WT/TPR/S/73 Trade Policy Review
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III. TRADE POLICIES AND PRACTICES BY MEASURE
(1) OVERVIEW
1. Since its previous Trade Policy Review in 1996, Korea has continued to reduce, if not
remove, trade restrictions and distortions, notwithstanding the financial crisis that erupted in 1997.  In
the wake of the crisis, the Government pursued major reforms not only in accordance with WTO and
IMF commitments, but also partly in response to concerns raised by some of its trading partners.These reforms also reflect undertakings in the context of regional or plurilateral arrangements,
including those reached in APEC and OECD fora.
2. The tariff is Korea's main trade policy instrume nt but also an important source of government
revenue.  The average applied MFN tariff is currently 13.8%, down slightly from 14.4% in 1996, with
further reductions expected from expanded multilateral undertakings in this area.  The average appliedMFN industrial tariff is 7.5% whereas that on agricu ltural imports is in the order of 50.3%.  Certain
agricultural products in particular are subject to considerable tariff "peaks", largely as a result of the
"tariffication" exercise.  Some 91.7% of the tariff is bound and over 99% of rates are applied
ad valorem.  About 61% of the tariff (mostly, industrial goods) is set at a rate of 8%;  however, the
structure of the tariff is complex, involving 125 rates (96 ad valorem,  11 specific and 18 alternate),
and in several cases the applied rates are difficult to ascertain.  Furthermore, bound rates tend to be
substantially above applied rates.  The tariff also embodies a degree of escalation.  The outcome,
therefore, is that the tariff is a potential obstacle to a more efficient allocation of domestic resources.
At customs, clearance requirements have been eased mainly through an immediate release system and
paperless import clearance system.  Computerized customs clearance for imports and exports is now
in operation.
3. On 30 June 1999, Korea abolished import prohibitions on sensitive items from Japan
(Import Diversification System);  the abolition was six months ahead of schedule.  Korea has also
lifted certain import restrictions on fish, and has replaced a positive import licensing list with a
negative list.  At present, beef and rice are subject to quantitative restrictions.  The scope of import
prohibitions affecting used goods has been reduced.  After reaching a peak in 1996-97, Korea's
recourse to anti-dumping action and its use of provisional measures have declined.  Safeguards wereapplied against imports of skimmed milk powder preparations (until May 2000);  regular use of the
special safeguard provisions under the WTO Agreement on Agriculture has been made for certain
beans, buckwheat, ground nuts, wheat starch and sweet potatoe starch.  Korea has sought to reduce
technical barriers to trade by adjusting its regu latory framework to international rules, raising
transparency, improving coordination and internat ional cooperation (MRAs, APEC), as well as by
eliminating or easing unnecessary mandatory requirements (e.g. automobiles);  the number of items
subject to shelf-life requirements has been reduced and dual-price marking requirements suppressed.
In implementing the Government Procurement Agreem ent (GPA), and its revised commitments in this
area as scheduled, Korea reinforced transparency and conciliation procedures in its government
procurement;  nevertheless, the share of open tendering among different purchase methods wasreduced.  Despite ongoing privatization and deregulation efforts, during the period under review state
involvement in the economy has persisted, mainly in agriculture, livestock, mining and energy,
telecommunications, and public utilities.  Frugality or anti-import campaigns ceased, however.
4. Export restrictions currently in force affect fish and seafood items;  all voluntary export
restraints, except for those relating to textiles and clothing, were eliminated by 1998;  a tariff quota for
preferential access to the Brazilian market for automobiles was in effect for the period 1996-99.
Following the suppression of three export-related subsidies in 1998, Korea now maintains one subsidyexclusively directed at exports of fruit and fl owers.  As of 1999, a drawback scheme has beenRepublic of Korea WT/TPR/S/73
Page 37
operated for several exports from small and medium-sized firms.  Since 1999, the activities that may
be carried out within free-export processing zones,  which remain reserved to firms with foreign
capital participation, have been expanded.  Export credit terms have been brought into line with
OECD guidelines.  Since 1998, countertrade has been envisaged as a means to improve export
competitiveness and revive trade ties with crisis-affected regional partners.
5. Support to production and trade has been provided through tax and non-tax incentives;  apart
from traditional sectoral recipients of aid, support has been targeted at SMEs, research and
development, and relocation of firms.  Part of these incentives are to be eliminated by the end of 2003.
Since Korea's previous Review in 1996, indirect taxation has remained complicated and luxury-goods
oriented;  the liquor tax rates on beer and "soju" have been revised.
6. Korea has sought to strengthen the protection of intellectual property rights by the passage of
legislation, in several critical areas, that seeks consistency with the WTO TRIPS Agreement;  by
modernizing registration procedures;  and by aggressive enforcement.  Korea's competition policy
framework has also been updated and enforced so as to reflect the policy shift against market
domination by large conglomerates (chaebols) and illegal trading among subsidiaries (including those
of public entities).  Environmental concerns have grown and additional support measures for building"sustainable agricultural zones" were introduced.
(2) M
EASURES DIRECTLY AFFECTING IMPORTS
(i) Registration and documentation requirements
7. Since its previous Review, Korea has continued to streamline and modernize its customs
clearance requirements and procedures with a view to reducing import costs and ensuring conformity
with the new international trade standards.
8. No licensing (since 6 June 1993), registration (since 30 December 1996) or notification (since
1 January 2000) requirements affect Korean importers (or exporters).  For duty assessment and
statistical purposes, the Korea International Trade Association (KITA), a private organization, assigns
upon request a trade business number to any operator who wishes to carry out trade business.
9. Since 1996, when simplifications in documentation and customs clearance requirements were
passed, no major changes have been implemented other than the immediate release system.  The lattersystem, which was introduced in 1999 (effective as of April 2000), allows goods entered by importers
with no record of trade law violations to be released immediately after arrival without customs
inspection (except for shipments selected for random inspection), upon notification of simple
information to the Korea Customs Service (KCS) (i.e. the type and size of the goods).  An import
declaration must be filed by the importer within ten days of the date of release
1;  it must be
accompanied by documentation (import declaration form, invoice, bill of lading, customs value
declaration) determining that the merchandise may indeed be released from customs custody, together
with information for duty assessment and statistical purposes.2  Exceptions to this simplified procedure
involve restricted or high-risk items that are subject to controls or require additional documentation on
grounds of public health, sanitation, national security, and environmental protection (sections (v)and (x)).  It is claimed that certification or approval of import documentation by associations
representing local competitors may be required (sections (2)(ii)(e) and (2)(v)(b), Table III.4) and that
in addition to a processing fee levied by these associations, importers may be required to submit
                                                     
1 Law 5583, 28 December 1998, cited in APEC (1999).
2 Korea Customs Service [Online].  Available at: http://www.customs.go.kr/english/2import1.html
[20 October 1999];  and US Embassy (1999).WT/TPR/S/73 Trade Policy Review
Page 38
confidential business information to them.3  Korea, like certain other countries, does not accept the
EC certificate of origin and origin marking;  accord ing to the authorities, this is to protect Korean
consumers who cannot identify, geographically or commercially, the European Union (EU) as a
country of origin, and because Korea maintains a different "commercial evaluation" for each EU
member country.  In May 1997, a customs cooperation agreement with the EU entered into force with a
view to simplifying customs procedures and promoting efforts to combat commercial fraud 4;  so far
two customs cooperation conferences between Kore a and EU have been held (October 1997 and 1999)
and a third conference is scheduled for the second half of 2000.
10. In the context of its agreement with the IMF, in order to enhance transparency and improve
certification procedures (Box I.1), Korea undertook to further simplify customs clearance procedures
by reducing the number of products that need clearance confirmation by the Head of Customs,operating a computer network (Electronic Data Interchange (EDI)) system and introducing paperless
import clearance by computer (i.e. without visiting the customs house).
5  By April 1999, the number
of goods subject to clearance confirmation for public health, social security, and environmental
protection had been reduced from 6,314 items designated by 42 laws to 4,443 items designated by
27 laws.6  The EDI, presently linking customs houses with 56 government agencies and enabling 98%
of the confirmation requirements checked by these agencies, has reduced by half the time spent by
agencies and importers in documentation and/or customs clearance procedures.7  As of July 1999, a
paperless import system has been operated for importe rs with high credibility and for items with low
risk;  it is to be gradually expanded to more importers depending on their capacities in automated
documentation and accuracy in import declaration.  By December 1999, the system covered some
12% of imports.
11. As noted in the previous Review, since 1996 Korea has not had a storage requirement for
imports and most of the inconveniences caused by customs clearance have been removed.  As from
1999, the owners of the bonded areas have negotiated th e level of the storage fees directly with the
importers.  In addition, the maximum period of st orage in bonded warehouses has been extended from
three months one year.
12. To enhance transparency, changes in customs-related legislation, regulation, and guidelines
are published in the Kwanbo  (the Government Official Gazette) as well as in publications by the Korea
Customs Research Institute, i.e. the Daily Customs Information and the Monthly Customs Journal;
customs-related information is also available in English and on the Customs Internet homepage,
where enquiries on customs seem to be promptly answered.8  In October 1998, a Customs Service
Charter was adopted as a step towards a more customer-oriented administration.
13. According to the authorities, customs clearance currently takes less than three hours, on
average, from declaration to customs acceptance.  Food and agricultural products undergo the same
                                                     
3 USTR (1999).
4 To justify their EU origin status, member countries are required to furnish additional documentation
and follow further procedures (European Commission (1999)).  WTO (1998a).
5 Ministry of Commerce, Industry and Energy (1998a).
6 For example, this confirmation is to ensure that the importer has fulfilled quarantine requirements and
has obtained permission from the competent agency.
7 By mid 1999, the EDI system covered the automation of export/import clearance, export cargo
control and customs drawback (completed in September 1997);  and import cargo control (completed in
January 1998).  In May 1998, the Korea Customs Service (KCS) established an electronic network with
inspection and quarantine agencies nationwide (section (2 )(x)(b));  this system enables electronic confirmation
of whether inspection or quarantine is finalized (APEC, 1999).  The Korea Herald  [Online], 23 January 1999.
Available at:  http://www.koreaherald.co.kr/ [30 September 1999.]
8 APEC (1999).Republic of Korea WT/TPR/S/73
Page 39
speedy procedures as other general commodities provided that clearance confirmation requirements
have been fulfilled (e.g. quarantine or food inspection).  In the absence of required documents for
customs clearance or the presence of flaws in documents, a declaration is filed to customs and
additional correction may be brought after dispatch.  In early 1999, Korea brought the customs
classification of prepared products into conformity with international standards, in accordance with
the recommendations and opinions of the World Customs Organization.9  However, two major trading
partners expressed concern over, inter alia,  the speed and fairness of customs clearance procedures
for agricultural products (including perishable items), and customs classification or re-classification
on certain items.10
14. Korea's plans for improving customs clearance conditions by the year 2010 include the
improvement of the automatic cargo selectivity system (refining the criteria for cargo risk level);accession to and implementation of the revised Kyoto Convention;  the introduction of a
computerized database on publicly available information;  and the establishment of a computer
network with 17 government agencies related to import procedures (electronic confirmation of
clearance status).
11  Implementation of plans and guidelines agreed in the framework of
APEC's Sub-committee on Customs Procedures (SCCP), which is aimed at fostering trade facilitation
and customs procedures harmonization in the Asia-Pacific region, is also envisaged.  Korea's work in
this context includes the introduction of risk-management techniques and the development of
common data elements.
(ii) Tariffs
(a) General features
15. Since its previous Review in 1996, the year in which it adopted the HS96, Korea has adjusted
its tariff in accordance with the scheduled impl ementation of its WTO commitments and with its
domestic policy imperatives.  Nonetheless, from the summary indicators reported in Table III.1, it
appears that the structure of Korea's Customs Tariff has not undergone fundamental change.12
16. The tariff is an important source of tax revenue, accounting for 6.5% of total tax revenues
(section (4)(i)), and remains the key instrument of trade policy.  It tends to accord substantial and
varied levels of protection to domestic industry and is therefore a potentially important obstacle to theefficient allocation of domestic resources.  Some 61% of all tariff lines (largely industrial goods) are
subject to an 8% ad valorem  duty and almost all tariffs are ad valorem  with the exception only of the
                                                     
9 As the internationally recognized Explanatory Notes for the Harmonized System (HS) classification
do not set a criterion for food preparations, the Korea Customs Service has established and enforced arequirement that a potato product must contain not more than 10% of additives in order to be classified as apotato preparation.
10 USTR (2000).  European Commission (1999).
11 APEC (1999);  APEC Secretariat online information.  Available at:  http://www.apecsec.org.sg/
committee/customs.html [17 September 1999].
12 All tariff-related estimates in the charts and tables of this report reflect import duties contained in
Korea's customs tariff submitted to the WTO by 1999 and 2000;  in the case of alternate duties, only thead valorem  component is used.  No specific rates and occasional/temporary tariff increases or reductions
(including in-quota rates) implemented by means of tariff adjustments or other types of duties are taken into
consideration in these calculations (e.g. "flexible" tariffs (section (2)(ii)(i)).  This is why the overall average
applied tariff levels are higher than those indicated in the previous Review (i.e. slightly over 9%) and those
calculated by the Korean authorities (8.9% in 2000).  More  specifically, the Korean authorities calculate average
tariff rates by using only the particularly low in-quota ta riff rates.  This contrasts with the regular WTO practice
of using instead the higher out-of-quota rates to calculate tariff averages.WT/TPR/S/73 Trade Policy Review
Page 40
0.5% of items subject to specific or alternate duties13;  nevertheless, the tariff is a complex instrument,
containing 11,169 tariff lines, 2.8% more than in 1996, and 125 rates (96 ad valorem  rates levied on
the c.i.f. value of imports, 11 specific and 18 alternate rates).  Moreover, bound tariff rates tend to be
substantially higher than applied rates, although the gap has narrowed since 1997.  However the gap
provides scope for the authorities to raise applied MFN tariff rates, either by increasing general rates
or by occasionally levying "flexible" tariffs (section ( i)), thereby imparting a degree of uncertainty to
the applied tariff.  Furthermore, so called "autonomous" tariff quotas are used in addition to
WTO-related agricultural tariff quotas (section (e)).
Table III.1
Structure of applied MFN tariffs in Korea
(Per cent)
Indicators 19962000
(including ITA)U.R.
(including ITA)a
1. Bound tariff lines/all tariff lines 90.4 91.7 91.7
2. Duty-free tariff lines/all tariff lines 2.0 6.7 13.3
3. Specific and alternate tariffs/all tariff lines 0.5 0.5 0.5
4. Tariff quotas
(a)  Autonomous tariff quotas/all tariff lines 0.6 0.5 ..
(b)  Agricultural tariff quotas (WTO)/all tariff lines 1.7 1.5 1.5
5. Tariffs with no ad valorem  equivalent 0.5 0.5 0.5
6. Simple average bound tariff rate 27.6 20.1 16.9
7. Simple average applied tariff rate 14.4 13.8 12.7
Agricultural products (HS 01-24)b51.8 50.3 47.9
Industrial Products (HS 25-97) 7.7 7.5 6.6
8. Import-weightedc average tariff rate 10.9 10.6d..
9. Domestic tariff "peaks"/all tariff linese2.4 2.2 2.5
10. International tariff "peaks"/all tariff linesf8.7 8.6 8.7
11. Overall standard deviation 57.2 54.4 52.2
12. Coefficient of variation 4.0 3.9 4.1
.. Not available.
a Using 2000 nomenclature.
b Under the definition used in the WTO Agreement on Agriculture, the simple applied tariff average on agricultural imports is
54.8% in 2000.
c Constant (1998) OECD import weights.
d Average for 1999.
e Domestic tariff "peaks" are defined as those rates exceeding three times the overall simple average MFN rate.f International tariff "peaks" are defined as those exceeding 15%.
Note: Calculations exclude in-quota rates and include out-of-quota rates and take into account the ad valorem  part of mixed rates.
Source: WTO Secretariat estimates based on data provided by the Korean authorities.
17. The presentation of the Korean Customs Tariff is somewhat complex as it contains several
columns (e.g. basic/general rate, international cooperation rate, WTO concession (i.e. bound) rate),
which may, according to the authorities, be interp reted as follows:  the International Cooperation
Tariff is the rate resulting from ne gotiations with a particular foreign country or in the context of an
international organization;  this rate is applicable on an MFN basis in preference to the
WTO concession, GSTP, provisional and basic/general rates only if the cooperation rate is lower than
                                                     
13 Alternate duties involve either specific or ad valorem  duties, whichever is greater.Republic of Korea WT/TPR/S/73
Page 41
these rates.  If the basic/general rate is higher than the WTO Concession rate, the latter is the applied
rate.  However, the WTO Concession rate for agricultural, forest and livestock products bound at a
higher rate than the basic/general rate shall apply in preference to the basic/general rate.
18. Changes in the tariff system, including rates, are announced to the public well in advance
through the Official Gazette and the annual publication of Tariff Schedules of Korea;  in addition, the
content of tariff adjustments is released to the press far ahead of the enforcement date, thus allowingfor industries and traders concerned to prepare.  Since 1996, Korea has submitted regularly its
customs tariff and trade data to the Integrated DataBase of the WTO;  similar action has been taken
with respect to the APEC tariff database project.
14
19. As of 1999, duties, as well as all indirect taxes and other charges levied at the border, can be
settled with the Korea Customs Service (KCS) after the goods are released from customscustody (sections (i) and (ii)(j)).  The Customs Deliberative Committee of MOFE has regulatory
powers over tariff policy matters, while the KCS is an enforcement agency.
15
(b) MFN tariff bindings
20. As a consequence of the Uruguay Round, Korea bound 99% of its agricultural tariff lines16,
except those for rice and rice products (see below), as well as certain (33.9%) of those for fishproducts, while expanding considerably its bindings (from about 10% to 92.8% tariff lines) for
industrial products (HS code 25-97).
17  The reason for not binding the remaining industrial tariff lines
was to maintain freedom to provide flexible border protection either to ailing or promising new
industries (section (ii)( i)).  Currently, 91.7% of all national tariff lines are bound, compared with
90.4% in 1996 (Table III.1);  the authorities indicated that this increase is due to the creation of
additional tariff lines to cover items previously grouped under "Others" in the classification.
21. Since 1996, the Korean simple average bound tariff rate has fallen from 27.6% to 20.1%,
thereby substantially narrowing the gap between bound and applied rates, which dropped only slightly
(section (f) below). The fall in bound rates can be attributed, inter alia , to changes with respect to
motor vehicles (reduction of the bound rate from 80% to 8%, as of 11 March 1999) together with
telecommunications and information-related equipment (zero rate by the year 2000, except for certain
items);  these changes resulted from the 1998 automotive negotiations with the United States (butwere extended to other WTO Members on an MFN basis) and the 1996 WTO Ministerial Declaration
on Trade in Information and Technology (ITA).
18  For agricultural items, Uruguay Round reductions
                                                     
14 APEC (1999).
15 The Korea Chamber of Commerce and Industry (1998).
16 This share corresponds to the product coverage under the WTO agriculture definition.
17 In 1996, items excluded from tariff bindings covered some fisheries products, wood, petroleum,
chemicals (medicaments), apparel, fabricated metals (b all bearings), machinery (gas turbines, electric motors
and generators, refrigeration equipment, data processing units, etc.), electronics products (radio and television
receivers, capacitators, resistors), motor vehicles, mar itime vessels, and photographic equipment (WTO, 1996).
APEC (1999).
18 The ITA, which was agreed at the Singapore Ministerial Conference, has 31 participants (1999) and
provides for the elimination of customs duties and other duties and charges on computers, telecom equipment,semiconductors, semiconductor manufacturing equipment, software, and scientific instruments, on an MFNbasis;  the phase-in of tariff reductions was set in four equal cuts (25% each time) starting in July 1997.  The
ITA does not cover consumer electronic goods.  In 1995, Korea was the world's fifth leading exporter and eighth
leading importer of IT goods (WTO Press Release/70, 27 March 1997).  The staging of Korea's tariff reductionsfor certain items is extended to the years 2002 (HS8517.30, HS8517.50, HS8525.20) and 2004 (HS 8471.41,HS 8471.49) (APEC, 1999);  and WTO documents referring to modifications to Schedule LX of Korea in 1997and 1999:  G/MA/TAR/RS/33, 28 July 1997;  WT/Let/249, 13 November 1998;  G/MA/TAR/RS/56,WT/TPR/S/73 Trade Policy Review
Page 42
in bound tariffs are being implemented in equal annual instalments over the period 1995-2004.  For
other items, implementation may take from 5 to 15 years (as in the case of tariff harmonization of
chemical products).19  In 1999, concern was expressed by a WTO Member on the seemingly
prohibitive bound rates (up to 887.4% in the case of manioc), owing to the "tariffication" exercise and
the methodology in staging the implementation of bindings for certain agricultural items
(Chapter IV(2)(ii)(a)).20  Once the Uruguay Round and the ITA commitments are fully implemented,
Korea's simple average bound tariff rate for industrial products will have fallen from a
pre-Uruguay Round level of about 25% to 9.7% (2004).
22. Between July 1996 and April 1999 Korea's binding commitments were waived from the
obligations under Article II of GATT 1994, to allow for the implementation of the recommended
amendments on 1 January 1996 to the Harmonized System nomenclature and, subsequently, toundertake Article XXVIII negotiations.  The last reservation (out of two) on Korea's proposed
Schedule of Concessions incorporating these amendments was lifted in March 1999.
21
(c) Duty-free items
23. At present, 6.7% of Korea's tariff lines are duty free, three times as many as in 1996
(Chart III.1).  This proportion is expected to rise to about 13% once the Uruguay Round and ITAcommitments are fully implemented.
(d) Specific and alternate duties
24. Specific and alternate duties currently account for 0.5% of all tariff lines, the same as in 1996.
Whereas specific duties are applied to 21 items (cinematographic films and recorded tapes), alternate
duties cover 28 agricultural items and 5 silk-related 10-digit HS lines.  While the specific duties have
remained unchanged, the ad valorem  component of the alternate duties has been reduced;  in 2000,
they ranged from 53.3% (silk worm cocoons) to 658% (sesamum seeds and oil).  In 1999 ad valorem
equivalents (AVEs) for specific duties on 13 imported items ranged from zero to 16.3%.
22
(e) Tariff quotas
Agricultural tariff quotas
25. Under GATT and WTO market-access commitments in agriculture, Korea applies tariff
quotas to 62 product groups in 2000, and has reduced quotas to two product categories (rice and beef).Apart from "tariffication" and regular market-access commitments, these undertakings  incorporate
the progressive phase-out of quantitative restrictions previously maintained on balance-of-payments
grounds (section (v)(b)) and import prohibitions, such as those on rice.
23  Between January 1995 and
                                                                                                                                                                    
11 December 1998, and G/MA/TAR/RS/56/Corr.1, 17 December 1998;  and WT/Let/302, Geneva,
11 June 1999.
19 Part I Sections I and II of Schedule LX – Republic of Korea, 15 April 1994.
20 WTO document G/AG/R/18, 7 May 1999;  and USTR (1999).
21 WTO documents WT/L/173, 25 July 1996;  G/MA/M/8, 27 March 1997;  and G/MA/M/17,
22 April 1999.
22 AVEs are computed as the amount of customs duty collected as a percentage of total imports of the
items concerned.
23 Concerning items previously subject to balance-of  payments restrictions, quotas are being eliminated
at their agreed phase-out dates (1995, 1996, 1997 or 2001, depending on the item) (GATT document L/7449,29 April 1994;  and Note 6 of Part I Section I of Schedule LX – Republic of Korea, 15 April 1994).  Theminimum access commitment with respect to rice consists of increasing imports from 1% to 4% of domesticconsumption over a ten-year period (Annex 5 of the WTO Agreement on Agriculture).Republic of Korea WT/TPR/S/73
Page 43
July 1997, Korea converted restrictions in the form of quotas affecting 142 ten-digit items covered
under this phase-out programme into tariff-only or tariff-quota treatment, as scheduled24;  the
remaining restrictions on 8 ten-digit HS items (certain milk cows and bovine cattle not pure-bred,
certain types of beef meat and carcasses) are to be eliminated on 1 January 2001 (section (v)(b),
Chapter IV(2)(ii)(a));  further development on the rice quota may be subject to negotiations, according
to the authorities.  Korea's agricultural commitm ents as contained in Schedule LX cover both
quantitative restrictions and tariff quotas;  these could be more clearly explained by explicit reference
in the Schedule to other relevant GATT/WTO documents.
01,0002,0003,0004,0005,0006,0007,0008,0009,00010,000
Duty free >0- 5 >5-10 >10-15 >15-20 >20-25 >25-30 >30
Calculations exclude specific duties and include the ad valorem component of mixed rates.  
WTO Secretariat calculations, based on data provided by the Korean authorities.MFN 1996
MFN 2000Number of tariff linesChart III.1                                                
Distribution of MFN tariff rates, 1996 and 2000
Tariff rates
Note:
Sourc e:
26. Tariff quota levels are being increased progressively for items other than manioc, manioc
pellets, roots and tubers, rye for seed, malting barley, oats for seed, maize, sorghum, certain kinds of
cereal flour, potato flour and meal, malt, wheat, certain starches, groundnuts, soya beans, sesamum
seeds, artificial honey, flours, meals, silkworm cocoons and silk, for which no increases in tariff quota
levels were envisaged in Korea's Schedule.  Administration of tariff quotas remains with agricultural
associations or state-trading agencies (section (vi)  and Chapter IV(2)(ii)(a));  for certain items these
                                                     
24 Accordingly, on 1 July 1997 restraints on imports of 37 ten-digit HS96 items were eliminated;  since
then, most of these products have been subject to a tariff- only regime (meat and meat preparations of swine and
fowl (species Gallus domesticus), orange and citrus fr uit juice/concentrates), while six items (natural honey,
oranges and other citrus fruit, malt (not roasted), and raw silk), which are subject to high above-quota rates,benefited from tariff quota access conditions (W TO documents G/AG/N/KOR/11, 15 September 1997;
G/AG/R/13, 19 December 1997;  G/ AG/N/KOR/21, 18 December 1998;  IMA/W/11, 2 June 1997;  and
G/AG/R/18, 7 May 1999).WT/TPR/S/73 Trade Policy Review
Page 44
agencies may impose a mark-up on sales in addition to the in-quota tariff.  Quota allocation has been
either on first-come first-served basis (green tea, bone meal, supplementary feed, mixed
(concentrated) feed, whey, sweet potatoes) or on the historical import performance or production
capacities (processed cereal grains, maize, manioc starch, malting barley, and breeding livestock
(numbers of livestock registered))25 or quota auctions (other milk and cream, whole milk powder,
sesame oil and its fractions, chestnuts, and jujubes).
27. In the context of the WTO Committee on Agriculture, since 1995 Korea has regularly notified
and clarified matters relating to the degree of utilization of its tariff quotas (Chapter IV(2)(ii)(a)).
Trading partners with an export interest into the Korean market have expressed concern over the
involvement of state agencies and producers associations in tariff quota allocation;  according to the
authorities, their involvement does not violate WTO provisions and tariff quotas are allocated in a fairand transparent manner.
"Autonomous" tariff quotas
28. In addition to WTO-related agricultural tariff quotas, Korea has continued to grant
concessional access through autonomous tariff quotas, usually for raw materials, inputs,
semi-processed goods, components, parts and engines (61 four-digit HS items in 2000, Table III.2).The purpose of these measures is to ensure the smooth supply of certain imported raw materials, price
stability of imported goods affected by price hikes and of goods produced using the imported goods,
and narrow differences in tariff rates between like products.
29. Under the Korean Customs Act, Korea applies the in-quota rate within the limit of 40% above
or below the basic/general rate, and the out-of-quota rate within the limit of basic/general rate or the
basic/general rate plus 40%.  At present, all the in-quota rates are below the basic/general rate.  The
only exception was bananas, for which the general/basic rate was applied to in-quota imports;  higherrates of 60% or 70% (Table AIII.1) were applicable to out-of-quota imports, but were eliminated on
1 July 1999 (now subject to an adjustment duty of 50%, which is below the bound rate of 94% as of
2000).  The list of items subject to tariff quot as is updated every six months, upon the request of
government agencies and industries concerned.  Quota levels are set and operated by the Ministry of
Finance and Economy (MOFE), based on the needs and requests of relevant government agencies and
recommendations from the relevant industry associations designated by the competent government
agencies.  Industry associations responsible for quota operation are subject to government
supervision.  The authorities indicated that the quota policy does not discriminate against foreign
suppliers or foreign enterprises operating in Korea.
26
                                                     
25 WTO document G/STR/Q1/KOR/6, 7 June 1999.
26 However, there is concern by some that the involv ement of these associations in quota allocation, a
common practice in Korea (section (2)(i)), may limit bu siness opportunities for foreign suppliers or foreign
firms operating in Korea or their customers who may suffer discrimination for the access to lower cost inputsallowed by tariff quotas (European Commission, 1999).  In 1998, the authorities recognized the possibility of
conflict and expressed their intention to strengthen the supervision of competent ministries in order to ensure thetransparency and fairness of the recommendation system (Ministry of Commerce, Industry and Energy (1998b)).Republic of Korea WT/TPR/S/73
Page 45
Table III.2
Autonomous tariff quotas, January-June 2000
(Per cent)
Tariff rate
HS Description General
(temporary)In-quota applied WTO bound rate
0404 Whey (for feeding) 20 7 20/69.3a
0601 Dormant bulbs of lilies 8 4 28.2
0714 Manioc chips (for alcoholic beverages) 20 10 20/926.8a
0714 Manioc pellets (for feeding) 3 2 3/926.8a
1001 Wheat (for feeding) 5(3) 1 5.1
1002 Rye (for feeding ) 3 2 9.4
1003 Unhulled barley (for feeding) 5 2 20/338.4% or
W 340/kg. whichever
is greatera
1003 Malting barley 30 10 30/535.8a
1005 Maize (corn) (for feeding) 5(3) 0 2.4/342.8a
1107 Malt (for beer) 30 15 30/281a
1201 Soybeans (for feeding) 5 2 5/503.2% or
W 988/kg. whichever
is greatera
1214 Alfalfa (for feeding) 20 1 14
1518 Animal or vegetable fats and oils and their
fractions (for feeding)831 9 . 8
2302 Bran (for feeding) 5 2.5 8.0
2510 Natural calcium phosphates 1 0 1
2603 Copper ores 1 0.5 1
2607 Lead ores 1 0 Unbound
2608 Zinc ores 1 0 1
2709 Petroleum oils and oils obtained from
bituminous minerals, crude (for naphtha)5 1 Unbound
2711 Propane and butanes 5 1.5 5
2825-3823 Technical material for agri-chemicals 8 2 11.3
3102 Urea (for mixtures of fertilizers) 8 5 11.9
3104 Potassium chloride 1 0 6.5
3204 Disperse dyes and preparations based thereon,
acid dyes and preparations based thereon,
mordant dyes and preparations based thereon,
reactive dyes and preparations based thereon86 1 3
3206 Pigments and preparations based on titanium
dioxide: containing 80% or more by weight of
titanium dioxide calculated on the dry weight861 3 . 9
3501 Casein and caseinates 20 8 23.5
3912 Plasticized cellulose acetates 5 2 6.5
4101-03 Raw hides and skins 2 1 7-11
4104 Pre-tanned bovine leather 5 3 10
4401 Wood in chips or particles 2 1 Unbound
4403 Wood in the rough 1.2 0 2
4408 Sheets for plywood of a thickness exceeding
0.5 mm52 . 5 1 0
4702-4706 Pulp 2 1 2,4
Table III.2 (cont'd)WT/TPR/S/73 Trade Policy Review
Page 46
Tariff rate
HS Description General
(temporary)In-quota applied WTO bound rate
5002 Raw silk 8 3 47 or W 15,821/kg.
whichever is greater
5205 Cotton yarn 8 2 15.8
5403 Artificial filament yarn of viscose rayon 8 2 17-30
5403 Artificial filament yarn of cellulose acetate 8 5 15.8
7002 Fused quartz (for semi-conductor) 8 3 13
7201 Non-alloy pig iron 2 1 2
7204 Scrap waste 1 0 2
7207 Slabs (for forging) 3 2 4
7207 Billets 3 1 4
7208 Hot flat-rolled product 4 3 4-8
7226 Amorphous ribbon (for core of transformer) 8 5 8
7229 Wire of other alloy-steel 8 6 8
7402 Unrefined copper 2 1.5 8
7601 Unwrought aluminium, not alloyed 3 2 5
7602 Aluminium waste and scrap 1 0 3
7605 Aluminium wire, not alloyed:  of which the
maximum cross-sectional dimension exceeds
7 mm (for air conditioner)84 1 0
7606 Aluminium plates, sheets and strip 8 6 10
8104 .. 5 3 ..
8105 Cobalt powders 3 2 5
8411 Turbo-jets, turbo-propellers and other gas
turbines and parts (for aircraft)31 5
9032 Automatic regulating or controlling instruments
and apparatus (for aircraft)51 8
.. Not available.
a Out-of-quota bound rates.
Note: No ten-digit HS tariff positions are indicated by the authorities.  In several cases description does not correspond to a specific
ten-digit HS tariff position;  therefore it is not possible to estimate the trade weight of this measure.  In cases where out-o f-quota
rates are set, the in-quota rate is the general tariff.
Source: Information provided by the Korean authorities.
(f) Applied MFN tariffs
30. Since its previous Review, Korea has introduced changes to its tariff in accordance with the
scheduled implementation of its binding commitments (section (b)) and its domestic policy
considerations.  Between 1996 and 1999/2000 the overall simple average applied MFN tariff rate fell
slightly from 14.4% to 13.8%.27  The OECD trade-weighted average dropped from 10.9% in 1996 to
10.6% in 1999.  The simple average is expected to fall to 12.7% once the Uruguay Round tariff cuts
for both agricultural and industrial products are fully implemented (including ITA items).
                                                     
27 During this period tariffs on a large number of items have either been lowered (e.g. whiskies, liquors,
brandies, 182 raw materials (natural rubber, wool, palm oil, etc.) and intermediate/semi-finished (methanol,naphthylamine, etc.) goods or suppressed (e.g. ITA-related telecommunication and information equipment,ships) (APEC, 1999).Republic of Korea WT/TPR/S/73
Page 47
31. Further reductions in tariffs may arise from:  Korea's participation in the ITA-2 negotiations
(targeting the elimination of tariffs on 150-200 items by the year 2002);  and APEC's Accelerated
Tariff Liberalization (ATL) Initiative based on the 1998 Early Voluntary Sectoral Liberalization
(EVSL).  The ATL Initiative, which was presented to the WTO General Council in the context of the
Preparation for the Seattle Ministerial Conference, is aimed at eliminating tariffs in certain sectors
(forest products, fish and fish products, toys, medical equipment and instruments, environmentalgoods and services, energy), reducing tariffs on certain items to levels ranging from zero to 5% (gems
and jewellery), and implementing the Uruguay Round Chemicals Tariff Harmonization Agreement
(CHTA) by end 2010 at the latest.
28
32. The gap between applied and bound rates imparts a degree of uncertainty to Korea's tariff.
This gap has declined since 1996, however, mainly as a consequence of the substantial fall in boundrates.  The difference between average applied and bound rates in 2000 was much higher for industrial
products than for agricultural products (Charts III.2 and III.3).  Applied MFN tariff rates for several
(mostly manufactured) items will have to come dow n as they currently exceed the bound rates that
will obtain once the Uruguay Round is fully implemented.
33. Interestingly, the average rate of customs duty collected on total imports was only 2.9% in
1998 (Chart III.4).  This is not only considerably lower than the 1996 rate of 4.4%, but also less than
one quarter of the average applied MFN rate.  The large and growing gap between the average applied
MFN rate and the collected duty rate can be explained, inter alia , by reduced in-quota rates under
tariff quotas (section (e)), duty concessions/exemptions (section (j)) and, to a lesser extent, by trade
preferences (section (k)), which mitigate the burden of tariffs on certain items and on imports of
products from certain countries.
(g) MFN tariff dispersion
34. The potential efficiency losses associated with the customs tariff depend not just on the
average applied MFN tariff rates, but also on the dispersion of those rates across products.  Judging
from the four summary indicators (9-12) of tariff dispersion reported in Table III.1 as well as in
Chart III.1, the dispersion in applied MFN tariff rates has hardly changed since 1996 despite the high
concentration of 6,800 tariff lines under the 8% duty rate resulting from tariff reductions on152 industrial items in 1997.  In 2000, imports of five ten-digit HS96 items (involving manioc) bear
the highest ad valorem  tariff of 926.8%, nine items (certain cereals and inulin) are subject to the
second highest rate of 835.9%, and sorghum for seed is levied at the third highest rate of 814%;  about
84 items (agricultural, food and chemicals) are subject to rates ranging from 105% to 787.8%.
                                                     
28 For products like paper products and toys, the ATL Initiative builds on the Uruguay Round “zero for
zero” arrangements with a view to expanding participation and eliminating tariffs on all products covered;Korea is a participant in these arrangements.  By 1999, over 30 c ountries were in the process of implementing
the CTHA (WTO documents WT/GC/W/138, 26 January 1999 and WT/GC/W/138/Add.1, 22 April 1999).WT/TPR/S/73 Trade Policy Review
Page 48
050100150200250300350
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24Per cent
HS ChapterHS Chapter
01
02
03
04 
0506
07
0809
10
1112
13
1415
16
17
18
1920
21
2223
24Description
Live animals
Meat and edible meat offals
Fish and crustaceans, molluscs and other aquatic invertebrates
Dairy produce, birds eggs, natural honey, edible products of animal origin  
Products of animal origin, n.e.s.Live trees and other plants;  bulbs, roots and the like;  cut flowers
Edible vegetables and certain roots and tubers
Edible fruit and nuts;  peel of citrus fruits or melonsCoffee, tea, mate and spices
Cereals
Products of the milling industry;  malt;  starches;  wheat glutenOil seeds and oleaginous fruits;  miscellaneous grains, seeds and fruit
Lacs;  gums, resins and other vegetable saps and extracts
Vegetable plaiting materials;  vegetable products n.e.s.Animal or vegetable fats and oils and other cleavage products;  prepared edible fats; etc.
Preparations of meat, or fish or of crustaceans, molluscs or other aquatic invertebrates
Sugars and sugar confectionery
Cocoa and cocoa preparations
Preparations of cereals, flour, starch or milk;  pastrycooks' productsPreparations of vegetables, fruit, nuts or other parts of plants
Miscellaneous edible preparations
Beverages, spirits and vinegarResidues and waste from the food industries;  prepared animal fodder
Tobacco and manufactured tobacco substitutesChart III.2
Applied and bound tariffs on a gricultural products , 2000 and 2004
Avera ge applied rate 
50.3%Average final bound rate
61.5%
Source :  WTO Secretariat calculations, based on data provided by the authorities of Korea.Note:     Calculations exclude specific duties and include the ad valorem part of mixed rates.
               The absence of entries for chapters 03, 05, 10, 11 and 16 is due to non-bindings.Applied rate (2000)
Final bound rate (2004)
Overall average applied  rate 
HS 01-97 (2000)
13.8%Republic of Korea WT/TPR/S/73
Page 49
05101520253035404550
25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 61 63 65 67 69 71 73 75 78 80 82 84 86 88 90 92 94 96Per cent
HS ChapterAverage applied rate
7.5%
HS         Description
Chapter  
25          Salt; sulphur; earths and stone, etc.26          Ores, slag and ash27          Mineral fuels, mineral oils, etc.28          Inorganic chemicals; organic or               inorganic compounds of precious              metals, etc.29          Organic chemcials30          Pharmaceutical products31          Fertilizers    
32          Tanning or dyeing extracts etc. 
33          Essential oils and resinoids;              perfumery, cosmetic or toilet              preparations34          Soap, organic surface-active               agents washing prep., etc.    35          Albuminoidal substances;              modified starches; glues, etc.36          Explosives; pyrotechnic products;              matches, etc
37          Photographic or cinematographic 
             goods38          Miscellaneous chemical products39          Plastics and articles thereof40          Rubber and articles thereof41          Raw hides and skins and leather42          Articles of leather, etc.43          Furskins and artifical fur;               manufactures thereof44          Wood and articles of wood, etc.45          Cork and articles of cork
46          Manuf. of straw, of esparto, etc.   
47          Pulp of wood or of other               fibrous cellulosic materialHS        Description
Chapter
48          Paper and paper board, etc.49          Printed books, newspapers, etc.50          Silk51          Wool; fine or coarse animal              hair, etc.52          Cotton53          Other vegetable textile fibres 54          Man-made filaments   55          Man-made staple fibres 
56          Wadding, felt and non-wovens;
              special yarns; twine, cordage, etc.57          Carpets; other textile floor              coverings58          Special woven fabrics; lace, etc.59          Impregnated, coated, covered or              laminated textile fabrics, etc.60          Knitted or crocheted fabrics    61          Articles of apparel and clothing              accessories, knitted or crocheted
62          Articles of apparel and clothing
              accessories, not knitted, etc.63         Other made-up textile articles;              sets, worn clothing, etc.64          Footwear, gaiters, etc.65          Headgear and parts thereof66          Umbrellas, walking-sticks, etc. 67          Prepared feathers and down, etc.68          Articles of stone, plaster, etc.69          Ceramic products70          Glass and glassware
71          Natural or cultured pearls,
              precious or semi-precious stones,              precious metals, etc.HS         Description
Chapter
72          Iron and steel73          Articles of iron and steel74          Articles of iron and steel75          Nickel and articles thereof76          Aluminium etc. 78          Lead and artilces thereof   79          Zinc and articles thereof 80          Tin and articles thereof81          Other base metals, etc.
82          Tools, implements, cutler
              spoons and forks, etc.83          Misc. articles of base metals84          Nuclear reactors, boilers,              machinery, etc.85          Electrical machinery and              equipment, etc.86          Railway or tramway               locomotives, etc.87          Vehicles other than railway
              or tramway rolling-stock; etc.
88          Aircraft, spacecraft, etc.89          Ships, boats, etc.90          Optical, photographic, etc.               apparatus91          Clocks and watches, etc.92          Musical instruments, etc.93          Arms and ammunition, etc.94          Furniture, bedding, etc.95          Toy, games, etc.96          Miscellaneous manuf. articles
97          Works of art, antiques, etc.
Chart III.3
Avera ge tariff rates on manufactured products b y HS cha pter, 2000 and 2004
26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 79 81 83 85 87 89 91 93 95 97
Sourc e:  WTO Secretariat calculations, based on data provided by the authorities of Korea.Note:  Calculations exclude specific duties and include ad valorem parts of mixed rates and recent improvements in tariff binding 
            commitments (i.e., automobiles, ITA items).  The absence of entries for chapters 25, 26, 27, 28, 30, 33, 34, 38, 39 , 42, 43, 44, 47, 50, 
            68 , 69, 70, 73, 82, 84, 85, 87, 89, 90, 91, 94 and 97 is due to non-bindin gs.  Some items are finall y bound u p to 2009.Average final bound rate 
9.7%Overall average applied  rate 
HS 01-97 (2000)
13.8%Applied rate (2000)
Final bound rate (2004)WT/TPR/S/73 Trade Policy Review
Page 50
0246810121416
1995 1996 1997 1998 1999Source :  National Satistical Office (2000), Monthly Statistics of Korea: 2000.5, Seoul.Chart III.4                                       
Share of customs duties collection in tota l import value and indirect tax revenue, 
1995-99
Per cent
Share of custom duties to total import valueShare of custom duties to total indirect tax 
revenue
(h) MFN tariff escalation
35. Minor changes in the customs tariff have made little change in the pattern of tariff escalation
since 1996 (Chart III.5 and Table AIII.2).  Notable exceptions involved the textiles and leatherindustries, which benefited from more pronounced escalation.  Higher tariff protection persisted for
semi-manufactures compared to finished items of the food, beverages and tobacco, paper printing and
publishing, and fabricated metal products and machinery industries;  for these industries, the domestic
production of raw materials and inputs receives more protection than subsequent production stages.
29
(i) "Flexible" tariffs
36. Since its previous Review, Korea has maintained legislative provisions allowing for the
application of temporarily higher duty measures, termed flexible tariffs, within the limit ofWTO bindings.  In addition to autonomous tariff quotas (section (e)), these measures include
adjustment emergency and special emergency duties (section (ix)(b), Chapter IV(2)(ii)(a)), and
seasonal duties.
30  Policy with respect to the use of such flexible tariffs has remained essentially
unchanged since the previous Review.
                                                     
29 In the case of printing and publishing tariff "de-escalation" reflects Korea's compliance with
international practices requiring the implementation of zero duties on these items.
30 Price stabilization duties were eliminated in December 1996.Republic of Korea WT/TPR/S/73
Page 51
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.5
Tariff escalation by 2-digit ISIC industry, 1996 and 2000
Calculations exclude specific duties and include the ad valorem  component of mixed rates.  
WTO Secretariat calculations , based on data provided b y 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
(12.0%)
Note:
Source :Per cent
First sta ge of processin g Fully processed Semi-processedPer cent
2000
Average applied rate in manufacturing
(11.6%)1996WT/TPR/S/73 Trade Policy Review
Page 52
Adjustment duties
37. Adjustment duties have been applied to, inter alia , temporarily protect less-competitive
domestic goods, or counteract the impact of increas ed imports of items competing with vulnerable
domestic items (e.g. agricultural, forest, livestock and marine products);  customs may impose a rate
equivalent to the price difference between domestic and foreign goods.  The schedule of these duties
is publicly announced no more than four to five days (Official Gazette) or twenty days (domestic
press) before its entry into force.  Such short notice seems to cause uncertainty for importers and
foreign suppliers;  in 1998, the authorities were considering the possibility of increasing the period
between publication and the effective date.31
38. After reaching a peak of 80 items in 1997, under the IMF package (Box I.1), product
coverage (mainly fish, rice, sugar, wood and textile articles, bicycles, toys) has gradually declined to28 items in the year 2000 (Table III.3);  ad valorem  rates have ranged from 1.3 to 10 times the item's
general tariff level, and peaked at 100% (for certain fish in 1998) (Table AIII.3).  Their duration
(previously set at a six-month renewable period) was increased to one year in 1997.
32  As indicated in
Tables III.3 and AIII.3, the level of adjustment duties appears to be in conformity with WTO binding
commitments.
Special emergency and seasonal duties and surcharges
39. In line with the provisions of the WTO Agreement on Agriculture, a special emergency duty
on agricultural, forest and livestock products, in the form of an additional duty (surcharge) may be
levied in the event of sudden increases in imports or drops in import prices (section (ix)(b)).
40. A seasonal customs duty may be charged for goods whose price varies depending on the
season, to protect the domestic market and industry against imports of the same, similar or substitute
goods;  this duty may be either a higher rate than the basic rate (with the higher rate being equivalentto the difference between domestic and foreign prices), or a lower rate (equivalent to 40% of the basic
duty).  No such duties are currently in force.
41. Since 1996, Korea has continued to levy a surcharge of (US$0.12 per litre (May 1999) and
US$1.7 per barrel (March 2000)) on top of general import duties on imports of petroleum products;  it
is calculated on the basis of the difference between the import/refining price and theminimum/maximum selling prices, and may also take into account losses incurred by petroleum
traders.
33  Revenue from the surcharge, set by the Ministry of Commerce (previously Trade), Industry
and Energy (MOCIE) in consultation with the MOFE and the Ministry of Planning and Budget, is
used to finance energy and resource projects.
                                                     
31 European Commission (1999);  Ministry of Commerce, Industry and Energy (1998b).
32 European Commission (1999).
33 Petroleum Business Act as amended by Act 5575, 23 September 1998;  Article 24 of the
Enforcement Decree of the Petroleum Business Act as amended on 24 May 1999.Republic of Korea WT/TPR/S/73
Page 53
Table III.3
Adjustment duties, January-December 2000
(Per cent)
HS code Description General rate Adjustment rate WTO bound rate
0301 Sea bream 10 80 70% or W 5,122/kg.
whichever is greater
Sea bass 10 80 70
Loaches 10 70 60% or W 524/kg.
whichever is greater
Eels 10 30 30% or W 1,908/kg.
whichever is greater
0303 Alaska pollack 10 30 30
Saury 10 50 50
Croakers 10 90 80
Skate 10 70 60
0304 Frozen fillets of Alaska pollack 10 30 25% or W 383/kg.
whichever is greater
0306 Shrimps and prawns (frozen) 20 40 35
Shrimps and prawns (salted or in brine) 20 70 60% or W 396/kg.
whichever is greater
0307 Squid (frozen) 10 40 40
Pulp squid (frozen) 20 40 35% or W 622/kg.
whichever is greater
0709
0712Oak mushrooms 30 90% or W 1,625/kg.
whichever is greater80% or W 1,444/kg.
whichever is greater
0803 Banana 30 60 50
1605 Squid 20 30 25% or W 395/kg.
whichever is greater
1902 Chinese vermicelli 8 50% or W 395/kg.
whichever is greater50% or W 395/kg.
whichever is greater
1904 Rice, steamed and boiled 8 50 50
2103 Mae joo 8 50% or W 201/kg.
whichever is greater40% or W 160/kg.
whichever is greater
Sauces, preparations therefore and mixed seasonings 8 50 50
4412 Plywood, veneered panels and similar laminated
wood81 5 1 4
5004 Silk yarn 8 20 18
5007 Woven fabrics of silk 8 20 18
5208 Woven fabrics of cotton 8 18 16
5803 Gauze of cotton 10
6302 Toilet linen and kitchen linen of cotton 13 18 16
8479 Chip mounter 8 21 18
8712
8714Bicycles
Frames and forks of bicycles81 3 1 1
Note: No ten-digit HS tariff positions are indicated by the authorities.  In several cases description does not correspond to a specific
ten-digit HS tariff position;  therefore it is not possible to estimate the trade weight of this measure.
Source: Information provided by the Korean authorities.WT/TPR/S/73 Trade Policy Review
Page 54
(j) Duty concessions/exemptions
42. Despite intentions to curtail gradually duty reductions and exemptions available to specific
industries (i.e. hi-tech), and the introduction of "sunset" rules for other tax incentives in 1998/99
(section (4)(ii)), virtually no changes have been in troduced to Korea's scheme for the concessional
entry of imports during the period under review.34  At present, imports eligible for duty reductions or
exemptions include35:
- specific goods for multiplication and breeding of animals and plants and for
improvement of seeds (100% reduction);
- marine products caught by Korean vessels in foreign territorial seas with the
permission of the foreign government (100% reduction);
- goods for leading technology (e.g. automation machines, electronics) or defence
industries (30% reduction);
- raw materials for the production of aircraft (80% reduction);
- machinery, equipment and their parts required for the arrival and departure of aircraft
and for security of aviation and for ground maintenance that cannot be properly
manufactured domestically (specified in Ministerial Regulation) (100% reduction);
- capital goods for foreign investment projects (100% reduction) (Chapter II(8))36;
- goods for government agencies (also not subject to customs control)
(100% reduction);
- goods for research (80%-90% reduction);  and
- goods for environmental pollution control (65 items), recycling, and prevention of
industrial accidents or occupational diseases (59 items) (50% reduction).
43. Between 1996 and 1999, the share of imports covered by these concessions to total imports
declined from 0.1% to 0.002%;  their value dropped to less than one fourth of its 1996 level.
44. Since 1967, additional concessional treatment has been allowed through the payment of
customs duties for certain items in instalments spread over a period of up to five years.37  These items,
which are designated by Notice of the Minister of Finance and Economy or Ministerial Regulation,
include:  machine equipment, basic installation material, construction operation material andstructures thereof, and equipment for work;  direct imports by the central or local governments;
imports by medical institutions and facilities for social welfare;  goods for research and development
and for experiment and practice imported by institutes attached to enterprises;  goods imported by
small and medium-sized (SMEs) manufacturing enterprises for direct use.  The share of imports
eligible for this treatment dropped from 1.5% (1996) to 0.1% (1999), almost one ninth of their 1996level.
                                                     
34 WTO (1996);  and The Korea Herald [Online], 11 January 1997.  Available
at:  http://www.koreaherald.co.kr/ [30 September 1999].
35 Korea Customs Service (1999).
36 APEC (1999).
37 Korea Customs Service (1999).Republic of Korea WT/TPR/S/73
Page 55
(k) Tariff preferences and rules of origin
Preferences
45. Korea continues to grant limited preferential tariff treatment under the Global System of
Trade Preferences (26 six-digit HS items), Trade Negotiations among Developing Countries
(12 six-digit HS items), the Bangkok Agreement (250 six-digit HS items) and since 2000, unilateral
concessions to least developed countries (80 six-digit HS items) permitting reductions of between7.5% and 100% (Chapter II(6)) to the MFN rate, with most items benefiting from tariff cuts greater
than 10%.
38
Rules of origin
46. Since 1996, Korea has continued to operate non-preferential rules of origin only.  These rules,
notified to the WTO, were last amended in 1998 and are applied equally to all trade policyinstruments.
39  They are based on the criteria of wholly obtained goods and substantial transformation
(which involves a change in six-digit HS tariff classification).  The 1998 changes brought:  a more
detailed definition of the term minimum processing;  a more concrete description of when a country
of origin listing is required;  and the replacement of value-added reports used to determine the country
of origin for eight items (previously subject to the Import Diversification Scheme) by tariffclassification change.
40
47. In the context of the WTO/WCO (World Customs Organization) Harmonization Work
Programme (HWP), Korea has actively participated in and contributed to the WTO Committees on
Rules of Origin (e.g. dyeing/printing issues concerning textile products, the implications of
implementation of the Harmonized Rules of Origin on other WTO Agreements) and on Regional
Trade Agreements (preferential rules of origin).41
48. To enhance consumers' rights, Korea has maintained the marks of origin requirement for
imports of 650 four-digit HS items (185 agricultural and marine products, and 465 i ndustrial
products), down from 678 items at the time of its 1996 Review (section (x)(c))42;  the reduction
reflects the elimination of this requirement for intermediate materials imported by manufacturers for
use in the production process.
(iii) Customs valuation
49. Korea is a signatory to the Tokyo Round Customs Valuation Agreement;  it applies the
WTO Agreement on Customs Valuation and has not invoked the provisions on delayed
implementation.  Under the 1996 transfer pricing regime, explanations must be provided at the time of
the corporate tax declaration on the type of and reasons for the transfer pricing method that has been
used between commercially related buyer and seller.  According to one WTO Member, this
                                                     
38 APEC (1999).
39 WTO document G/RO/W/26, 25 March 1998.
40 US Embassy (1999).  The eight items now covered by tariff classification change are:  printers
(HS 8471.60.201);  cassette-players for vehicles (HS 8519.93);  portable type disc-operated record players(HS 8519.99);  radio-telephony apparatus for vehicles (HS 8525.20);  cassette type radio-broadcast receivers for
motor vehicles (HS 8527.21);  disc type radio-broadcas t receivers for motor vehicles (HS 8527.31);  video
games of the kind used with a television receiver (HS 9504.10);  and golf clubs (HS 9506.31).
41 WTO documents WT/REG/W/32, 25 November 1998;  WT/REG/GEN/M/4, 14 June 1999;  and
G/RO/M/22, 17 May 1999.
42 APEC (1999).WT/TPR/S/73 Trade Policy Review
Page 56
requirement is burdensome and incompatible with OECD guidelines;  its implementation has been
problematic for foreign companies importing intermediate products or finished products to their
Korean subsidiaries because of the lack of coordination between the tax authorities (Office of
National Taxation, ONTA) and Customs in transfer pricing matters (different regulations and tax base
objectives), thus, inter alia,  raising double taxation concerns.43  The authorities stated that this method
does not contravene relevant OECD guidelines, noted that this is used in other WTO Members(including the EU and the United States), and indicated that continuous efforts are being made in
Korea to minimize the problem.
50. Since 1996, Korea has used the transaction value for 99% of all cases while, in certain
instances, where the buyer and seller are commercially related, the deductive value method has been
utilized (mainly for cosmetics and pharmaceuticals).   The authorities indicated that the deductive
value method, which may involve the use of standard profit margins reflecting average margins in the
relevant domestic industry, has been used whenever the relation between buyer and seller influences
the transaction value and the transaction value of identical or similar goods is not applicable.
51. In April 1999, Korea addressed the need for the WTO Committee on Customs Valuation and
the Technical Committee on Customs Valuation of the WCO (World Customs Organization) to ensurethe process towards uniformity and certainty in the implementation and operation of the
Customs Valuation Agreement.
44
(iv) Other levies and charges
52. In addition to low fees for customs inspection and for storage outside the bounded areas,
imported and domestic goods are equally subject to several internal indirect taxes (section (4)(i)(a)).
(v) Import prohibitions, restrictions, and licensing
53. Korean legislation governing import approval procedures (Foreign Trade Act (FTA)), which
was notified to the WTO, was amended in January 199745;  as a result, Korea recast its import (and
export) licensing requirements from a positive to a single negative list of prohibited or restricted
items (the Export and Import Notice published by the MOCIE);  licensing for purposes such as
monitoring was also abolished.46
54. Import prohibitions or restrictions may be operated for the protection of public morals, human
health, hygiene and sanitation, animal and plant life, environmental conservation or essential security
interests in compliance with domestic legislati on requirements or international commitments.
                                                     
43 International Taxation Co-ordination Law, in force since 1 January 1996;  National Tax
Administration Notification N° 96-40, 7 November 1996;  European Commission (1999).
44 WTO document G/VAL/W/33, 14 April 1999.
45 Between 1997 and 1998 Korea notified its legislation (including a translated version supplied upon
the request of Japan) to the WTO Committee on Import Licensing;  Japan and New Zealand submitted questions(WTO documents G/LIC/N/1/KOR/1, 31 January 1997;  G/LIC//M/5, 7 May 1997;  and G/LIC/N/1/KOR/3,
14 April 1998).  Korea has regularly provided replies to the WTO Questionnaire on Import Licensing
Procedures.
46 This meant that requirements, such as the import licence issued by a foreign exchange bank and the
separate approval for payment in foreign currency,  were abolished (WTO document G/LIC/N/3/KOR/2,
15 April 1998).Republic of Korea WT/TPR/S/73
Page 57
(b) Import prohibitions
55. In the period under Review, outbreaks of diseases and pests in certain countries required
Korea, according to the authorities, to introduce import prohibitions on certain agricultural and
livestock products, such as ruminant animals, from the United Kingdom (as from March 1996, due to
Bovine Spongiform Encefalopathy) and cloven-hoofed animals from Chinese Taipei (as of
March 1997, due to Foot-and-Mouth-Disease).  Since June 1999, the importation, sale, and use ofpork possibly containing cancer-cau sing dioxin, as well as chicken and related food products from
Belgium has been prohibited until safety is ensured.
47  In response to concerns about the presence of
genetically modified (GM) soya bean in 82% of to fu sold in Korea, and in consultation with local
food manufacturers, labelling on GM soya beans was proposed and may enter in force in 2001.
Imports of soya beans cover 91% of domestic demand on beans;  96% of these imports originate inthe United States (GM beans represent 30% of beans from this country) and are sold at one third of
the price of the domestic produce.
48
56. In compliance with WTO commitments and the IMF stabilization package (Box I.1), Korea
advanced the elimination of its 1978 Import Diversification System (IDS) from 31 December 1999 to
30 June 1999, thus completely abolishing import prohibitions on sensitive items from Japansix months ahead of schedule.
49  As a result, in the latter half of 1999 competition was expected to
stiffen on import-competing items so as to provide an incentive for raising domestic
competitiveness (including improvements in technology, design, packaging and quality inspection
systems, and customers service);  increased imports may have an impact on the bilateral trade deficit
with Japan but may strengthen Korea's position in settling bilateral trade issues.50  To help meet this
challenge, Korea has developed a package of measures aimed at strengthening the technological base
of the domestic industry, particularly SMEs (section (4)(ii)).  In cases of particularly severe injury tothe local industry, Korea intends to adopt appropriate relief measures in accordance with relevant
domestic and WTO provisions.
(c) Import approval and restrictions
57. At present, items subject to approval or authorization requirements under 53 separate
domestic laws other than the Foreign Trade Act, can be imported by obtaining certification,permission, type approval, etc. (Table III.4, sections (ii)(e) and (ix)(b));  by 1999, these requirements,
which are contained in a Consolidated Public Notice (a single document containing all import
                                                     
47 The Korea Herald [Online], 6 August 1999.  Available at:  http://www.koreaherald.co.kr/cgi-
bin/searched_word.asp?qstr=bans|sale&path=/news/1999/06/__05/19990608_0540.htm [20 October 1999];  and
Reuters, 7 June 1999].
48 The Korea Herald [Online], 10 November 1999.  Available at:  http://www.koreaherald.co.kr/
[10 January 2000].
49 The IDS ban, which was conceived as a means of relieving Korea’s excessive trade imbalance with
Japan and of promoting a geographically balanced import structure, was removed in three tranches.  The last ten
digit HS items taken off the IDS list, at end June 1999, covered:  certain types of motor cars (including jeeps),
radial tyres for cars, engine parts, excavators machining centres, colour television sets (above 25 inch), videocassette recorders, portable radio-telephony apparatus, electric rice cookers, and cameras for 35mm roll film.
Press Release of the Ministry of Commerce, Industry and Energy of 30 December 1998 [Online].  Availableat:  http://www.mocie.go.kr/work/what/rel981230.htm [30 September 1999];  APEC (1999);  and The Korea
Herald  [Online], 1 July 1999.  Available at:  http://www.koreaherald.co.kr/ [30 September 1999].
50 According to a MOCIE survey, by mid 1999 the market shares of several popular Japanese products
for which IDS prohibitions were lifted at the end of  1998, had expanded to up to 92%;  these included
numerically controlled milling machines, camcorders, ceramics and china products, and analog watches(Digital ChosunIlbo [Online], 3 June 1999.  Available at:  http://www.chosun.com/w21data/html/news/199906/
199906030454.html [20 October 1999]).WT/TPR/S/73 Trade Policy Review
Page 58
certification requirements)51, covered 5,000 ten-digit HS items or about 50% of total tariff lines.
Non-compliance with standards and/or testing requir ements set by relevant ministries may result in
import prohibition of the item in question.  Alleged arbitrary prohibitions of imports of certain food
products seem to have been a source of trade friction with Australia, Canada, and the United States.52
Table III.4
Import licensing or prior authorization requirements since 1998
Law Product covered Related administrative organization
Ministry of Commerce,  Industry and Energy
Petroleum Business Act Crude oil, petroleum Korea Petroleum Association
High Pressure Gas Safety Control Act High pressure gas, container and facilities Korea Gas Safety Corporation
Liquified Petroleum Gas Safety and
Business Management ActGas appliances
Propane, butaneKorea Gas Safety Corporation
The Act of Control on the Production etc.
of Specified Substances for the Protection
of the Ozone LayerControlled substances under the Montreal
ProtocolMinistry
Electric Appliances Safety Control Act Designated electric appliances which can
cause danger or injuryNational Institute of Technology and
Quality
Law for Manufacturing Management of
ElevatorDesignated electric appliances which can
cause danger or injuryNational Institute of Technology and
Quality
Quality Management Promotion Act Designated consumer products which can
cause danger or injuryFITI Testing and Research Institute, Korea
Machinery, Meta and Petrochemical Testing
and Research Institute, Korea Testing andResearch Institute for Chemical Industry,
Korea Merchandise Testing and Research
Institute
Weights and Measures Act Legal measuring instruments Korea Machinery, Meta and Petrochemical
Testing and Research Institute
Ministry of Agriculture
Food Grain Management Act Rice Ministry
Fertilizer Management Act Agricultural fertilizer Administration, local governments
Agrochemicals Management Law Agrochemicals Rural Development Administration
Livestock Epidemics Prevention and
Control ActAnimals and animal products National Veterinary Research and
Quarantine Service
Plant Protection Act Plants and plant products National Plant Quarantine Service
Seed Industry Law Crop seeds Rural Development Administration
Livestock Act Pure-bred breeding stocks Korea Animal Improvement Association,
Korea Poultry Association
Pharmaceutical Act Veterinary medicine Ministry, Korea Animal Health Product
Association
Agro-Fisheries Product Quality Control
ActSilkworm eggs Administration, local governments
National Forestry Administration
The Law concerning Protection of Wildlife
and GameWildlife animals Administration, local governments
Ministries of Marine Affairs and Fisheries
Fisheries Act Marine animals and plants Ministry
Table III.4 (cont'd)
                                                     
51 In the context of the WTO Committee on Import Licensing, in 1997 Korea provided extensive
information on the operation of the Consolidated Public Notice (WTO document G/LIC/M/6,3 November 1997).
52 European Commission (1999).Republic of Korea WT/TPR/S/73
Page 59
Law Product covered Related administrative organization
Ministry of Finance and Economy
Foreign Exchange Management Act Coinage, banknotes, securities Foreign exchange banks, the Bank of Korea
Tobacco Business Act Tobacco seeds Ministry
Ministry of Science and Technology
Atomic Energy Act Nuclear materials Ministry
Radioisotope, radiation generators Korea Radioisotope Association
Ministry of Health and Welfare
Pharmaceutical Act Finished pharmaceuticals Ministry Korea Pharmaceutical Traders'
Association
Materials for medicine or for herbal drugs Korea Pharmaceutical Traders' Association
Medical devices Korea Medical Instruments Industrial
Cooperative
Narcotics Act Narcotics Ministry
Cannabis Control Act Cannabis
Psychotropic Substances Control Act Finished pharmaceuticals
Materials for medicineKorea Pharmaceutical Traders' Association
Food Sanitation Act Food, food additives, apparatus, container
and packageNational Quarantine Station or Regional
Food and Drug Administration
Quarantine Act Designated products National Quarantine Station or Regional
Food and Drug Administration
Public Health Act Sanitation-related products (e.g. detergent) National Quarantine Station or Regional
Food and Drug Administration
Recreation equipment Ministry
Ministry of Labour
Industrial Safety and Health Act Harmful substances (e.g. yellow
phosphorous matches, benzidine)Local labour administration
New chemical substances (e.g. chemical
elements, radioactive substances)Ministry
Safeguard measures
Harmful or hazardous equipment(e.g. cranes, lifts)
Protective equipment (e.g. safety helmet)Korea Industrial Safety Corporation
Ministry of Information-Communication
Radio Waves Act Apparatus of radio equipment
EMI or EMC equipmentRadio Research Laboratory
Telecommunications Basic Act Telecommunication equipment
Ministry of Culture and Sports
Act relating to Import and Distribution of
Foreign PublicationsForeign publications Ministry
Motion Picture Promotion Act Motion pictures
Act relating to Records and Video Works Record and video works Korea Ethics for Performing Arts
Committee
Tourist Promotion Act Casino machines and their parts Ministry
Cultural Properties Protection Act Cultural properties
Ministry of National Defence
Special Measure Act relating to DefenceIndustryMilitary products Ministry
National Police Agency
Firearms, Swords, Explosives etc. Control
ActFirearms, swords and explosives Agency
Table III.4 (cont'd)WT/TPR/S/73 Trade Policy Review
Page 60
Law Product covered Related administrative organization
Ministry of Environment
Toxic Chemicals Control Act Toxic substances Local governments, environmental
management offices or regional
environmental management offices
Chemical substances Ministry
Natural Environment Preservation Act Animals and plants detrimental to
ecosystem
Endangered wild animals and plantsEnvironmental management offices or
regional environmental management offices
Drinking Water Management Act Bottled water, water treatment chemicals
and their containersEnvironmental management offices or
regional environmental management offices
Wastes Control Act Wastes Korea Copper Industrial Cooperative
Federation of Korea Non-Ferrous Metal
Industry Cooperative Environmentalmanagement offices or regional
environmental management offices
Noise and Vibration Regulation Act Motor vehicles, etc. National Institute of Environmental
Research
Atmospheric Environment Preservation
Act
Ministry of Construction and Transportation
Motor Vehicles Control Act Motor vehicles Ministry
Construction Machines Control Act Construction machines Ministry
National Tax Administration
Liquor Tax Act Liquor District tax offices
Source: WTO document G/LIC/N/3/Kor/2, 15 April 1998;  Korean authorities.
58. No quantitative import restrictions apply on industrial items.  By June 2000, there were
eight import-restricted items (cattle and beef-related) other than rice-related items (sections (ii)(e) and
(ix)(b), and Chapter IV(2)(ii)(a));  by late 1999 restrictions on hot bean paste from China had been
eliminated while those on beef (under-utilized quota) and dairy items (safeguards between 1997 and
May 2000) became subject to WTO dispute settlement (Chapter II(7)(i)).53  Approval for the
importation of these items is required from either the Livestock Product Marketing Organization
(beef) or Korea Dairy Industries Association (milk powder).  Information relating to total quantity of
quotas and quota management organization is published in the Official Gazette.  The formalities of
filing quota allocations and obtaining import licences are published in the notice of the quota
management organization.54
59. Applications for licences are approved on a case-by-case basis after screening and approval
by the government agency concerned, and/or by the relevant producers' association, which provides
scope for potential conflict of interest;  as discussed earlier, allocation of WTO-related tariff quotas
has largely benefited these associations (sections (ii)(e) and (vi), and Chapter IV(2)(ii)(a)).  As stated
earlier (section (i)), health or safety related products, such as pharmaceutical and medicines, requireadditional testing or certification by recommended organizations before clearing customs.
60. As of January 1999, Korea has reduced the scope of the approval system for the importation
of used goods by lifting requirements for 72 second-hand products, including general machinery,
                                                     
53 Remaining restrictions related to live cattle (dairy and beef) and beef products are to be eliminated
by 2001 as agreed upon in the GATT/BOP Committee in 1989 (WTO document G/LIC/N/3/KOR/2,15 April 1998).  Quantitative restrictions on rice are to be subject to negotiations during the year 2004.
54 More information on the terms of quota allocation may be found in WTO document
G/LIC/N/3/KOR/2, 15 April 1998.Republic of Korea WT/TPR/S/73
Page 61
garments and optical instruments.55  Approval requirements for the following imports were abolished
in January 1999:  used machine tools;  used construction machines;  used shipbuilding materials;
used motorcycles with an engine capacity of between 500cc and 800cc;  used automobile parts and
components; cruisers of more than 20 years old and less than 1,000 gross tons (GT) in weight;  as well
as pleasure boats and freight vessels.  According to the Ministry of Commerce, Industry and Energy,
since 1975 the approval system for used goods had accomplished the goal of helping to develop thedomestic capital goods industry;  in 1997 second-hand good imports accounted for 0.1% of total
imports.
61. In response to the IMF's call for improved transparency of import and export certification
procedures (Box I.1), between April and July 1998, Korea abolished fish-length-based import
restrictions (on 5 species) and a seasonal import ban (3 species of fish), affecting, inter alia,
sea bream (Fisheries Act);  these restrictions had not been communicated to the WTO.
56  Further
action in 1998 included the elimination of the recommendation requirement for oil imports (Petroleum
Business Act);  the requirement to keep a management book of imported publications and notify
business closure (Act Relating to Import and Distribution of Foreign Publications);  the notification
requirement prior to import of ginseng products (Ginseng Industry Law);  the conversion from aregistration to a notification system for fertilizer import business (Fertilizer Management Act) by
1998.  Import approval for tobacco seeds (Tobacco Business Act) is to be abolished by the year 2000;
until then, the Korea Tobacco & Ginseng Corporation maintain exclusive import rights for this item
(section (vi)).
(vi) State-trading
62. Despite a fifth round of privatization, launched in 1998 (Box I.2), the State participates in a
wide-range of trade and/or trade-related activities, some of which are indicated in Table III.5.Between 1997 and end 1999 the number of state-owned enterprises (including government
enterprises, government-invested enterprises and their subsidiaries) was reduced from 108 to 91, thus
cutting employed staff from 210,000 to 186,000.
57  In addition to these enterprises owned and
controlled by the Central Government, there are about 200 so-called "grey area" public enterprises
with multiple and strong managerial and operational ties to the Government, and another298 enterprises owned and controlled by local authorities.  Figures contained in this paragraph do not
take into account state-owned financial institutions.
63. Most public enterprises benefit from monopoly status or from exclusive rights stipulated in
laws and regulations
58;  the authorities acknowledge that these enterprises are an extreme form of
government regulation with a longstanding incidence on the Korean economy.59  Irrespective of
                                                     
55 The Korea Herald  [Online], 1 January 1999.  Available at:  http://www.koreaherald.co.kr/
[10 January 2000].
56 Ministry of Commerce, Industry and Energy (1998a).
57 By end 1997, these enterprises produced W 70 trillio n (US$58 billion) of goods and services with a
net profit of W 1.7 trillion (US$1.4 billion);  their total expenditure in 1998 was expected to reach W 100 trillion
(US$82.8 billion) and their equity capital was esti mated to be at W 23.8 trillion (US$19.7 billion)
(WTO document WT/WGTCP/W/91, 31 August 1998).
58 Although the Monopoly Regulation and Fair Trade Act of 1980 prohibits import (or export) cartels,
under the Foreign Trade Act, if necessary to maintain or derly trade, the Minister of Trade, Industry and Energy
may authorize such cartels for imports (or exports) of specific goods from (to) a particular country.  In cases
where such cartels might restrict competition, prior consultation is required with the Fair TradeCommission (section (4)(iii)) (European Commission, 1999).
59 Korea's communication to the WTO Working Group on the Interaction between Trade and
Competition Policy, contained in document WT/WGTCP/W/91, 31 August 1998.WT/TPR/S/73 Trade Policy Review
Page 62
whether their monopoly status or exclusive rights are stipulated in laws or regulations, it is also
understood that this type of firm may discriminate against and restrict access to foreign supplies as
well as cause competition-related problems (section (4)(iii));  it seems that this has been the case in
operations of several enterprises including Korea Telecom, Korea Electric Power Corporation,
Korea Gas Corporation, Korea Heavy Industries & Construction, Korea Tobacco & Ginseng
Corporation, and Pohang Iron and Steel Company.60
Table III.5
State involvement in enterprises in Korea, 2000
Entity ActivityDegree of state ownership/situation in
privatization programme
Goods
Agriculture
Korea Tobacco and Ginseng Corp.
(KT&G)Manufacture and supply of tobacco and
ginseng products.13.83% / full privatization expected for 2000
Korea Ginseng Cooperative Federation
(KGCF)aStabilize domestic market of ginseng
products; promote ginseng industry.100% / ..
Ministry of Agriculture and Forestry
(MAF)aAvoid domestic market disturbances, which
may be caused by a sudden influx of
imported rice and barley.
National Forestry Cooperatives
Federation (NFCF)aDomestic price stabilization and fostering
forestry resources.Nil
National Livestock Cooperatives
Federation (NLCF)aAdministration of tariff quotas on natural
honey to stabilize domestic market prices.Nil
Cheju Citrus Grower's Agricultural
Cooperative (CCGAC)aPrice stabilization of oranges and Korean
citrus fruit;  promoting Korean citrus
farming.Nil
Livestock products marketing
organization (LPMO)aAdministration of tariff quotas on beef  to
stabilize domestic beef markets and to
ensure smooth implementation of the UR
commitments.Nil / to be eliminated in 2002
Agricultural and Fishery Marketing
Corp.aPrice stabilization, promote exports,
administer imports, improve marketing, andfoster food industry.Nil
Manufacturing (including food
processing)
Pohang Iron and Steel Corp. (POSCO) Production of a wide range of steel products. 9.84% / full privatization expected for 2000
Korea General Chemical Corp. (KGCC) Production of alumina and other by-products
thereof.98.7%  / full privatization expected for 2000
Korea Heavy industries and Construction
Corp.Manufacture of power generators, industrial
plants and marine engines.84.3% / full privatization expected for 2001
Mining and Energy
Korea Coal Corp. Price stabilization;  stockpiling coal. 98.6% / ..
Daehan Oil Pipeline Corp. (DOPCO) Construction and management of oil
pipelines;  delivery and stockpiling of oil
products.46.5% / full privatization expected for
June 2000
Korea National Oil Corp. Domestic and overseas oil exploration and
development;  export, import stockpiling,transportation; lease, and sales of crude oil
and its product.100% / ..
Table III.5 (cont'd)
                                                     
60 Korea's communication to the WTO Working Group on the Interaction between Trade and
Competition Policy, contained in document WT/WGTCP/W/91, 31 August 1998.Republic of Korea WT/TPR/S/73
Page 63
Entity ActivityDegree of state ownership/situation in
privatization programme
Korea Gas Corp. (KOGAS) Production and distribution of natural gas;
exploration and import/export of natural gas.26.86% / full privatization expected for 2002
Korea Electric Power Corp. (KEPCO) Power generation;  power transmission and
distribution;  electricity sales.52.72% / split into GenCo and subsequent
privatization (2000-2002);  split intodistribution company and subsequent
privatization (2001-2009)
Korea District Heating Corp. (KDHC) Thermal energy supply for space heating,
cooling, tap water heating and industrial
process heating.46.1% / full privatization expected for 2001
Services
Communications and media
Korea Telecom Corp. Nationwide local and long distance call
services;  multimedia services;  satellite
communication services.59.0% / reduce state-owned share to 33.4% by
2000
Korea Broadcasting System Public broadcasting service. 100%
The Korea Daily News Newspaper publishing. 49.9% / ..
Financial services
The Industrial Bank of Korea Specialized bank. 60.7%
The Korea Development Bank Development institution. 100%
The Export-Import Bank of Korea Development institution. 54.8%
Kookmin Bank Commercial bank 5.7%
Korea Housing Bank Specialized bank 9.1%
Transport
Korea Highway Corp. Highway construction and management. 77.8% / ..
Korean National Railways Construction and management of railways. 100% / privatization of management activities
by 2001
Inchon International Airport Corp. Inchon International Airport development
and operation.100% / reduce state-owned share to 49% by
2002
Other
Korea Appraisal Board Appraisal;  real estate consulting;  real estate
transaction information network.49.4% / ..
Korea Security Printing and Minting
Corp.Local currency supply. 100% / ..
Korea Land Corp. (KoLand) Acquisition, development and management
of land.71.7% / ..
Korea National Housing Corp. (KNHC) Land development, housing
construction/improvement/sales/rent/management, production and supply of
construction material.71.7%
Korea Housing Guarantee Corp. Housing guarantee for tenants. 34.5% / start privatization process in 2000
Korea National Tourism Corp. Overseas publicity of Korean tourism;
managing an overseas marketing network.56.1% / ..
Korea Trade and Investment Promotion
AgencyIntroduction of domestic industry and
commodities;  helping companies
participating in exhibitions;  collection and
analysis of business information;
inducement of foreign direct investment.100%
Rural Development Corp. Contribution to rural economic and social
development;  development of agricultural
land and ground water resources;
improvement of rural living environment.100% / ..
Korea Water Resources Corp. Water supply, and distribution-related
works;  water quality improvement.72.7% / ..
Table III.5 (cont'd)WT/TPR/S/73 Trade Policy Review
Page 64
Entity ActivityDegree of state ownership/situation in
privatization programme
Korea Labour Welfare Corp. Implementation of welfare programme for
workers;  collection of employment
insurance premium:  collection of industrial
accident compensation insurance premium
and payment of insurance money.100%
Korea Resources Corp. Support of domestic mining industry;
survey and research of geological structureand mineral deposit;  technical and monetary
subsidy.100% / ..
.. No information available.
a Governmental or non-governmental entity that has been granted exclusive rights or privileges (Article XVII:4(a) of GATT and
paragraph 1 of the Understanding on the Interpretation of Article XVII);  this agency was, inter alia,  designated to manage the
agricultural tariff quotas as specified in Column 7 of Section I-B of Part I of Schedule LX-Republic of Korea and its activitie s
have been subject to WTO notification on state trading.
Source : Information provided by the Korean authorities.
64. Since 1996, Korea has met WTO notification requirements on state-trading enterprises in
February 1997 (update), November 1998 (full notification);  as usual, its latest notification covered
exclusively the seven entities involved in agricultural, livestock, and forestry trade.61  As stated earlier
(section (ii)(e)), these enterprises have been authorized to allocate and/or operate tariff quotas andquotas in the context of Korea's WTO commitments in agriculture, thus affecting quota utilization and
price mark-ups (Chapters II and IV).
(vii) Government procurement
65. Since January 1997, Korea has implemented the WTO Agreement on Government
Procurement (GPA), and has passed enforcement legislation to regulate the procedures forinternational tendering of covered entities
62;  relevant legislation was notified (1997) and examined
(1998, 1999) in the WTO Committee on Government Procurement.63  There have been a number of
regulatory changes, including the implementa tion of MFN and national treatment to other
GPA signatories, a prohibition against offsets as a condition for awarding contracts, and the
possibility to pursue alleged violations of the WTO Agreement through GPA-defined bid challenge
                                                     
61 WTO documents G/STR/N/2/KOR, 4 March 1997;   G/STR/N/4/KOR, 10 December 1998;  and
G/STR/N/4/KOR/Corr.1, 1 May 1999.  Since 1995, Korea has replied to questions raised in the WTO Working
Party on State Trading Enterprises by Australia, Canada, New Zealand, and the United States on the enterprises'
role in allocation of tariff quotas (e.g. oranges, beef , rice), and the lack of notification of the Korea Dairy
Industry Association, which the authorities do not consider as a State trading enterprise (WTO documentsG/STR/M/2, 16 January 1996;  G/STR/Q1/KOR/1 and G/STR/Q1/KOR/2, 3 July 1996;  G/STR/M/4,15 August 1996;  G/STR/Q1/KOR/3, 18 March 1999;  G/STR/Q1/KOR/4, 20 May 1999;  G/STR/Q1/KOR/5,21 May 1999;  and G/STR/Q1/KOR/6, 7 June 1999).
62 Special Regulations of the Enforcement Decree of the ARCSP (Act Relating to Contracts in which
the State is a Party) for Specific Procurement;  APEC Survey on the Government Procurement Systems-Republic
of Korea [Online].  Available at:  http://www.apecsec.org.sg/govtproc/gp-rok.html [17 September 1999].
63 In this context, Korea replied to questions submitted by Canada, the European Community,
Switzerland, and the United States (WTO documents GPA/12, 11 February 1997;  GPA/12/Rev.1, 9 June 1997;GPA/25, 30 October 1998;  and GPA/M/10, 18 February 1999).  It also provided replies to the
WTO Questionnaires on Information Technology (for dissemination of information) in Government
Procurement, and on Government Procurement of Services;  and submitted information on its procedures andpractices on transparency at the WTO Working Group on Transparency in Government Procurement(WTO documents GPA/W/24/Add.3, 15 November 1996;   S/WPGR/W/11/Add.13, 10 December 1996;  and
WT/WGTGP/W/7, 30 October 1997).Republic of Korea WT/TPR/S/73
Page 65
procedures.  Furthermore, legislation governing public procurement of specific products identified by
SMEs was revised in 1999;  as a result, the number of products subject to mandatory group
negotiations with SME Cooperatives is being cut gradually from 258 (1998) to 103 (2001), thus
reducing expenditures of the public organizations.64
66. Korea's GPA commitments, which were modified in late 199765, cover procurement and
construction contracts, valued over certain threshold amounts (Table III.6), by more than 40 centralgovernment agencies, 15 regional/local (sub-central) authorities, and more than
20 government-invested entitities involved in printing, trading, chemicals, mining, electricity, coal,
petroleum, gas, construction, banking, telecommunications, and tourism business.
66  T h e
GPA requirements are not extended to, inter alia :  national security and defence (a market of about
W 14 trillion (US$11.6 billion) in 1998)67;  single tendering in the case of set-asides for SMEs;
agricultural, fishery and livestock products;  and satellites (for five years from the GPA's entry into
force for Korea, i.e. until 2002).  Furthermore, Korea does not apply the GPA to contracts by the
National Railroad Administration and procurement for airports or urban transportation (including
subways), to suppliers and service providers from member States of the European Communities,
Norway, and Switzerland, until those countries give comparable and effective access for Koreanundertakings to their relevant markets.  GPA provisions do not cover procurement by the
local/regional authorities and public entities for goods and services (including construction services)
from Canada, until coverage issues are resolved with Canada.
67. Pursuant to the GPA, open, restricted or single tendering are used (Table III.6).  At present
the Supply Administration of the Republic of Korea (SAROK, formerly the Office of
Supply (OSROK)) undertakes procurement exceeding W 200 million (US$197,628 or SDR 150,000)
(goods and services), or W 7.8 billion (US$7.7 million or SDR 500,000) (construction), as well as thestockpiling of raw materials;  nevertheless, for certain end-users, recourse to SAROK is voluntary
(e.g. for government-funded or -sponsored agencies).
68  Government-invested enterprises undertake
procurement procedures either through SAROK or independently;  if GPA-covered, WTO-consistent
procedures must be followed.
                                                     
64 When the Government and public enterprises wish to purchase products identified by the SMEs, they
are obliged to negotiate with the Cooperatives, which are authorized to determine the product prices and the
amount to be allocated to each member co mpany (Korea Fair Trade Commission (1999)).
65 The lack of objection of other signatories allowed the GPA-coverage changes to become effective in
November 1997;  the authorities indicated that rectifications  were of a purely formal nature and did not alter the
mutually agreed coverage (WTO documents GPA/W/59,  24 October 1997;  WT/Let/207, 19 January 1998;  and
GPA/25, 30 October 1998).
66 WTO document GPA/W/35/Rev.1 (Loose-Leaf System for the Appendices to the Agreement),
8 July 1999.
67 Data contained in Bank of Korea (1999), p. 86.
68 APEC Survey on the Government Procurement Systems-Republic of Korea [Online].  Available
at: http://www.apecsec.org.sg/govtproc/gp-rok.html [17 September 1999].WT/TPR/S/73 Trade Policy Review
Page 66
Table III.6
Government procurement
(a)  Threshold values for procurement by GPA-covered entities
Classification Type of contract Threshold value
(SDR)
Central government entities Supplies and services 130,000
Construction services 5,000,000
Sub-central government entities Supplies and services 200,000
Construction services 15,000,000
All other entities Supplies 450,000
Construction services 15,000,000
Note: These thresholds were also notified in national currency fixed for two years.
(b)  Contracts 1996-98
1996 1997 1998
US$ million
(%)US$ million
(%)US$ million
(%)
Goods .. 7,264 5,192
.. (100) (100)
Tender procedure:
Single .. 3,083 2,814
.. (42.4) (54.2)
Restricted .. 2,109 1,043
.. (29.0) (20.1)
Open .. 2,072 1,335
.. (28.5) (25.7)
Public works .. 14,184 9,103
.. (100) (100)
Single tendering .. 1,798 1,256
.. (12.7) (13.8)
.. Not available.
Note: More recent data on procurement methods were not available.
Source: GPA/W/81, 11 February 1999;  and Ministry of Finance and Economy, Government of Korea.
68. Public notice of international tenders is published through the Official Government
Gazette (the Kwanbo ) and a daily newspaper ( Seoul Shinmun ) at least forty days prior to the tender
submission deadline;  essential elements of the tender are supposed to be issued in English, French orSpanish.
69  As from 1 April 2000, some procurement opportunities have been advertised in English
(including in SAROK's Internet homepage);  as a result of translation difficulties, SAROK expects
that all procurement opportunities will be advertised in English only by the year 2001 at the earliest.
Plans for introducing a full-fledged EDI (electronic data interchange) system to public agencies
procurement by 2001 were initiated in July 1999;  a pilot EDI system, involving 3,520 public agencies
and 192 private suppliers (end 1999), is to be expanded to the entire procurement business
encompassing all 26,000 public institutions and 21,000 suppliers.70  In July 1999, a law requiring both
public agencies and their suppliers to exchange documents (e.g. orders, confirmations, and invoices)
online, was enacted.
                                                     
69 APEC (1999).
70 The Korea Herald [Online], 5 December 1998.  Available at:  http://www.koreaherald.co.kr/
[30 September 1999].Republic of Korea WT/TPR/S/73
Page 67
69. In 1999, the total Korean government procurement market for goods, services and
construction was estimated at around W 43.7 trillion (US$43 billion);  the market is dominated by
construction contracts (Chart III.6).  Procurement by GPA-covered entities represented 77.2% of the
market (44.9% of procurement market value above threshold) and foreign suppliers captured 4.8% of
the market (mainly goods).  Procurement by state-owned (i.e. government-invested) enterprises
accounted for 32.2% of the market and consisted mainly of construction projects and goods;  contractsby firms like the Korea Electric Power Co., Korea Telecom, Korea National Housing Co., and
Korea Gas Co. were responsible for 79% of total purchases by state enterprises.  Despite consecutive
increases in 1996 and 1997, between 1995 and 1998 there has been a decline of the share of open
tendering in favour of single tendering procedures as the share of the former dropped from 42.6% of
total procurement to 40.2%;  this development reflected, inter alia,  the decline in procurement after
the Asian financial crisis as well as SAROK's policy in favour of domestic SMEs (particularly in
provincial towns) and environment-friendly (e.g. recycled) products.  Since 1996, the share of SMEs
in the government procurement market has grown from 30% to 57% (1997).
71  Medical, educational,
and sewage treatment equipment, scientific testing instruments, and helicopters were the main goods
purchased through open tendering.  Foreign suppliers may have attained about 4.6% of the Koreanprocurement market, with the United States and the EU accounting for the largest individual shares
(Chart III.7).
72
70. Since 1996, procurement of telecommunications equipment and changes in procurement
responsibilities in airport construction have been raised as concerns by certain WTO Members
(Chapter II(7)(i)).  As from 1997, foreign supplier allegations on compliance with GPA (including
objections) may be addressed to the Internati onal Contract Dispute Mediation Committee (ICDMC),
which may review complaints and mediate with timely and non-discriminatory procedures.73  Despite
allegations by a WTO Member with respect to complaints on irregularities in the bid tendering
procedures conducted by various GPA-covered government entities, the MOFE had not received any
bid challenges by 1999.74  Recourse to the WTO Dispute Settlement mechanism in 1999 confirmed
Korea's compliance with GPA commitments in 2000 (Chapter II(7)(i)) and Table AII.3).
71. In April 1997, corrective measures against bid-rigging were strengthened by considerably
increasing the rate of surcharge to 5% of revenues of the relevant good or service multiplied by the
duration of the illegal act;  in addition, a Notice on determining unfair trade practices related to public
construction bids was passed in December 1997.75  Participants are also barred from future bids for a
period of one month to two years.  Betwee n 1995 and 1999 the Korea Fair Trade Commission
(section (4)(iii)) took sanctions stronger than those recommended for correction in 23 bid-riggingcases (more than half related to construction works).
                                                     
71 The Korea Herald  [Online], 18 January 1997.  Available at:  http://www.koreaherald.co.kr/
[30 September 1999].
72 It should be noted that the analysis is not complete, due to lack of data;  by June 2000, the WTO
Committee on Government Procurement had not received the data submission from Korea.
73 APEC Survey on the Government Procurement Systems-Republic of Korea, [Online].  Available
at: http://www.apecsec.org.sg/govtproc/gp-rok.html [17 September 1999].
74 USTR (1999).
75 OECD document DAFFE/CLP(99)3/FINAL, Committee On Competition Law and
Policy/Competition Policy and Procurement Markets [Online], pp. 79-81.  Available at:  http://www.oecd.org//daf/clp/Roundtables/Procu00.htm [8 October 1999].WT/TPR/S/73 Trade Policy Review
Page 68
Chart III.6
Government procurement market, 1999
(a) By type of contract and entity
(b)    GPA covered contracts
Total: Won 33,786.8 billion Total: Won 33,786.8 billion
Source:    Information provided by the authorities of the Republic of Korea.Services
6.1%
Total: Won 43,753.2 billion Total: Won 43,753.2 billionConstruction 
services
63.9%
Government-invested 
enterprises
25.1%
Above threshold
58.1%
Central 
Government
19.2%
Sub-central Government 
6.1%Below threshold
41.9%Goods
30.0%National Railroad 
Administration
7.0%Ministry of 
Construction and 
Transportation
8.6%Other central 
gov. 4.9%
Other 6.6%Local education 
offices
4.2%
Gas cor poration  2.6%
Korea telecom
5.1%Sub-central Gov.
8.6%
Sub-sub-central 
Government
18.6%
National 
Housing Corp.
4.4%Electric power corp.
13.5Ministry of 
National Defence
16.0%
Other 
public entitiesa 
32.2%Local 
government
31.3%Central 
Government
36.5%
Above threshold
58.1%
Government-invested 
enterprises
16.6%Central Government
28.1%Sub-central government
5.0%
Below threshold
41.9%By contract By entities
By contract By entities
Goods
21.4%
Services
3.0%
Construction 
services
23.1%Construction 
services
33.8%
Goods
15.4%Services
3.3%
a              Includes government-invested enterprises.Republic of Korea WT/TPR/S/73
Page 69
Japan
2.2%Chart III.7
Government procurement by origin of foreign suppliers, 1999
Per cent
Other
32.5%United States
40.5%
Source :  Information provided b y the authorities of the Re public of Korea.Total: Won 2,087.5 billionOther
6.2%EFTA
2.5%EU15
16.1%
72. Effective 1997 Korea has been entitled to compete in the GPA signatories' markets.76  In the
first half of 1998, Korean companies shipped a wide range of products, worth US$7.2 million, to the
international government procurement market, representing 16 procurement contracts in nine
countries mainly from the region (non-GPA signatories).77
73. In the context of APEC, since 1995 Korea has participated in efforts undertaken within a
Government Procurement Experts Group to develop a common understanding on government
procurement policies and systems (as well as on each APEC economy's government procurement
practices);  and to achieve liberalization of government procurement markets throughout the
Asia-Pacific region, and contribute in the evolution of work on government procurement in othermultilateral fora.
78
                                                     
76 The EC, Iceland, Norway, and the Principality of Liechtenstein do not extend to Korean suppliers the
GPA benefits for procurement contracts on airports and urban transport;  supplies of HS items 8504, 8535, 8537and 8544 (electrical transformers, plugs, switches, and insulated cables);  and GPA Article XX provisions.  TheUnited States limits access to its procurement market fo r Korean construction services and suppliers of such
services, to the procurement of certain entities above a threshold of SDR 15 million (WTO documentsGPA/IC/10, 16 January 1996;  GPA/W/32, 17 December 1996;  and GPA/W/35/Rev.1 (Loose-Leaf System for
the Appendices to the Agreement), 7 July 1999).
77 The Korea Herald [Online], 14 July 1998.  Available at:  http://www.koreaherald.co.kr/
[30 September 1999].
78 Government Procurement in APEC [Online].  Available at:  http://www.apecsec.org.sg/govtproc/
gphome.html [17 September 1999].WT/TPR/S/73 Trade Policy Review
Page 70
(viii) Local-content requirements
74. Korea's last known (to the WTO) local-content requirement for subsidizing the purchase of
domestic-made tractors of less than 50 HP was abolished at end 1995 through revision of the
Combined Guidelines for Agricultural Policy.79
(ix) Contingency measures
(a) Anti-dumping and countervailing measures
75. Since its previous Review, Korea's recourse to anti-dumping action increased and then
dropped (Chart III.8, Table AIII.4);  however, compared to other economies of a similar size, Korea
has maintained a limited use of this type of measures.80  Of the 37 anti-dumping investigations
initiated between 1996 and 2000 (March), 20 were subject to provisional measures (with reduced
recourse to this action since 1997), 24 resulted in definitive measures (including five priceundertakings/reductions) in force in September 1999 (Table AIII.4 and information by the
authorities).  Most cases affected machinery a nd chemical items originating mainly from the EU,
China, the United States, and Japan (Chart III.8).  No petitions for countervailing action have been
filed during the period under review.
76. Recent policy objectives in this area are aimed at enhancing objectivity and transparency of
the trade remedy system, as well as raising Korean companies' awareness of the injury relief
system (particularly by SMEs) through international seminars and the publication of updated
information on the domestic and foreign injury relief systems.  These activities are carried out by the
Korean Trade Commission (KTC), a "quasi-judicial" MOCIE agency responsible for investigations
and determinations of injury and dumping margin.
81
77. In late 1998, Korea revised its regulations on the management of the import injury relief
system and the directives for dumping investigations;  it also enacted a directive on the review ofanti-dumping duties.
82  These regulatory changes included issues like the submission of confidential
documents;  easing mandatory use of the Korean language;  the introduction of relevant
WTO provisions (e.g. on price adjustment period);  the establishment of a concept of de minimis
margin;  and the introduction of rules for non-market economies.  Between 1996 and 1998, Korea
communicated its anti-dumping and countervailing duty legislation for review (including subsequentrevisions) to the WTO Committees on Anti-Dumping Practices and on Subsidies and Countervailing
Measures, respectively
83;  it also made notifications on its rules on the timeline, confidential
information and lesser duty.84  It has made submissions relating to anti-circumvention rules as well as
                                                     
79 WTO documents G/TRIMS/W/6,  20 November 1996, and G/TRIMS/M/5, 27 November 1996.
80 Korean Trade Commission  online information.  Available at: http://www.mocie.go.kr/ktc/ktceng.htm
[30 September 1999].
81 Korean Trade Commission  online information.  Available at: http://www.mocie.go.kr/ktc/ktceng.htm
[30 September 1999].
82 Korean Trade Commission  online information.  Available at: http://www.mocie.go.kr/ktc/ktceng.htm
[30 September 1999];  KTC Regulation 98-2, enforced on 10 November 1998;  KTC Notice 98-1, enforced on1 December 1998;  and KTC Regulation 98-3, enforced on 16 November 1998.
83 In this context Korea replied to questions (including supplementary and follow-up questions) raised
by Canada, Chile, the EC, Japan, Mexico, Turkey, the United States, and Venezuela on its anti-dumping
legislation (WTO documents G/ADP/N/1/KOR/2, 27 November 1996;  G/ADP/N/1/KOR/3, 18 March 1997;
and G/ADP/N/1/KOR/4, 3 March 1998).  Questions on countervailing action regulations were submitted onlyby the EU (WTO documents G/SCM/N/1/KOR/2, 26 March 1997;  G/SCM/M/15, 28 January 1998;  andG/SCM/N/1/KOR/3, 12 March 1998).
84 WTO document G/ADP/AHG/W/17, 16 September 1997.Republic of Korea WT/TPR/S/73
Page 71
an assessment of and guidelines proposal fo r reforming current anti-dumping rules in a
competition-oriented manner (section (4)(iii)).85
78. Since its last Trade Policy Review, Korea has regularly submitted semi-annual reports on
actions in this area to the relevant WTO Committees.
(b) Safeguards
79. Between March 1997 and May 2000, Korea applied safeguard measures in the form of
quantitative restrictions against imports of skimmed milk powder preparations, which had been
liberalized under the balance-of-payments provis ions and in the context of the Uruguay Round
(section (ii)(e)).86  Quotas have been allocated globally to all end-users such as milk processing,
confectionery, bakery, and food manufacturing companies;  10% of the quota has been reserved for
new participants.  In accord with the relevant WTO provisions (Article 9 (1) of the Agreement onSafeguards), such measures did not affect products originating in developing countries with low
import shares in the Korean market.  Following discussions on the validity of this measure in the
WTO Committee on Safeguards between 1996 and 1998, the measure was challenged in the context of
the dispute settlement mechanism in 1999 (Chapter II(7)(i)).
80. Korea maintained safeguards in the form of restrictive import licensing on hot bean paste
(since 1989) from the People's Republic of China until the end of 1999;  safeguards on salt fermented
shrimps of the same origin were eliminated on 31 December 1996.
87
81. Since its last Review, Korea has made regular use of the special safeguard provisions (SSG)
under Article 5 of the WTO Agreement on Agriculture, allowing for an additional duty of up to a third
of the level of the applied tariff;  these measures, as well as explanations on the selected base period
for the calculation of trigger prices have been communicated to the WTO Committee on
Agriculture.88  To implement these provisions, a Special Emergency Tariff Schedule is issued on an
annual basis and its coverage varies each year (61 items in 1998, 45 items in 2000);  additional duties
may be applied to above-quota imports of 111 ten-digit HS items (118 under the recent tariff
reclassification).89  In cases where both volume-based and price-based SSGs could have been
triggered, they were to be invoked selectively in order to avoid concurrent invocation.  Between 1996
and 1997, product coverage rose from five to seven ten-digit HS items, or 6% of SSG-covered
products;  in 1999, action was either solely price-based (certain beans, buckwheat, ground nuts) or
both price- and volume-based (wheat starch, sweet potatoe starch).
                                                     
85 WTO documents WT/WGTCP/W/90, 3 September 1998, and G/ADP/IG/W/17, 28 May 1 999.
86 Concentrate products of milk mineral (calcium) (limited to use as an additive for the production of
mineral fortified food), whey protein, milk protein (limited to use as an additive for the production of protein
fortified food), Chilean special products, and raw material for production of Cerelac of Nestlé that are not
"mixtures of milk powder" are exempt from the safeguard measure (Korean Trade Commission, 1999).  Quotaswith a 5.7% annual increase were set as follows:  20,521 tonnes (March 1997-February 1998);  21,691 tonnes(March 1998-February 1999);  22,972 t onnes (March 1999-February 2000);  and 24,234 tonnes
(March 2000-February 2001).
87 WTO documents G/SG/N/2/KOR, 27 March 1995;  G/SG/N/5/KOR, 15 August 1995;  and
G/SG/M/10, 16 March 1998.
88 WTO documents G/AG/R/5, 5 July 1996;  G/AG/R/12, 31 October 1997;  G/AG/R/13,
19 December 1997;  G/AG/N/KOR/13, 15 September 1997;  G/AG/R/18, 7 May 1999;  and G/AG/N/KOR/23,18 December 1998.
89 Part I, Section:1 of Schedule LX-Republic of Korea, 15 April 1994.WT/TPR/S/73 Trade Policy Review
Page 72
0246810121416
1996 1997 1998 1999
Sourc e:  Notifications to the WTO.Other Asia
12.1 United States
15.2
Russian 
Federation
6.1Japan
12.1
Other Europe
9.1EU
21.2Wood and 
articles of
 wood
15.2Malaysia
6.1
China
18.2Other
9.1Chemicals and 
products thereof
33.3
Pulp of wood,
paper or 
paperboard
6.1
Machinery, mechanical applicances, and 
electrical equipment
36.4(b) B y product 
Per cent(c) B y origin 
Per centChart III.8
Anti-dumping cases, 1 January 1996 - 29 June 1999
(a) By number of cases initiated
Final measures No final measures
Europe
36.4Asia
48.5Pending casesRepublic of Korea WT/TPR/S/73
Page 73
82. In 1997, the modifications to the safeguards-related provisions of the Foreign Trade Act and
its Enforcement Decree were communicated to and examined in the WTO Committee on
Safeguards.90  Korea's last voluntary export restraints were eliminated at the end of 1998
(section (3)(ii)(c)).
83. While Korea has reserved the right to use the transitional safeguard mechanism under the
provisions of the WTO Agreement on Textiles and Clothing, so far it has not had recourse to this
mechanism.  It has submitted its lists of textile and clothing products that are included in the first and
second phases of integration into the GATT and which involve 16.41% and 17.07% of the (revised)91
total volume of imports in 1990 of products covered by the ATC.92  These lists cover more than
250 six-digit HS products from each of the four groups:  tops and yarns, fabrics, made-up textileproducts, and clothing.
(x) Standards and other technical requirements
84. Korea considers the standardization process an essential element for improving the quality
and productivity of domestic output as well as for promoting fair trade and protecting consumers'
rights.  As from December 1998, Korea has been committed to reducing technical barriers to trade inaccordance with the provisions of the relevant ISO Codes.
93
(a) Standards
General framework
85. As of 1996, the Industrial Standards and Safety Division of MOCIE has been responsible for
standards policies.  MOCIE's Korean Agency of Technology and Standards (KATS) (known as the
Korean National Institute of Technology and Quality (KNITQ) until end 1998) handles the
development of Korean Standards (KS) and represents Korea in the WTO and internationalstandardizing bodies (e.g. ISO, IEC);  three private-sector organizations (the Korea Standards
Association, the Korea Industrial Standards Institute, and the Korea Research Institute of Standards
and Science) are entrusted with dissemination and certification tasks.
94  The Korea Research Institute
of Standards and Science, the national measurement institute, is entrusted with setting laboratory
standards and for R&D for the measurement of standards.  The Korean Accreditation Body (KAB),which has operated since July 1997, is also the national accreditation body for ISO 9000 and ISO
14000 certification;  so far, the KAB has accredited 28 certification and auditor-training bodies.  By
June 2000, 103 testing laboratories had been certified under the Korea Laboratory Accreditation
Scheme (KOLAS).
                                                     
90 WTO document G/SG/N/1/KOR/3, 14 November 1997. Korea replied to questions submitted by
Canada and the United States (WTO documents G/SG/M/10, 16 March 1998;  G/SG/M/11, 29 July 1998;  andG/SG/M/11/Suppl.1, 8 April 1999).
91 In the light of classification and definition problems with respect to 12 six-digit HS lines, Korea
revised its second stage integration programme.
92 WTO documents G/TMB/N/235, 20 February 1997;  G/TMB/N/235/Corr.1, 30 January 1998;  and
G/TMB/R/39, 20 February 1998.
93 The Korean National Institute of Technology and Quality accepted the ISO Code of Good Practice
for the Preparation, Adoption and Application of Standards, on 24 December 1998;  this delay was due to lack
of adequate infrastructure in the past (WTO document G/TBT/CS/N/105, 6 January 1999;  and ATS information
[Online].  Available at:  http://www.ats.go.kr/eng-docs/en_frame3.shtml?http://nt.ats.go.kr/notice.asp?Gubun=E[12 November 1999]).
94 WTO documents G/TBT/W/43/Add.1, 9 July 1997,  G/TBT/W/67, 26 May 1998, and
G/TBT/CS/1/Add.3, 4 March 1999;  and APEC (1999).WT/TPR/S/73 Trade Policy Review
Page 74
86. The Industrial Standardization Act was revised in July 1997 (effective July 1998), thus
addressing several issues of concern to other trading partners.95  When establishing or revising (every
five years) KS conformities, a study of relevant international standards (including ISO and IEC), must
be conducted.  Under a National Standardization Law, enacted in February 1999,
standardization-related regulations or standards must be made so as to ensure that technical levels and
industrial standards are aligned with international standards.  The revision also included a mandate forthe development of a Fundamental Implementation Plan for Industrial Standardization;  the
introduction of public comment hearings in the development of standards;  authorization for
conformity certification to Korean Standards (KS) by private-sector firms;  the dissolution of the
KS Marking Order System (on 1 September 1997);  the extension of exemption coverage for
KS-marked products from nine mandatory type inspections (items under the Radio Wave Act,pressure vessels, fire-fighting machinery and equipment) and type approvals (items under the
Electric Appliances Safety Control and Telecommunication Basic Acts, environment measurement
equipment, construction machinery, ocean pollution protective equipment and material, and elevator
components).
Korean standards87. Between 1995 and 1999, the number of KS increased by 13% to 10,595.  KS are concentrated
(45%) in chemical, mechanical, electric and electronic engineering.
88. Since 1996, surveys by Korea on international and developed countries' standards
corresponding to KS have been carried out annually with a view to establishing the strategy and plans
for harmonization.  Korea has been aligning domestic standards with relevant international standards
whenever possible and feasible.  Although Korea has been an ISO member since 1963, about 500 KS
were identical to international standards (ISO, IEC) in 1999, the same number as in 1996, and2,000 KS were equivalent, with minor deviations (alignment ratio estimated at 70%), thus
representing 26% of all KS in force;  recent improvements were partly due to a Capital Goods
Standardization Project (1995-2000), under which 225 international standards were adopted as KS.
96
Korea has also aligned its standards for televisions, refrigerators, air conditioners, and certain rubber
products to IEC or ISO standards, with minor deviations.97
Testing and certification
89. Mandatory certification is aimed at ensuring consumer safety as well as health and
environmental protection;  in 1999, relevant provisions were contained in 20 Acts and affected
20 products, including electrical appliances, pressure vessels, gas appliances, motor vehicles, and
telecommunications equipment.  Voluntary certification, which is based on provisions of 14 Acts, isaimed at standards dissemination, development of new technology, and efficient use of energy in
29 areas.  Foreign products (35 products from 55 companies in 11 countries) carrying the KS mark
remain exempt from individual type-approval requ irements.  Since its previous Review, Korea has
incorporated the ISO/IEC Guides into Korean St andards for conformity assessment (e.g. ISO 9000
Quality and the ISO 14000 Environment Management Systems);  the ISO 9000 system was adopted in
1992.
98
                                                     
95 ATS Information [Online].  Available at: http://standard.ats.go.kr/stand8.htm [12 November 1999].
96 Ministry of Commerce, Industry and Energy (1998b);  and ATS Information [Online].  Available at:
http://standard.ats.go.kr/stand8.htm [12 November 1999].
97 APEC (1999).
98 WTO document G/TBT/W/43/Add.1, 9 July 1997;  APEC ( 1999);  and US Embassy (1999).Republic of Korea WT/TPR/S/73
Page 75
90. In addition to the memorandum of understanding on mutual recognition with New Zealand
(a Mutual Recognition Arrangement (MRA) to be concluded by the year 2000), since its last Review
Korea has signed another memorandum with Poland (1998) as well as MRAs with Canada (1 998,
covering test results on the telecommunication networ k, radio equipment, and electrical safety) and
with APEC countries on Conformity Assessment of Electrical and Electronic Equipment (1999,
covering test results on covering cord and cordless telecommunication equipment).99  In 1999, Korea
joined the Multilateral Arrangement for the Pacific Accreditation Cooperation, which ensures mutual
recognition of ISO 9000 certificates issued by signatories.  It has also participated in several
multilateral mutual recognition consultations as well as the 1998 Arrangement for the Exchange of
Information on Toy Safety among APEC Member Economies and APEC's Sub-Committee on
Standards and Conformance in developing model MRAs for food products.  The signing of an MRAwith Japan and the EU was under consideration in June 2000.
91. In response to longstanding complaints by certain trading partners with respect to
homologation procedures for automobiles, Korea raised in four stages the threshold for the safety
compliance test (from 100 (1995) to 2,000 (2000) cars per model) and eliminated the completion test
(15 April 1999).
100  Safety inspections done by foreign car manufacturers in compliance with KS have
been recognized since January 1997.  The automobile emission certification system is now carried out
by the producers themselves.101  As agreed in the 1998 Automotive Memorandum of Understanding
(MoU) with the United States (Chapter IV(4)(i)), standards and certification rules and procedures
were to be simplified and streamlined;  under this MoU, type approval will be replaced by
self-certification no later than 1 January 2003.102  The authorities indicated that provisions of the 1995
and 1998 MoUs with the United States have applied on an MFN basis103;  in 1998, work was under
way to develop the Mutual Recognition Agreement on Automotive Regulation with the EU.  In thiscontext, in November 1999 Korea made a statement of intent to accede to the 1958 UN-ECE
Agreement on motor vehicle regulations and the Global Agreement at the earliest opportunity.
92. With very few exceptions (i.e. under the MoUs with the United States on motor vehicles or
the MRAs in force), Korea does not recognize testing and certification of the exporting country.  As
of October 1998, the Korea Food and Drug Administration abolished the annual testing requirementfor imported cosmetics and authorized importers to perform the required self-testing, provided that
they maintain records for each shipment.  Reportedly, concerns were expressed over, inter alia,  the
homologation procedures for certain items (pharmaceuticals, cosmetics, medical equipment) including
the involvement of private-sector associations in  handling confidential business information, clinical
trials delays, and duplicative testing.
104  Under the IMF programme (Box I.1), the Korean Government
has been committed to accelerating harmonization of its certification procedures with WTO standards
                                                     
99 APEC (1999).  The APEC Electrical MRA was to cope with substantial costs (estimated at 2 to 10%
of production costs of the industry) and delays (with particular impact on market penetration of leading-edgeinformation technology products with a relatively short market life) caused by inconsistent import standards indifferent countries of the group ( APEC Secretariat Press Release 51/99 , 10 September 1999 [Online].
Available at:  http://www.apecsec.org.sg/ [17 September 1999]).  It was also expected to allow for savings
estimated at around 5% of total production costs.
100 APEC (1999).
101 Korea Fair Trade Commission (1998).
102 USTR (1999).
103 In March 1998, issues relating to the 1995 MoU with the United States were discussed in the
context of the WTO Committee on Technical Barriers to  Trade;  these included its MFN implementation,
WTO notification, the exemption from conformity tests for certain U.S. safety specifications carried out inKorea, and the equivalence of U.S. specifications to  those prevailing in Korea (WTO document G/TBT/M/11,
27 May 1998).
104 European Commission (1999);  and USTR (1999).WT/TPR/S/73 Trade Policy Review
Page 76
and to strengthening their implementation;  in addition to revisions cited earlier, by 1999 new
legislation to this effect had been passed with respect to pharmaceuticals and cosmetics.
Transparency and international cooperation
93. Between 1995 and 1998, Korea made 52 notifications under the WTO Agreement on
Technical Barriers to Trade (TBT), including one allegedly concerning genetically modified
agricultural and food products;  the minimum 60-day comment period requirement seems to havebeen observed.
105  Information on new or revised standards and conformity assessment is published in
the Official Government Gazette and a KATS publication (the Standardization ).  Concern was
expressed by two major trading partners, on the occasional non-use of public rule-making procedures,
the absence of a comment period, the vagueness of TBT notification, and the short notice prior to
implementation of new standards, which seems to have created adjustment difficulties.106
94. In the context of the APEC Committee on Trade and Investment (CTI)/Sub-Committee on
Standards and Conformance, since 1994 work has been based on the Declaration on an
APEC Standards and Conformance Framework, and concentrated in areas such as transparency of
standards and conformity assessment;  conformity with international standards (when appropriate);
recognition of conformity assessment in the regulated and voluntary sectors (e.g. the MRA discussedearlier);  and cooperation on technical infrastructure development.
107  Korea's priorities in aligning to
international standards are based on areas identified by APEC;  in the light of trade- and
investment-related benefits from MRAs, Korea is, inter alia,  promoting MRAs within APEC.  By
1999, there was a Trade and Investment Liberalization and Facilitation project on Compilation of
Information on Food Labeling Laws, Regulations and Standards in the APEC region.
(b) Sanitary and phytosanitary regulations
95. In the context of the agreement with the IMF to enhance transparency and import certification
procedures (Box I.1), since 1998 the revision of the food-related codes has been carried out with a
view to bringing them into conformity with standards of the CODEX Alimentarius Commission.108
As a result, the Korea Food Code was completely modified, notified to the WTO, and is to becomeeffective in September 2000.  This work has been undertaken by the Korea Food and Drug
Administration (KFDA), an independent agency (as from 1998) related to the Ministry of Health andWelfare (MHW), in cooperation with domestic and international sources.
96. To date, such work has been carried out on micro-organism standards for meat (e.g. zero
tolerance for listeria would not apply to imported frozen chicken), and agricultural chemical standards
for fresh fruit;  regulations on electronic data interchange (EDI) report processing procedures
                                                     
105 WTO documents G/TBT/7, 3 March 1999, and G/TBT/W/115, 17 June 1 999.  These notifications
included agricultural and fishery products (geographical indications, labelling on genetically modified
organisms), food products (deregulation of labelling standards), ginseng, electrical appliances, wiring devices,machinery (type approval), chemicals, good clinical practices, pharmaceuticals evaluation, medical devices,
textile products (safety criteria), carpets, adhesives, ba by carriages, children beds, toys (safety criteria),
disposable packaging materials in fast-food restaurants, umbrellas, sunglasses, bicycles, motorvehicles (elimination of completion test, amendment of safety standards, safety compliance test raised), and
automobile tyres.
106 US Embassy (1999);  European Commission (1999);  and USTR (1999).
107 APEC Secretariat online information.  Av ailable at: http://www.apecsec.org.sg/committee/
standards.html [16 November 1999];  and APEC (1999).
108 USTR (1999).Republic of Korea WT/TPR/S/73
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(November 1998), and new inspection guidelines for imported food (June 1999) were also passed.109
In addition, the KFDA has, inter alia, simplified import procedures on codfish heads (Food Sanitation
Act);  expanded the coverage of quarantine-certificate exemption on infectious animal-disease agents
with prior approval for test or research and potab le goods in packing (Livestock Epidemics Prevention
and Control Act);  eliminated the quarantine procedures for processed or pasteurized products made
of animal fur or hair (Quarantine Act);  abolished the permission requirement for import of cosmeticson a category basis (cosmetics);  eliminated requirements for confirmation certificates (drugs, etc.),
re-test (drugs imports), applications for Korean labelling, self-quality management, and the import
recommendation (oriental herbs) (Pharmaceutical Act).
110
97. Under the Korea Food Code, raw materials origin ating from non-traditional animals, plants,
etc., cannot be used for food manufacturing, processing or cooking if such materials are deemedinappropriate for eating;  concern has been expressed by one trading partner with respect to this
practice.
111  The importation of food products is limited to products containing ingredients covered by
the Korean Food Additive List;  this list is allegedly restrictive (560 chemical compounds) but the
authorities made efforts to expand it and consider it less restrictive than thought because many flavour
ingredients are allowed but not included in the text and 24 food additives were added over the pasttwo years.  They also indicated that the Food Additive Code is based on scientific proof applied to
both domestic and foreign items.
112
98. At present mandatory shelf-life requirements affect dairy products packaged in tabletop
cartons (five-day shelf-life period for pasteurized milk), and bottled water.113  Between 1995 and 2000
(April), Korea eliminated mandatory shelf-life requir ements for 350 food items;  according to its latest
notification to the WTO, this obligation, affecting 20 items (tofu products, noodles, packed lunch,
fried food products), was converted into a voluntary requirement under the new Korea Food Code.114
99. Between 1996 and 1999 (May), the KFDA and the Ministry of Agriculture and Forestry
submitted 57 notifications on SPS measures affecting, inter alia, food additives, plants and plant
products (pests, quarantine, import prohibition of certain plants and/or areas of origin), animal
products, ostrich from Belgium/New Zealand, live  animals from Denmark, foodstuffs, pork from
Austria, fruit (pesticides residues), beef from Uruguay, live animals from the United Kingdom (sheep,goat or BSE-related), semen of sheep and goat fr om Australia, and food packing materials, cooker,
pesticides.
100. Since 1995, concerns relating to the scientific risk assessment, inspection and/or shelf-life
requirements on several items (e.g. bottled water, beef and pork products, poultry, UHT milk) have
been expressed by Argentina, Canada, the EU, Japan, Thailand and the United States at the WTOCommittee on Sanitary and Phytosanitary Measures
115;  in certain cases consultations were held and
solutions were found in the context of the dispute settlement mechanism (Chapter II).  Other concerns
                                                     
109 KFDA information online.  Available at:  www.kfda.go.kr [16 November 1999];  and
WTO document G/SPS/R/12, 29 October 1998.
110 Ministry of Commerce, Industry and Energy (1998a).
111 USTR (1999).
112 European Commission (1999).
113 The authorities indicated that this requirement complies with the WTO/SPS Agreement and the
shelf-life period for pasteurized milk is not mentioned in the CODEX Alimentarius;  and USTR (2000).
114 WTO document G/SPS/N/KOR/63, 6 October 1999.
115 WTO documents WT/DS5/5/Add.5-G/SPS/W/27/Add.5-G/TBT/D/3/Add.5-G/AG/W/8/Add.5,
20 September 1996;  WT/DSB/M/9, 1 February 1996;  IMA/W/7, 31 May 1996;  WT/DSB/M/15, 15 May 1996;G/SPS/R/5, 9 July 1996;  G/TBT/4, 22 January 1997;  G/SPS/GEN/40, 13 October 1997;  G/SPS/R/10,30 April 1998;  G/SPS/R/11, 17 August 1 998;  G/SPS/R/12, 29 October 1998;  and G/SPS/GEN/83,
17 June 1998.WT/TPR/S/73 Trade Policy Review
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expressed by two major trading partners include the interpretation of the term “quarantine pest” in an
allegedly arbitrary manner;  incubation testing for certain fruit originating from a "pest-free" area;
entry denial without scientific evidence (potatoes of a certain origin);  and considerable import
clearance delays by several institutions responsible for administering laws and regulations.116
(c) Marking and labelling
101. During the customs clearance process, imported goods are inspected for country of origin
markings engraved on the packaging and the product itself (section (ii)(k));  origin marking is
voluntary for domestic goods.  In response to complaints, the so-called dual-price marking
requirements (aimed at making known the distri bution margins to consumers and at maintaining
control of retail prices (section (4)(iii)), were eliminated definitively as of 1 August 1998;  until then
both the import and recommended retail prices were labelled.117  With respect to pharmaceuticals, in
March 1999 the use of recommended consumer price was replaced by an open price system where
retailers may mark actual consumer prices.
102. Imported products should have Korean language labels or stickers;  labelling standards for
food additives, pharmaceuticals, equipment, containers and packaging for food products are set
separately by relevant agencies and affect domestic and foreign goods.  Certain items, for whichmarking is technically impossible (e.g. billiards balls, contact lenses, integrated circuits), are exempt
from such requirements and any appropriate marking method may be chosen.  As from July 2001,
mandatory labelling standards are to affect genetically modified food and food additives.
118  In 1999,
concerns were expressed on the interpretation of labelling and product categorization standards
(e.g. for chocolate) as well as the resulting need for headquarters intervention for port inspection
clearance.119  Reportedly, to meet labelling/marking requirements, foreign manufacturers have to
make significant changes to their production process (estimated at 3% to 5% of the f.o.b. price) toproduce either special lots for Korea or to imprint, engrave or etch the country of origin indications on
items not intended for this market.  An overall revision of food labelling standards was planned to
start by December 1999.  Furthermore, it seems that as of January 2001 marking requirements are to
be enforced on imported beef served in local Kore an-style restaurants (i.e. marked separately from
domestic beef on their menus);  the country of origin need not be specified.
120
103. In the context of the WTO Committee on Technical Barriers to Trade, Korea had the
opportunity to, inter alia,  express its views on eco-labelling requirements.
(xi) Frugality campaigns
104. In the light of 1996 balance-of-payments difficulties, the financial crisis, and the subsequent
IMF stabilization package (Box I.1), frugality campaigns targeting imported "luxury" goods(e.g. motor vehicles, sports equipment cosmetics, fashion items, home appliances, beef, cigarettes,
                                                     
116 These institutions include the  Ministry of Health and Welfare (MHW), the KFDA, and the Ministry
of Agriculture and Forestry (MAF), including its National Plant Quarantine Service (NPQS) and NationalVeterinary Research and Quarantine Service (NVRQS) (USTR, 1999);  and European Commission (1999).
117 US Embassy (1999);  and European Commission (1999).  While certain trading partners viewed this
requirement as an essential element of the frugality campaigns (section (xi)), the authorities considered that itwas to contribute to reducing prices in the short-ru n, and eventually encourage fair competition between
domestic and imported products (Ministry of Commerce, Industry and Energy, 1998b).
118 The Korea Herald  [Online], 2 December 1999.  Available at:  http://www.koreaherald.co.jr/
[10 January 2000].
119 USTR (1999);  US Embassy (1999);  and European Commission (1999).
120 Bureau of National Affairs, WTO Reporter,  11 July 2000, Washington, D.C.Republic of Korea WT/TPR/S/73
Page 79
whiskey) have been launched.  These have caused serious concern to Korea's trading partners, which
were echoed at the WTO General Council meeting of April 1997121, and during the visit of the
WTO Director-General to Seoul the same month.122  In response, the authorities, who denied
involvement in these campaigns123, have sent written notices to agencies (e.g. customs) and civic
groups noting that this action was not helpful in overcoming the economic crisis and warning that it
could be perceived as discriminating against imports.124  In the context of a 1998 Memorandum of
Understanding with the United States, Korea pledged to cease anti-import activity against
foreign-made vehicles (through tax audits, Chapter IV(4)(i)), and to promote a better understanding
among its citizens of the benefits of trade openness and competition from abroad.125
(3) MEASURES DIRECTLY AFFECTING EXPORTS
(i) Registration and documentation
105. Korean export procedures and documentation (e xport declaration only) have been simplified
since January 1997, much earlier than import procedures.  No export licence issued by a foreign
exchange bank is required, and export notices based on the shipping documents may be filed to
Korean Customs by the EDI computer system at th e time of export clearance.  Furthermore, the
obligatory storage of export goods in a bonded area prior to shipment was abolished inJanuary 1998.
126  The authorities note that paperless export clearance through EDI now covers 95% of
export shipments, and clearance requires three minutes on average (compared to 23 minutes average
in the period 1996-2000).
(ii) Export prohibitions, restrictions, and licensing
106. As of March 1997, all commodities may be freely exported from Korea, unless they are
included on the negative list or infringe intellectual property rights (sections (2)(v) and (4)(iv)).
Export prohibitions or restrictions are imposed to ensure enforcement of quality and sanitary controlsas well as to meet international commitments with  respect to security, e.g. on nuclear products, arms,
missile technology (Wassenaar Arrangement), ch emical weapons (Chemical Weapons Convention),
conservation of wildlife (CITES), and environmental protection.
(a) Export prohibitions
107. At present, export prohibitions affect 13 six-digit HS items;  these prohibitions are aimed at
protecting animal rights (dog furskins and their products), and endangered species (whale meat and its
products) as well as preserving natural resources (uncut pieces of natural granite stones).
                                                     
121 Despite their understanding on efforts to promote savings and reduce excessive consumerism,
two major trading partners encouraged the Korean authorities to take a firm, clear and sustained position againstdiscriminatory anti-import campaigns allegedly involving various government agencies (WTO document
WT/GC/M/19, 4 June 1997).
122 The Korea Herald [Online], 18 April 1997. Available at: http://www.koreaherald.co.kr/
[30 September 1999].
123 The previous Government urged Koreans to "res train themselves from a trend of extravagance,
wastefulness and indiscriminate foreign travel" (speech by President Kim, 2 July 1996)(European Commission, 1999).
124 Despite calls for healthy consumption (e.g. price/quality-based purchases rather origin-based), a
1998 poll by an international marketing firm revealed that 69% of Koreans still believed that purchasing foreignproducts hurt Korea, thus indicating the persistence of fertile ground for frugality campaigns (USTR, 1999).
125 USTR (1999).
126 APEC (1999).WT/TPR/S/73 Trade Policy Review
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(b) Export licensing and restrictions
108. Several export restrictions on commercial grounds (section (c)) were eliminated on
31 December 1998 to ensure compliance with commitments in the context of the WTO Agreement on
Safeguards;  in addition, a mandatory licensing requirement for exports of industrial equipment, or
technical services together with industrial equipment, was abolished in March 1997.  At present,
782 items are subject to restrictions on commercial grounds.  Apart from access-related quotas currentrestrictions operated for domestic policy reasons cover:  yellow tail, sea bass, rock trout, rock fish,
and granular ark, based on length criteria;  eel, under seasonal and weight criteria;  two items of sand;
and two items of gravel.  Generally speaking, quota allocation is carried out on actual export (basic
quota) and new companies entry (open quota) basis.
(c) Access-related export quotas
109. Since its previous Review, Korea has notified to the WTO Committee on Safeguards and,
subsequently eliminated, its five voluntary export restraints either ahead of schedule (EC/colour
picture tubes (June 1997), Germany, United Kingdo m/stainless steel flatware (December 1997)) or as
scheduled for the end of 1998 (EC/microwave ov ens, Japan/chestnuts in shells, Canada,
Hong Kong, China, Mexico, the United St ates, oysters in airtight containers).
127  These arrangements
were negotiated by the private sector but the author ities ensured observance of the terms, so that the
agreed quota levels were not exceeded;  the arrang ement on oysters was aimed at preserving Korean
quality and reputation.
110. Several bilaterally agreed export restrictive agreements under the Agreement on Textiles and
Clothing were notified to the WTO between 1996 and 1997;  most have remained in force.  Those
with Brazil (for a three-years period from 1996, covering artificial and synthetic fibre products) and
Norway (until January 1998, covering 29 clothing items and 3 items of fishing net) were eliminated.At present, exports of 762 items of textiles and clothing (coverage depending on the market) are
subject to restraints in Canada (since 1994);  the EU (since 1971, covering impregnated textile fabrics,
clothing accessories, ski suits, corsets, tents, camping goods);  Turkey (since April 1996, covering
76 textiles and clothing items);  and the United States (since 1993, yarn, fabric, apparel, made-up and
miscellaneous articles).
128  Traditional Korean items (e.g. chima, chogori, bosun, durumagi, jogori,
bajee, magoja, joki, handbags, and carpets) are exempted from these restraints.  By 1997, covered
items represented 17% of total textile and clothing exports, while quota utili zation rates stood at levels
as low as 23% for Canada, 24.7% for the EU, 26% for Norway, and 47.6% for Turkey;  efforts were
to be made to increase the share allocated to SMEs.  Low quota utilization is due mainly to the loss of
wage competitiveness among related industries compared with  South Asian competitors.
111. Between 1996 and 1999, exports to Brazil of motor vehicles mainly built for the
transportation of persons (HS8703) were subject to an annual tariff quota (in-quota rate 35%, or half
the above-quota rate, a measure that resulted from a dispute settlement case (Chapters II(7)(i)
                                                     
127 WTO documents G/SG/N/2/KOR, 27 March 1995;  G/SG/N/5/KOR, 15 August 1995;  G/SG/M/3,
20 May 1996;  G/SG/M/15, 28 May 1 996;  G/SG/M/17, 19 March 1997;  G/SG/M/10, 16 March 1998;  and
G/SG/M/12, 19 March 1999;  and APEC (1999).
128 WTO documents G/TMB/N/161, 16 July 1996;  G/TMB/N/278, 22 July 1997;  G/TMB/N/254,
18 July 1997;  G/TMB/N/248, 23 May 1997;  G/TMB/N/213/Add.1, 23 May 1997;  G/TMB/R/27,28 April 1997;  and G/TMB/N/207/Add.1, 27 May 1997;  and The Korea Herald [Online], 15 January 1997.
Available at: http://www.koreaherald.co.kr/ [30 September 1999].Republic of Korea WT/TPR/S/73
Page 81
and IV(4)(i)));  Korea's quota level dropped from 16,550 units in 1997/98 to 14,467 in 1998/99 and its
growth has been tied to investment conditions.129
112. Since October 1996, chassis fitted with engines for passenger cars and trucks not exceeding
3.5 tonnes in gross vehicle weight (HS8706) have be en subject to export quotas under a bilateral
agreement with Chinese Taipei;  upon Chinese Taipei's accession to the WTO, the quota is to be
maintained for the subsequent ten years.
113. Exports of silk waste (HS5004.00) to Japan are subject to an export quota due to Japanese
import restrictions on this item.
(iii) Export subsidies
114. Following the suppression of three export-related subsidies in 1998, Korea now maintains
one subsidy exclusively directed at exports, compared with a wide-ranging subsidization programmefor production-related projects (section (4)(ii)).  This subsidy, which was notified to the WTO,
consists of financial assistance for selection, packaging, transportation, etc. of exports of fruit and
flowers;  it is aimed at reducing the marketing costs for exporters who purchase from small-scale
producers.
130  Disbursements for this type of support increased by 77% to W 3.6 billion
(US$2.98 million, mostly to fruit) between 1997 and 1998, and are exempt from reductioncommitments under the WTO Agreement on Agriculture.  The authorities indicated that its
elimination may be decided in a next round of negotiations.
(iv) Duty and tax concessions
115. As of 1 April 1999, a Simplified Fixed Drawback Rate Schedule covering 3,374 ten-digit HS
items (of which 79 agricultural items) has been operated for SMEs upon submission of export
documentation only.  The authorities indicated that the drawback amount is calculated by multiplying
the f.o.b. export value by a fixed drawback rate and dividing it by W 10,000;  in June 2000 there were29 different levels of fixed rates ranging from 10 (0.1% of the export value) to 300 (or 3%);  the
authorities indicated that in 1999 W 132 billion (US$130 million) were disbursed under this scheme.
(v) Free-trade export zones
116. Korea has two "free export" zones (Masan since 1971, Iksan since 1975) for manufacturing,
and three industrial parks (Chonan, minimum of 30% foreign ownership, Kwangju and Daebul,minimum of 10% foreign ownership) for the excl usive use of foreign-owned firms investing a
minimum amount of US$30 million (manufact uring, high-technology) or US$50 million
(Chapter II(8));  as of November 1998, the coverage was expanded to tourist resorts (investment until
2005).
131  In addition to tax incentives available to foreign-invested firms (i.e. firms with foreign
participation), which were notified to the WTO Committee on Subsidies and CountervailingMeasures, the tax treatment available to in-zone firms involves exemption from customs duties and
                                                     
129 Other beneficiaries of this arrangement are the EU and Japan (WTO document
WT/TPR/M/21/Add.1, 14 April 1997).  The Korea Herald  [Online], 8 July 1997 and 23 July 1998.  Available
at: http://www.koreaherald.co.kr/ [30 September 1999].
130 WTO documents G/AG/R/9, 17 January 1997;  G/AG/R/13, 19 December 1997;  G/AG/N/KOR/8,
18 November 1996;  G/SCM/N/48/KOR , 20 July 1999;  and G/AG/N/KOR/26, 25 August 1999.
131 Ministry of Finance and Economy (1999b), pp. 224-225.  To further encourage foreign investment,
in 1998 the minimum foreign ownership requirement was reduced from 30% to 10% for Kwangju and from40% to 30% for Chonan.  In 1999 a free export zone (near the New Inchon International Airport) was underconsideration.WT/TPR/S/73 Trade Policy Review
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the special excise tax.132  The 104 firms in the Masan and Iksan Free Export Zones (including
51 foreign-invested firms), account for exports of US$2.8 billion, imports of US$2.05 million and
12,850 jobs;  Japan is the major investor (over 80% of zone investment and 42 in-zone firms).  Free
export zones have so far mainly received inve stments in electronics (25%), footwear and
textiles (16%), and precision tools (14%, and machinery (11%).
(vi) Export finance, guarantees, and insurance
117. Since 1976, the Export-Import Bank of Korea (EXIM-Bank), a governmental financial
institution, has been responsible for providing export finance and guarantees (against exporter's failure
to perform);  these activities are funded by borrowing at home (Finance Investment Special Account
of the Government) and abroad (foreign and Euro bonds, medium-term notes, bank loans and sales of
promissory notes).133  Its three credit facilities (i.e. export loan, direct loan, relending) finance up to
100% of the export contract price (at least US$1 million) less a minimum 15%-20% cash payment on
a medium- and long-term basis (up to 10 years), of goods such as industrial plants, ships, rolling
stock, industrial machinery, electrical equipment, vehicles, iron and steel products, non-ferrous metal
products, aircraft, optical instruments, precision and medical equipment, and parts and components.
EXIM-Bank generally applies minimum interest rates under OECD Guidelines (OECD Rate), whileco-financiers, if any, charge the prevailing market interest rates.
134  Since 1996, Korea has participated
in the Export Credits and Credit Guarantee Group (ECG) of the Trade Committee of the OECD, and
the Arrangement on Guidelines for Officially Supported Export Credits.135
118. Since 1992, the Korea Export Insurance Corporation (KEIC), a State agency, has
compensated losses incurred in export transactions and overseas investments that cannot be handled
by the general insurance system;  between 1996 and 1999 the share of total exports supported by its
underwritten export insurance rose from 13.2% to 19.5%.136  KEIC provides, inter alia , short-term
export insurance against the risk of failure to export (96% growth in underwriting in 1998);
agro-fishery export insurance against the risks of non-payment and domestic price increases;  pre- and
post-shipment credit guarantees against political and commercial risks;  medium- and long-term
export insurance against the risks of non-shipment and inability to export;  and export bond insurance
against losses arising when the bond is called by the overseas buyer.  Apart from short-term exportinsurance, in 1998 growth performance of most underwritten contracts declined as a result of the
1997 financial crisis (Chapter I).
                                                     
132 WTO document G/SCM/N/38/KOR, 16 July 1998.
133 EXIM-Bank information online.  Available at:  http://www.koreaexim.go.kr/exim/english/program/
Export.htm [30 September 1999].
134 In response to a question raised by the EU in the context of the WTO Committee on Subsidies and
Countervailing Measures, in 1997 Korea clarified that the EXIM-Bank's deferred payment loan (post-shipmentloan) was in conformity with the OECD Arrangement on Guidelines for Officially Supported Export Credits;therefore, this facility and the Bank's guarantees could not be considered as export subsidies (WTO documents
G/SCM/Q2/KOR/4, 1 October 1996;  and G/SCM/Q2/KOR/9, 17 January 1997).
135 The OECD Arrangement on Guidelines for Officially Supported Export Credits seeks to prevent an
export credit race towards more favour able financing terms or subsidization by providing the institutional
framework for an orderly market for officially supported export credits.  According to the Arrangement, officialsupport can take the form of direct credits/financing, refinancing, interest rate support, aid financing (credits andgrants), export credit insurance, and guarantees.  With respect to certain provisions of the Arrangement and its
Understandings Korea benefits from a transition period until 31 March 2002 (OECD, Arrangement on
Guidelines for Officially Supported Export Credits , [Online].  Available at http://www.oecd.org//ech/act/
XCRED/arrngmnt.htm [8 October 1999]).
136 Korea Export Insurance Corporation information online.  Available at: http://www.keic.or.kr/
mijeong/eng/keic.html [30 September 1999].Republic of Korea WT/TPR/S/73
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(vii) Countertrade
119. Since April 1998, Korea has regarded countertrade as a means to improve its export
competitiveness and revive crisis-affected bilatera l trade with countries in the region while reducing
dependence on foreign currencies.  In September 1998, discussions covering procedures, promotion
companies (e.g. the Korean LG International Corp. and Initiative Co.), products, and correspondent
banks, were held with Indonesia;  it was also agreed to accelerate joint energy-developmentprojects.
137  The financial terms agreed upon by the Korea EXIM-Bank in May 1999, removed any
remaining obstacles for launching countertrade operations with Indonesia;  Korea was to export
materials for shoes, petrochemical and medical products, while importing raw materials (crude oil and
other mineral resources) from Indonesia.  However, so far no such countertrade operations have been
carried out.  In 1998, Viet Nam and the Russian Federation emerged as future countertrade partners;detailed discussions for launching countertrade operations with Viet Nam are stalled, with the
payment method being a difficulty.
(4) M
EASURES AFFECTING PRODUCTION AND TRADE
(i) Taxation
120. Korea's internal tax system is characterized by a low overall level of taxation (19.6% of GNP
in 1999)138, relatively heavy reliance on indirect (consumption) taxes, and extensive use of tax
incentives for saving and investment.  Internal indirect and direct taxes (at both the national and local
level), like border taxes, can obviously have an influence on international trade and foreign direct
investment.  For example, special excise taxes appear to fall disproportionately on import-related
items.  At the WTO, Korea has been involved in a dispute with some other Members over its
allegedly discriminatory taxation of alcoholic beverages (Chapter II(7)(i)).  Furthermore, tax
incentives have been used extensively to induce private and foreign investors to engage in activitiesdeemed desirable for industrial development and export growth.
139  Korea's notification concerning
subsidies includes numerous, though by no means all, tax measures (section (4)(ii)).
121. Korea relies on indirect taxes for 59% of it tax revenues.  VAT is the main indirect tax
component followed by the transportation tax;  cu stoms duties contributed a substantial 6.5% to total
tax revenues in 1999 (Table III.7).  Personal income tax and the corporation tax are also importantsources of tax revenues, accounting for 21.9% and 19.1%, respectively, of total tax revenues.
(a) Indirect taxation
122. Since its previous Review, Korea has maintained its complex indirect tax structure.  At the
national level, it consists of special excise taxes and a complicated system of piggyback-style taxes,
often at low rates, levied on several types of products, services or transactions, together with abroad-based VAT on top of these taxes (Table III.8).  In addition, there are three national-earmarked
taxes.  It would appear that the rationale for many  of these special excises and other narrowly based
taxes (e.g. liquor taxes) is the presumption that they are borne disproportionately by higher income
taxpayers, and are therefore progressive, justifiable on vertical equity grounds;  however, they also
                                                     
137 Press Release of the Ministry of Commerce, Industry and Energy  [Online], 11 September 1998.
Available at:  http://www.mocie.go.kr/work/what/rel980911.htm [30 September 1999];  The Korea Herald
[Online], 19 May 1999.  Available at:  http://www.koreaherald.co.kr/ [30 September 1999];  and EXIM News
[Online], May 1999.  Available at:  http://www.k oreaexim.go.kr/exim/english/eximnews/mevent.htm
[30 September 1999].
138 National Statistical Office (1999), Table XI.1, p. 211.
139 Thirsk (1997), p. 284.WT/TPR/S/73 Trade Policy Review
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tend to be levied on products whose import shares are relatively high, such as alcoholic beverages and
cars with large engine capacity.
Table III.7
Structure of direct and indirect tax revenue, 1994-99
(Per cent and US$ billion)
1994 1995 1996 1997 1998 1999
Total (US$ billion) 57.0 71.2 77.4 70.0 46.2 61.2
(Percentage share)
Direct taxes 40.6 40.6 38.6 36.5 43.3 41.0
(a) Income tax 24.5 24.8 23.7 22.3 26.6 21.9
(b) Corporation tax 16.1 15.8 14.9 14.2 16.7 19.1
Indirect taxes 59.4 59.4 61.4 63.5 56.7 59.0
(a) Custom duties 7.5 8.4 8.5 8.7 5.9 6.5
(b) Value-added tax 28.5 26.7 26.9 29.3 24.3 28.1
(c) Special consumption tax 5.3 4.8 5.0 4.6 3.4 3.7
(d) Defence surtax 0.2 0.1 0.0 0.0 0.0 0.1
(e) Liquor tax 3.4 3.3 3.3 2.7 2.8 2.9
(f) Transportation/traffic tax 5.3 6.1 7.7 8.3 10.1 10.0
(g) Education surtax 2.6 2.6 3.2 3.7 3.7 3.6
(h) Special tax for rural
development0.4 1.8 1.7 0.9 1.0 2.2
(i) Other 6.1 5.5 5.0 5.3 5.5 2.1
Source: National Statistical Office (2000),  Monthly Statistics of Korea (2000.5) , Seoul.
Special excise taxes
123. A few changes have occurred in special excise taxes since the previous Review in 1996.
They include a two-thirds increase in the tax rate on petroleum, in three stages, from
W 414 (US$0.34)/litre to W 691 (US$0.57)/litre, and a 30% cut in the tax rate on consumer electronic
goods and automobiles in 1998.  To relieve the tax burden for low and middle income people as well
as to correct inconsistencies in tax progressivity objectives, the 10.5% special excise tax on food,
electronic goods (except for air-conditioners) crysta l glassware, pianos, ski/bowling equipment, ski
courses, etc. was eliminated as of 3 December 1999.140  However, these were not major changes,
despite the view of private sector representatives that existing special excises are no longer consistent
with the policy objectives of tax progressivity and of limiting the use of certain goods that are thought
to have negative external social effects.  Hitherto, efforts to abolish or streamline these and other
indirect taxes have not succeeded, reportedly owin g to the lack of alternative tax revenue sources141;
integration of the telephone tax into the VAT was in progress by June 2000.  The targeting of luxury
items and goods with social externalities (e.g. automobiles with large engine capacities) has prompted
concerns among certain trading partners that imported products appear to bear a disproportionate
burden of these taxes.142
                                                     
140 Ministry of Finance and Economy (1999b).
141 Korea Chamber of Commerce and Industry (1998).
142 European Commission (1999);  and USTR (1999).Republic of Korea WT/TPR/S/73
Page 85
Table III.8
Main indirect taxes, 2000
Tax Rates, product coverage, and valuation basis for imports Main exemptions or zero ratings
National taxes
Value-Added Tax
(VAT)10% on all goods and services.
Levied on the c.i.f. value plus customs duties, special excise tax,
liquor tax (if applied), education tax, and transportation tax.
VAT on cigarettes is levied on top of the local Tobacco
Consumption Tax.Export production and exports
(zero-rated).
Customs duty exempt goods(section (2)(ii)(j)), basic life necessities
and services (agricultural/livestock/forest/
fishery products, piped water, coal,certain transport services), social welfare
services (i.e. medical/health and certain
education services), culture-related goodsand services (e.g. books, newspapers,
magazines, artistic works/events,
admission to museum/galleries), personalservices (e.g. actors/singers performance,
research), and finance and insurance
services.
Special Excise Tax 7% on motorcycles and automobiles with engine capacity ranging
from more than 800cc to 1,500cc;
10% on sugar, soft drinks, certain cosmetics, nutrition
preparations, non-grand pianos;10.5% on automobiles with engine capacity ranging from more
than 1,500cc to 2,000cc;
14% on camping cars and automobiles with engine capacityexceeding 2,000cc;
15% on coffee, cocoa;
20% on admission fees in ski courses and entertainment places;30% on including, recreational machines (e.g. slot, pin-ball) golf
requisites, hunting guns, motorboats, yachts, skiing/bowling/wind
surfing equipment, video cameras (for films), luxury items(jewellery, articles of precious metals, cameras, watches, fur skin,
carpets, furniture exceeding W 1 million (US$828);
specific rates on:  gas (W 40 (US$0.033)/kg.), kerosene
(W 60 (US$0.05)/l.), diesel oil (W 160 (US$0.13)/l.), gasoline
(W 691 (US$0.57)/l.), and admission fees to certain leisureactivities (e.g. horse-race, golf courses, casinos (exemption for
foreigners)).Air conditioners, sugar and jewellery for
industrial use, donations and oil for use in
certain manufacturing activities, aircraft,
deep sea fishing vessels and vessels in
international navigation.
Levied on the c.i.f. value plus the customs duties.
Liquor Tax 5% on takju,
30% on yakju, fruit wine,50% on distilled soju, liqueur,
70% on chungju,
72% on spirits with an alcohol content of 1% or more, exceptspirits containing whisky or brandy;  whisky, brandy, and spirits
containing them, soju,
115% on beer.
Liquor tax rate for imported items is the same as domestic items.
Education Tax 0.5% of gross receipts from banking and insurance services,
15% of the special excise tax on kerosene and transportation tax,20% of the amount payable on property and aggregate land tax,
30% of the amount of the special excise tax and automobile
(local) tax,40% of the amount payable on the tobacco consumption tax
50% of the horse-race (local) tax.
Telephone Tax 10% on telephone charges. Government, local autonomous bodies,
educational institutions and authorized
telephone service business operators.
Transportation Tax(to be eliminated in
the year 2004)W 691/l. on gasoline, W 160/l. on diesel oil.
Table III.8 (cont'd)WT/TPR/S/73 Trade Policy Review
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Tax Rates, product coverage, and valuation basis for imports Main exemptions or zero ratings
Special Tax for
Rural Development(to be eliminated on
30 June 2004)0.15% of the amount payable for the securities transaction tax;
10% of the amount payable on the special excise tax, acquisitiontax and aggregate land tax;
20% on the amount payable on race-pari-mutuel tax;
30% on the special excise tax on admission fees of golf courses.
Local taxes
Acquisition Tax 2% for items including motor vehicles, heavy equipment, aircraft,
boats;
6% when taxable articles for business purposes are acquired in
specially designated areas;10% for items including villa, luxury boat purchase or inheritance
transactions of a value exceeding W 500,000.
The valuation basis for imported items is the total sum amount
with import duties and taxes.State and non-profit organizations,
relocation of factories, merger or
purchasing rights of certain assets.
Registration Tax Real estate 0.3%-3%;  ships 0.02%-1%;  aircraft 0.01%, 0.02%;
automobiles for non-business use 0.2%-5%;  bus/truck/special
vehicles 0.2%-3%;  construction machines 0.2%-1%.The valuation basis for imported items is the total sum amount
with import duties and taxes.Government or local autonomous bodies.
Automobile Tax
(annual)Automobiles, buses, trucks and special cars are subject at different
rates depending on the type, size (cylinder capacity (from W18/ccto W220/cc), loading capacity (from W 6,600 to W 157,500),
dimension (from W 13,500 to W 157,500) or use (business or non-
business).Vehicles used by military, police and
certain public utilities agencies (postaland telephone services, ambulances,
garbage collection, road projects).
Butchery Tax Slaughtering of cattle and swine; tax must not exceed 1% of the
market value of the animal.
TobaccoConsumption TaxCigarettes W 360 per 20 pieces;  and other tobacco items from
W 500/50kg. (snuff) to W 2,000/50kg. (cigars).
Regional
Development TaxUse of water for the generation of electricity W 0.1/cubic meter;
use of underground water W 10 to W 100/cubic meter;  mineralresources extracted 0.1% of the value;  loading and unloading
containers at harbours W 15,000/TEU of container.
Source : Ministry of Finance and Economy (1999), Korean Taxation 1999,  [Online].  Available at:  http://210.182.137.31/
cgi-pub/content.cgi?code=e_tc&no=1 [4 November 1999];  Korea Chamber of Commerce and Industry (1998),Doing Business with Korea , [Online], November.  Available at:  http://www.kcci.or.kr/kccinew/08/
dbk1/default.htm [30 September 1999].
Other indirect taxes on specific goods, services and transactions
124. Other indirect taxes on specific goods, services, and transactions are the liquor tax, telephone
tax, stamp tax and the security transaction tax.  In addition, there are earmarked taxes, namely the
transportation/traffic tax, education tax, and the special tax for rural development.
125. Since Korea's previous Review, the liquor tax on beer has been cut from 150% to 115%
(2000).  By contrast, in compliance with the WTO dispute settlement ruling (Chapter II), the tax rate
on "soju" was increased from 35% to 75% (as of 1 January 2000), the same rate as that levied on
certain imported spirits.143  Liquor tax rates are still based on the principle that liquor consumed
mostly by lower income earners should be taxed at a low rate, while that consumed mainly by higher
income earners should be taxed at a higher rate;  again, private sector representatives consider thatthese criteria for liquor taxation no longer correspond to modern consumption patterns.
144
                                                     
143 This change in the tax rate on soju was expect ed to increase whisky imports, reduce domestic sales
of soju and direct excess output of soju to overseas markets ( International Herald Tribune,  8 October 1999;  and
The Korea Herald [Online], 10 May 1999.  Available at: http://www.koreaherald.co.kr/ [30 September 1999]).
144 Korea Chamber of Commerce and Industry (1998).Republic of Korea WT/TPR/S/73
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126. As of 1 January 1999, automobiles are no longer subject to the special tax for rural
development, which was introduced in 1994 to fund rural development programmes aimed at coping
with the Uruguay Round-induced market opening a nd the low productivity of domestic agriculture.145
Value-added tax
127. In addition to customs duties, special excises and other narrowly based indirect taxes, VAT is
levied on a broad range of goods and services at the rate of 10%.  The tax applies to imported goodsas well as to domestically produced goods and services.  Goods for export, together with services
rendered outside Korea (as well as international transportation services involving ships and aircraft),
are zero-rated for VAT purposes.  Basic necessities, social welfare services, goods and services
related to culture, personal services similar to labour, inter alia , are exempt from VAT.
(b) Direct taxation
128. The main direct taxes are the personal income tax and the corporation tax.  Personal tax rates
range from 10% to 40%.  Corporation tax rates are 16% on taxable income of up to W 100 million
(US$82,781) or W 16 million (US$13,245) plus 28% on taxable income exceeding that amount;  a
notable exception involves public associations of agriculture, fisheries and livestock, for which the
corporation tax rate is 12%, with the objectiv e of boosting their after-tax profits, and thereby
encouraging investment by such associations.
146  Whereas foreign and domestic companies are treated
equally under the corporation tax, Korean branches of foreign corporations may be subject to an
additional branch profits tax, which is levied at the rate of 25% or at 5%-10%, if so provided under
bilateral tax treaties.  The other direct taxes levied at the national level are the inheritance and gift tax,
a 3% asset revaluation tax, and a 100% excess profits tax.147
129. Since Korea's previous Review, the corporation tax system has been modified in order to
bring it into accordance with the OECD Model Tax Convention, which contains guidelines for
bilateral tax treaties.148  Such treaties, which are designed to avoid international double taxation and
prevent income tax evasion, have been concluded with 51 countries.  Korea levies income taxes on a
worldwide (or residence) basis, which is necessary for the achievement of capital export neutrality
(CEN).149  Accordingly, relief for international double taxation is provided by allowing credits for
foreign taxes in assessing domestic tax liabilitie s.  Major improvements in the system included
modification of rules on expense settlement (to enhance integrity of corporate accounting),
simplification of the filing and payment procedure for taxpayers, and rendering more transparent the
tax regime on corporate divisions as well as on mergers and acquisitions.
130. As discussed in the next section, Korea offers a wide range of tax incentives, including tax
holidays, reduced tax rates, accelerated depreciation, and investment tax credits.  The inevitableoutcome is that marginal effective tax rates can vary substantially by sector;  such variation
constitutes a potential impediment to the efficient allocation of resources.  There is a certain lack of
transparency concerning tax incentives, however.  In particular, the tax authorities do not publish
detailed information on the amounts of tax revenue forgone as a consequence of these measures, and
few studies have been conducted in Korea to evaluate the impact and effectiveness of such incentives.
                                                     
145 Ministry of Finance and Economy (1999b).
146 Ministry of Finance and Economy (1999b), pp. 34, 97, 265-267.
147 Ministry of Finance and Economy (1999b), pp. 123-135.
148 Korea Chamber of Commerce and Industry (1998).
149 CEN obtains when the same amount of foreign and domestic taxes are paid on an identical
investment no mater where the investment is undertaken.WT/TPR/S/73 Trade Policy Review
Page 88
In the absence of any convincing empirical evidence to the contrary, experience in other countries
suggests that tax incentives are seldom cost-effective.150
(ii) Production assistance
131. Since its previous Review, Korea has continued to provide widespread assistance to domestic
producers generally in the form of tax incentives and concessional loans (Tables III.9 and III.10).  In
the light of WTO- and IMF-related commitments (Box I.1), Korea undertook to rationalize its overallsupport programme by reducing or phasing out prohibited measures under the Agreement on
Subsidies and Countervailing Measures (expiry dates in Table III.9);  by 1999, subsidies relating to
tax credits for investment facilities, reserves for export losses and overseas market development, and
the promotion of the use of mini-computers had been eliminated, while sunset clauses had been
introduced for most incentives.
151  In the context of tax reforms aimed at coping with the 1997 crisis,
in 1998 the authorities exempted or reduced taxes on asset transactions (i.e. capital gains tax,
acquisition tax and registration tax) with a view to encouraging corporate and financial restructuring
(i.e. mergers and acquisitions, business divisions, business assets swaps or alienation, contributions by
owners).152  Lending on concessional or commercial te rms has continued to be made available by
several state-owned financial institutions and sectoral cooperatives;  some of these institutions hadbeen established to finance sectors with low profitability and/or scarce supply of funds from
commercial banks.
153
132. Since 1996, Korea has notified its support programmes to the WTO Committee on Subsidies
and Countervailing Measures;  its latest notification (July 2000) listed 19 programmes (26 in 1996),
divided into six categories (Table III.11).154  As a result, Korea has provided explanations to
numerous questions (and in certain cases follow-up questions) from Argentina, Canada, the EU,
Japan, Mexico, Poland, Thailand, and the United States on virtually all its support measures.155  Korea
has also replied to questions raised by the EU and the United States with respect to several allegedly
non-notified tax and non-tax measures.  Reportedly, these tax measures included incentives tied to
local-content or export performance requirements;  a duty drawback scheme under the Special Act for
Tariff Drawback;  incentives for reserves for factory or for corporate head office relocation to
provincial or rural areas;  a tax exemption for fishing boats weighing less than 20 tonnes;  taxreduction for forestry income;  and a 30% tariff reduction for imports of enterprises in the high
technology industry.  Non-tax measures allegedly included subsidies through the financial market
                                                     
150 Most econometric studies show that forgone tax revenues exceed the increase in desired investment,
(OECD, 1995).  Furthermore, according to Shah (1995), se veral countries (for example, Brazil, Indonesia and
Mexico), having observed that the investment induced by tax incentives falls short of the tax revenue forgone,
curtailed such measures.  Tax holidays are regarded as a particularly ineffective type of tax incentive comparedwith tax credits (Mintz Jack M. (1990), pp. 81-102;  Mintz, Jack M. and Thomas Tsiopoulos (1992).
151 The sunset rules were introduced in 1998 under the Special Tax Treatment Control Law cited in
Ministry of Finance and Economy (1999b), p. 35.
152 Ministry of Finance and Economy (1999b), pp. 31-32.
153 These include the Korea Development Bank ( KDB);  the Export-Import Bank;  the Korea Long
Term Credit Bank;  the Industrial Bank of Korea (SMEs loans);  the credit and banking sector of the National
Agricultural Cooperative Federation (NACF), for agricultural and forestry loans;  the National Federation ofFisheries Cooperatives and its Member Cooperatives ((NFC), fishery loans;  and the National LivestockCooperatives Federation (NLCF), livestock loans (The Korea Chamber of Commerce and Industry, 1998).
154 WTO documents G/SCM/N/25/KOR, 23 July 1997;  G/SCM/N/38/KOR, 16 July 1998;  and
G/SCM/N/48/KOR, 20 July 1999.
155 WTO documents G/SCM/Q2/KOR/4, 1 October 1996;  G/SCM/Q2/KOR/7, 3 October 1996;
G/SCM/Q2/KOR/9, 17 January 1997;  G/SCM/Q2/KOR/9, 17 January 1997;  G/SCM/Q2/KOR/12,18 September 1997;  G/SCM/Q2/KOR/14, 14 November 1997;  G/SCM/Q2/KOR/15, 25 January 1999,G/SCM/Q2/KOR/17, 25 January 1999;  and G/SCM/Q2/KOR/18, 7 April 1999.Republic of Korea WT/TPR/S/73
Page 89
stabilization package (purchase of bad loans from banks by the state-owned Korea Asset Management
Corporation (KAMCO);  financial support for impr oving business management of fishing cooperative
associations;  a subsidy for interest payments on the fishing fund;  grants for replacement of old
fishing vessels;  soft loans and/or grants for forest managers and developers, forestry management,
reforestation, forest tending, the purchase of forestry machinery, timber production and processing,
private forest road construction, balanced regional development projects, anti-bankruptcy operationsof SMEs, cooperative projects, development or co mmercialization of new environmental or other
technology, overseas resources development, and R&D in the information and communication
industries;  and soft loans and subsidies to the semiconductor industry.
156
Table III.9
Main internal tax incentives in force relating to production and trade under the Special Tax Treatment Control Law (January 199 9)
Target and stated
objectiveDesignated activity and/or beneficiary Measure Expiry date
Small and
medium-sized
enterprises (SMEs)
SMEs involved in fishery,
manufacturing, mining, construction,transportation, wholesale and retail,
value-added (communication) network
(VAN) business, research & developmentbusiness, engineering, auto-repair,
industrial waste or sewage disposal.Investment reserves for losses may be
treated as losses in the calculation ofincome (up to 20% of the business
assets).31 December 2003
All activities undertaken by SMEs. 3% of the amount invested for the
acquisition of machinery and equipmentis deducted from income or corporation
tax.31 December 2003
Newly set SMEs established in rural
areas or new capital venturetechnology-intensive firms established in
designated areas to undertake mining,
manufacturing, VAN business, research& development business, broadcasting,
data processing & computer business,
engineering, transportation and
warehousing.Reduction of income or corporation tax
by 50% for a six-year period.31 December 2003
Newly set SMEs. Reduction of property tax on business
assets by 50% for a five-year period, and
acquisition and registration tax by 75%
for a two-year period.31 December 2003To reduce concentration
of economic wealth byconglomerates and
strengthen economic
fundamentals.
SMEs involved in manufacturing, data
processing and computer-relatedbusiness, VAN, research & development
business, broadcasting, data processing &
computer business, engineering,
transportation and warehousing.Reduction in corporate or income tax by
20%.31 December 2003
Technology and human
resources
development (THRD)Tax credit up to 5% of the expenditure
for the purchase of research &
development and training facilities.31 December 2003 All activities.
Income (wage and salary) tax exemption
for a five-year period for foreign
technicians working in Korea.31 December 2003
Table III.9 (cont'd)
                                                     
156 WTO documents G/SCM/Q2/KOR/4, 1 October 1996;  G/SCM/Q2/KOR/7, 3 October 1996;
G/SCM/Q2/KOR/9, 17 January 1997;  G/SCM/Q2/KOR/9, 17 January 1997;  G/SCM/Q2/KOR/12,18 September 1997;  G/SCM/Q2/KOR/14, 14 November 1997;  G/SCM/Q2/KOR/15, 25 January 1999,G/SCM/Q2/KOR/17, 25 January 1999;  and G/SCM/Q2/KOR/18, 7 April 1999.WT/TPR/S/73 Trade Policy Review
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Target and stated
objectiveDesignated activity and/or beneficiary Measure Expiry date
Tax exemption on revenue (up to
W 50 million (US$4,139) from stock
options owned by employees.31 December 2003
Mining and manufacturing activities. Technological development reserves may
be treated as losses in the calculation of
income (up to 3% or 5%
(technology-intensive and qualifiedcapital goods industries) of the gross
business income).31 December 2003
Mining and manufacturing activities. Tax credit of 5% (or 15% (SMEs) or
10% (non-SME firm transferringtechnology to SME)) of annual THRD
expenditure;
or 50% of annual THRD expenditureexceeding the previous four-year average
expense level in this area.31 December 2003
Patent or utility model right holders
transferring such rights.Tax exemption of 50% of the income
from the transfer.31 December 2003
Venture capital companies investing in
new SMEs.Tax exemption of capital gains from
sales of stocks or equity of the SMEs.Undefined
Individual investors in cooperative
associations established for start-up
SMEs or trusts for securities investment
in venture enterprises.Reduction of 20% of the amount invested
(up to 70% of aggregate income) from
the investor's taxable income for a
three-year period.31 December 2003
Business restructuring
Tax exemption on capital gains on the
real estate property of a new company
created by the consolidation of two or
more SMEs.Undefined All SMEs.
Income or corporation tax reduction of
50% for a six-year period for SMEs'
conversion to mining or manufacturing.31 December 2000
Livestock, fishery, mining,
manufacturing, construction, transport all
activities.Income tax deferral for the amount of
investment in business assets of an
individual firm converted into a
corporation.Undefined
50% reduction on the special additional
tax on capital gains from the alienation of
assets of financial institutions.31 December 2000To facilitate business
restructuring,
re-engineering and
financial structure
improvement.
Financial sector activities.
Tax deductions for financial institutions
purchasing and assuming assets and
liabilities of another such institution.Undefined
Balanced (regional)
development
To deal with pollution
and traffic congestion inurban centres (mainly
Seoul) by encouraging
firms to move out of
metropolitan areas.All relocated activities. Reserves for relocation may be counted
as losses in the calculation of the taxableincome.
50% exemption from or deferred
assessment of the special additional tax
on capital gains from transfer of assets.31 December 2003
31 December 2000
All relocated activities undertaken by
domestic firms.Income or corporate tax reduction by the
equivalent of 3% of the amount investedin new business assets (plant facilities,
office building).31 December 2000
Manufacturing activities of SMEs
relocated outside the Seoul MetropolitanArea or established in officially
designated rapid development zones.Income or corporate tax reduction by
50% (first four years) and subsequently
30% (two years).31 December 2000
Table III.9 (cont'd)Republic of Korea WT/TPR/S/73
Page 91
Target and stated
objectiveDesignated activity and/or beneficiary Measure Expiry date
Domestic firm operating in officially
designated agricultural area.Income or corporation tax reduction by
50% for a six-year period.31 December 2000
Hospitals in areas with inefficient or
non-existent medical facilities.Income or corporation tax reduction by
50% for a six-year period.31 December 2000
Income or corporate tax reduction of the
amount equivalent to 3% of the amount
invested in assets for the new hospital for
the taxable year of the date of
completion.
Farming companies covered under theFarming and Fishing Development
Special Act.Reduction by 50% of the corporation tax
on revenue from farm management and
cultivation for a six-year period.31 December 2003
Farmland owners meeting certain
ownership, cultivation and location
criteria.Income and additional tax exemption for
capital gains from farmland transactions.Undefined
Transfer of land (including forest) needed
for public projects (including housing).Reduction by 25% (or 35% if paid in
bonds) of the income or additional tax on
capital gains from the transaction.31 December 2000
Livestock industries. Reduction of the taxable income by 20%
for a three-year period starting the year of
an income rise.31 December 2000Enhancement of social
welfare
Forest exploitation. Reduction by 50% of the taxable income
from ten-year old forest.Undefined
Value-added tax (VAT)
related sectoral
incentivesAgriculture and forestry (machinery,
fertilizers, agri-medicines), fishery
(machinery, fishing gears and nets) and
subway construction services.Zero VAT rate. Undefined
Agriculture and fishery (petroleum
products supplied directly to the Central
Federation of Agricultural Cooperatives
and Central Federation of Fisheries
Cooperatives for use in agricultural
machinery or vessels).VAT exemption. 31 December 2000
Fishery (petroleum products for power
generation in islands subject to
difficulties in electricity supply) and
shipping (petroleum products forpassenger boats operating in coastal
waters).VAT exemption 31 December 2000
National housing construction. VAT exemption. Undefined
Source: Ministry of Finance and Economy (1999), Korean Taxation 1999 , [Online].  Available at:  http://210.182.137.31/
cgi-pub/content.cgi?code=e_tc&no=1 [4 November 1999].
133. Since 1996, the pattern of intervention in agriculture, livestock, fisheries and forestry has
remained virtually unchanged and clarifications have been sought by other trading partners, in the
context of the WTO Committee on Agriculture, concerning several support measures
(Chapter IV(2)(ii)(b)).  In addition to support through state-trading, tax and financial measuresdiscussed earlier, assistance has also included action such as price support programme for beef (from
May 1996 to August 1998) and rice;  buffer stock management fund;  pigmeat quality improvement
and marketing subsidy (since 1995);  extended debt redemption period and lower interest rates for
debt-ridden farmers (eliminated in 1999);  investment  aids for structural adjustment for small-scale
family and mountainous farms.  Welfare-related programmes included farmers' and fishermen'spension insurance programme (since 1995), natural disaster assurance (since 1967), comprehensive
rural development plan (projects of infrastructural services until 1998), and a rural and fisheriesWT/TPR/S/73 Trade Policy Review
Page 92
restructuring fund.  The merger of the three umbrella bodies of agricultural state-supported
cooperatives (section (2)(vi) and Chapter IV(2)(ii)) was to take place on 1 July 2000.157
Table III.10
Credit assistance, 1995-1999
(a)  Interest rates for production and trade loans
(Per cent)
1995 1996 1997 1998 1999
Commercial rates 9-19 11.1-19 15.32-37.48 11.11-22 8.52-20
Interest rates of the Bank of Korea for:
Loans to Government 5 5 5 5 5
Loans on collateral of:
Foreign trade billsa, b55 5 33
Agricultural bills 3 3 3 3 abolished
Fishery bills 3 3 3 3 abolished
Livestock bills 5 5 5 5 abolished
a Loans executed since 15 March 1994 are included in the loans with an aggregate credit ceiling system.
b Bills related to loans for general export and import, for export of construction and services, and for export preparation of
agricultural and marine products.
(b)  Loans and discounts of Deposit Money Banks
(US$ billion)
1995 1996 1997 1998 1999
Agriculture and forestry 17.7 18.6 17.5 11.9 15.4
Fishing 2.5 2.7 2.7 2.1 2.1
Mining 0.6 0.5 0.6 0.4 0.5
Manufacturing 80.9 86.4 78.1 50.4 67.1
Others 96.1 112.0 111.8 78.4 125.3
Total 197.8 220.2 210.7 143.2 210.4
Source: Bank of Korea (1999), Economic Statistics Yearbook 1999,  Tables 13, 22 and 35, June, Seoul.
134. In line with its schedule of commitments in ag riculture, Korea has been reducing its domestic
support as measured by the Aggregate Measurement of Support (AMS), although overall domestic
support has increased (Chapter IV(2)(ii)(b));  in this context, Korea is expected to cut its current total
AMS expenditure from W 2.182 trillion (1995) to W 1.49 trillion (2004) in ten equal instalments.158
In 1998, product-specific AMS was concentrated in rice (83% of AMS expenditure) while spendingon green box mesures was dominated by infrastructural services (e.g. irrigation, drainage projects
(53.7%)) and investment aid to small/disadvantaged farmers (24.7%);  green box spending was
W 5.360 trillion or 243% higher than current total AMS.
159  In the year 2000, total AMS must not
exceed W 1.797 trillion;  according to a major trading partner, unless domestic rice and beef
purchases and pork and beef production incentives are reduced, Korea may encounter difficulties in
implementing its AMS commitments.160
                                                     
157 The Korea Herald [Online], 12 March 1999. Available at: http://www.koreaherald.co.kr/
[30 September 1999].
158 Part IV, Section I of Schedule LX – Republic of Korea, 15 April 1994.
159 WTO document G/AG/N/KOR/24, 25 August 1999.
160 USTR (1999).Republic of Korea WT/TPR/S/73
Page 93
Table III.11
Subsidies notified under WTO provisions, 1996-99
(US$ million)
Type of subsidy Expiry date 1996 1997 1998 1999
Agriculture
Food grain management programmeaGovernment purchase Undefined 1,689.4 1,410.2 777.8 862.2
Livestock support programme Government purchase for
beef;  grant and loans for
pigmeat productionUndefined 46.5 284.2 186.3 0.0
Marketing improvement programme
for fruit and flowersFinancial assistance 2004 3.0 3.2 3.8 6.2
Forestry
Plywood & board assistance
programmeLoans Undefined 0.3 0.3 0.2 0.2
Forest products utilization assistance
programmeLoans Undefined 1.1 1.1 0.9 0.9
Fishery
Support for development of deep-sea
fisherybLoans Undefined 5.9 9.5 12.7 14.8
Support for fish products processingdevelopmentbGrants, loans Undefined 3.3 3.2 2.0 3.3
Fund for supporting fishing
activitiesbLoans Undefined 32.7 31.7 32.7 39.4
Support for developing aquaculturefisherybGrants, loans Undefined 4.9 4.2 2.2 3.0
Reduction in local taxation on
building and acquisition of vessels
for deep-sea fisheryTax concession 2000 .. 11.6 8.2 ..
Coal industry
Support programme for the coal
industryGrants, loans Undefined, except
for support for
mining area andloans (2005);  and
support for storing
management ofanthracite coal
(2000)5.7 5.1 3.4 3.7
Manufacturing industry
Support for foreign invested
enterprisesTax reduction Undefined .. .. .. ..
Reduction in customs duty on parts
of aircraftTax reduction Undefined 2.5 1.9 5.9 7.7
Support programme for maintenance
of farm machinerybLoans Undefined 2.8 4.7 2.8 3.1
Support fund for the stone industrybLoans Undefined 0.4 0.4 0.3 0.1
Research and development
Diesel vehicle low emission
technology developmentGovernment
contribution2001 1.2 0.0 0.7 0.8c
Table III.11 (cont'd)WT/TPR/S/73 Trade Policy Review
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Type of subsidy Expiry date 1996 1997 1998 1999
Assistance for R&D activities under
the Basic Act on Information
PromotionLoans Not fixed 14.5 14.8 10.3 4.9
Environmental engineering and
technology development programmeGrant Undefined 30.6 19.5 16.7 18.0
Science and technology promotion
fundLoans Undefined 6.3 5.2 .. ..
.. Not available.
a Expenditures for foodgrain purchases.
b Estimate of the subsidy, based on the difference between the interest rate on the loan and the market rate.cP r e l i m i n a r y .
Note: No comments were made by the authorities on this table.
Source: WTO documents G/SCM/N/KOR, 16 July 1998;  G/SCM/N/48/KOR, 20 July 1999;  and G/SCM/N/60/KOR,
13 July 2000.
135. Korea has continued to provide energy to farmers and manufacturers at prices up to 57%
lower than to households and offices, to, inter alia,  strengthen their competitiveness
(Chapter IV(3)(ii)(b));  in 1999 reforms towards a more rational and market-driven price policy were
under preparation.
136. As indicated in Korea's previous Reviews and the present report (sections (2)(ii)(j), (2)(v)(a),
(2)(vii), (2)(ix)(a), (3)(ii)(c), (4)(iii) and (4)( iv)(a)), emphasis has been maintained on widespread
support measures for the development of SMEs.  By 1999, in a bid to lower the dependence of SMEs
on major conglomerates (i.e. the chaebols (section (4)(iii), Box IV.1)), financial, technological and
marketing (including export) assistance has been given by three major Korean automobile
manufacturers to makers of automotive components;  according to the authorities, this is the outcomeof a voluntary agreement among private parties.
137. Assistance to SMEs for high-technology research and development (R&D) has also been a
priority;  corporate investment in R&D in recent years had become increasingly concentrated in the
top five chaebol firms (40% of total R&D spending in 1998).  Efforts to raise technological capability
to OECD levels have included the enactment of the Special Law on Innovation of Science andTechnology (April 1997) and the Special Act for Scie ntific and Technological Innovation;  the Highly
Advanced National (HAN) Project;  the formation of  the Five-year Plan for Science and Technology
Innovation (1997-2002);  and the Creative Research Initiative.  The Five-year Plan provides for,
inter alia,  raising public spending for R&D to at least 5% of the Budget by the year 2002, compared
with 2.5% in 1998;  setting priority areas (i.e. innovative information technologies, strategic industrialtechnologies, social welfare technologies, ener gy technologies, system technologies, and newly
emerging industry technologies);  and implem enting SME-friendly measures.  As from 1998, tax
credit and exemptions on R&D were extended to high  value-added services industries (previously
available only to manufacturing) as well as to research relating to the millennium bug.
161  As f rom
1996, the Government-supported Research Institutes (GRIs) have operated under a project-basedsystem that allowed for transparent use of human and financial resources;  GRIs are involved in a
                                                     
161 Ministry of Finance and Economy (1999b), p. 34.Republic of Korea WT/TPR/S/73
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wide range of projects including energy and standards.162  Between 1996 and 1999, the number of
R&D centers set up by SMEs increased from 748 to 797.
138. As from 1999, industry-specific subsidies have also been made available to culture-related
industries.163  In 1999 Korea reformed its pharmaceuticals medical insurance reimbursement method,
which until then differed between domestic and foreign items (Chapter IV(4)(v)).
139. In early 1999, the authorities envisaged supporting regional development in Pusan through:
compensation for fishermen affected by a fishing agreement with Japan (which allowed fishing in
Japanese coastal zones);  the utilization of low interest loans (US$170 million) and wage subsidies for
the industry (half of newly employed workers' wages fo r one year);  the purchase of bad debt from the
local bank;  and the establishment of a special tourist area.164
(iii) Competition and consumer policy
Competition policy
140. With the advent of the economic crisis and the resulting IMF programme (Box I.1) together
with World Bank assistance, Korea's basic competition legislation (i.e. Monopoly Regulation and Fair
Trade Act) was amended in 1998 and 1999 (eighth amendment in December 1999) to, inter alia,
address problems relating to monopolistic or oligopolistic market structures (i.e, the overwhelminglydominating business conglomerates, the chaebols (Box IV.1));  tighten restrictions on economic
concentration;  extend the scope of application to all enterprises (including financial or insurance
businesses);  and shore-up corporate restructuring.  Thus, a policy shift toward a balanced
development of the economy has constituted an important objective in Korea's competition policy.  So
far work has included the modification of the criterion for market-dominant businesses (from annual
domestic supply of products worth W 50 billion (US$41.4 million) to W 100 billion
(US$82 million));  the revision of the rules on business combinations and on international
contracts (on intellectual property rights) with unfair terms;  the revision of guidelines on parallel
imports, special discount sales, offering of gifts and fair representation and advertising of insurance
products;  and the adjustment of the surcharge system (i.e. fine against violations).
165
141. More specifically, as of 1 April 1998, the restriction prohibiting cross-ownership between
companies was repealed;  nevertheless, this restriction may apply if there is a competition-restrictiveeffect in a particular industry.  Since then no new intra-group payment guarantees have been allowed
for the 30 largest chaebols;  existing intra-group payment guarantees are to be eliminated by
31 March 2001.  To enable SMEs to compete with chaebol subsidiaries on an equal footing, unfair
assistance between the latter is prohibited.
166  As of February 1999, "hard core" cartels have been
illegal per se , and the previously exempt sectors of agriculture, fishery, forestry, and mining have
                                                     
162 Report by the Korea Industrial Technology Association (KITA) cited in The Korea Herald [Online],
20 October 1999. Available at: http://www.koreaherald.co.kr/news/1999/10/__05/19991020_0548.htm[20 October 1999].
163 Culture-related industries include producers of video programming, Internet bookstore start-ups, and
producers of computer game software, music disks, and TV programming.  A soft loans programme is expectedto cover 500 firms and create 14,000 jobs ( The Korea Herald [Online], 12 May 1999. Available at:
http://www.koreaherald.co.kr/ [30 September 1999]).
164 The Korea Herald [Online], 6 February 1999. Available at: http://www.koreaherald.co.kr/
[30 September 1999].
165 Korea Fair Trade Commission (1998).
166 Korea Fair Trade Commission (1999).WT/TPR/S/73 Trade Policy Review
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been subject to the existing competition rules167;  at present, the sole authorized exemption from these
rules refers to the legitimate exercise of intellectual property rights (section (iv)) as well as certain
aspects of the public enterprises (e.g. price regulation).  Following the passing of a 1999 Package
Clearing Act of Cartels, which outlawed or improved  20 cartels (operating under18 different laws and
recommended for removal by the OECD), 17 cartels were eliminated while 38 remained active;  in
addition, since the year 2000 the Insurance Development Institute (IDI) has fixed net insurancepremiums only.
168  Furthermore, the restriction on territorial allocation in the supply of unsterilized
rice wine is to be lifted as of the beginning of 2001, thus transforming rapidly the pattern of the
domestic rice wine industry.169
142. The Korea Fair Trade Commission (KFTC) remains in charge of matters subject to the
general competition law, except for the telecommunications sector where the Korea CommunicationsCommission (KCC) regulates anti-competitive activities relating to interconnection to networks,
provision of facilities, and misuse of information acquired from the shared network;  and the financial
services sector, where the Financial Supervisory Commission (FSC) oversees the soundness of
financial institutions and regulates their transaction practices.
170  The KFTC also cooperates closely
with the Korea Consumer Protection Board (KCPB) and private consumer protection groups.
143. As stated earlier, so far chaebols have constituted a significant concern for foreign
competitors (e.g. distribution channel ownership (Chapter IV(5)(vi)(a))) and domestic SMEs
(e.g. prized relationship, access to credit in local banks).  In line with the regulatory reform in this
area, since 1998 the KFTC has conducted probes on unfair/illegal intra-group transactions with a view
to dealing with cross-subsidization among chaebol affiliates and creating competition within the
group;  in September 1999 the KFTC planned to launch a third probe into alleged illegal internal
trading at affiliates of five or six large conglome rates ranked outside the top five (Hyundai, Daewoo,
Samsung, LG and SK (Box IV.1)).171  The KFTC had found W 8 trillion (US$6.6 billion) of these
transactions, involving affiliates of each of the top-five chaebols, which were fined up to
W 90 billion (US$74.5 million);  the chaebols appealed this decision.
144. Since 1996, efforts have been undertaken to monitor abuse of market-dominant power by
public enterprises and to enforce legislation.  According to recent KFTC investigations, several publicentities were involved in illegal trade practices among subsidiaries (Korea Land Corp., Korea Water
Resources Corp., Korea Petroleum Development Co rp., Agricultural and Fishery Marketing Corp.,
and Korea National Tourism Organization) as well as in imposing contract clauses unfavourable to
clients and suppliers (Daehan Coal Corp. Korea Mining Promotion Corp., Rural Development Corp.
                                                     
167 However, several cartels, whose benefits of economic efficiency seem to outweigh their costs to
competition, remain beyond the reach of the competitio n law;  these are cartels aimed at strengthening the
negotiating power of the primary industry producers (i.e. the cooperative federations of the agricultural, fishery,forestry and livestock industries) or enhancing economi c efficiency (i.e. telecommunication carriers, maritime
transport unions) or internationally approved cartels (i .e. conference among international maritime transporters,
joint business agreements between air carriers) (Korea Fair Trade Commission, 1999).
168 In the past, the insurance companies jointly set the insurance premiums (consisting of net and
loading (operational costs) premiums) based on the premium rates fixed by the IDI;  at present each insurancecompany determines the loading premium (Korea Fair Trade Commission, 1999).
169 Since the 1960s, the supply of unsterilized rice wine has been restricted to the administrative
districts of cities or counties where the domestic brewer ies are located, thus allowing a limited number of rice
wine brewers monopolistic/oligopolistic market power in a given area (Korea Fair Trade Commission, 1999).
170 Korea Fair Trade Commission (1999).
171 APEC (1999);  USTR (1999);  and The Korea Herald  [Online], 13 September 1999.  Available
at:  http://www.koreaherald.co.kr/ [30 September 1999].Republic of Korea WT/TPR/S/73
Page 97
Korea Trade-Investment Promotion Agency, a nd Securities Printing and Minting Corp.).172  I n
April 1999, eight state enterprises, including Korea Electric Power Corp. and Korea Telecom, and
their subsidiaries, were under investigation for illegal internal support.  Fines have been imposed in
several cases, thus breaking with past practices of excluding public entities from fines (considering
that most of their operations are financed by taxpayers' money);  in 1998, a total of W 3.7 billion
(US$3.4 million) in surcharges (i.e. fines) were imposed on them and corrective orders were issued.173
As a result, in October 1999, institutional and regulatory improvements (the Accounting Standards of
and Management Evaluation Criteria for State-owned Enterprises) were made to prevent group
negotiation contracts with and extension of debt guarantees to subsidiaries.
145. According to its established practices, the KFTC designated 324 firms in 129 goods and
services as market-dominant enterprises for 1999, for the last time174;  in addition to the regulations on
unfair trade practices, these firms are subject to the regulations on abuse of market-dominance.175
Since 1996, the overall pattern of competition policy trends has remained relatively unchanged;  thenumber of stock acquisitions and cases of corrective measures against collaborative acts and
violations by trade associations declined (Table III.12).  The number of reviews of international
supply contracts pursued their declining trend from 285 (1995) to 23 (1997) and 8 (1 998), while in
1999 no request for review was addressed to the KFTC.
146. Korea has actively participated in the activities of the WTO Working Group on the
Interaction between Trade and Competition Policy (WGTCP) where it, inter alia,  expressed its
concern on the effects of chaebols in several competition-related areas and the economy as a whole.
176
Furthermore, since June 1997, its numerous and extensive written submissions have covered themandate and activities of the WGTCP;  national policy instruments, standards, and activities in this
area;  the interaction between trade and competition policy and their relationship to economic growthand development;  limitations of the WTO rules in th is area;  problems related to the implementation
of an internationally comprehensive competition policy;  ways for removing inconsistencies between
existing trade or trade-related rules and policies (e.g. state monopolies, exclusive rights and
regulations, anti-dumping, intellectual property rights, investment and competition);  and suggestions
on approaches for fostering international cooperatio n (bilateral, regional, multilateral) towards the
establishment of a multilateral framework on competiti on policy.  According to the authorities, certain
WTO rules and provisions (e.g. anti-dumping and countervailing measures, safeguards) need to be
reformed in a competition-oriented manner.  In addition to its participation in competition
                                                     
172 The Korea Herald [Online], 20 July 1998, 26 January 1999, 8 February 1999, and 9 April 1999.
Available at:  http://www.koreaherald.co.kr/ [30 September 1999].
173 Korea Fair Trade Commission (1999).
174 No items and firms have been designated as market dominant products/services and enterprises
since April 1999, as the revision of the MRFTA replaced the ex-ante  designation and notification of market
dominant enterprises with ex-post facto  assessment.
175 A market-dominant enterprise is an enterprise which supplies its goods or services in a market
where the goods or services which are the same as or similar to the goods or services the gross domestic supplyamount of which during the most recent one-year period is W 100 billion or provided that the market share ofone enterprise is 50% or more or the combined market share of three or less companies is 75% or more(Korea Fair Trade Commission, 1998).
176 WTO documents WT/WGTCP/W/37, 1 October 1997;  WT/WGTCP/M/4, 24 June 1998;
WT/WGTCP/M/5, 25 September 1998;  WT/WGTCP/M/8, 10 June 1999;  WT/WGTCP/W/5, 19 June 1997;
WT/WGTCP/W/37, 1 October 1997;  WT/WGTCP/W/56, 10 December 1997;  WT/WGTCP/W/73,30 March 1998;  WT/WGTCP/W/91, 31 A ugust 1998;  WT/WGTCP/W/90, 3 September 1998;
WT/WGTCP/W/105, 23 October 1998;  WT/WGTCP/W/ 109-WT/WGTI/W/57, 22 October 1998;
WT/WGTCP/W/124, 31 May 1999;  and WT/WGTCP/W/133, 15 July 1999.WT/TPR/S/73 Trade Policy Review
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policy-related discussions at the OECD, APEC and the UNCTAD, Korea has maintained close
bilateral cooperation with France, Germany, Japan, the Russian Federation, and the United States.177
Table III.12
Competition trends, 1996-99
1996 1997 1998 1999 Total
I. Abuse of market dominance
(a) Type
P r i c e  a b u s e 0001 1
Control of production and ex-factory volume 0 0 3 0 3
Interference with other businesses 1 2 1 1 5
Interference in market entry 0 0 0 0 0
Other acts likely to restrain competition 0 0 1 0 1
(b) Corrective measure
Corrective order 1 1 4 1 7
Recommendation for correction 0 0 0 0 0
W a r n i n g 0111 3
II. Corrective measures on collaborative acts
(by type of act)
Collusion on price determination and maintenance 27 14 33 25 99
Collusion on determination of terms of sales 1 1 0 1 3
Restriction of business activities 3 2 2 2 9
Output restriction 0 1 0 0 1
Restriction of territory of trade or customers 3 3 2 0 8
Restriction of the types of the goods 0 0 0 0 0
Establishment of a joint corporation 2 1 0 0 3
III. Corrective measures against violations by trade associationsa
(by type of violation)
Anti-competitive acts 46 38 49 74 207
Restriction of the number of member corporations 1 1 3 1 6
Restriction of business activities or the nature of the business 15 13 41 17 86
Unfair business practices and resale price maintenance 4 2 8 7 21
Wrongful representation advertising 0 0 0 0 0
IV. Business combinations
(a) Type
Establishment of a new company 130 163 130 113 419
Stock acquisition 159 130 92 146 527
Merger 63 75 151 145 434
Interlocking directorate 16 27 32 42 117
Take-over of business 25 23 81 111 240
(b) Results of reviews
Corrective order 1 0 3 2 6
E x c e p t i o n 0113 5
W a r n i n g 3 54 62 61 3 1 2 0
Surcharge 0 0 0 4 4
a Trade association is any combination or federation of two or more enterprises for the purpose of enhancing their common
interests.
Source: Korea Fair Trade Commission (1998), Annual Report on Competition Law and Policy in Korea 1997 , September,
Seoul.
                                                     
177 APEC (1999).Republic of Korea WT/TPR/S/73
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Consumer policy
147. Since its previous Review, Korea has undert aken steps in consumer protection;  a
Fair Advertisement Act entered into force in July 1999.  Actions included institutional and regulatory
action on electronic commerce;  the expansion of the injury data collection system;  the improvement
of the product recall system;  the strengthening of child safety and regulations against misleading
trade practices;  the tightening of controls in food safety (mainly imported food (section (2)(x)(b));the elimination of the recommended consumer price labelling (section (2)(x)(c)) and of constraints on
the bargain sales period;  the establishment of easier online access to consumer information;  the
development of an integrated consumer complaints handling system;  and intensified consumer
protection in telecommunication services.
178  In 1997, consumer organizations and the Korea
Consumer Protection Board (KCPB) handled 560,000 consumer complaints, of which 571 reached the
Consumer Dispute Settlement Commission (CDSC) for conciliation and 86% were successfully
settled.
(iv) Intellectual property rights
148. Korea considers that improved protection of intellectual property rights (IPRs) is not only
conducive to the development of local technologies, culture and economy, but also instrumental ininducing foreign direct investment and trade.  In April 1998, the Intellectual Property Great Leap
Forward Policy was launched with a view to raising competitiveness through strengthened inventive
activities and enhanced protection of IPRs.
179
International treaties
149. Since its last Review, Korea has expanded its commitments on protection of intellectual
property rights by becoming a party to the Strasbourg Agreement Concerning the International Patent
Classification (effective as of October 1999) and the Nice Agreement Concerning the InternationalClassification of Goods and Services for the Purposes of Registration of Marks (effective
January 1999);  thus, it is now participating in 8 out of 21 treaties administered by the
World Intellectual Property Organization.
180  Since 1999, preparatory work, including the revision of
the national Trademark Act and the setting of a relevant computer system, has been undertaken for
joining the Madrid Protocol, Trademark Law Treaty and the New Hague Agreement for theinternational registration of designs, in the comi ng years;  Korea is taking steps to join the
International Union for the Protection of New Varieties of Plants (UPOV), and to sign the Convention
in 2000 or 2001.
WTO commitments
150. Korea's IPR protection regime is considered by the authorities to be largely on a par with
those of developed countries.  It has enacted the Agrochemical Management Law, the Seed Industry
Management Laws, the Patent Act (effective January 1999), the Trademark Act (effective
March 1998), the Design Act (effective March 1998), the Unfair Competition Prevention and Trade
                                                     
178 OECD (1997).
179 Korean Industrial Property Office (1999).
180 Korea is also a party to the Convention Establ ishing the World Intellectual Property Organization
(as from 1979), the Paris Convention for the Protection of Industrial Property (as from 1980), the Patent
Cooperation Treaty (PCT) (as from 1984), the Convention for the Protection of Producers of Phonogramsagainst Unauthorized Duplication of their phonograms (as from 1987), the Budapest Treaty on the InternationalRecognition of the Deposit Micro-organism for the Purpose of Patent Procedure (as from 1988), the BerneConvention for the Protection of Literary and Artistic Works (as from August 1996).WT/TPR/S/73 Trade Policy Review
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Secret Protection Act (effective January 1999), and the Semiconductor Integrated Circuits Lay-out
Design Act (effective January 1999), while it strengthened protection of geographical indications of
wines and spirits (new provision in Trademark Act)181, thus acting on the remaining commitments
with respect to the WTO Agreement on Trade-Related Aspects of Intellectual Property
Rights (TRIPS).182  Since January 1994, Korea has incorporated into its customs laws and regulations
the TRIPS provisions on border measures;  following a declaration to the Customs by owners ofregistered trade marks and copyrights, imports and exports of goods violating these rights may be
subject to withdrawal of customs clearance.
183  Korea voluntarily submitted information to the
WTO Council for TRIPS on the state of domestic patent protection of plant and animal inventions in
February 1999 and in the first half of 2000, respectively;  in 1999, it participated actively in the
Council's discussions related to geographical indications, protection of inventions of plants andanimals, and non-violation complaints with regard to TRIPS issues.
184  Korean IPR legislation was
submitted in early 2000 (Table AII.1) and reviewed by the Council for TRIPS in June 2000.
Enforcement action
151. Korea's comprehensive enforcement system, which includes civil and administrative
procedures and remedies, provisional measures, and criminal procedures, was reinforced in the period1997-99, particularly with respect to industrial prop erty rights (section (a) below);  the ceiling for
infringement fines was raised from W 20 million to W 50 million (US$41.4 million).
185  Korea has
special enforcement periods (twice a month), when significant resources carry out raids, prosecution,
and other enforcement activities;  the rhythm of the education campaigns has been sustained.
Regional or bilateral cooperation
152. Since its previous Review, Korea has participated in APEC-wide cooperation in IPRs,
including the full implementation of the TRIPS Agreement by no later than the year 2000, thedevelopment of guiding principles on IPR enforcement, the improvement of the protection of
well-known marks;  and discussions to conclude an agreement on common trade mark application
form.
186  Following its OECD membership, Korea partic ipated in the discussion for the formation of
norms in the field of newly established IPRs like biotechnology.  As from 1996, Korea has benefited
from training and/or technical assistance on issues such as patents, appellation of origin concept,
                                                     
181 As a result of its IPR-related efforts, since 1996 Korea's status under the "Special 301" of the
1988 Trade Act of the United States has been downgraded from "priority watch list" to "watch list" (as ofApril 1997) where it remained in 1999.
182 Without prejudice to the entitlement to a longer transitional period afforded to developing countries
under the Agreement on TRIPS, Korea passed national legislation (patent, utility model, semiconductor chiplay-out design, trade marks and copyrights) pursuant to virtually all relevant provisions of the TRIPS Agreementbefore 1 July 1996;  this advance implementation was the outcome of a 1996 Framework Agreement for Tradeand Co-operation between the EU and Korea (WTO, 1996);  and WTO documents IP/C/M/8, 14 August 1996,and IP/C/M/11, 16 December 1996.  By 1999, the implementation of all TRIPS commitments seemed to be a
prior condition for signing of the Bilateral Investment Treaty (BIT) with the United States (USTR, 1999).
183 APEC (1999).
184 WTO documents IP/C/W/125/Add.9, 16 February 1999;  IP/C/M/21, 22 January 1999;  IP/C/M/22,
9 April 1999;  and IP/C/M/23, 2 June 1999.  In 1996, Korea was among the WTO Members that receivedquestions from the United States in the context of the review of national implementing legislation in the areas oftrade marks, geographical indications, industrial design, and copyright and related rights (WTO documents
IP/C/W/39/Add.1, 17 October 1996, and IP/C/W/25/Add.1, 20 June 1996).
185 APEC (1999);  Korean Industrial Property Office website: http://www.kipo.go.kr/english/
index-e.html [15 September 1999];  and Korean Industrial Property Office (1999).
186 APEC Secretariat Online information.  Available at: http://www.apecsec.org.sg/committee/
intellectual.html [17 September 1999].Republic of Korea WT/TPR/S/73
Page 101
copyright and neighbouring rights, CD-ROM legislatio n, and protection of new plant varieties;  this
training was organized or sponsored by the Wo rld Intellectual Property Organization (WIPO), the
Office of UPOV (International Union for the Protection of New Varieties of Plants), France, Japan,
the German Patent Office, the UK Patent Office, the United States Information Agency (USIA), the
United States Copyright Office, and U.S. private sector associations (e.g. the Business Software
Alliance).187  Korea in cooperation with WIPO and other related international bodies helps developing
countries (including non-WTO Memb ers) in Asia and the Pacific to develop their IPR systems and
implement the TRIPS Agreement in areas such as computerization and training.188
153. Continued communications and dialogue with foreign government agencies (e.g. from the
United States and the EU), chambers of commerce (e.g. AmCham) and civilian IPR-related
organizations (e.g. American Intellectual Property Law Association) have been used to resolveIPR-related trade conflicts.
189  To spread a better understanding of the IPR system, in May 1998 the
authorities widely distributed the Easy Guide for Intellectual Property Rights Acquisition in Korea for
Foreign Investors, to related domestic and foreign organizations.
(a) Industrial property
Patents and utility models154. Patent legislation (Patent Act and Utility Model Act), which is considered by a major trading
partner as fairly comprehensive and offering protection to most products and technologies, was
amended in 1997 and 1998 to allow, inter alia,  as from July 1999, the extension of the patent duration
for certain pharmaceutical, health and agrochemical products that are subject to clinical trial periods
and official testing requirements, even if the delayed time for a test process takes less than two
years (effective);  this amendment allowed the implementation of provisions of the Patent
Cooperation Treaty.
190  With respect to utility models, the objective was to foster inventive activities
as well as to enhance national competitiveness by enabling easy and quick acquisition of IPRs for
products with a short life cycle, as well as acquisition of new technology by SME venture businesses;
as from July 1999, through the amendment of the Utility Model Act, a quick registration system and
an opposition system have applied.  Changes were also intended to streamline the examination and
appellate process, and reinforce infringement penalties.  Since 1995, the patent duration has been20 years from the date of application, and protection has also covered inventions produced through
the method of atomic transformation.
155. According to the Patent Act (Article 98), the patentee of a subservient patent may not be able
to use the technology of the dominant patent without obtaining a licence from the patentee of the
earlier dominant patent.  Under the single examin ation guideline patent examiners apply the same
examination standards to all applicants regardless of their origin (locals or foreigners);  the authorities
indicated that examiners do not discriminate between local and foreign patent applications, especially
in terms of interpretation of claims.  It was also clarified that Korea Telecom, being subject to
commitments under the WTO GPA, observes international procurement principles (including MFN
                                                     
187 WTO documents IP/C/W/77/Add.4, 15 October 1997;  IP/C/W/77/Add.1/Suppl.3, 4 November 1997;
IP/C/W/108/Add.4, 16 September 1998;  IP/C/W/109/Add.2, 16 September 1998;  IP/C/W/109/Add.3,17 September 1998;  and IP/C/W/108/Add.5, 4 November 1998.
188 Beneficiaries of this assistance include Bangladesh, Bhutan, Brunei Darussalam, Cambodia, China,
Fiji, India, Indonesia, Iran, Malaysia, Mongolia, Nepal, Pakistan, Papua New Guinea, the Philippines, Sri Lanka,Thailand, and Viet Nam.
189 Korean Industrial Property Office (1999).
190 Korean Industrial Property Office (1999);  USTR (1999).WT/TPR/S/73 Trade Policy Review
Page 102
and national treatment) in its procurement practices, and does not purchase products determined to
have infringed patent rights.
Protection of plant varieties
156. As agreed in the context of the agreement with the IMF (Box I.1) and WTO commitments,
Korea enacted the Agricultural Management Law (effective 7 December 1996) and the Seed Industry
Law (effective 21 December 1997), which were last amended in January 1999 in accordance withUPOV Office recommendations;  thus, breeders' rights are now protected.
191  In October 1999, the
UPOV Council acknowledged the conformity of the Seed Industry Act with the 1991 UPOV;  until
then Korea was one of two countries with sui generis legal systems for the protection of plant
varieties that were not based upon the principles of the UPOV Convention.
Trade marks157. Since March 1998, Korea's revised Trade Mark Act has, inter alia,  enhanced protection of
well-known marks (denial of application/registration of similar or identical marks filed with an unfair
competitive purpose), introduced the registration of three-dimensional and the colour trade marks
(registered in Korea only), and abolished the associated marks system (to facilitate the cancellation of
the unused marks).
192  A Multiple Application System, which allows a single application to designate
one or more classes of goods and/or services, has also been introduced to simplify the application
procedures and to promote convenience of applicants.  The initial protection of trade marks is
ten years upon registration (renewable for another ten-year period);  as from 1998, the renewal
procedures have been simplified by abolishing the requirement of submitting trade mark samples at
the time of filing the renewal application.  Fines have also been reinforced.  The Foreign Trade Mark
Directory (FTD) was last revised in 1996 with a view to including all companies that submitted their
foreign trade mark for inclusion in the directory;  it serves as a supplemental reference tool for trademark examiners.
158. The registration of trade marks is rejected whenever they are:  contrary to public order or
morality;  liable to cause confusion with goods or services of another person (because the trade mark
is recognized among consumers as designating the goods or services of that other person);  or liable to
mislead or deceive consumers as to the quality of the goods.  The authorities consider Korea's trademark system to be well equipped with laws and regulations to provide effective and accurate
protection;  they indicated that the unauthorized trade marks registration claimed by one trading
partner (even in the late 1980s and early 1990s, the so-called "sleepers") has never taken place.
193
Industrial designs
159. Recent amendments to the Design Act (effective 1 March 1998) applied, inter alia, the
non-substantial examination system for certain goods, including textile fabric designs with a short life
cycle;  they also extended the duration of the design right (from ten to  fifteen years from the date of
registration) and simplified the design application/registration procedures (multiple application and
opposition systems discussed above).194  There has also been a penalty reinforcement similar to that
                                                     
191 Ministry of Commerce, Industry and Energy (1998a);  WTO document IP/C/W/130,
17 February 1999;  and APEC (1999).
192 Korean Industrial Property Office online information.  Available at: http://www.kipo.go.kr/english/
index-e.html [15 September 1999].
193 USTR (2000).
194 Korean Industrial Property Office (1999);  Korean Industrial Property Office online information.
Available at: http://www.kipo.go.kr/english/index-e.html [15 September 1999].Republic of Korea WT/TPR/S/73
Page 103
applied for patent rights infringement.  Since March 1998, a new design registration system has
enabled applications for certain goods to be registered with only formality examination.  These new
systems have reduced application and registration costs.
Trade secrets
160. The Unfair Competition Prevention and Trade Secrets Protection Law was revised (effective
January 1999) to set a trade- and investment-friendly environment for both nationals and foreigners,as well as to enhance the effectiveness of the enforcement against counterfeit goods.  Penalties were
strengthened, and a maximum of five-years imprison ment and/or a fine of W 50 million (US$41,400)
was specified for both present and former employees who misappropriate trade secrets.
195  A major
trading partner was of the view that protection of proprietary test data on pharmaceuticals (against
unfair use by competitors) had been weakened in February 1999 through the elimination of there-examination period that provided de facto data protection for four to six years.
196  Similarly, some
foreign manufacturers of chemicals and candy, faced problems with the handling of very detailed
product information (i.e. formulae or blueprints) in the context of registration or certification
procedures discussed earlier (section (2)(i)).
Institutional, procedural and enforcement issues161. As of 1976, the Korean Industrial Property Office (KIPO) of the MOCIE has been responsible
for industrial property rights policies.  Since Korea's previous Review, considerable efforts have been
undertaken to strengthen institutional aspects related to the enforcement of industrial property rights.
To ensure an expedited settlement of disputes, a Patent Court (special high court under the Supreme
Court) and an Industrial Property Tribunal (merging the former Trial Board and Appellate Trial
Board) were established on 1 March 1998.  To, inter alia, shorten the pendency period to the level of
developed countries, KIPO increased systematically its personnel and, as from January 1999, has putinto operation an Electronic Filing System (KIPONET)
197;  this was expected to reduce substantially
the application costs and the Official Gazette publication expenses.  KIPONET provides a totally
paperless environment for intellectual property administration (IPR filing, examination, registration,
publication, and trials) and has enabled applicants to use the Internet (more than 80% of the
applications as of December 1999).  As a result, the pendency period in the field of patents and utilitymodels was reduced from 36 months (1997) to 23 months (1999), while for trade marks and industrial
designs it dropped to 10 months and 7 months, respectively.  Other KIPO projects included the
Invention-Base Expansion Project (to enhance public awareness of the need for inventions), and the
launch of the Industrial Property Commercialization Arrangement Center (to facilitate the commercial
utilization of patented technologies).  In a ddition, since August 1999, KIPO has undertaken the
Comprehensive IPR Administration I nnovation Plan, which is aimed at, inter alia, expanding
IPR infrastructure for facilitating intellectual property creation, building a user-oriented
IPR administration system, strengthening IPR prot ection in the new technology area, and increasing
IPR-related education opportunities.  Action in this area reflects the desire to build a user-friendly IPR
environment for both locals and foreigners.
                                                     
195 Korean Industrial Property Office (1999).
196 USTR (1999).
197 As it adopted WIPO's standard generalized markup language (SGML) as its document standard,
KIPONET is expected to be completely interoperable with the network to be built by the WIPO in the year2000.  For easy access to KIPONET, by 1998 KIPO planned to  distribute browser software to patent applicants
(The Korea Herald [Online], 3 November 1998.  Available at: http://www.koreaherald.co.kr/
[30 September 1999]).WT/TPR/S/73 Trade Policy Review
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162. The steady growth of industrial property rights applications was interrupted in 1998
(Table III.13);  this was due to the temporary influence of the economic recession as well as the
reform of the IPR system, e.g. the adoption of the Multiple Application System in Trademark and
Industrial Design.  In 1998, the overall pattern of foreign representation in applications and
registrations remained unchanged, with foreigners (mainly from Japan, the United States, and
Germany) accounting for between one tenth (utility m odels) and one third (patents) of the applications
filed.  As a result of KIPO's improvements in the pendency period, since 1996 registrations have more
than doubled and the share of foreigners (mainly from Japan, the United States, Germany, France, and
Switzerland) has remained stable.  Most industrial property trials were overwhelmingly related to
trade marks and patents, in relatively equally shares;  the appeals stage is traditionally dominated by
trade mark cases.198
Table III.13
Industrial property rights:  applications, registration and appeals, 1994-98
Year Total Patents Utility models I ndustrial designs Trade marks
Applications
1994 187,132 45,712 39,806 29,033 72,581
(35,353) (17,148) (574) (1,369) (16,262)
1995 240,195 78,499 59,866 29,978 71,852
(37,997) (19,263) (504) (1,596) (16,634)
1996 274,069 90,326 68,822 29,859 85,062
(42,662) (21,913) (360) (1,768) (18,621)
1997 254,099 92,734 45,809 28,491 87,065
(48,406) (25,913) (359) (1,816) (20,843)
1998 185,209 75,188 28,896 23,732 57,393
(40,964) (24,592) (292) (1,588) (14,492)
Registrations
1994 58,604 11,683 7,817 13,695 25,409
(14,261) (5,909) (538) (887) (6,927)
1995 67,458 12,512 8,149 16,986 29,811
(15,009) (5,937) (436) (1,119) (7,517)
1996 72,363 16,516 9,191 20,192 26,464
(16,881) (8,195) (442) (1,509) (6,735)
1997 105,409 24,579 13,713 24,633 42,484
(23,912) (10,082) (458) (1,768) (11,604)
1998 163,159 52,900 25,717 24,931 59,611
(37,758) (17,000) (553) (2,231) (17,974)
Request for appeals
1994 225 28 19 21 157
1995 209 23 23 18 145
1996 248 44 45 26 133
1997 403 75 53 29 246
1998 175 22 20 12 121
Note: The figures in parentheses indicate the number of applications and registration involving foreigners.  No recent data were
supplied and no comments on this table were made by the authorities.
Source: Korean Industrial Property Office (1999), Annual Report 1998 [Online], Tables 1-1. 3-1 and 4-2.  Available at:
http://www.kipo.go.kr/english/sub6-index.html [16 September 1999].
                                                     
198 Korean Industrial Property Office (1999).Republic of Korea WT/TPR/S/73
Page 105
163. In cooperation with prosecutors, police, and the provincial governments within the
intra-agencies Conference for Investigative Guidance on IPR Violation (set up in 1993), KIPO has led
the campaign against the manufacture and sale of counterfeit goods.199  Furthermore, the Korea
Customs Service (KCS), in order to prevent the inroad of counterfeited merchandise at its earliest
possible stage, has installed an investigation team in the main office and in 43 local offices, whose
exclusive job is to control counterfeits.  As a result, in 1998, a total of 1,100 incidents of alleged IPRinfringement were investigated;  in 701 cases KIPO issued an order to stop the trade in counterfeit
goods, while 399 cases were reported to the prosecutors and police agencies for possible indictment.
164. Despite these results, in May 1999 Korea appeared to be among the top exporters of
counterfeit products to the United States, France, and Japan, a potential source of friction with these
partners;  the KCS intended to strengthen its screening of major counterfeit brands (e.g. handbags andclothing, under the brand names of Chanel, Gucci,  Versace, Louis Vuitton, DKNY, and Polo), even at
the cost of delaying export procedures.
200  Since 1996, more than 60% of Korean-made counterfeit
products that were seized by foreign customs authorities left the country through proper channels;  the
rest were either smuggled into foreign countries or were exported under falsified documents.
Exporters of counterfeit goods continually change their company names, making it difficult forinvestigators to track down violators.
(b) Other intellectual property
165. Korean copyright legislation, which grants retroactive protection, to works and phonograms
whose authors died after 1957, for life plus 50 years, was last amended in January 2000;  the
authorities consider that it is in line with the provisions of the Agreement on TRIPS and the Berne
Convention.  The separate computer program prot ection law, which grants software copyright
protection for 50 years from its creation or 50 years from the end of the year of its notification, andpenalizes the distribution of programs through the telecommunication network, was revised in
1999.
201  A 1997 decree, prohibiting the use of illegal software by government entities, requires all
government entities to earmark a certain percentage (25% in 1999) of their information technology
procurement budget to software licensing;  as implementation has not been as complete as expected,
in 1999 the authorities undertook enforcement efforts by auditing public entities and envisaging legalaction against those who have disregarded the mandate.
202  Fines for illegal software replication were
also raised and imprisonment of up to three years was introduced;  unsolicited senders of advertising
mail, or spam mail, through online networks may face fines of up to  W 50 million (US$41,400).203
166. Copyright issues remain under the authority of the Ministry of Culture and Tourism, while
computer program protection under the Ministry of Information and Communication.  According to
the authorities, coordination between these agencies , which run their own websites, and the KIPO has
been successful.
167. According to a recent study by Business Software Alliance, Korea registered a gradual
decline in piracy rates for applications software, from 76% (1995) to 64% (1998) (share of pirated
retail sales to total software sales);  in 1998, retail revenue from pirated software was about 71% less
                                                     
199 Korean Industrial Property Office (1999).
200 Statements by the spokesman of the Korea Customs  Service (KCS) to the press ( The Korea Herald
[Online], 11 May 1999. Available at: http://www.koreaherald.co.kr/ [30 September 1999]).
201 APEC (1999).
202 Press Release of the Business Software Alliance [Online], 7 April 1999.  Available
at:  http://www.bsa.org/statistics/index.html [23 November 1999].
203 The Korea Herald [Online], 12 October 1998.  Available at: http://www.koreaherald.co.kr/
[30 September 1999].WT/TPR/S/73 Trade Policy Review
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than in 1995.204  The Supreme Public Prosecutor's Office (SPPO) indicated that between 1998 and
1999 there was a sharp increase in the number of people charged on software piracy, due to intensive
crackdown conducted in government agencies and large businesses (more than a four-fold increase);
as a result, there has been a further decline in piracy rates as government agencies replaced illegally
copied software with the original.205  Regulatory and enforcement improvements seem to have had
significant results in copyright protection of foreign books (mainly American, Japanese, British, andGerman authors);  since 1997, the number of foreign books translated in Korea has declined as the
payment of royalties is now required, and the share of imported books has risen from 12% (1990) to
22% (1997).
206  In 1999, a major trading partner expressed concern over regulatory limitations
protecting cartoon characters that possess artistry and creativity.207
(v) Other measures (environmental)
168. Korea subscribes to most major environment-related international agreements.208  Under the
General Agreement on Trade in Services (GATS) Korea undertook commitments on environmental
services such as sewage, refuse disposal and sanitation and other services (cleaning of exhaust gases
and noise reduction, environment testing and assessment.209
169. At present, all Korean environmental legislation is applied equally throughout the country
using the same standards and the same methods, regardless of differences among local governments
or related industries.210  As at March 2000, there are 30 environmental laws under the jurisdiction of
the Ministry of Environment, and another 50 such laws under more than 15 other ministries.  The fact
that environment-related laws are dispersed among various ministries gives rise to many efficiency
and coordination related problems.211
170. In 1998, in the context of WTO notification requirements, Korea communicated its
environment-related measures or provisions that have a trade effect.  These affected processed foods,beverages, liquors, confectionery, fruit, underwear, disposable cups, dishes and containers (under the
Agreement on Technical Barriers to Trade);  various plants and their products (under the Agreement
on Sanitary and Phytosanitary Measures);  payments for prevention of soil erosion and soil
acidification (under the Agreement on Agriculture) ;  grant for low-emission diesel technology
development, and subsidies for environmental engineering and technological developmentprogrammes (under the Agreement on Subsidies and Countervailing Measures);  and toxic substances
                                                     
204 Estimates by the Business Software Alliance, which represents the leading U.S. software and
computer technology companies (e.g. Compaq, Digita l, IBM, Intel, Apple, Microsoft, Novell, Lotus)
(Business Software Alliance/International Planning and Research Corporation, 1999).
205 The Korea Herald [Online], 14 July 1999.  Available at: http://www.koreaherald.co.kr/
[30 September 1999].
206 Estimates by the Korean Publishers Association (KPA) in The Korea Herald  [Online],
14 February 1997.  Available at: http://www.koreaherald.co.kr/ [30 September 1999].
207 USTR (1999).
208 These include the Convention on International Trade in Endangered Species of Wild Fauna and
Flora (CITES), the Montreal Protocol on Substances that Deplete the Ozone Layer (UNEP 1989), the BaselConvention on the Control of Transboundary Movements of Hazardous Wastes and their Disposals(UNEP 1992), the 1961 Single Convention on Narcotics (UN 1964), the 1971 Convention on PsychotropicSubstances (UN 1976), and the Convention on Biological Diversity (WTO documents WT/CTE/W/6,
31 March 1995;  WT/CTE/W/8, 8 June 1995;  WT/CTE/W/119, 25 June 1999;  and WT/CTE/W/116,
28 June 1999).
209 WTO document WT/CTE/W/67/Add.1, 13 March 1998.
210 Ministry of Commerce, Industry and Energy (1998b).
211 Ministry of Environment (1997).Republic of Korea WT/TPR/S/73
Page 107
and chemicals, endangered animals and plants, wastes, nuclear materials, ozone depleting
substances (under the Agreement on Import Licencing Procedures).212
171. Korea has levied several charges based upon the "polluter-pays" principle, which holds that
those who discharge pollutants bear the expense of environmental improvement.  Environmental
improvement charges (since 1991) are to help reduce pollution and raise financial resources for
environmental investment;  they are imposed on the owners of large buildings (floor space in excess
of 160m2, except those located in agricultural areas in accordance with the Land Use and
Management Act), or diesel-powered vehicles.213  Emission charges have been levied to prevent
damage to the environment from air (since 1983) or water (since 1995) pollutants discharged in
excess of the established permissible limits.  Waste Treatment Charges (since 1993) have been levied
on 28 items to curb consumption of products and use of containers that are difficult to collect, treat, orrecycle, or likely to render waste management generally difficult.  Water quality improvement charges
(as of 1995) have been levied on manufacturers and importers of bottled water to contribute towards
the protection of public ground water resources and to the improvement of drinking water.  As of
August 1997, these charges were extended to refreshment drinks and liquor using ground water
resources and the rate has been set at 5% of the average sales price per unit.  Since 1992, aDeposit-Refund System has promoted the recycling of certain types of waste;  producers and
importers of 15 items (including tyres, batteries, cosmetics and medicine containers, insecticides,
polyethylene bottles, and home appliances) that generate a large amount of waste are required to
collect and treat it.  To ensure compliance with this system, they have to make cash deposits that are
reimbursed according to their retrieval performance.
172. In the light of worsening water pollution and soil degradation, environmental preservation
concerns have recently emerged;  agricultural decline, resulting from agricultural trade liberalizationin small, densely populated countries such as Korea, increased the chance that farmlands would be
converted into less environmentally friendly areas.
214  In the context of a "green belt" policy that
designated certain farmland and forestry zones and prohibited their further development, a
Pro-Environment Promotion Act was passed in December 1997, and additional support measures for
building "sustainable agricultural zones" were introduced.215  Support has been targeted at farmers in
those zones, mainly in the form of subsidies (up to 80% of the costs incurred) for livestock waste
disposal facilities and organic farming facilities and equipment;  beneficiaries of this support are
required to register the use of pesticides, chemical fertilizers, and livestock waste disposal facilities.
173. Despite its position that recommendations on the use of environmental policy instruments lay
outside the mandate of the WTO, since 1996 Korea has participated actively in the work of theWTO Committee on Trade and Environment (CTE).  It explained its "green belt" policy, and
expressed its views on a number of issues including:  relationship between government policies, trade
liberalization and environmental quality;  quantification of the environmental impact;  the market
access effects of environmental measures;  the relationship between WTO non-discrimination
principle, rules (including Article XX exceptions) and disciplines (e.g. transparency) andenvironmental measures;  the CTE work methodology;  competitiveness effects and sovereignty
issues concerning environmental standards related to process and production methods (PPMs);
negotiating methods for Multilateral Environmental Agreements (MEA);  trade and other
measures (including the transfer of environmentally sound technology (EST)) for achieving MEA
                                                     
212 WTO document WT/CTE/W/118, 28 June 1999.
213 Production and manufacturing facilities, and gasoline-powered motor vehicles equipped with
three-way catalytic converters, as well as facilities and motor vehicles owned by foreign governments, andresidential housing units are excluded from environmental improvement charges.
214 WTO Press Release "Trade and Environment Bulletin":  PRESS/TE 021, 19 December 1997.
215 WTO document G/AG/R/17, 25 January 1999.WT/TPR/S/73 Trade Policy Review
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objectives;  WTO review of MEA's trade-related measures;  the significance of the implementation of
the TRIPS Agreement for technological innovation;  consistency between the Convention on
Biological Diversity (CBD) and the TRIPS Agreement;  the impact of and multilateral basis for
eco-labelling requirements;  corrective policies against negative consequences of trade liberalization
in agriculture;  the dependance of environmental effects of trade liberalization on the stage of
development;  the environmental effects of agricultural policies (e.g. output rise, food security);pesticide restrictions and enforcement capacity in certain countries;  and types of fisheries subsidies
and their effect on over-fishing.
216
174. Since 1999, assistance (e.g. soft loans) has been provided to firms (more than 1,000 industries
by the year 2000) that signed voluntary energy-sav ing agreements with the Government;  in the light
of the steady expansion of the number of participants in this project, Korean industries are expected toachieve a 5% increase in energy efficiency and corresponding reduction in greenhouse gas emissions.
To meet objectives set under the 1997 Kyoto Protocol on Greenhouse-Gas Emission (average
reduction by 5.2% below the 1990 level from 2008 to 2012), measures for reducing fuel consumption
and raising fuel efficiency (including fines to automakers) were envisaged in December 1998.
217  In
1999, there were also plans to introduce ecologically sound buses (running on compressed natural gas(CNG)) for mass transit by the year 2007;  the granting of tax incentives was considered.
175. By June 2000, Korea was to prepare a government blueprint, called Vision for Environment
Policy for the 21st Century, to set the direction of environmental policy in the coming millennium.
218
The following themes were under consideration:  setting up a new culture;  ethics and values for the
"eco-millennium period";  resource-saving production and consumption systems;  civilization-based,
environmentally friendly science and technology;  and a shared eco-system for the Republic of Korea
and the Democratic Republic of Korea.
                                                     
216 WTO Press Releases "Trade and Environment Bulletin":  PRESS/TE 007, 25 January 1996;
PRESS/TE 008, 29 April 1996;  PRESS/TE 009, 1 Ma y 1996;  PRESS/TE 010, 8 July 1996;  PRESS/TE 011,
9 August 1996;  PRESS/TE 013, 27 September 1996;  PRESS/TE 014, 18 November 1996;  PRESS/TE 018,13 August 1997;  PRESS/TE 023, 14 May 1998;  PRESS/TE 025, 13 August 1998;  PRESS/TE 027,
9 December 1998;  and PRESS/TE 028, 31 March 1999.
217 The Korea Herald  [Online], 23 December 1998. Available at: http://www.koreaherald.co.kr/
[30 September 1999].
218 The Korea Herald  [Online], 31 August 1999. Available at: http://www.koreaherald.co.kr/
[30 September 1999].