whole" (Article 70).  The Customs and Tariff Deliberation Committee 
considers MOFE's proposals, and if approved by the State Council, adjustment duties are 
implemented by Presidential decree. 
 
                                                                                                                                                                    
 
whether to pay a tariff of 6.5% or a specific duty.  This means that the tariff rate on such imports is effectively 
capped at 6.5% since the importer would presumably select the lower of the two duties. 
12 This excludes tariff items for rice, which although grouped by the authorities with tariff quotas, are 
actually covered by import quotas.  Tariff quotas on about ten tariff items (e.g. oranges) effectively operate as 
tariffs since the in-and out-of-quota rates are the same.   
13 Autonomous tariff quotas are also referred to as flex ible tariffs, and are discussed in section (iv)(b).  Republic of Korea WT/TPR/S/137 
 Page 47 
 
 
0102030405060708090100
Food,
beverages
and tobaccoTextiles and
leatherWood and
furniturePaper,
printing and
publishing Chemicals Non-metallic
mineral
products Basic metal Fabricated
metal
products and
machineryOtherChart III.3
MFN tariff escalation by 2-digit ISIC industry, 2000 and 2004
Includes out-of-quota rates for tariff quotas (thereby excluding lower in-quota rates) and the ad valorem part of 
alternate duties.  The 2000 estimates are based on HS96 nomenclature and 2004 on HS02.  WTO Secretariat calculations, based on data provided by the Korean authorities.0102030405060708090100
Food,
beverages
and tobaccoTextiles and
leatherWood and
furniturePaper,
printing and
publishingChemicals Non-metallic
mineral
products Basic metal Fabricated
metal
products and
machineryOtherAverage applied rate in manufacturing
(11.6% )
Note:
Source :Per cent
First stage of processing Fully processed Semi-processedPer cent
2004
Average applied rate in manufacturing
(10.6%)2000
 WT/TPR/S/137 Trade Policy Review 
Page 48 
 
 
33. Use of adjustment duties has declined.  In 200 4, they applied to 13 four-digit tariff items 
(28 items in 2000), mainly covering certain fish , bananas, rice preparations, sauces, and plywood 
(Table AIII.4).  Goods no longer subject to adjust ment duties since the last Review include sugar, 
wood, bicycles, toys, woven silk, and cotton fabrics.  Duties currently range from 13% on plywood to 
50% on rice preparations and 70% on certain fish .  Alternate duties (e.g. 55% or W 363 per kg, 
whichever is the greater, on prawns) apply to seven  of the four-digit tariff lines.  Most products 
subject to adjustment duties in 2004, such as sever al fish and plywood items, are unbound.  However, 
for products with bound rates, the imposition of higher MFN adjustment duties within Korea's 
bindings reflects the significant gap between its a pplied tariff rates and bound levels (section (d) 
below). 
Special emergency and emergency tariffs  
34. Korea's customs legislation allows for special emergency tariffs on agricultural, forestry and 
livestock products in the event of sharp increases in imports or falls in import prices (Article 68, 
Customs Act).  Korea reserved the right to ta ke emergency safeguard action (SSG) on crop and 
related products (e.g. grains, potatoes, gi nseng, and soybean) under the WTO Agreement on 
Agriculture.   It has never applied special emergency tariffs  to forest products, which are not covered 
by WTO provisions. 
35. Emergency, including provisional, tariffs may also apply to imports that have surged and 
caused or threaten to cause materi al injury to domestic producers, where deemed necessary to protect 
domestic industries (Customs Act) .  Emergency tariffs apply for up to four years (200 days if 
provisional), but can be extended by four years subject to a further review.   
Seasonal duties 
36. Seasonal duties may be levied on goods with fluctuating seasonal prices to protect domestic 
industries against competing imports that threaten to "disrupt" production.  Although not previously 
used, seasonal duties were recently introduced on grapes imported from Chile under the KCFTA, 
whereby preferential duties apply only to grapes im ported during the Korean off-season (Chapter II). 
(d) Bound tariff 
37. Korea bound 91% of all tariff lines in the Uruguay Round.  Some 99% of agricultural tariff 
lines (excluding mainly rice) and 90% of industria l tariff lines (WTO definitions) are bound.  On a 
tariff classification basis, 86% of agricultural tari ff lines (HS Chapters 01-24) and 93% of industrial 
lines (HS Chapters 25-97) are bound.  The lowest incidence of tariff bindings on this basis (63% of 
items) is in:  live animals and products (HS secti on 1), which includes substantial unbound tariff items 
on fish and fish products;  wood and articles (HS sec tion 9) (72%);  hides and skins (HS section 8) 
(78%);  transport equipment (HS section 17) (81%);   and articles of stone (HS section 13) (82%). 
38. The simple average bound tariff rate fell from 20. 2% in 2000 to 17.2 % in 2004, when Korea 
made its final Uruguay Round reductions on agricultu re (implemented in equal annual instalments 
from 1995-04) (Table III.1).  Following "tarifficati on" of non-tariff measures, except on rice, very 
high bound (and applied) tariffs, often seemingly prohi bitive, apply to many commodities, such as 
cereals and dairy products.  Korea's average bound ra tes on agricultural and industrial products were Republic of Korea WT/TPR/S/137 
 Page 49 
 
 
61.1% and 9.7%, respectively, in 2004 (WTO definitions).14  Since bound rates on average have fallen 
more than applied MFN rates (12.8% in 2004), th e gap between the two has narrowed.  However, 
since the average bound rate was still about one third higher in 2004, considerab le leeway exists to 
raise applied rates, thereby reduci ng tariff predictability.  Korea uses this scope mainly to raise MFN 
tariffs annually by applying higher adjustment du ties on a number of products to temporarily protect 
domestic producers.  
39. Korea has requested several annual extensions  of the waiver granted on its binding 
obligations to allow it to implement the HS ( 2002) nomenclature and to subsequently undertake 
Article XXVIII negotiations (Article II of GATT 1994 ).  The current extension is until end 2004.15 
(e) Duty concessions/exemptions 
40. The application of duty concessions and exempti ons has not changed greatly since the last 
Review of Korea.  The Minister of Finance and Economy (MOFE) may grant concessional entry of imports to meet national objectives, such as industr ial development (Article s 88-109, Customs Act).  
Examples include:  raw materials for the producti on or repair of aircraft or to manufacture 
semiconductors;  goods used for scientific research, education and training;  certain goods used by 
government agencies;  goods for breeding of animal s and plants and for seed improvement;  necessary 
machinery, equipment and their parts required for aircraft operations and aviation security and for 
ground maintenance, not produced domestically; mari ne products caught by Korean vessels (a) in 
foreign territorial seas licensed by the foreign gove rnment, (b) in cooperation with any foreign fishing 
boat, (c) catches through a joint venture with any foreigner (exemption);  and goods for leading 
technology (e.g. automation machines).  MOFE dete rmines tariff concessions in consultation with 
relevant ministries.  The authorities indicated  that revenue forgone from duty concessions was 
US$424 million (equivalent to abou t 5% of tariff revenue) in 2003 (US$373 million in 2002). 
41. Tariff concessions also apply under other legi slation.  For example, capital goods imported 
for foreign investment projects located in various zo nes, such as foreign investment zones, are exempt 
from customs duties, generally for up to three years (Chapter II).  Customs duties on certain imported 
goods (e.g. machinery) and for cer tain importers (e.g. SMEs) can be paid in instalments over 
five years.  The Promotion Act for the Developmen t of Aircraft and Space Industries also allows duty-
free imports of parts (revenue forgone of W 10.6 billion in 2000).
16   
(f) Usage tariff rates 
42. Usage tariff rates, which are specified in the tariff schedule as lower provisional duties 
according to end-use, exempt from tariffs imported inputs for specified end-uses (Article 83, Customs 
Act).  Autonomous tariff quotas also provide lower in-quota duties for certain imported inputs, including those used in specified end-uses (section (2)(iv)(b)).  Kor ea Customs Service is responsible 
for post-audit monitoring to ensure that imported i nputs meet the specified end-use criteria.  Full duty 
is collected on those inputs used for other purposes.  Usage tariff rates, autonomous tariff quotas, and 
to a lesser extent duty concessions on inputs ar e seemingly an important component of Korea's 
industrial tariff policy, whereby government encourages certain manufacturing activities. 
                                                     
 
14 A few of Korea's Uruguay Round commitments on industrial products are being phased in 
until 2010.  When fully implemented, the average bound tariff on industrial products will fall only marginally to 
9.5% (WTO definition) and on all products to 17.0%.  
15 WTO document G/C/W/477, 10 December 2003. 
16 WTO document G/SCM/N/71/KOR, 2 August 2001. WT/TPR/S/137 Trade Policy Review 
Page 50 
 
 
(g) Tariff preferences and rules of origin 
Preferences  
43. Korea grants limited recipro cal tariff preferences to developing countries under the Global 
System of Trade Preferences Among Developing C ountries (GSTP) and the GATT Protocol Relating 
to Trade Negotiations Among Developing Countries (TNDC) (Chapter II(5)(iv)).  It also provides 
unilateral (non-reciprocal) tariff preferences to LDCs.  Senegal became the 49th eligible LDC from 
1 January 2002, and the number of six-digit tari ff items covered by the scheme was increased from 
80 to 87, although this mainly reflected classificati on changes following Korea's adoption of HS 2002.  
The Minister of Finance and Economy may withdraw or modify unilateral trade preferences on either 
a product or country basis if considered inappropria te taking into account the country's income level, 
volume of imports, and international competitiven ess of the product and country concerned. 
44. Korea's reciprocal concessions under the Ba ngkok Agreement cover 223 six-digit tariff items, 
with most concessions at either 62% or 78% of th e MFN tariff rate.  Special concessions apply to 
Bangladesh on 19 six-digit tariff items, at mainly 80%, 78% or 50% of the MFN duty, and to Lao PDR (on eight tariff items), at mainly 69% and 66% of the MFN rate.  Korea lowered its 
concessional rates in 2002 to maintain preferential marg ins in line with its reduced MFN duties.    
45. Korea's tariff preferences to date have been re latively minor, and have not greatly undermined 
the transparency of its tariff structure or the rele vance of MFN duties.  The simple average Korean 
tariff rate remains at the MFN average of 12.8% for imports from countries receiving preferences under the GSTP, TNDC, and the Bangkok Agreement;  it falls slightly to 12.5% for imports from 
LDC countries.  However, this is changing in line with Korea's move towards bilateral and regional 
free-trade agreements, concluded recently with Ch ile, and prospectively with at least Japan and 
Singapore (Chapter II).  Widespread tariff pref erences applied from 1 April 2004 under the KCFTA 
(whereby additional duty reductions are being pha sed in over 16 years) reduced Korea's average 
(unweighted) tariffs to 6.9%, well below its MFN level.  Chile therefore receives much greater 
preferential access than developing countries (incl uding LDCs).  Most tariff reductions affected 
industrial products;  the average tariff on these produ cts (WTO definition) fell from 6.7% to 0.2% in 
2004.  To the extent that such preferences mainly divert trade by enabling Chilean exports to displace 
more efficient exporters from the Korean market, Korea's national welfare and that of displaced trading partners will be reduced.  Agricultural tari ffs for Chile declined marginally, from 52.2% to 
49.8% (WTO definition).  On a tariff classificati on basis, Korea's tariffs on Chilean imports are 
highest for vegetable products (HS section 2). 
Rules of origin  
46. Korea continues to operate both preferential and non-preferential rules of origin.   
47. Preferential rules apply to imports under prefer ential trading arrangements.  For LDCs to 
receive duty-free access on eligible imports, goods must  be either "wholly produced or obtained" in 
the exporting country, or manufactured from originating materials of at least 50% of the product's 
f.o.b. price.  Vessels catching fish  must be registered in the exporting country and have at least 60% 
domestic equity.  Since imports under the Bangkok Agreement are not currently subject to common 
rules of origin (members are currently discu ssing the adoption of these based on value-added Republic of Korea WT/TPR/S/137 
 Page 51 
 
 
transformation rules), Korea applies its non-preferen tial rules of origin to determine eligibility of 
these imports to tariff preferences.17   
48. Substantial, and varied, rules of origin apply under KCFTA, based on the "goods wholly 
obtained" and the "substantial transformation" crite rion.  Substantial transformation is determined 
mainly by the tariff shift rule;  goods must be suffici ently processed in either Korea or Chile to change 
tariff classification (chapter, heading, or subheadin g) for preferential entry.  Agricultural products 
require mainly a change in tariff chapter (CC);  a change in tariff heading (CTH) is required for 
certain foodstuffs, such as cocoa paste and coco a butter.  Changes in tariff heading or tariff 
subheading (CTSH) are used for industrial products, of ten combined with a value-added rule or for 
textiles and clothing a specific process rule.  The value-added rule is also applied to selected 
agricultural and industrial products.  It usually stipulates a regional value content of not less than 45% 
using the build-down method, and of 30% under the build-up method.18  A number of clothing items 
are subject to only specific process rules. 
49. Korea continues to apply non-preferential rul es of origin equally to all other imports, 
including preferential imports under the Bangkok Agreemen t.  Origin is determined on request by the 
MOCIE.  Korea's non-preferential rules of orig in are based on the wholly obtained goods and 
substantial transformation criterion.  The tariff shift rule (change in six-digit HS classification) is 
applied, except for cameras (val ue-added rule) and textile articles (processing operation rule).  There 
have been no significant changes in non-preferential rul es of origin since the last Review of Korea.  
(iv) Tariff quotas 
(a) Agricultural tariff quotas 
50. Korea applies tariff quotas under its multilatera l agricultural market-access commitments on 
about 60 products (some 180 ta riff items) (Table AIII.5).19  The only change in coverage has been the 
replacement of the tariff quota on beef with ta riffs, currently at 40%, from 1 January 2001. 
51. In-quota tariff rates range from zero to 50% in  2004.  Above-quota rates are generally very 
high;  many are well over 100%.  Many above-quota rates are alternate duties.  Some tariff quotas 
operate, in effect, as quantitative restrictions, whereby seemingly prohibitively high out-of-quota 
tariffs prevent above quota imports.  The average fill rate of tariff quotas is around 70%.  In 2003, fill 
ratios were low for several product groupings, includi ng evaporative milk (0%), whey (15.3%), garlic 
(71.8%), red-peppers (70. 2%) and ginger (47.1%) (Table AIII. 6).  The consistently large unfilled 
share of tariff quotas on some items, even with relatively low in-quota duties, suggests that their 
administration and allocation may be restricting imports. 
                                                      
17 Members are currently discussing the percentage cr iteria to apply as common rules of origin under 
the ongoing third round of negotiations, which are expected to conclude during 2004.  The current agreement requires them to provide details of the rules they appl y, and provides for common rules to be adopted if found 
necessary  (Annex II).   
18 Several tariff items specify a higher value added of 80% using the build down method.  Under the 
build up method, regional value added is calculated as the value of originating materials used in production as a 
percentage of the imported goods' f.o.b. value (landed-duty-free value adjusted to exclude transportation, insurance and related expenses).  The build down method deducts non-originating materials used in production 
from the import's value and expresses this amount as a percentage of its value.  This method implicitly includes 
the product's non-material costs, such as labour, as originating materials.  Accumulation of originating materials 
is allowed.  De minimis provisions allow goods not undergoing a tariff shift to be considered as originating if 
non-originating materials do not exceed 8% of their f.o.b. value.  
19 Excludes 16 tariff items for rice, which, although grouped by the authorities as tariff quotas, are 
actually covered by quota.  WT/TPR/S/137 Trade Policy Review 
Page 52 
 
 
52. Tariff quotas, and the import quota on rice, are allocated or operated by designated state-
trading enterprises, such as the MAF for rice and ba rley, or various producer associations, including 
the National Agricultural Cooperatives Federation a nd the Korea Feed Ingredients Association.  
State-trading enterprises impose additional mark-ups  on top of the in-quota tariff on certain items.20  
Most state-trading enterprises are engaged directly  in marketing imports by selling through wholesale 
markets or distributing directly to final users.  State-trading enterprises and producer associations 
allocate quotas usually on a "first-come first-serve d" basis taking into account import performance, 
facilities, and capacity, or by auctioning import entitlements for certain commodities.  With the exception of the National Agricultural Cooperative Federation, the National Forestry Cooperation 
Federation, and the Jeju Citrus Growers' Agricult ural Cooperative, producers associations include 
members that process foodstuffs imported under tariff quota.
21 
53. Since its last Review, Korea has improved ta riff quota administration by adopting market-
oriented principles to raise efficiency and transpar ency, including full or partial auctioning of some 
products, such as:  ginger and sesame seed by th e Agricultural and Fishery Marketing Cooperation;  
natural honey and ginseng products by the National Agricultural Coope rative Federation;  and oranges 
and other citrus fruit by the Jeju Citrus Grow ers' Agricultural Cooperative (Table AIII.7).22  
(b) Autonomous tariff quotas 
54. Korea also grants concessional tariffs usi ng autonomous tariff quotas, mainly for raw 
materials, inputs, semi-processed goods, components, parts, and engines (Table AIII.8).  These tariff 
quotas covered approximately 100 ta riff items in 2004 (about 60 in 2000).  In-quota tariff rates ranged 
from zero to 30%.  Many items with no quota limits re main on the list;  this would facilitate the quick 
imposition of quotas, which could add to importer uncertainty.  Autonomous tariff quotas are intended 
to:  ensure the smooth supply of imports or bolster industrial competitiveness;  to stabilize prices of imports undergoing price hikes and of goods made from imported inputs;   and to narrow disparities in 
tariff rates between like products.  In practice, th ey are usually applied to basic raw materials 
imported due to insufficient domestic supply, or to st abilize rising import prices to cushion the effect 
on domestic users.  
55. Autonomous tariff quotas are revised annually, and administered by the Ministry of Finance 
and Economy (MOFE).
23  Coverage is based on government agency requests and recommendations 
from designated industry associations.  MOFE subm its proposals for review by the Customs and 
Tariff Deliberation Committee, which are consider ed by the Economic Ministers' Meeting for 
approval by the State Council.  Autonomous tariff quotas are implemented by Presidential decree, and 
are often administered through supervised industry associations.   
(v) Other levies and charges 
56. The levy on salt imports was abolished in December 2001.   Korea imposes environmental 
waste charges on imports of certain products, mate rials, and containers that contain harmful 
substances and are difficult to recycle (Act on Pr omotion of Saving and Recycling of Resources).  
                                                      
20 Recent data on mark-ups of state-trading enterprise s are not available.  Acco rding to the authorities, 
this information is being updated and will be notified to the WTO when completed, most likely around end 2004. 
21 According to the authorities, details of the management of agricultural tariff quotas by agencies other 
than state-trading enterprises are being updated and will be notified to the WTO once completed, probably 
around end 2004.    
22 APEC (2003). 
23 Annual reviews replaced biannual re views in 2001.  According to the authorities, this improved tariff 
predictability.   Republic of Korea WT/TPR/S/137 
 Page 53 
 
 
Product categories cover:  containers of insecticides  and poisonous goods;  cosmetics in glass bottles;  
anti-freeze solutions;  chewing gum;  disposable nappies;  cigarettes;  and plastic pipes, furniture, toys, lighters, and toothbrushes, as well as plastic used in packaging, construction, and assembly of 
machinery and equipment.  The waste charge is in tended to ensure that the manufacturer bears the 
cost of processing waste.  It applies equally to domestic goods.
24   
57. A surcharge is levied on petroleum imports (Pet roleum Business Act, 1977) to provide funds 
to ensure adequate supply and price stability.  Petr oleum refiners and oil impor ters pay the surcharge, 
currently set at W 14 per litre.  The Government al so promotes diversification of oil imports away 
from the Middle East towards other regions, especial ly the Americas, Africa, and Europe, including 
Russia.  Surcharges on non-Middle East oil imports are to be lowered to offset their higher transport 
costs.  Government policy is to lower Mi ddle East oil dependency from 73.5% to 70%. 
58. There are no other additional levies or surcharg es applied to imports, apart from domestic 
indirect taxes, which apply equally to domestically produced goods.     
(vi) Import licensing, quotas, and prohibitions 
(a) Licensing 
59. All commodities can be imported without a licence unless on a negative list of prohibited or 
restricted items (the Consolidated Public Noti ce on Guidelines of Exports and Imports, published 
semi-annually by MOCIE).  Import prohibitions or r estrictions are to protect public morals, human 
health, hygiene and sanitation, animal and plant lif e, environmental conservation or essential security 
interests in compliance with domestic legislation or  international commitments.  Import approval and 
authorization requirements are listed in about 50 separate laws;  items c overed can be generally 
imported subject to certification,  permission, and type approval.25  Few changes have occurred since 
the last Review of Korea.  Non-tariff measures co ver about 1,000 tariff items, including petroleum, 
LPG, agricultural fertilizers, crop seeds, animals and animal products, nuclear materials, narcotics, foods and food additives, foreign public ations, firearms and explosives.   
60. According to the authorities, Korea does not ope rate an import licensing system.  Imports are 
screened or checked in a "fair" manner by the re levant government agency or producer association 
commissioned by that agency to en sure that the product meets import requirements.  Since the agency 
responsible for checking whether a certain importe d product meets these requirements has to produce 
a confirmation paper, granting this authority to  producer associations does not, according to the 
authorities, disadvantage imports through potential c onflict of interest.  Health or safety related 
products, such as pharmaceuticals, require add itional testing or certification by designated 
organizations before clearing customs.  Imports th at do not comply with standards and/or testing 
requirements may be banned.  MOCIE also approves special items defined in its Annual Trade Plan 
(firearms, illicit drugs, and endangered species).  Kor ea belongs to the Convention on International 
Trade in Endangered Species of Wild Fauna and Flora (CITES).   
(b) Quotas 
61. Only rice is subject to import quotas.  Th ese were negotiated on rice imports under the 
Uruguay Round as part of Korea's "non-tariffication" of rice, and provided for increased "minimum 
                                                     
 
24 The same charge is levied on domestic goods and imports (e.g. on insecticides of W 7 per container 
or W 16 if it exceeds 500 ml), except for plastic goods.  It is set at either W 3.8 or W 7.6 per kg. of the plastic or 
synthetic resin used for domestic goods, and at 0.7% of the imported price for imports. 
25 WTO document G/LIC/N/3/KOR/3, 14 June 2002. WT/TPR/S/137 Trade Policy Review 
Page 54 
 
 
access commitments" of from 1% to 4% of domest ic consumption during 1995 to 2004.  Korea 
committed to increase the annual rice import quota from 51,307 tonnes (on a milled basis) in 1995 to 205,228 tonnes in 2004.  The authorities indicat e that Korea met these committed levels of rice 
imports in all years from 1995 to 2003, and will do so in 2004.
26  Since 2000, the Agricultural and 
Fishery Marketing Corporation has also been mand ated by the MAF to import rice, and currently 
accounts for about 70% of rice imports.  Imported ri ce is purchased through open bidding and on-sold 
to the MAF at import price.  It is not sold direct ly to consumers but is used for food processing.    
(c) Prohibitions 
62. Korea prohibits a few imports, mainly to protect health, safety, security, public morality, the 
environment, and natural resources, and to prevent deceptive practices, in accordance with 
multilateral trade and other agreements, according to the authorities.  Prohib ited products include:  
certain pornographic and other unacceptable materi al;  goods that reveal confidential government 
information or intelligence activities;  and counterfe it currency or financial instruments.  Korea does 
not maintain any trade embargoes with other countries.  
(vii) State trading 
63. Korea has not updated its WTO notification on stat e trading since its last Review.  It has 
several designated import agencies to allocate or operate agricultural tariff quotas, such as MAF and 
the Agricultural and Fishery Marketing Corporation for certain vegetables (Table III.2)   A number of 
products are no longer imported exclusively by the designated agency, but instead are imported by 
private importers buying quota at agency auctions .  The Livestock Products Marketing Organization 
(LMPO) administered beef quotas until their removal in January 2001.  
Table III.2 
State trading entities and products 
State trading entity  Products 
Ministry of Agriculture and Forestry  Rice, rice flour, rice food preparations and barley 
Agricultural and Fishery Marketing Corporation  Capsicum, ga rlic, onions, sesame seeds, groundnuts, soya beans, small 
green/red beans, buckwheat, ginger, and potatoes 
National Livestock Coopera tives Federation  Honey 
Jeju Citrus Grower's Agricultural Coopera tive  Oranges, mandarins and tangerines 
Korea Ginseng Cooperative Federation  All ginseng products 
National Forestry Cooperatives Federati on  Pine nuts (shelled and unshelled) 
Source:  WTO document G/STR/N/4/KOR, 10 December 1998;  and the Korean authorities. 
(viii) Contingency measures 
64. The Customs Act and the Act on the Investigati on of Unfair International Trade Practices and 
Remedy Against Injury to Industry (2001) author ize contingency (trade remedy) measures.  The 
independent Korean Trade Commission (within MO CIE) administers these measures in accordance 
with WTO obligations.  In anti-dumping and countervailing cases, the KTC investigates and 
determines if imports are dumped or  subsidized and whether they cause or threaten to cause injury to 
the domestic industry.  KTC investigations under emergency safeguard provisions determine whether 
imports have caused or threatened to cause " serious" injury to domestic industry.    
                                                      
26 Korea's minimum market access commitments are ba sed on fiscal year while imports are based on 
crop year (1 November to 30 October of the following year). Republic of Korea WT/TPR/S/137 
 Page 55 
 
 
65. Korean legislation on contingent protec tion and KTC's operations  have not changed 
substantially during the period under review. 
(a) Anti-dumping and countervailing measures 66. Korea has used anti-dumping provisions to protect certain industries against competitive 
imports.  At end 2003, Korea had final measures (definitive duties and/or price undertakings) on 
imports from eight countries (Table III.3).
27  It has initiated a substantial number of anti-dumping 
investigations since 2000 (Table AIII.9).  Final me asures were adopted in most cases, with sizeable 
dumping margins (of up to 86%) found in some.  No dumping or injury was found in only a few cases.  In the main, anti-dumping action has affected  a relatively small number of products from a few 
countries, especially China, Indonesia, Japan, and a few EU countries.  Korea has taken no 
countervailing measures since its last Review.   
Table III.3 
Outstanding anti-dumping measures, 2003 
Country Product Date of definitive measure 
Definitive duties in force 
China Disposable lighters 23 May 2000 
 Alkali Manganese batteriesa 3 December 2003 
 Ferro-silico manganesea 3 December 2003 
 Uncoated woodfree paper 7 November 2003 
Japan Pre-sensitized printing plate 14 march 2002 
 Polyvinyl alcohol 3 December 2003 
 Alkali manganese batteriesa 3 December 2003 
 Aluminium hydroxidea 18 July 2003 
Germany Carbonless self copy papera 21 August 2001 
Indonesia Disposable lighters 9 September 2003 
 Uncoated woodfree paper 7 November 2003 
Russian Federation H-beam 3 July 2002 
Chinese Taipei CD_R (compact disc recordable) 21 May 2002 
Price undertakings in force 
China Ferro-silicon manganeseb 3 December 2003 
 Alkali manganese batteriesb 3 December 2003 
Germany Carbonless self copy paperb 21 August 2001 
Japan Compound sizing agent 18 January 2000 
 Aluminium hydroxideb 18 July 2003 
Netherlands Pre-sensitized printing plate 18 January 2000 
Singapore Alkali manganese batteriesb 3 December 2003 
Chinese Taipei Ethylene-vinyl acetate 15 January 2003 
a Price undertakings also apply. 
b Anti-dumping measures also apply. 
Source:  WTO notifications (document G/ ADP/N/112/KOR, 24 February 2004). 
67. KTC independently decides whether to initiate  an anti-dumping investigation following an 
application from the affected domestic industry or  a request from the minist ry responsible for the 
                                                      
27 Includes final anti-dumping measures (mainly definitive duties) levied on a few products imported 
from China, Indonesia, and Japan in 2003, mainly as a result of investigations as part of a review of existing anti-dumping measures or following allegations of breached undertakings.   WT/TPR/S/137 Trade Policy Review 
Page 56 
 
 
affected industry, including MOCIE.  KTC presents to MOFE the results of the preliminary and main 
investigations and recommendations on whether to impose anti-dumping, including provisional, 
measures.  MOFE alone makes this decision.  It is legally required  to take into account the 
competitiveness of the relevant industry, price stab ility, and the promotion of trade cooperation with 
trading partners when considering a KTC recommenda tion.  This is seemingly a type of "public 
interest" test to assess whether the recommended measures may have negative effects, such as weakening competition, creating a monopoly or raising prices.  Public interest considerations may 
result in less severe measures being applie d than those recommended by the KTC. 
68. An interested party (domestic producer, importe r, consumer or forei gn exporter) may appeal 
dumping decisions (dumping margins, anti-dumping pr ocedures, injury determination, and imposition 
of duties) using the administrative procedures of th e Customs Act (Article 119).  Appeals can be made 
to the National Tax Tribunal, which has independent status, and to the judicial system.
28 
(b) Safeguards  
General 
69. Safeguard measures include tariff adjustments, import quotas or other measures to remedy 
injury to a domestic industry or to facilitate struct ural adjustment.  Financial assistance, such as 
relocation and re-training assistance for workers an d technological support, may be provided.  While 
Korea's legislation contains a specific provision allowing safeguard measures on services where 
foreign suppliers have caused or threatened to  cause serious injury to the domestic industry 
(Article 22, The Act on the Investigation of Unfair  International Trade Practices and Remedy Against 
Injury to Industry), it is inoperative and cannot be used, pending the outcome of the WTO 
negotiations on extending safeguard  measures to services under GATS.   The legislation  was revised in 
January 2004 to separate into different provisions the mid-term review of the application of such 
measures and the need for another investigation to extend them beyond the four-year “sunset” 
provisions, in accordance with WTO requirements.29   
70. Korea has used emergency safeguards sparingly to protect domestic industries.  They have 
been applied to only one product, garlic, since 2000, in the form of additional alternate tariffs for 
three years from 1 June 2000.30  The KTC investigation found that increased garlic imports, especially 
of frozen and prepared or preserved by vinegar or  acetic acid, had caused serious injury to the 
domestic industry.31  The mid-term review of the measu res, initiated on 10 February 2001, 
recommended that safeguard duties re main so that the Korean indus try could compete with imports 
from China, which had a comparative advantag e in supply capacity and price competitiveness.32  It 
also urged the acceleration of the Comprehensive Pl an for Restructuring the Domestic Garlic Industry 
to improve Korea's productivity and to reduce production and distribution costs.    
                                                      
28 In a case currently before the Seoul Administrativ e Court on appeal from the National Tax Tribunal, 
an Indonesian exporter is attempting to overturn a decision to impose anti-dumping duties on uncoated wood-
free paper. 
29 Other changes relate to the creation of special sa feguard measures against Ch ina, as negotiated under 
its WTO accession, and investigation pro cedures for safeguard measures unde r free-trade agreements with other 
countries.  
30 Three years and 45 days from application of the provisional measures on 18 November 1999.  A 
bilateral safeguard measure on garlic imports from Ch ina that was applied before China's WTO accession was 
eliminated at end 2002.  
31 WTO document G/SG/N/8/KOR/3, 21 February 2000. 
32 It found in 2000, after safeguards were implemented that market share of imports had fallen to 5.9% 
(72% drop in imports), production had declined by 1.9%, farmgate prices had declined by 26%, and the number of garlic farm households had continued to fall by 8% (6% in 1999).  Republic of Korea WT/TPR/S/137 
 Page 57 
 
 
71. Substantial MFN tariff protection for domestic garlic producers was increased temporarily 
through the importation of high additional tariffs  as safeguard measures.  Safeguard measures on 
garlic imports were terminated from 2003. 
72. The KTC makes recommendations on safeguard  measures to various ministries depending 
upon the type of remedy proposed.  Additional im port tariffs are recommended to MOFE, and import 
quotas to MOCIE.  Other restructuring matters are referred to the ministry responsible for the 
industry, such as MOCIE.  
Sector-specific 
73. Korean legislation permits two sector-specific safeguard mechanisms in accordance with 
WTO Agreements.  These are on textiles and cl othing, and agricultural commodities.   
74. The KTC conducts safeguard investigations on textiles and clothing to determine whether 
imports have caused or threatened to cause serious injury to the domestic industry, in line with the 
WTO transitional safeguard mechanism as part of the phase-out of the Multi-Fibre Agreement by 
2005.  These investigations follow standard safe guard procedures.  KTC makes recommendations on 
the imposition of import quotas to MOCIE, which ma kes a decision after examining how this would 
affect the national economy.  Korea has not im posed such safeguard measures to date.   
75. Korea frequently uses the special safeguard provisions (SSG) of the WTO Agreement on 
Agriculture.  Additional duties (of up to one third of  the "ordinary applied tariff") can be levied on 
agricultural imports if their prices (or quantities) fa ll below (rise above) specified trigger levels.  The 
decision to implement such measures is made annua lly by MOFE through a ministerial ordinance, at 
the request of the MAF. 
76. While Korea reserved the right to apply SSG pr ovisions to 121 agricultural ten-digit tariff 
items, they are in practice applied to a small sub-set of items.  Nevertheless, the number of tariff lines subject to special safeguards increased substantially from 6 to 17 in 2000, according to Korea's latest 
WTO notification.
33  Several products (especially beans, buckwheat, sweet potato starch, and ground 
nuts) have been covered continuall y;  additional products in 2000 included cereal meal, wheat starch, 
soybeans, and certain ginseng products.  Volu me-based or price-based action exclusively was 
implemented on nine and four tariff lines, respectiv ely in 2000;  both measures were taken on four 
items (two types of beans, buckwheat and wheat st arch).  The authorities indicate that price-based 
measures operated in 2003 on beans (including sma ll red beans), buckwheat, flour starch, sweet 
potato starch, peanuts and soybeans, and on a quantity basis for ginseng, peanuts, small green and red 
beans, bone and meat mill. 
(ix) Standards and other technical requirements 
(a) Standards, testing, and certification 
77. The Korean Agency for Technology and Standards (KATS) is the nation’s standardization 
agency.  It sets, administers, and disseminates vol untary Korean Industrial Standards (KS) based on 
the National Standardization Act of 1999 and the Indus trial Standardization Act.  KATS is affiliated 
with MOCIE, which applies the Industrial Standard ization Act and sets policies on standards.  KATS 
represents Korea at international bodies, such as th e International Electrotechnical Commission (IEC) 
and the International Organization for Standardizati on (ISO), in which Korea participates.  It is the 
official enquiry point on industrial products under the WTO Agreement on Technical Barriers to 
                                                      
33 WTO document G/AG/N/KOR/35, 5 June 2002. WT/TPR/S/137 Trade Policy Review 
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Trade, and has accepted the Code of Good Practice fo r the Preparation, Adop tion and Application of 
Standards (Annex 3, WTO Agreement).  Several priv ate bodies perform standardization-related tasks.  
Other bodies designated by KATS to perform sta ndards-related work incl ude the private Korea 
Research Institute of Standards and Science (responsible for metrol ogy standards and measurement). 
78. MOCIE's five-year National Standards Plan (2000-04) requires KATS, as a key policy goal, 
to revise and harmonize national industrial standards with intern ational norms, especially ISO/IEC 
standards.  Regulatory authorities are to adopt, wh ere possible, international standards when setting 
up or modifying technical or voluntary standards.   The National Standards Council (chaired by the 
Prime Minister) reviews all standards and coordi nates domestic and intern ational standards.   
79. The Korean standardization system has a dual st ructure, consisting of technical regulations 
(mandatory standards) developed by ministries an d government agencies, and voluntary standards 
(KS) set by KATS.  The number of Korean sta ndards (KS) increased from 10,845 in 2000 to 18,014 
in late 2003.  As of December 2002, KATS had harmonized 7,318 of 7, 804 Korean standards that had 
corresponding ISO/IEC standards.  Non-harmonized standards are either those that are unique to Korea, with no corresponding international norm,  such as for kimchi, or cannot be harmonized 
because of their link to other domestic regulations .  Another 3,500 Korean standards are to be 
harmonized in 2003-04. 
80. All Korean standards are voluntary unless cite d in technical regulations.  According to 
authorities, mandatory technical regulations are us ed only to meet legitimate objectives, such as 
national security requirements, preventing deceptiv e practices, protecting human, animal, and plant 
health and safety, and preserving the environment, unde r relevant domestic laws.  A total of 1,813 KS 
are used as mandatory technical regulations by various ministries under 42 regulations.  Mandatory 
KS apply to 231 electrical goods, for example, a nd to 15 manufactured products, for human safety.
34  
Mandatory certification affecting industrial products, including electrical appliances, gas appliances, 
motor vehicles, and telecommunications equipment is contained in many acts.35  Ministries operate 
KS as mandatory technical regulations under their own specific regulations.  For example, 
responsibility for establishing standards and technical  regulations for telecommunications rests with 
the Ministry of Information and Communication.     
81. Priority areas for standards harmonization are electrical and electronic appliances, food 
labelling, machinery, and rubber products.  Korea' s six standards on machinery were harmonized by 
end 2002.  Electrical and electronic machinery standards were to be harmonized by end 2003 
(requiring harmonization of five out  of 20 standards);  693 safety criteria for electrical equipment 
were aligned with international (mainly IEC) standards during 1999-03.  KATS reviews standards 
every five years, or earlier if required.  New or revised standards are published in the Official Gazette .  
Additional priorities for standards harmonization are new technology products, including IT, and 
services. 
82. Reforms have addressed criticisms from trading partners that Korea's standardization and 
conformity testing procedures impede trade.  Lack  of transparency and insufficient coordination had 
generated a rather complex standardization and certification system, whereby competencies of some ministries or agencies often overlapped for some  products.  Korea is promoting uniform standards 
among ministries to overcome inconsistencies and to improve efficiency, and is currently trying to 
remove differences on 1,813 products. 
                                                     
 
34 The authorities indicate that all the standards on electrical goods and 50% on manufactured products 
were harmonized with international norms. 
35 OECD (2000), p. 23.  Republic of Korea WT/TPR/S/137 
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Food and other non-industrial products 
83. Legislative responsibility for regulating food saf ety and quality is dive rsified and overlaps 
with several ministries, which often perform simi lar activities.  Responsibility for food safety, 
pharmaceuticals and cosmetics rests with the Ministry  of Health and Welfare (MHW) and its agency, 
the Korean Food and Drug Administration (KFDA).36  KFDA ensures that domestic and imported 
food products (except meat, dairy and egg products , which are handled by the MAF) are sanitarily 
safe and correctly labelled.  The Ministry of Mar itime Affairs and Fisheries (MMAF) is responsible 
for fish products, and its National Fisheries and Produc ts Inspection System insp ects fish imports (and 
exports).  MOCIE regulates domestic and imported sa lts, except for table salt, which is inspected by 
KFDA.  It also inspects imported alcoholic beve rages.  The Ministry of the Environment is 
responsible for the safety of bottled water.  The MHW is the enquiry point under the WTO TBT 
Agreement for pharmaceuticals, medical devices, cosmetics, and processed foods.  Other enquiry 
points are the MAF on agricultural products, and the MMAF on fish products. 
84. The main laws affecting food standards are the Food Sanitation Act of 1986, the Food Code 
and the Food Additive Code.  KFDA is committed to aligning Korean food standards to international 
norms, especially CODEX.  To facilitate harmoniza tion, the Food Code and the Food Additives Code 
have been modified significantly, and further cha nges are expected.  All food additives require pre-
approval.  Korea's Food Code is claimed to fall short of international standards, especially relating to 
food additives.37  For example,  Korea seemingly prohibits certain ingr edients, food colours, dyes, and 
food manufacturing processes that are considered saf e by international (e.g. CODEX) standards. 
85. Environmental risk assessments on biotechnology crops, due to become mandatory when 
Korea ratifies the Cartagena Bio-safety Protocol, ar e currently enforced under temporary regulations. 
KFDA has authority to conduct mandatory safety assessments to evaluate genetically modified organisms (GMOs) in products used for human consumption. 
86. Pharmaceuticals require pre-approval from the KFDA, often involving extensive clinical 
testing and other requirements.  Manufacturers must submit detailed data on certain active 
pharmaceutical ingredients under the KFDA's Drug M aster File, implemented in June 2002.  A KFDA 
task force examined claims by foreign manufactur ers that these requirements were excessive and 
delayed market access.
38  KFDA may require foreign drug companies to duplicate overseas clinical 
tests in Korea to obtain local test data.  Specifi c concerns have also been raised over KFDA's 
Pharmaceutical Equivalence Testing (PET) requirements.39  In addition, KFDA's requirements for a 
Bridging Study to register a new product are also claimed to be inconsiste nt with international 
practices.40 
87. According to Korean authorities, KFDA has im proved its regulations on clinical tests and 
their harmonization with internati onal (ICH) standards.  In Dece mber 2002, KFDA adopted the "IND" 
system to facilitate multinational clinical trials , and has substantially reduced its documentary 
requirements and review time to 30 days.  Pharmaceuticals imports must be inspected by the Research 
                                                      
36 The Food Safety Bureau develops general policies on food safety management and provides 
guidance to food-related businesses.  It supervises the overall food hygiene according to CODEX provisions, and manages import and export insp ection and certification systems.  
37 USTR (2003), p. 243-245. 
38 The Task Force was dissolved in July 2003, but revised guidelines have not yet been announced.  
KDFA was supposed to extend the Drug Master File to  99 active pharmaceutical in gredients by mid-2004, but 
this is currently unclear (EU Chamber of Commerce in Korea, 2004, p. 200). 
39 EU Chamber of Commerce in  Korea (2004), p. 202. 
40 EU Chamber of Commerce in Korea (2004), p. 197-98. WT/TPR/S/137 Trade Policy Review 
Page 60 
 
 
Institute of Public Health.  Subsequent imports of  the same product from the same manufacturer, or of 
different products where KDFA recognizes the manuf acturers' certified quality certificate, do not 
require inspection. 
88. KFDA administers pre-approval testing and registration requirements on imported and 
domestically produced "functional" cosmetics.  All cosmetics sold in Korea, including imports, must 
pass quality tests set for each product type by KFDA.   New regulations were introduced on so-called 
"cosmeceuticals" (e.g. sunscreen lotion) in 2000 (Korean Cosmetic Products Act).  Documentary 
requirements and procedures were substantially simplified in January 2003 (revisions to the 
Regulation on Screening of Functional Cosmetics).  Korea is moving to a system of self-regulation.  
Quality testing results submitted by overseas ma nufacturers with internationally accepted quality 
standards are accepted without any need for additio nal quality testing in Korea.  Moreover, Korea no 
longer requires foreign cosmetics when first imported to undergo government testing, such as by the Regional Research Institute.  Instead, quality inspec tion by the importer according to batch numbers is 
required. 
Conformity assessment 
89. KATS is responsible for conformity assessment , certification, registration or testing of 
industrial products for voluntary (KS) standards.  It runs the Korea Accreditation System (KAS) to 
provide independent accreditation of product certif ication inspection bodies and laboratories (the 
Korea Laboratory Accreditation Scheme or KOLAS).   Accreditation accords with internationally 
recognized standards.  There are currently 1 82 accredited testing laboratories, 164 calibration 
laboratories and 22 inspection bodies.  KOLAS w as recognized by the International Laboratory 
Accreditation Cooperation (ILAC) in March 2002.  MOCI E also runs a number of official testing 
institutions, such as the Korea Chemical Industry Testing and Research Institute.  The relevant 
regulatory authority processes certification for t echnical regulations using test reports from 
government-designated laboratories.
41  The Korean Accreditation Board (KAB), a non-profit private 
organization, is the national accreditation body fo r programmes and certification of quality (ISO 
9000) and environmental management systems (ISO 14000).  It has accredited 34 certification bodies 
for Quality Management Systems (QMS) and 25 fo r Environmental Management Systems (EMS). 
90. KATS operates a comprehensive system of marks based on detailed testing by appointed 
"reliability assessment centres", or specialist research  institutes.  Marks include the new technology 
certification (NT mark) and the quality certification for excellent machine, mechanism and materials 
(EM mark).  Mark holders receive various government privileges, such as:  priority in procurement by 
government and public organizations; technolog ical support from the Korea Technology Credit 
Guarantee Fund; and access to governmental loans.  Only domestically owned companies are eligible 
for such marks.  Most are given to SMEs.  
91. Certification authorities are encouraged to  negotiate mutual recognition arrangements 
(MRAs) with foreign counterparts.  KATS has MR As with 44 accreditation bodies from 35 countries.  
KAB signed a Memorandum of Understanding with  Japan and China on uniform application 
requirements for various certification and registration systems in April 2002.  Korea also has an 
extensive network of MRAs, especially with APEC economies.  KAS joined the Pacific Accreditation 
System (PAC) in 2001.  KAB signed the Inte rnational Accreditation Forum (IAF) Multilateral 
Recognition Arrangement (MLA) for Quality Manageme nt Systems in 1999, and is expected to join 
the IAF MLA for Environmental Management Systems (EMS) in 2004.  Korea is also a member of 
                                                      
41 11 ministries run government-designated testing laboratories under 40 regulations.  Republic of Korea WT/TPR/S/137 
 Page 61 
 
 
the APEC MRA on Conformity Assessment of Telecommunications Equipment (Phase I) and of Part 
I of the APEC Electrical MRA.  It is consider ing whether to participate in Parts II and III. 
92. Korea has a bilateral MRA with Canada on test  results for telecommunications equipment and 
electromagnetic compatibility.  It is negotiating MRAs in the proposed FTAs with Singapore and 
Japan.  KATS promotes the acceptance of test data from accredited, including overseas, laboratories.  
It is actively encouraging ministries to accept the KOLAS recognition system when designating 
testing laboratories, and the acceptance of test results pursuant to the ILAC MRA.    
93. A self-certification scheme on motor vehicles replaced type approval from 1 January 2003.   
Korea joined the Global Agreement, in Octobe r 2000, aimed at encouraging the international 
harmonization of motor vehicle standards.    
94. KFDA has facilitated food imports through two systems:  "authorized overseas inspection 
agencies", introduced in 1996, has been extended to include 45 agencies in eight countries.  Certified 
imports from these agencies are not inspected in Ko rea.  The "pre-confirmation-based registration 
system of imported foods" was introduced in August 2002.  Foodstuffs pre-approved and registered 
based on advanced test certification and pre-insp ection at the exporter's premises are exempt from 
import inspections.  Such approval is provided on a product-by-product basis;  non-processed 
products are excluded.  According to the author ities, overseas test results submitted by foreign 
inspection agencies are accepted by KFDA for impor ted food, which is therefore exempt from KFDA 
testing.  Korea has not joined the APEC MR A on Conformity Assessment of Foods and Food 
Products. 
95. The Pharmaceutical Affairs Act regulates anim al medicaments, such as antibiotics and 
vaccines.  Korea permits animal drugs to be impor ted if production is certified to be in accordance 
with the exporting country's Good Manufacturing Pr actice (GMP) or international standards (e.g. 
WHO recommendations).  "Biological animal dr ugs", such as preventive drugs, must also be 
examined prior to sale, whether imported or pr oduced domestically.  The National Veterinary 
Research and Quarantine Service conducts these ex aminations based on the manufacturers' test 
results. 
96. KFDA plans to reform the inspection system for food imports by reducing inspections.  The 
quantity of imports inspected is to be eventu ally reduced by applying sophisticated selective 
inspections.42  Imports are to be categorized to simplify inspections.  Imports with no past record of 
inspection violations, such as liquors and coffee b eans, will only require notification, while other 
items will be subject to only simplified "sensor" inspections, mainly to determine freshness.  A 
random monitoring inspection process is also to be applied to agricultural chemicals, and an 
"Information Strategy Plan" to modernize impor t inspection is being implemented from 2004-06.  
(b) Quarantine regulations 
97. Korea is a member of the FAO/WHO Codex Alimentarius Commission (CODEX), the Office 
International des Epizooties (OIE), and the FAO In ternational Plant Convention (IPPC);  it applies 
animal and plant quarantine requirements based on th ese international standards.  Its main laws on 
quarantine requirements for imports (and exports) are the Plant Protection Act and the Act for 
Prevention of Livestock Epidemics.  Plant quarantin e and phytosanitary controls are handled by the 
National Plant Quarantine Service (NPQS);  the Na tional Veterinary Research and Quarantine Service 
(NVRQS) conducts animal quarantine and sanitary  regulations.  Both agencies are under MAF. 
                                                      
42 KOIS, 14 January 2004. WT/TPR/S/137 Trade Policy Review 
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98. NPQS inspects imported plants or plant pr oducts.  Imports must have a phytosanitary 
certificate issued by the competent authority in the exporting country.  Imports of soil, plants with 
soil, and plants with quarantine-controlled pests are prohibited.  Certain other plant imports are either 
prohibited or "restricted".  Imports of rice in th e husk, chaff, rice straw and their processed products 
(except for unhulled rice) are prohibited from all count ries, except Japan and Chinese Taipei, for pest 
reasons.  Plants for planting are also prohibited or  restricted from most countries, except Japan and 
Chinese Taipei.  NPQS also conducts post-entry qu arantine inspection for imported seedlings of fruit 
trees, seed and sweet potatoes and flower bulbs by growing them under strict supervision in isolated 
areas. 
99. Imports of fresh fruit (excluding coconut palm, pineapple and immature banana) are generally 
prohibited or restricted to certain countries, for disea se or pest reasons (Table AIII.10).  For example, 
imports of persimmons, oranges and lemons are prohibited unless from the United States (except from Hawaii, Texas, and Florida), Japan (except ora nges and lemons from Kyus hu Island and southwards) 
and New Zealand;  durian unless from Thailand;  strawberries unless from Japan;  and limes unless from the United States (except Hawaii, Texas, an d Florida).  Some prohibited fruit imports are 
allowed subject to specific conditions, for exampl e, mangoes from Chinese Taipei and the Philippines 
that undergo vapour heat treatment and pass pr e-clearance inspection before being exported.
43 
100. Korea has guidelines on the marketing of ge netically modified agricultural products 
(GMAPs), such as seeds and grains (Guidelines for Environmental Risk Assessment of Genetically Modified Agricultural Products, 2002).   They apply equally to domestic and imported GMAPs.   The 
Administrator of Rural Development Administra tion must approve importation/production based on 
the applicant’s environment risk assessment, wh ich must provide supporting scientific and risk 
assessment data.  The Government will also c onduct its own environmen t risk assessment, and 
confined field trials in Korea may be also requi red.  To date, Korea has not allowed any GMAP 
production or imports.  Quarantine funding has been increased substantially to detect GMAPs.   
101. NVRQS is responsible for preventing animal di seases and ensuring safety of food of animal 
origin.  Live animals are subject to mandatory qua rantine arrangements, and an animal import plan 
must be submitted prior to importation.  Health and vaccination certificates issued by the competent 
authority in the exporting country are also require d.  On-board inspections are conducted prior to 
unloading.  Animal and animal products are subjec t to laboratory (microbiological, seriological and 
pathological) testing and epidemiological investigati ons to verify they are not from disease infected 
import-prohibited regions.  Korea bans imports, fo r example, of live cattle, sheep and goats, and 
certain products from countries where BSE and foot and mouth diseases are known to occur.  It also extended bans on imports of poultry and relate d products to China and Thailand following the 
outbreak of bird flu in January 2004.  According to authorities, Korea applies the same quarantine 
measures to domestic and imported products.  For example, while Korea's SPS measures on BSE are 
more stringent than international requirements, the measures are applied equally to domestic and 
imported beef.  
(c) Marking and labelling 
102. KFDA is responsible for food labelling and asso ciated packaging standards (Food Sanitation 
Act).  The National Agricultural Products Quality Management Service is responsible for origin 
labelling (Agricultural Products Qua lity Control Act).  False or misl eading labelling is prohibited.  
Origin labelling requirements are applied equall y to imported and domestic goods.  Korea changed 
certain food labelling standards to better conform with international standards and to improve 
                                                     
 
43 NPQS, List of import-prohibited commodities that can be imported under specific conditions  
[Online].  Available at:  http://www.npqs,go.kr/english/import_10.html. Republic of Korea WT/TPR/S/137 
 Page 63 
 
 
transparency in July 2000 (operative January 200 2).  Minor changes were also made in 2003.44  
KDFA is further reviewing food labelling standard s to update them to bette r reflect international 
requirements.   Mandatory product type labelling in Korean  was relaxed (excep t for mainly tea, 
beverages and special nutritional food) to allow fore ign languages.  Origin labelling is mandatory for 
food and many other imports (covering 650 four-digit ta riffs). Food items must display ingredients.  
Labelling using Chinese characters or a foreign langua ge "together or written in tandem" with Korean 
is acceptable.  According to the authorities, Korea has no remaining restrictions on the use of foreign 
language labelling. 
103. Food packaging standards to reduce domestic w aste apply equally to domestic and imported 
products (Regulation on the Standards of the P ackaging Materials and Methods for Products, 1993). 
For example, empty space of packages is limited to 10 to 35% of the containe r, and the use of PVC 
packaging on certain food products prohibited.   Regulated shelf-life limits on livestock products 
(including milk) were abolished from July 2003, and are now decided by processors. 
104. Mandatory biotechnology labelling requirements for genetically modified corn and soybeans 
were introduced in March 2001.  They were exte nded to processed foods containing such products, 
including soybean sprouts, in July 2001 and to fresh potatoes in March 2002.  Requirements apply 
equally to domestic and importe d goods, according to authorities.  In September 2002, Korea began 
accepting a notarized self-declaration instead of re quiring full documentation to certify those products 
exempt from biotechnology requirements.  Importers or manufacturers must  keep records for up to 
two years to prove that unlabelled foods subject  to GMO labelling requirements are GMO free.  
(x) Government procurement 
105. Korea's government procurement market is about  12% of GDP.  Korea operates international 
tendering and other government procurement procedures in acco rdance with its multilateral 
commitments under the WTO Plurilateral Agreement on Government Procurement (GPA).  Although 
government procurement is directed at achieving "value for money", it also focuses on promoting SMEs and regional development.  Korea's in ternational tendering sy stem is based on open 
competitive tendering.  Restricted tendering is rarely used according to authorities.
45  For GPA-
covered entities, contracts subject to Korea's co mmitments represented about half of their total 
procurement in 2002.46  About 6% (by value) of these contracts were awarded using restricted 
(limited) tendering.  Procurement by GPA-covered entities represented just over half of Korea's total 
procurement (excluding defence equipment) in 2002.  
106. The main government procurement legislation (Act  on Contracts to which the State is a Party, 
1995) has not changed substantially during the review period.  It covers inte rnational and domestic 
procurement of goods and services (i ncluding construction) by prescribed government agencies.  The 
legislation specifically excludes agricultural, fish eries and livestock products (under the Food Grain 
Management Act, the Marketing and Price Stabilizati on of Agricultural and Fishery Products Act, and 
the Livestock Industry Act, respectively).  Also proc urement covered by other legislation is generally 
excluded.  Procurement of sub-central authorities an d SOEs, for example, falls mainly under the Local 
Financing Act and the Government-Enterprise A ccounting Regulations; some SOEs are, however, 
covered because they ar e "prescribed agencies".    
                                                      
44 WTO document G/TBT/N/KOR/48, 20  March 2003.  
45 This consists of limited (by invitation) or nominated (by nomination) competitive bidding and private 
contracts where a specific supplier is used. 
46 WTO document GPA/76/Add.1, 7 January 2004. WT/TPR/S/137 Trade Policy Review 
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107. Government procurement, administered by the Public Procurement Service (PPS), has 
become more decentralized.47  Central-government agencies a nd local governments must use the PPS 
to procure goods and services above W 70 m illion (foreign goods and services US$100,000).  
Thresholds were raised to these levels from W 50 million and US$50,000 in April 2004.  All other 
public institutions, including SOEs, can procure goods and services directly, but may choose to use 
the PPS.  It's five main functions are to:  supply goods and services for government use;  contract and 
manage public works;  stockpile 22 items of raw ma terials, such as aluminium, salt and construction 
materials, to  secure price stability48;  coordinate and audit governme nt property management;  and 
manage and operate the Government 's e-procurement system (GePS) , launched in September 2002 as 
part of the e-Government plan (G2B).  This system has digitalized the entire purchasing process, 
including registration, public notice, bidding, cont racts and payment.  PPS's total annual procurement 
averages some W 20 trillion (US$16.6 billion), of wh ich W 12 million (US$10 billion) is on public 
works construction.  This is about one third of the total procurement market (excluding defence 
equipment), estimated at W 67 trillion in 2003.  Some two thirds of Korea's procurement market 
therefore involves procurement directly by public institutions.  Foreign supplies accounted for about 
3% of PPS's total business receipts in 2002.49  
108. The GePS system has enhanced procurement transparency, effici ency and accessibility, 
including by foreign suppliers.  The Procur ement Administration Reform Committee oversees 
reforms, including strengthening of control functions .  PPS uses a "multiple basic price system" for 
competitive bidding on the Internet that discloses basic prices.50  The evaluation of restricted contracts 
has been tightened and their use reduced  in favour of open competitive tenders.   An integrity pact 
system dissuades companies and officials from bribery, and a Clean Procurement Committee (comprising members from non-government organizati ons, academics, and public organizations) has 
curbed corruption.  Korea's public procurement system was found consistent with APEC's Non-
Binding Principles in 2002.
51 
109. All bidders must register with PPS to submit bids .  It evaluates bids of less than W 50 billion 
(reduced from W 100 billion in December 2003) using an "eligible screening system" to score bids 
based on factors such as past performance, including record in meeting previous contracts, technical 
capability, financial status, adequacy of management plans, and price.  "Abnormally low" tenders are 
rejected.52  For contracts exceeding W 50 billion, PPS uses the lowest bid award system after 
conducting a pre-qualification evaluation.53  A pre-qualification system is also used to determine 
eligible bidders for large-scale and complex c onstruction projects (exc eeding W 10 billion or 
involving over 22 trades, e.g. bridges, tunnels, an d subways).  Separate pr e-qualification lists are 
                                                      
47 PPS was called the Supply Administration of the Republic of Korea (SAROK) until 2000. 
48 The Minister of Finance and Economy specifies  annually essential materials that are highly 
dependent on imports.  In 2004, 16 materials are bein g stockpiled.  They are purchased by the PPS using 
international competitive tenders funded by its Revolving Fund, and sold to private end-users.   
49 PPS (2002), p. 81. 
50 Based on announced basic prices, PPS prepares 15 preliminary prices, which are disclosed on 
bidding according to set criteria.  Bidde rs must select two of these 15 pri ces.  PPS then calculates an estimated 
price based on the average of the four most common prices selected by bidders.   
51 APEC (2002). 
52 Bids are evaluated based on estimated prices prep ared by the ordering office.  Those that exceed 
these estimates are precluded, as are bids that fall below a certain level, such as less than a certain percentage of 
the estimated price.  
53 To exclude low tenders, PPS divides each project into about 30 work categ ories and calculates for 
each an average bid price.  Low bids are considered to be less than 80% of each categ ory's average bid price.  
Any bidder that has low bids for more than one-tenth of the work categories is excluded from the tender.   Republic of Korea WT/TPR/S/137 
 Page 65 
 
 
maintained for each construction project, based on objective criteria.54  Bid results, including scoring 
criteria, tenders, pre-qualification evaluation, and contract awards are released on the Internet.55  To 
facilitate "value for money" tendering, accounting po licies were revised to strengthen evaluation in 
July 2003.  Entities procuring directly also condu ct pre-qualification reviews to determine tender 
eligibility based on similar criteria used by PPS.56  According to the authorities, there are no special 
pre-qualification requirements or restri ctions imposed on foreign suppliers.    
110. Contracts are awarded through open competitive tender, unless there are reasons of "purpose, 
nature, size, etc. of a contract" for awarding by rest ricted tender.  Negotiated contract (restricted or 
private) is allowed in some, according to authoriti es, rare cases.  Although defence procurement is 
covered by the procurement legisl ation (but not by Korea's WTO procurement obligations) and in 
principle conducted by open competition, procur ement procedures tend to follow defence acquisition 
management practices, whereby restricted  and private tendering is often used.    Similarly, while 
procurement from SMEs in accordance with the operations of the Small and Medium Business 
Administration (the Facilitation of Purchase of Small and Medium Enterprise Manufactured Products Act) is covered by the procurement legislation (but not by Korea's WTO obligations), private 
contracts are mainly used to purchase products of  up to W 30 million (W 100 million for construction 
work).
57  The PPS handles most procurement from SMEs and other socially weak sectors, such as 
regional companies and female-owned businesses.58  Procurement of goods manufactured by SMEs 
account for about two thirds of PPS's total proc urement of supplies (e xcluding construction).59  The 
Small and Medium Business Administration publishes an  annual list of products to be procured from 
SMEs.60  PPS's "competitive bidding system restricted by region" and "compulsory joint sub-
contracting and single source contracting system" has expanded regional opportunities.61  
111. The International Contract Dispute Me diation Committee (ICDMC), established under 
MOFE, handles disputes on Korea's international tendering procedures and other GPA commitments.  
The Ministry of Construction and Transportati on operates the Construction Dispute Mediation 
Committee for contractual disputes.  The Electr onic Commerce Disputes Advisory Committee at the 
Korean Institute for Electronic Commerce under the MOCIE also assists in resolving disagreements 
among parties.  The Government Procurement Di spute Advisory Committee, formed to handle 
government procurement disputes, including under GePS,  was terminated at end 2003 due to lack of 
effectiveness.  The Government plans to deve lop a National Contract Disputes Decision Committee.62  
                                                      
54 Bidding is only open to suppliers that receive a certain pass score in a comprehensive evaluation 
based on experience, technical capac ity, financial status, and credibility. 
55 Korean e-Procurement System G2B at:  http://www.g2b.go.kr. 
56 Both PPS and agencies procuring directly use pr e-qualification criteria based on MOFE criteria.  
57 W 70 million for specialized constructions under  the Framework Act on the Construction Industry, 
W 50 million or less for electrical construction under the Electrical Construction Business Act and for 
information and communication work under the Information and Communications Work Business Act or fire-
fighting works under the Fire Services Act.   
58 SMEs employ less than 300 persons and have assets under W 80 billion. 
59 PPS (2004). 
60 The Government reduced the number of items c overed by small business “cartels” in government 
procurement to 154 in 2000, but plans to lower this to 103 were rejected by the National Assembly (OECD, 
2004a, p. 118).  
61 The competitive bidding system applies to projects valued up to W 5 billion, and allows companies 
located in the construction region to participate in the open competitive tender.  The compulsory joint venture 
system requires a bidder to form a joint venture w ith a company located in the construction region. 
62 PPS (2002 ), p. 51. WT/TPR/S/137 Trade Policy Review 
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(3) MEASURES DIRECTLY AFFECTING EXPORTS  
(i) Registration, documentation, and clearance 
112. An exporter or agent must submit an export declaration, and supporting documents where 
designated (5% of cases).  These are generally acce pted automatically without examination (unless 
requiring supporting documents).  Goods must be expor ted within 30 days of lodging the declaration.  
Electronic applications have expanded and paperless export cl earances cover 95% of export 
shipments:  clearance time is under two minutes on average. 
(ii) Export prohibitions, restrictions, and licensing 
113. All commodities may be exported from Korea unless included on the negative list.  Export 
prohibitions or restrictions are imposed to ensure enforcement of quality and sanitary controls or to 
meet international commitments with respect to sec urity, e.g. on nuclear products, arms, missile 
technology (Wassenaar Arrangement), chemical  weapons (Chemical Weapons Convention), 
conservation of wildlife (CITES), and environmental protection. 
(a) Export prohibitions 
114. The negative list of banned exports has not ch anged during the period under review.  Export 
prohibitions, affecting 13 six-digit HS items, protect  animal rights (dog furskins and their products), 
endangered species (whale meat and its products),  and preserve natural resources (uncut pieces of 
natural granite stones). 
(b) Export licensing and restrictions 
115. Most restricted items relate to Korean bilateral export quotas (mainly with the EU, Canada, 
Turkey, and the United States) on textiles and clothing under the WTO Agreement on Textiles and Clothing, and on certain passenger moto r vehicles exported to Chinese Taipei.
63  O t h e r  restricted 
items cover sand and gravel, to protect natural resources.64  Korea's export quota on silk waste to 
Japan, due to Japanese import restricti ons, is to be abolished in 2005.    
116. Korea periodically restricts exports of certain pr oducts to ensure adequate domestic supplies.  
In March 2004, MOCIE restricted exports of scrap iron and steel bars (until end-September) to help 
alleviate the domestic shortage of steel for processi ng, and to curb escalating scrap prices that were 
reducing Korean steel mill competitiveness.65  The authorities indicated, however, that its purpose was 
not to restrict but to monitor exports by collec ting data.  Certain agricultural commodities require 
export authorization e.g. MAF must approve rice and non-beer barley exports.    
(iii) Export subsidies 
117. Korea maintains export subsidies for certain  farm products.  In 2001, these totalled 
W 25.95 billion, and covered fruit (W 7.73 m illion), flowers (W 6.97 million), vegetables 
(W 8.59 million), kimchi (W 1.77 billion), ginseng (W 0.73 billion) and livestock (W 0.16 billion).  
                                                      
63 The quota is to be maintained for ten years under the terms of Chinese Taipei's WTO accession.   
64 Exports of some sand and gravel items have to be  approved by the Korean Aggregate Association.  
Export quotas for sand are allocated based on applicants ' production capacity.  Only gravel that is a by-product 
of raw ore processing is approved for export. 
65 KOIS, 3 March 2004. Republic of Korea WT/TPR/S/137 
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The subsidies were used to reduce exporters' ma rketing costs, and are exempt from WTO reduction 
commitments. 
(iv) Duty and tax concessions 
118. Imported raw materials used in exports ar e exempt from customs duties.  A customs 
drawback scheme provides refunds, including of intern al taxes (Act on Special Cases Concerning the 
Drawback of Customs Duties and Other Taxes Le vied on Raw materials for Export).  The scheme 
also covers supplies to vessels and aircraft operating internationally and to pelagic fishing vessels.  It 
was modified in 2003 to introduce a Real Time El ectronic Treasury Transfer System to allow the 
Bank of Korea to make electronic refunds to exporters.  The method used to calculate the amount of 
drawback has not changed since the last Review of Korea.  Refunds totalled US$1,827 million in 
2003, equivalent to about one quarter  of tariff revenue.  Substantial duty drawback refunds reflect the 
sizeable share (two thirds) of imports used in exports.   
(v) Export finance, guarantees, and insurance 
119. The government-owned Export-Import Bank of Korea (EXIM-Bank) provides export and 
trade finance to Korean (including foreign-owned)  firms and foreign buyers.  Guarantees are also 
provided to foreign buyers against exporters ' failure to meet contractual arrangements.66  T h e  
Government ensures its solvency by covering any ne t losses beyond reserves.  Direct loans to foreign 
buyers and export loans to Korean firms, its prim ary activities, cover mainly capital goods, such as 
industrial plant, machinery and ships.  Export loan s of up to 100% of the contract value (less any 
required cash payment) is available provided the "m inimum foreign exchange earnings ratio" is 25%.  
Export credits are subject to the minimum Commerci al Interest Reference Rate (CIRR) and other 
terms, such as maximum repayment periods, specified in the OECD Arrangement on Officially Supported Export Credits.
67  EXIM-Bank support for ship export s meets the OECD's revised "Sector 
Understanding on Export Credits for Ships".  The 8% fixed interest rate was changed to the CIRR and 
the repayment period raised from 8.5 to 12 years in April 2002.   
120. The state-owned Korea Export Insurance Co rporation (KEIC) provides export credit 
insurance against non-payment risks (Export Insuran ce Act, 1968).  It promotes exports by insuring 
against political and commercial risks that are not privately insurable, and according to authorities 
assists exporters to compete on a level playing field with competitors assisted by government-supported foreign export credits.  KEIC supplies expor t insurance against losses  from failure to export 
or non-payment by buyers due to political and comme rcial risks.  In 2002, the maximum coverage for 
medium and long term export insurance was raised fr om 95% to 100% of the contract value (less any 
required cash payment) as per OECD Guidelines on Officially Supported Export Credits.  Most 
beneficiaries are exporters of capital goods (e.g. industrial plants, machinery and vessels).  Total 
exports underwritten rose by 13% to W 42 trillion (almost one-fifth of tota l exports) in 2002 (80% 
covered short term insurance). 
(vi) Export promotion and marketing 
121. Korean exporters benefit from the promotiona l activities of the state- owned Korea Trade and 
Investment Promotion Agency (KOTRA).  It ope rates a "business matchmaking" service introducing 
foreign importers to Korean businesses.  KOTRA also organizes or assists with trade missions and exhibitions domestically and overseas to help e xporters promote products and penetrate foreign 
                                                     
 
66 The Export-Import Bank of Korea online information.  Ava ilable at:  http://w ww.koreaexim.go.kr/ 
web/eng/about/MO2/m2_0…. 
67 Korea fully implemented the Guidelines by 31 March 2002 when transitional arrangements expired.  WT/TPR/S/137 Trade Policy Review 
Page 68 
 
 
markets.  MOCIE also operates 11 export centres to  provide SMEs with export-related information 
and consulting services.  In 2003, total governme nt promotional expenditure on exports was 
W 56.0 billion;  most financed overseas trade missions and exhibitions.   
122. The Government helps companies develop so -called "world class products" under a scheme 
introduced in 2001, mainly by assisting with R&D and overseas marketing activities.  The aim is to 
have 1,000 world class products by 2010 that rank within the top five according to global market 
share. 
(4) MEASURES AFFECTING PRODUCTION AND TRADE  
(i) Taxation 
123. Total taxes as a share of GDP remain relativ ely low (20.4% in 2003).  National taxes 
accounted for about 80% of total tax revenue in 2 002.  Indirect (consumption) taxes, such as the 
value-added tax (VAT), account for more than half  of the Central Government's tax revenue (56.3% 
in 2003).  The Office of Tax and Customs at the MOFE plans and formulates tax policies.  The National Tax Service administers taxes.   
(a) Indirect taxation 
124. Korea still has a relatively complex national indir ect tax structure.  The broad-based VAT is 
complemented by special excise taxes and other ta xes levied on liquor, property transactions (stamp 
tax), and securities transactions.  There are also three national "earmarked" taxes;  the transportation tax, education tax, and the special tax on rural devel opment.  The VAT is levied on top of other taxes, 
including import duties, where applicable.  Exports are generally exempt from indirect taxes, except 
mainly for special excise and transportation taxes a pplied to inputs of petroleum products used in their 
production.  For example, exports are zero-rated for VAT, and VAT paid on inputs by exporters and 
other users is fully rebated.  According to the author ities, all indirect taxes levied by national and sub-
governments apply equally to imported and domestically produced goods.
68  
125. The value-added tax of 10% applies to mo st goods and services;  exemptions cover 
unprocessed foodstuffs, social welfare services, books, educational services, and financial and 
insurance services. 
126. Special excise taxes at various rates apply to a wide range of goods, including luxury 
products.  Rates are:  20% (e.g. motorboats, y achts, video cameras and luxury jewellery, cameras, 
watches, carpets (over W 2 million) and furniture (o ver W 5 million));  8% on projection televisions;  
7% (e.g. perfumes and colognes);  10% or 5% on motor cars, depending on whether engine capacity 
exceeds 800cc;  and 5% on motor cycles.  Special ex cise duties also apply in principle to petroleum 
products, such as petrol (W 559 per lit re) and diesel oil (W 255 per litre).69  Until 2006, transportation 
tax is levied on gasoline and diesel oil instead of the special excise tax.  Excise tax also applies to 
certain entertainment services, such as casinos (W 35,000 per person), and nightclubs (10%).   
127. A special liquor tax applies to alcoholic beverages.  Ad valorem  rates are:  5% on Takju;  30% 
on Yakyu, Cheongju, and fruit wine;  72% on dist illed and diluted soju, whisky, brandy, general 
distilled spirits, and liquors;  and 100% on beer.  Spir its (alcohol content 95% or more) are dutiable at 
a specific rate of W 57,000 per kl (W 600 to be added for every additional 1% of alcohol). 
                                                      
68 The tax base for imports is the c.i.f. price plus customs duties and other taxes, where applicable.  
69 Other products taxed are kerosene (W 131 per litre) , natural gas (W 40 per litre), fuel oil (W 9 per 
litre), LPG-butane (W 297 per kg.) and LPG-propane (W  40 per kg.). Republic of Korea WT/TPR/S/137 
 Page 69 
 
 
128. The securities transaction tax is levied on transfer s of shares or of a business entity, such as a 
listed corporation.  The tax rate is 0.3% of the va lue of securities transferred.  Transfers of foreign-
listed shares are exempt from the tax. 
129. "Earmarked" taxes are levied to raise revenue to fund specific services.  The transportation 
tax on petrol and diesel oil was to have been e liminated in 2004, but was extended until 2006.  
Conditional exemptions apply to petrol and diesel used in the manufacture of medical goods, 
fertilizers and petro-chemicals.  The education tax is  levied on banking and in surance services, and all 
goods subject to the special excise  tax, the transportation tax and the liquor tax (excluding spirits, 
Takyu, and Yakju).  The tax rates are:  0.5% of gross receipts for banking and insurance (includes 
commissions, interest, dividends, and insurance prem iums);  30% of the excise tax;  15% of the 
transportation tax;  and 10% of the liquor tax (30% for liquors taxed at over 70%). 
130. The special tax for rural development f unds various programmes to support rural 
communities and the agriculture sector faced with reduced protection.  It is a surtax, authorized under 
various pieces of legislation, levied on the amount  of income exempted from company and personal 
tax and on the value of customs duty concessions, and on the amount of special excise tax and 
securities transaction tax.70  It therefore has a trade-restricting impact, being applied to the value of 
custom duty exemptions.  The tax rate varies, including from 0.15% for the amount of the securities transaction tax, 10% or 30% for the special excise  tax, and 20% for exemptions of company and 
income taxes as well as customs duties.  The tax w as extended for ten years from end-June 2004.    
Sub-national taxes 
131. Local and city governments apply a range of indirect taxes, including an acquisition tax, to 
purchases of real estate, motor vehicles, heavy equipmen t, and boats.  A registration tax is levied on 
property and motor vehicles, boats, aircraft, and construction machines, as well as certain business 
registrations and intangible assets, such as transf ers of mining, fishing, and intellectual property 
rights.  An automobile tax applies to passenge r vehicles, depending upon engine size, buses, and 
trucks (depending upon carrying capacity).  A tobacco  consumption tax is levied at various specific 
rates. 
(b) Direct taxation 
132. Company and personal income tax are the second and third largest single sources of revenue 
after VAT.  The company tax rate was reduced in 2002 from 16% to 15% for income under W 100 million, and from 28% to 27% for higher inco me (to be further lowered to 25% in 2005).  
Such changes reflect recent initial reforms aimed at  broadening the tax base, including reduced use of 
tax incentives, to achieve a more neutral and less distorting company tax system.  Progressive personal income tax rates rise from 9% (incom e of W 10 million or less) up to 36% (over 
W 80 million).  Certain types of foreign workers (e.g. engineers) employed in Korea are exempt from income tax. 
(c) Tax incentives 
133. Tax incentives are used extensiv ely as an instrument of industrial policy to encourage 
investment, especially from overseas, and production of certain goods, including by SMEs (Special 
Tax Treatment Control Law 1999).  Although sunset clauses on tax incentives were due to expire 
                                                     
 
70 It includes exemptions specified under the Tax Exemption and Reduction Control Law, the Local 
Tax Law, and the Customs Law.  Exemptions under th e Company Tax Law, Income Tax Law, and the Foreign 
Investment Promotion Law are excluded. WT/TPR/S/137 Trade Policy Review 
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automatically at end 2003, many were extended until end 2006.  They cover a range of activities, and 
include income tax exemptions, concessions or credits (special income tax deductions), and 
commodity tax concessions (such as VAT exemptions and zero-rating).  Tax incentives undermine fiscal transparency and public accountability, especi ally as information on their cost in terms of 
revenue forgone is not routinely available in  Korea from tax expenditure estimates.  Their 
effectiveness, both in terms of  meeting specific objectives and impact on the economy's overall 
efficiency, also needs to be regularly reviewed.  According to the authorities, the Government is 
improving the effectiveness of tax incentives by remo ving ineffective incentives, and is preparing the 
legal framework for preparing tax expenditu re estimates as part of the annual budget.
71 
134. SMEs still benefit substantially from tax incentiv es, despite recent changes (e.g. abolishing 
tax deductibility of investment reserves set asi de for losses and lowering special income tax 
concessions from end 2003).  Incentives include:  tax cr edits of 3% of investments in machinery and 
equipment;  and an income tax holiday (half the rate  for six years) for new SMEs located outside the 
Seoul metropolitan area (property tax on business assets is  also reduced by half for five years and the 
acquisition and registration taxes abolished for two years).  Special income tax incentives of a 15% 
rate reduction (10% if located in metropolitan areas)  also apply to SMEs in many activities, including 
manufacturing, fishing, tourism, stock raising, a nd telecommunications.  SMEs in wholesale, retail, 
medical services, or auto repairs located in non-me tropolitan areas receive a 5% rate reduction.  SMEs 
also receive larger tax incentives ge nerally available to all activities.  For example, they receive much 
larger tax credits for certain investment, such as in technology and human resource development. 
135. Tax incentives also apply to R&D and human re sources development.  Tax credits apply to 
investment in technology and human resources de velopment, and 50% of income from technology 
transfers is exempt.  Income tax holidays also prom ote balanced development by encouraging firms to 
re-locate outside metropolitan areas, such as Seoul.  A concessional income tax rate of 12% applies to 
certain activities to enhance social welfare, including fisheries cooperative associations and the 
tobacco production association.  There is a 50% tax exemption for forestry income.  Interest income 
(up to W 20 million) and partnership dividends (u p to W 10 million) are non-taxable for farmers and 
fishermen.  Primary producers also benefit fro m zero-rating for VAT on machinery, fertilizer and 
pesticides, and fishing gear, including nets, and exemption of taxes on petroleum products used in 
agriculture and fishing.   
(ii) Financial assistance 
(a) Loans, guarantees, and other financial measures 
136. State-owned financial institutions play a majo r role aimed at assisting Korea's industrial 
development.  State intervention dominates the la rge venture capital market, which benefits mainly 
SMEs and is heavily concentrated (two thirds) in information and communications technology.  
Venture capital is invested through venture capita l firms (VCFs) and limited partnership funds 
(LPFs).72  In addition to tax incentives, government provides equity directly and indirectly through 
generous guarantees for private equity.73  VCFs have benefited from low-interest government loans 
                                                      
71 The number of tax incentives was reduced from 269 to 254 in 2003.  However, OECD estimates 
indicate that tax expenditure  (i.e. revenue forgone from tax incentives ) as a share of related tax revenues 
increased slightly from 13.3% to 13.6% in 2003 (13.8% in 2000).  This was largely attributed to tax incentives 
extended to SMEs, investment, and R&D (OECD, 2004a, p. 53).   
72 VCFs are companies that provide capital primarily  to start-ups, while LPFs are pooled funds in 
which each investor benefits in proportion to the amount invested.  VCFs, which have established and operate 
most LPFs, supply over two-thirds venture capital.  
73 OECD (2003a), p. 79. Republic of Korea WT/TPR/S/137 
 Page 71 
 
 
and equity funding, accounting for about half their e quity, and 30% to 40% of LPF's resources.  Total 
accumulated government funding to LPFs at end 2003 was W 2.7 trillion (annual funding in 2003 was 
W 0.6 trillion).  The authorities indicate that no loans or equity funding have been provided to VCFs since 1999.  The Small and Medium Business Fund (SMBF), administered by the Small and Medium 
Business Administration, mainly directs government equity funding, including providing seed money 
to promising "start ups".  The SMBF also invests substantially in LPFs, which are also assisted from 
various special funds, such as the Investment Prom otion Fund.  These arrangements are to continue 
until 2007.  The authorities indicate that "temporary"  government funding is needed since the venture 
capital market has declined, with the number of VCFs falling from 147 at end 2000 to 117 at end 
2003. 
137. Two major public institutions, the Industria l Bank of Korea (IBK) and the Korean 
Development Bank (KDB), play a substantial role in  industrial development.  Although they are run 
commercially, the Government, while having no di rect control over their lending programmes, 
influences their management, operations and policies,  and tends to use them as an arm of industry 
policy.
74  Government guarantees any losses.  Following the Asian financial crisis, both banks 
received substantial government capital injections  to boost their capital adequacy ratios (IBK of 
W 1.7 trillion in October 1998 and of W 100 billion in January 1999,  and KDB of W 3.050 trillion in 
2001). 
138. The IBK supports SMEs mainly through loans for working capital, constructing facilities or 
buying plant and machinery.  It also provides c oncessional loans to SMEs from the national budget in 
line with government policy, such as to support tech nology development, productivity improvements 
or automation.  At end-2002, outstanding policy loans amounted to W 4.5 trillion.  They are mainly financed from the Government's SME Start-up and Promotion Fund.
75  IBK does not maximize profits 
given its public policy role; its fi nancial performance is directly in fluenced by government policies.76  
KDB provides a broad range of industrial capital, including loans to finance tangible and intangible 
(e.g. R&D) investments, underwrite corporate merg ers and acquisitions, and as operating capital.   
139. Other state-owned entities providing concessional credit facilities include the Korea Credit 
Guarantee Fund (KCGF) and the Korea Technology Credit Guarantee Fund (KTCGF).  Both provide 
credit guarantees to enable emerging firms, especially  SMEs, to gain access to finance.  They are 
commercially run and set their own guarantees pursuant to relevant laws and regulations and subject 
to government supervision.  Their operations ar e conducted according to market principles, although 
the Government would cover any losses.  Its operations are funded by bank and government 
contributions (W 525 billion in 2002).   The KTCGF operates the Technology Credit Guarantee 
System, the Technology Preferential Guarantee System, and the Special Guarantee System for Technology-Intensive Companies.  KTCGF also conduc ts technology appraisals of firms for selecting 
beneficiaries of various government funds, such as the SME and Venture Start-Up Fund of the Small 
and Medium Business Administration;  the Science and Technology Promotion Fund of the Ministry 
of Science;  and the Information Promotion Fund of  the Ministry of Information and Communication. 
                                                     
 
74 For example, each fiscal year during the work approval process, the Government regulates the 
financing and scale of their lending programmes.  
75 Other government funds include the Local Industry Restructuring Fund, the Industrial Formation 
Fund, the Industrial Technology Fund, and the Information Facility Promotion Fund. 
76 Industrial Bank of Korea (2001), p. 20. WT/TPR/S/137 Trade Policy Review 
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(b) Subsidies 
140. Korea has no laws specifically limiting subs idy programmes that may be anti-competitive.77  
No government agency comprehensively controls s ubsidies, and they have received little attention 
from the Korea Fair Trade Commission.78  Subsidies are subject to the Act on the Budgeting and 
Management of Subsidies and are examined by th e Subsidy Review Committee (under the Ministry of 
Planning and Budget). 
141. Korea has notified several direct support pr ogrammes to the WTO (Committee on Subsidies 
and Countervailing Measures).  Its latest notification,  of August 2001, indicated there were 19 subsidy 
schemes.  Fifteen provided grants, tax concessions or concessional loans to assist a range of 
agricultural, forestry, fishing and manufacturing activities.79  Four subsidy schemes funded R&D 
activities, mainly by research institutions.   
142. Korea devotes a relatively large share of GDP (3 % in 2001) to R&D investment, with the IT 
sector accounting for over half of total manufacturing R&D.  Public R&D investment is to be boosted 
in 2004 as part of the Government's objective of raising such outlays to 5% of total government 
spending.80  A blueprint of 50 futuristic technologies, including robotics, multi-media, and optical 
fibres, is being finalized in 2004.  Products are supported by public research  and development funds.  
The Government is also to invest W 2 trillion by  2010 in a public-private sector partnership to 
develop annually 50 core components and materials to boost exports in the strategic areas, including information communications, and machinery.
81  The Government invested W 69.5 billion in 2001 to 
revitalize the Busan footwear industry, which has had difficulties competing with lower-cost 
producers, especially China.  The funding was to  develop new products;  provide a comprehensive 
service centre and a business "incubation" centre to support existing start-up firms;  design footwear;  and enhance the technological capabilities of producers. 
143. Korea heavily subsidizes agriculture, especially ri ce (Chapter IV).  The importance of direct 
government payments to specific agricultural comm odities has increased, provisionally estimated by 
the OECD at almost W 1.8 trillion in 2003 (W 1.5 trillion in 2002 and W 1.2 trillion in 2001).  These 
relate mainly to overall farming income, area planted or animal numbers, and input use. 
144. Korea's WTO commitments limited domestic agricultural support (Aggregate Measure of 
Support, AMS) to W 1.49 trillion in 2004 (down from W 2.183 trillion in 1995).  According to Korea's latest WTO notification, of June 2002, total AMS in accordance with WTO provisions was 
W 1.691 trillion in 2000 (substantially below the bou nd level of W 1.798 trillion).  It consisted mainly 
of market price support for rice (W 1.647 trillion) and barley (W 41.8 billion).  Total domestic 
agricultural support notified by Korea (including green box, development programmes subject to 
special and differential treatment and de minimi s support not subject to reduction commitments) was 
W 7.32 trillion in 2000 (W 2.215 trillion excluding green box and S&D assistance (Table AIII.11).  
De minimis support included:  additional market price support (e.g. on gar lic, pigmeat, and soybean) 
totalling W 49.82 billion;  other product-specific assi stance (e.g. beef subsidy of W 15.7 billion);  and 
non-product specific support of W 412.75 billion (mai nly concessional loans and subsidized inputs 
and irrigation facilities).  Korea's WTO commitments  to date have provided only limited disciplines 
on domestic agricultural support, especially when a llowing for substantial green box and de minimis 
                                                     
 
77 OECD (2001), p. 5. 
78 OECD (2001), p. 2. 
79 WTO document G/SCM/N/71/KOR, 2 August 2001. 
80 OECD (2004a), p. 20. 
81 KOIS, 9 August 2001. Republic of Korea WT/TPR/S/137 
 Page 73 
 
 
support that is exempt from reduction commitments .  In 2000, green box assistance more than 
doubled Korea's total product and non-product specific AMS. 
145. A subsidized voluntary crop insurance scheme against natural disasters was introduced in 
2001.  In 2002, 18% of eligible fruit growers targeted  by the Government were covered.  Coverage is 
to be extended from apples and pears to incl ude grapes, persimmons, peaches, and oranges  in 2004.    
The Government subsidizes 50% of the farmer's premium and 70% of the operating expenses of the 
scheme, which is run by the National Agricultura l Cooperative Federation.  The total government 
subsidy was W 16.22 billion in  2003 (W 8.59 billion in 2002).  S ubstantial payouts were made to fruit 
growers in 2002 due to typhoon damage.  In 2002,  the scheme's budget allocation was increased to 
W 8.9 billion (W 4.6 billion in 2001).  The Governme nt also provides natural-disaster relief to crop 
and livestock farmers.  These payments amounted to W 790.6 billion in 2003 (W 372.8 billion in 2002). 
(iii) State-owned enterprises and privatization 
146. Although the State participates in a wide-range of activities, privatization of state-owned 
enterprises (SOEs) has continued during the period under review (Table III.4 ).  Eight of the 11 SOEs 
planned for privatization (including Korea Telecom (KT)) have been fully privatized.
82  Korea 
General Chemical Corporation was closed, and the remaining three SOEs, Korea Electric Power 
Corporation (KEPCO), Korea Gas Corporation (KOGAS), and the Korea District Heating Corporation, are being privatized, albeit subject to delay (Chapter IV).
83  The partial privatization of 
Incheon International Airport (to divest at least 51% of shares by 2002) and the Housing Guarantee 
(from 2002) were added to the priority list in 2000.84  Also, 51 of the 77 SOE subsidiaries planned for 
privatization were either partially or fully priva tized, and ten were in progress at end 2003;  16 were 
closed or merged with their parent SOE.  The to tal number of SOEs has fallen since 2000 from about 
90 to 34 at end 2003 (19 parent  and 15 subsidiaries).  Total number of SOE employees fell from 
186,000 to 81,000.  Privatization receipts total W 24.3 trillion (including US$11 billion in foreign 
currency). 
147. The Privatization Steering Committee, chaired by the Prime Minister, coordinates the 
privatization programme.  It is the final decision- making authority on privatization (Privatization Act, 
1997).  Priorities are to privatize immediately SOEs engaged in commercial businesses, and to restructure and progressively privatize other entiti es unsuitable for immediate divestment.  Foreign 
investment is sought, and domestic and foreign invest ors participate equally in privatization sales.  
Substantial foreign ownership exists, for exampl e, in KT, POSCO and KT&G.  Maximum aggregate 
foreign equity limits apply to KT&G, KT, KEPCO and KOGAS for national security reasons.  These limits were raised from 25% to 35% for KT&G (March 2001), 33% to 49% for KT (January 2001), and from 30% to 40% for KEPCO (November 2000).
85  KOGAS's limit has remained at 30%.  
Individual shareholder limits are applied uni formly to domestic and foreign investors.86  
148. Although privatization has lagged or iginal plans, the Government remains committed, but at a 
flexible pace reflecting general economic and stock market conditions, financial factors, and political 
circumstances.  It has tried to maintain a systematic approach, d espite some strong resistance (e.g. 
from labour unions), and has introduced employment  guarantees in privatized SOEs and employee 
                                                      
82 Originally 11 out of 26 SOEs were to be privatized, five immediately and six progressively. 
83 Ministry of Planning and Budget (2003), p. 65. 
84 Ministry of Planning and Budget (2003). 
85 The aggregate foreign ownership limit on POSCO wa s abolished when it was privatized in 2000. 
86 The ceilings on individual shareholdings are 3% for KEPCO, 15% for KT, 7% for KT&G, and 15% 
for KOGAS.  The 3% limit for POSCO was removed in 2000 when it was privatized.  WT/TPR/S/137 Trade Policy Review 
Page 74 
 
 
share allocation schemes.  The Government believ es privatization coupled with regulatory reforms 
will enhance national competition and efficiency, thereby lowering prices to consumers and 
producers.  Performance of privatized state en terprises (e.g. Hanjung and POSCO) has improved 
greatly.87  
Table III.4 
Progress in meeting original privatization plan of 1998 
Category State owned enterprise 1998 plan Current status and plans 
Complete 
privatization National Textbook Co Ltd Sell through competitive bi dding Privatized in 1998; government equity was 
86.5% 
Complete 
privatization Korea Technology Banking 
Corp (KTB) Sell government shares through 
competitive bidding Privatized in January 1999; government 
equity was 10.2% 
Complete 
privatization Pohang Iron and Steel 
Company (POSCO) Sell government and industrial 
bank shares to domestic and 
foreign investors Privatized in October 2000; government 
equity was 26.6% 
Complete 
privatization Korea Heavy Industries and 
Construction Co Ltd 
(Hanjung) Full privatization through sale of 
shares Privatized in December 2000; government 
equity was 60% 
Complete 
privatization Korea General Chemistry 
Corp (KGCC) Liquidate after asset sales Liquidated in December 2001 
Phased 
privatization Daehan Oil Pipeline Corp 
(DOPCO) Divest Government's equity 
share after upstream merger Fully privatized in April 2000; government 
equity was 36.8% 
Phased privatization Korea Telecom Corp (KT) Phas ed privatization until market 
becomes competitive Fully privatized in May 2002; government 
equity was 59.0%   
Phased 
privatization Korea Tobacco and Ginseng 
Corp (KT&G) Sell government and state banks’ 
shares Fully privatized in October 2002; government 
equity was 53.0% (18% stake sold through 
initial public offering in 1999) 
Phased privatization Korea gas Corp (KOGAS) Phased  privatization after capital 
increase Privatization process to be started after 
enactment of Gas Industry Restructuring Act 
Phased 
privatization Korea Electric Power Corp 
(KEPCO) Separate power generation from 
distribution and begin with 
privatization of generation Sale planned for one of the five thermal 
power generation companies 
Phased 
privatization Korea District Heating Corp 
(KDHC) Transfer control to private sector 
through sale of shares Controlling shares to be  sold in competitive 
bidding after initial public offering 
Source:  Ministry of Planning and Budget, How Korea Reformed the Public Sector 1998-2002 , p.66;  and OECD, Progress 
Report by the Korean Authorities , Committee on Capital Movements and Invisible Transactions, 
DAFFE/INV/IME/RD(2001)4, 26 September 2001.  
(iv) Competition and consumer policy 
(a) Competition policy 
Framework 
149. Responsibility for competition policy rests primarily with the independent Korea Fair Trade 
Commission (the Monopoly Regulation and Fair Trade Act 1980, last amended in 2002).  Competition law covers all sectors.  State entities ar e covered, including public utilities with their own 
regulatory regime, and the scope of exemp tions from competition law is now limited.
88  Exemptions 
include SMEs and liner shipping conferences.   Voluntary associations established to aid small-scale 
enterprises, such as agricultural, forestry, and livestock industries, that meet certain conditions may 
also be exempt from competition law, unless engagi ng in "unfair trade practices or price hikes by 
                                                      
87 Ministry of Planning and Budget,  Press Release, 30 March 2002, Four Years of Privatization 
Program Achieves Significant Results . 
88 OECD (2004a), p. 118. Republic of Korea WT/TPR/S/137 
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unfairly restricting competition".89  Statutory authority was eliminated  for 17 cartels in 1999, thereby 
prohibiting collusive fee-setting arrangements in ni ne professional services.  However, several of 
these changes were delayed, and other exemptions  from competition law introduced to allow cartel 
activity.90  The KFTC indicated that (unlike in the 1980s) it no longer encouraged tariff cuts to 
increase foreign competition because of the re lative openness of the Korean market.   
150. Legislation covers all principal competition ar eas, including horizontal constraints (cartels 
and collusion91), vertical constraints, abuse of dominant ma rket position, and mergers.  Prohibited are:  
unfair collaborative acts (e.g. price fixing) and unfai r trade practices (e.g. excluding competitors or 
discriminating against a trading partner);  resale price maintenance, unless exempt by the KFTC;  and 
abuse of market-dominating positions by specified abusive acts (e.g. setting unreasonable prices or 
controlling sales).92  An enterprise is presumed to be mark et-dominating if its total annual sales 
exceed W 1 billion, and its market share is at least 50%  or where the share of the largest three firms is 
at least 75%.93  Enterprises are also prohibited from ente ring into certain types of international 
contracts, such as on import distribution, franchises,  joint ventures, and intellectual property, that 
contain unfair collaborative acts, trade practices or  resale price maintenance, unless exempted by the 
KFTC. 
151. Mergers to "practically suppress competition" ar e prohibited, unless par ties can prove to the 
KFTC that efficiency gains will exceed the negativ e anti-competitive effects (or the acquired firm is 
insolvent and no alternative, less anti-competitiv e outcome is available to maintain production).94  The 
KFTC may approve a merger subject to certain c onditional corrective measures being met to address 
anti-competitive concerns, such as limiting th e scope of the merged firm's operations.   Competition is 
presumed suppressed if the merged firm would become a market-dominating enterprise and its combined market share exceeded th e market share of the second largest corporation by more than 
25% of the merged parties' market share.
95  Parties must notify proposed mergers to the KFTC if 
assets or turnover of any party exceeds W 100 billion.  Mergers of a "large-scale enterprise" (assets or 
turnover above W 2 trillion) must be notified within 30 days of adoption by shareholders, and wait a 
further 30 days for the KFTC to decide on approval.96  Other mergers need only be notified within 
30 days of completion.  KFTC has monitored merg ers (and acquisitions) between foreign enterprises 
exporting to Korea since July 2003.97  They are to be notified if tota l assets or turnover of at least one 
                                                      
89 Conditions include having a goal of mutual cooperation and benefits for small businesses and 
consumers, and that members are free to enter and exit, and have equal voting rights. 
90 OECD (2004a), p. 10. 
91 "Hard core" cartels (as defined by the OECD, namely price fixing, restriction of production, market 
allocation and bid-rigging) are illegal per se . 
92 An amendment in 2002 included as  an abusive act the "refusal or lim itation on the use of or access to 
essential facilities".  
93 Also taken into account is whether and to what extent entry barriers exist in the market, the relative 
size of competitors, and the existence of imitation products or adjacent markets.    
94 "Practically suppressing compet ition" means practices that impact  or threaten to impact on the 
determination of price, quantity, quality, or other terms and conditions of trading, because of reduced 
competition in a particular business area (Article (2)8-2).  This is similar to "substantially lessening 
competition".  KFTC considers various factors to decide on the competitive effects of mergers, including:  
market concentration and changes in concentration levels;  import competition, including openness of the domestic market, tariff rates, and planned tariff cuts;  pos sibility of new entrants;  and likelihood of concerted 
behaviour. 
95 In the case of mergers involving large-scale ente rprises in markets where designated SMEs have a 
market share exceeding two thirds, competition is presumed  suppressed if the merged enterprise's market share 
would be above 5%. 
96 The KFTC may extend this period by 60 days.    
97 17 cases have been reported (KFTC, 2004, p. 12). WT/TPR/S/137 Trade Policy Review 
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of the merging parties exceeds W 100 billion and where each party has Korean sales exceeding 
W 3 billion.  Parties to a merger may appeal a decision within 30 days to the KFTC, which has 
60 days (extendable to 90 days) to decide.  KFTC decisions can also be challenged in the courts 
within 30 days.  The KFTC may apply to the courts to nullify unapproved mergers. 
152. Regulating chaebols is a major KFTC function.  Extensive legislative provisions exist on 
corporate and financial structures to control po ssible anti-competitive effects from concentrated 
economic power.  Chaebol-related policies include a ceiling on the total amount of shareholdings of 
other domestic companies outside the conglomerate, and bans on cross-shareholding and cross-debt 
guarantees for affiliated companies.  From 2002, K FTC introduced differential controls on chaebols 
according to their financial situation.  Chaebol subsidiaries with assets of W 5 trillion or more are 
prohibited from investing more than 25% of their assets in other companies, including subsidiaries.98  
The threshold asset level for regulating cross-sh areholdings and debt guarantees was set at 
W 2 trillion.  Voting rights for a finance or insu rance company belonging to a chaebol were also 
allowed of up to 30% of its shares in a domestic  affiliated company in certain cases, such as 
management appointment or dism issal, and take-over or merger.99   
Policy and operational developments 
153. Monopoly power has decreased steadily, but mark et concentration remains relatively high.100  
The market concentration ratio of the top three leading manufacturing companies fell from 52.8% in 
1990 to 43.4% in 2001. 
154. The Clean Market Project, started in 2001, ch anged the KFTC's operations from a piecemeal 
approach to competition policy, whereby it mainly undertook ex post corrective measures in response 
to anti-competitive complaints, to a pro-active, co mprehensive approach, in which it initiated such 
investigations in targeted sectors.  Initial investig ations examined six major sectors:  construction, 
medical and pharmaceuticals, wedding and funeral ser vices, newspapers and broadcasting, IT, and 
school uniforms.  A further 11 activities in six more industries are currently being targeted (including private educational institutions, LNG, LPG, cred it cards, non-life insurance, real estate agents, 
housing maintenance, TV home shopping, and membership-based leisure activities).  KFTC 
introduced a Code of Conduct for Corporate Compliance Program in 2001;  70 companies were operating such programmes by end 2002.   
155. KFTC also introduced its "Three-Year Market  Reform Roadmap" in December 2003.  Its 
major goals are to:  make business more accountable  and transparent;  improve corporate ownership 
and governance structure of large business conglomerates (such as greater disclosure requirements on 
corporate ownership and improved regulations on total equity inv estments);  enhancing market 
competition (streamlining anti-competitive regulati ons, including abolishing certain cartels;  and 
strengthen notification and examination of mergers and acquisitions.  Provisions to permit private 
(class action) lawsuits for damages in antitrust cases are due to be legislated in 2004.  Allowing public 
interest lawsuits by the Government on behalf of consumers in anti-competitive cases is also being 
                                                     
 
98 Certain exemptions apply, such as for subsidiari es in which foreign investors have at least a 10% 
stake or where foreign investors have a say in management, such as right to name some executives.  Subsidiary investments in certain private investme nt companies, a public company to be  privatized, a comp any in the same 
or similar industry, and a company more than 30% government owned are also exempt from controls. 
99 The KFTC has prepared a draft bill for Cabinet consideration aimed at weakening chaebol owners' 
control, including narrowing the range of foreign-invested companies excluded from investment and other 
restrictions placed on conglomerates, and lowering the 30% voting ceiling to 15% ( JoongAng Daily,  
7 May 2004, "Trade agency asks more power and investment curbs", p. 3).  
100 KFTC (2004), p.3. Republic of Korea WT/TPR/S/137 
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considered.   KFTC is also considering exempting chaebol  affiliates that meet certain requirements 
from various controls, especially ceilings on sh areholdings of other domestic companies. 
156. KFTC operates a permanent monitoring system for detecting and preventing bid-rigging in 
the public sector.  Bidders, including eight public companies, must submit material to KFTC on 
public projects exceeding W 10 billion.  Strict penalt ies are imposed on bid-rigg ers, such as fines of 
up to 5% of related revenue and criminal prosecutions.   
Enforcement 
157. Korea's weak enforcement of competition polic y appears to have greatly improved.  The 
KFTC has become increasingly active in co mpetition cases and pursuing illegal practices 
(Table AIII.12)  It can issue warnings or corr ective measures, impose surcharges and fines, and 
request criminal prosecutions.  It appears that the KFTC deals with a large number of repeat offenders, which may suggest that curre nt legal deterrents are insufficient.
101  KFTC referred 84 cases 
for prosecution from 1998 to 2002.  In 2003, KFTC  levied total surcharges of W 147,994 million 
(W 87,931 million in 2002);  most were imposed  on cartel members (W 108,120 in 2003), including 
in the steel, concrete, and cement industries.  K FTC intends to raise the upper limit on surcharges for 
illegal cartels from 5% to 10% of relevant turnove r (or from W 1billion to W 2 billion if there is no 
relevant turnover) in 2004.  In  2003, KFTC imposed 313 sanctions for anti-competitive behaviour, 
mainly covering unfair business practices, prohibite d activities of trade associations, mergers, and 
cartels. 
158. Extra-territorial application of competition polic y to pursue international cartels exporting to 
Korea has been extended.  In 2002, KFTC ordered corrective measures and levied surcharges of US$7 
million on international cartel member s exporting graphite electrodes to Korea.  In 2003, it ordered 
corrective measures and imposed su rcharges of US$3 million on members from five jurisdictions of 
an international vitamin cartel exporting to Korea.  However, these surcharges appear small relative to 
the gains from such illegal activity .  To assist international efforts, KFTC has promoted bilateral 
cooperation with competition authorities from other countries, and has signed a bilateral cooperation 
agreement with Mexico, and is doing likewise with  the United States.  KFTC has not applied the 
competition legislation to Korean import or export car tels as there have been no recognized or notified 
cases so far. 
(v) Intellectual property rights 
159. Korea's extensive range of intellectual property legislation has been further revised, since its 
last Review, in line with international standards and to take account of changing technology.  It joined 
the Madrid Protocol on 10 April 2003 and the Trademark Law Treaty on 25 February 2003.  Korea participates in ten out of 21 treaties administered  by the World Intellectual Property Organization 
(WIPO).  It also accepted the Amendment to Article 9(3) of the WIPO Convention on 20 April 2000 and is a signatory to the Patent Law Treaty.  Korea has implemented IPR legislation that the 
authorities believe complies fully with the WTO TRIPS Agreement.  The TRIPS Council reviewed 
Korea's IPR legislation in 2000.  Korea's accession to  the WIPO Copyright Treaty is expected to take 
effect on 24 June 2004. 
(a) Industrial property 160. The Korea Intellectual Property Office (KIPO), an agent of MOCIE, handles industrial 
intellectual property protection.  It examines and re gisters patents, utility models, industrial designs, 
                                                     
 
101 APEC (2003), p. 41. WT/TPR/S/137 Trade Policy Review 
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trade marks (including service marks) and semi-c onductor chip layout designs , and develops policies 
to protect trade secrets.  It resolves IPR disputes through "trial decisions" (administrative judgements) 
of the Intellectual Property Tribunal.  Tribunal deci sions on patents, utility models and trade marks 
can be appealed to the Patent Court and subsequently to the Supreme Court.  Ordinary courts 
generally handle civil and criminal prosecutions .  Korea generally bans all parallel imports. 
161. Penal provisions apply against ri ght infringements of patents, utility models, trade marks and 
industrial designs.  Imprisonment of up to seven year s or a fine of up to W 100 million applies, or up 
to three years or W 20 million for falsely indicating such a right or fraudulently obtaining one. Civil remedies include injunctions against further infringement and damages.   
Patent and utility models 
162. Revisions in 2001 to the Patent Act of 1947 st rengthened the application process, and covered 
disclosure of patents by electronic means (e.g. the Internet).  KIPO may grant on request a compulsory non-exclusive licence to work a patent  if the holder has not worked it for more than 
three consecutive years.
102  To date, no compulsory licences have been issued.  Patent protection is for 
20 years from the date of filing (extendable for up to five years for pharmaceuticals and agricultural 
chemicals undergoing certain market-approval pro cedures).  Both product and process patents may be 
granted. 
163. The Utility Model Act (1961, last amended in  2001 to expand the scope of utility models) 
protects utility models for ten years from the date  of filing the application.  Commercial acts of 
manufacturing, assigning, leasing or importing are deemed to infringe the exclusive right of the 
registered or licensed holder. 
Trade marks 
164. The Trademark Act (1949) protects trade marks on goods and services initially for  ten years 
upon registration (renewable indefinitely for further ten-year periods).  Legislation was last changed 
in 2001 (effective 1 July) to reflect the Madrid  Protocol and the Trademark Law Treaty.  These 
revisions affected the procedures for transforming an international registered trade mark into a 
national application, and simplified the forma lities for preparing requests and submitting various 
petitions and certificates.   
165. The Unfair Competition Protection and Trade Secret Protection Law prohibits unfairly 
tarnishing a well-known mark or causing confusion w ith another person's goods by using a similar or 
identical mark, including distributing, importing or exporting such goods.  Civil remedies are an 
injunction stopping improper use, and damages.  Pe nal provisions are up to three years' imprisonment 
or a fine (up to W 30 million).    
Industrial designs and lay-out designs of integrated circuits (topographies)  
166. The Design Law (1961), last amended in 2001 to cover partial designs, protects designs for 
15 years from registration date.  The registered owne r has the exclusive right to work a registered 
design commercially and industrially.  The desi gn registration system is based on substantial 
examination.  Examinations of textile d esigns with short life cycles are accelerated. 
                                                      
102 Except for semi-conductor technology, this is only possible after four years of the patent period, and 
when consultations with the patent holder or exclusive licensee were not impossible or enabled no agreement. Republic of Korea WT/TPR/S/137 
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167. Semi-conductor integrated circuits (topographi es) are protected (under the Act on Lay-out 
Designs of Semi-conductor Integrated Circuits, 1992).  The registered owner has exclusive right of 
the lay-out design for business use.  Protection is for ten years from the registration date (subject to 
not exceeding ten years from initial commercial use or  15 years from creation date).  Civil remedies 
include "cease and desist" orders, destruction of offending circuits, damages,  and royalties.  Penal 
provisions also apply:  up to three years imprisonment and/or a fine of up to W 50 million, for right 
infringements;  and up to one year or W 3 million for falsely marking a circuit as registered or 
obtaining registration fraudulently. 
(b) Copyright and related rights 
168. The Ministry of Culture and Tourism (MOCT) handles copyright protection (Copyright Act, 
1957).  Recent changes (the latest effective 1 July 2 003) have mainly incorporated internet and digital 
technology developments.  The pr oduction or provision of devices or services for circumventing copy 
control technology was prohibited, and a "notice and takedown system" was introduced to provide 
legal incentives for online service providers to pr omptly close down infringing materials at the 
right-holders' request.  Non-original  databases also became protected sui generis .  Legislative 
amendments are intended shortly to provide pe rformers and phonogram producers with interactive 
transmission rights in accordance with the WIPO  Performances and Phonogram Producers Treaty. 
169. Copyright protection for authors is life plus 50 years.  Neighbouring rights are also extended 
for 50 years for performances, sound recordings, and broadcasts.  Databases, including compilation of 
data in machine-readable form, can be protected by copyright.  Compulsory licences may be granted 
under strict procedural conditions:  five (one on fore ign works) have been granted.  Copyright also 
applies to "interactive transmissions" for authors.103  The Online Digital Contents Industry 
Development Act, passed in 2002, protects intell ectual property rights on online digital material. 
170. Computer programs are protected under separate legislation (the Computer Program 
Protection Act of 1986,  administered by the Ministry of Information and Communication (MIC)).  
Transmission rights were introduced in Decemb er 1998.  Revisions from 1 July 2003 tightened 
liability of internet service providers for copyright infringements.  The right holder has the exclusive 
right to copy computer programs, excluding temporar y copies.  Protection of programs is for 50 years 
from the year following its publication.  Minimu m reproduction is allowed if it does not infringe 
seriously the right holder's economic interests;  this test is applied to both fo reign and domestic works.  
Compulsory statutory licences, although only implied and not expressly provided for in the 
legislation, may be granted (e.g. where the right  holder cannot be identified or traced, subject to 
certain procedural requirements).  No such licences have been granted. 
171. Ordinary courts handle copyright cases.  Civil remedies against copyright infringements 
(including computer programs) include injunctions, destruction of counterfeit products, and damages.  
Penal provisions of up to five years imprisonment or a fine of up to W 50 million also apply for 
copyright infringements (up to five years or W 70 million for repeated computer program 
infringements).  
172. Amendments to the Sound Records, Video Produc ts and Game Software Act in January 2004 
eliminated loopholes concerning illegal importation and di stribution of videos by requiring applicants 
for rate classification to present documentary evidence of the due right to produce or distribute videos. 
                                                      
103 The Copyright Act is to be amended in 2004 to extend this right to performers and phonogram 
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(c) Trade secrets 
173. The Unfair Competition Prevention and Trade Secrets Protection Act (1961) protects trade 
secrets.  These are infringed when such information is acquired by an "act of improper acquisition" 
(e.g. theft, deception or coercion), or subsequently used or disclosed.  Injunctions against disclosure 
may be obtained, and damages awarded for infringem ent.  Criminal penalties of up to five years 
imprisonment or fines of up to W 50 million (seven years or W 100 million if disclosed information is 
used overseas) apply to employees disclosing trade secrets.  Legislative amendments in 2003 introduced compensation payments to the aggrieved party of two to ten times the unfairly gained 
profit;  broadened the scope of trade secrets to in clude operational secrets (e.g. business strategies);  
and extended the coverage to include not only i ndividuals but also relevant organizations and 
businesses that infringe trade secrets.  
174. Confidential data submitted to authorities fo r marketing approval of pharmaceuticals and 
agricultural chemicals are prohibited from public disclosure unless the authorities see such a need 
(Agrochemicals Control Act and the Pharmaceutical s Affairs Act).  Penalties are up to three years 
imprisonment or fines of up to W 10 million for pharmaceuticals and W 15 million for agro-
chemicals.  Unfair commercial use of such data is also prohibited. 
175. Officials involved in registering lay-out designs  for semi-conductor integrated circuits must 
maintain confidentiality (Act on Lay-out Designs  of Semi-conductor Integrated Circuits).  
Imprisonment of up to two years or fines of up to W 5 million apply.  
(d) Other intellectual property protection 
176. Plant variety protection is administered by  the MAF (Seed Industry Law, 1997).  Korea 
joined the International Convention for the Protectio n of New Varieties of Plants (UPOV) in 2002.  
No legislative changes were nec essary, since the Seed Industry Law already conformed.  Korea 
protects breeders' rights on plant varieties for 20 years from the registration date (25 years for ornamental and fruit trees). 
177. Korea protects geographical indications (GIs).  The Unfair Competition Prevention and Trade 
Secrets Protection Act prohibits, as unfair competition, use of marks identical or similar to another person's name, trade name, emblem or any other well known mark, including selling, distributing, 
importing or exporting goods so marked, that woul d mislead the public on the place of production.  
The Fair Labelling and Advertising Act also prev ents deceptive labelling and advertising, including 
any vague or false labelling or advertising that  may mislead consumers on the product's origin.  
Trade marks legislation prevents registration of tr ade marks consisting of a "conspicuous geographical 
name".  Imports or exports with false origin in dications or infringing GIs are prohibited (Foreign 
Trade Act).   
178. The Agro-Fisheries Product Quality Management  Act (1999) specifies GIs for agricultural 
and fish products.  These must be registered w ith the Geographical Indica tion Registration Council of 
the National Agricultural Products Quality Manageme nt Service or of the National Fishery Products 
Quality Management Service.  Foreign GIs register ed according to the same procedures and criteria as 
for domestic goods are protected in Korea under sever al laws, such as the Trademarks Act and the 
Unfair Competition Prevention and Trade Secrets Protection Act.  Using a false mark of a registered GI on agricultural or fishery products is subject to imprisonment of up to three years or a maximum 
fine of W 30 million. 
179. Any trade mark containing geographical indications for wines or spirits originating in any 
WTO Member cannot be registered (Trademark Act, Article 7(1)(xiv)).  The use of GIs to identify Republic of Korea WT/TPR/S/137 
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wines or spirits that do not originate in the place indi cated by the GI is prohibited, even if the true 
origin is given or the GI uses expressions like "kind", "type", "style", or "imitation". 
(e) Enforcement 
180. The level of piracy in Korea was estimated at 20% in 2003 on video movies, records, and 
music (20% in 1999), and 50%  in 2002 on business applicati on software (50% in 1999).104  Piracy of 
entertainment software, however, was estimated to ha ve fallen substantially, to 36% in 2003 (63% in 
1999).  Piracy of books is thought to be significant. 
181. Most IPR prosecutions, with the notable excepti on of trade marks, require a complaint from 
the right holder.  KIPO can initiate investigations of unfair competition, such as the manufacture, sale, 
import or export of counterfeit goods (Unfair Comp etition Prevention and Trade Secrets Protection 
Act).  Customs is authorized to investigate IPR infringements concerning imports and exports.  It can initiate investigations, including of criminal activ ity, and will suspend release of counterfeit goods 
that clearly infringe copyright or trade mark right s (Customs Act, Foreign Trade Act, and Customs 
Clearance Regulation of Counterfeit Goods).  Righ t holders may request Customs to suspend the 
release of suspected counterfeit goods, on payment of  collateral of 120% of the dutiable value of the 
goods.  Suspension is for ten days, in which time the applicant must initiate legal action.  Only KIPO 
or the Korean Trade Commission can request Cust oms to prevent imports violating patents. 
182. Standing Inspection Teams (SITs) were establis hed by MIC to investigate counterfeit of 
computer software, and by MOCT for sound record ings and video movies, including by on-line 
activities.  However, only the MIC's SIT investigating computer program piracy has judicial police 
authority, following legislative revisions in October 2003 (Act on a Person with Judicial Police 
Authority and the Scope of the Right).  MIC ma y collect, delete or destroy illegally acquired 
computer programs, and can instruct internet servi ce providers to reject, suspend or limit pirated 
products and services.  To improve criminal prosecutions, an IP Right Violation Crimes Investigation Headquarters was established in the Supreme Publ ic Prosecutor's Office.  Nationwide crackdown 
committees have been formed.  In 2002, over 33, 000 IPR cases, involving over 40,000 persons, were 
prosecuted, with almost 1,000 arrests.  KIPO and Cu stoms also continue to actively pursue counterfeit 
goods.  In 2003, KIPO uncovered 549 cases of counte rfeiting, with criminal charges filed in 
332 cases. 
183. The Publication and Printing Business Promotion Act, effective February 2003, provides 
MOCT administrative authority to inspect business est ablishments and to seize and order disposal of 
illegally copied publications.  Relativ ely small fines, of up to W 3 million, may be levied for refusal to 
obey such orders.  It is enforced mainly by th e private entity Korea Reprographic and Transmission 
Rights Centre (under the auspices of MOCT). 
                                                     
 
104 International Intellectual Property Alliance (2004), p. 208. 