Other State Department Archive Sites

The State Department web site below is a permanent electronic archive of information released online from January 1, 1997 to January 20, 2001. Please see www.state.gov for current material from the Department of State. Or visit http://2001-2009.state.gov for information from that period. Archive sites are not updated, so external links may no longer function. Contact us with any questions about finding information. NOTE: External links to other Internet sites should not be construed as an endorsement of the views contained therein.

Country Commercial Guides for FY 2000: Korea Report prepared by U.S. Embassy Seoul, released July 1999 Note*

CHAPTER VI. TRADE REGULATIONS, CUSTOMS, AND STANDARDS

Even though Korea is undergoing a process of economic liberalization and deregulation, the Government of Korea still maintains a strong hands-on policy where the economy and trade are concerned. The U.S. Embassy, in addition to the American Chamber of Commerce (AmCham) in Korea, works actively to liberalize the many regulatory trade barriers which currently exist. In its annual Improving Korea's Business Climate, AmCham Korea lists the following areas of concern: market access for imported goods; accounting, advertising; aerospace and defense; agricultural/food products; automobiles; chemicals; construction and engineering, environment; financial services (banking, capital markets, consumer lending, corporate financial services, insurance); information technology, intellectual property rights; labor and employment, medical devices, pharmaceuticals; taxation; telecommunications; travel and tourism; and competitive issues affecting American companies' ability to do business abroad. Those interested in the specifics of the above issues may purchase the comprehensive book from the American Chamber of Commerce in Korea. Address: 2nd Floor, Westin Chosun Hotel, 87 Sonkong-Dong, Chung-Ku, Seoul 100-070, Korea; Tel. 753-6471; Fax. 755-6577.

Trade Barriers, Customs Regulations, Tariffs Rates and Import Taxes

Korea bound 92% of its tariff line items as a result of the Uruguay Round negotiations. Korea's average basic tariff in 1999 is about 7.9%. Duties still remain very high on a large number of high-value agricultural and fisheries products. Korea imposes tariff rates of 30% - 100% on many agricultural and horticultural products of interest to U.S. suppliers. Korea is reviewing zero tariffication discussion for nine sectors in WTO, which was transferred from APEC EVSL negotiation and six sectors in EVSL discussion under APEC forum.

Korea also maintains a tariff quota system designed to stabilize domestic commodity markets. Customs duties can be adjusted within the limit of general rate plus or minus 40% every six months. As of January 1, 1999, 57 items were selected, down from 1998's 58 items. In operating the quota rate system, the government has agreed to notify foreign business associations like AmCham when local industry recommends items for quota rate designation to the government. Korea uses "adjustment tariffs" at the four-digit H.S. code level to respond to import surges and to protect domestic producers. The system is adjusted on an annual basis. Effective January 1, 1999, Korea reduced the number of items subject to adjustment tariffs from 38 items to 29 items. Seven of the nine items were eliminated at the request of China.

In accordance with the Information Technology Agreement (ITA), tariffs on 203 types of telecommunication and information related equipment will drop to zero by the year 2000, except for 10 categories where Korea's implementation will be phased in (six by 2002 and four by 2004). Korea is also participating in the ITA - 2 negotiations to eliminate tariffs on 108 other items with a target year of 2002.

Korea has a flat 10% Value Added Tax on all imports and domestically manufactured goods. A special excise tax of 10%-20% is also levied on the import of certain luxury items and durable consumer goods. Tariffs and taxes are payable in Korean won before goods are permitted to clear customs. In accordance with the WTO dispute settlement ruling that in the case brought by the EU and the U.S., the government is working on a plan to equalize the liquor and education taxes on domestic soju and imported distilled spirits. The amendment to the law should be implemented by January 31, 2000.

Customs Valuation

Most duties are assessed on an ad valorem basis. Specific rates apply to some goods, while both ad valorem and specific rates apply on a few others. The dutiable value of imported goods is the cost, insurance, and freight (C.I.F.) price at the time of import declaration.

Import duties are not assessed on capital goods and raw materials imported in connection with foreign investment projects. Authorization to import those items and supplies designated in a foreign investment application on a duty-free basis usually accompanies the Ministry of Finance and Economy's approval of a foreign investment project. In addition, raw materials used in the production of export goods are often exempt from duty, and certain machinery, materials, and parts used in designated industries such as high-technology and aerospace may enter Korea either duty free or at reduced rates. Tariffs are zero percent on materials used for educational purposes and on computer software.

Import License Requirements/ Special Import-Export Requirements

Following a revision of the Customs Act and its Enforcement Decree, import procedures and the required documentation were simplified effective January 1, 1997. Goods entering Korea no longer require an import license (I/L) issued by a foreign exchange bank. Separate approval for payment in foreign currency is also no longer required. All commodities can be freely imported, subject to special registrations and import approvals for categories like pharmaceuticals and medical devices, unless they are included on the Negative List, which includes commodities that are either prohibited or restricted.

The Negative List is officially known as the Export and Import Notice. Fifty-four individual laws stipulate requirements and procedures for importing certain products (1,074 items, or 1% of all items) to ensure the protection of public health and sanitation, national security, safety, and the environment.

Applications for licenses to import items on the Negative List are approved on a case-by-case basis after screening and approval by the government agencies concerned, or by the relevant manufacturer's association. Typically, health or safety related products, such as pharmaceutical and medicines, require additional testing or certification by recommended organizations before clearing customs. In addition, special items defined by the Ministry of Commerce, Industry and Energy (MOCIE) in its Annual Trade Plan (firearms, illicit drugs, endangered species, etc.) require approval by the Minister of MOCIE. In most cases, the registration process is completed by the supplier's qualified local agent. In accordance with the amendment of the Foreign Trade Act, all restrictions on trading companies were eliminated by changing from the previous approval system to a new system under which firms simply file import notifications with MOCIE.

The IMF program called on Korea to improve the transparency of its import certification procedures. The government has reviewed 54 laws and regulations to identify necessary improvements in transparency. Amendment of the relevant laws and regulations was completed in 26 of the cases. The remaining cases should be finalized with amendment of the relevant laws and regulations by the end of 1999. Among the cases still pending at the National Assembly are eliminating the requirements for obtaining permission on a category basis for importing cosmetics and for an importer to designate a local manager.

Import/Export Documentation

Customs clearance procedures were simplified by the revision of the Customs Act and its Enforcement Decree in December 1995. The import license system was replaced by the import declaration system so that an import declaration filed without defect is immediately accepted for release of the goods. With the exception of high-risk items related to public health and sanitation, national security, and the environment which oftentimes require additional documentation and technical tests, goods imported by companies with no record of trade law violations are to be released upon the acceptance of the import declaration, without customs inspection. The Korean Customs Administration's EDI (Electronic Data Interchange) system for paperless import clearance is scheduled to come on line in July 1999, and will allow importers to make an import declaration by computer, without visiting the customs house. Another noteworthy change in customs clearance effective January 1, 1999 is that goods can be released even before the filing of an import declaration and payment of tariffs. In 1999, the KCA plans to link its computer database with all the agencies dealing with exports and imports. This is supposed to expedite procedures by allowing all exchanges of documents (approval, issuing recommendation, inspection and quarantine) to be done electronically.

Import declarations may be filed at the Customs House before a vessel enters the ports, or before the goods are unloaded into bonded areas. In both cases, goods are released directly from the port without being stored in a bonded area if the import declaration is accepted.

Along with import procedures, export procedures and documentation were also simplified effective January 1, 1997. Exported goods no longer require an export license (E/L) issued by a foreign exchange bank. Exporters can file their exports notices based on their shipping documents to Korean Customs by computer at the time of export clearance. All commodities can be freely exported unless they are included on the negative list.

Temporary Goods Entry Requirements

Pursuant to Korean Customs Law, advertising material and samples of merchandise are exempt from customs duties, provided that such items are used solely for that purpose and are valued at less than 100,000 won (about $71). Some U.S. firms, however, have reported problems in receiving duty exemptions. In practice, duty-free entry of these items is left to the discretion of the customs officials at the port of entry. Valuable samples or goods for re-export may be admitted temporarily on a duty-free basis under deposit for the amount of the duty. Careful documentation and handling of samples are essential to minimize problems.

With rare exceptions, Korean customs allows free customs entry of goods brought into Korea that are hand-carried by foreign business persons (such as laptop personal computers) for use during their stay in Korea. In such a case, Korean Customs makes a note on the travelers' passport and then requires the traveler to take them out of Korea.

Goods entering Korea for exhibition purposes must be stored in a bonded area. For example, the Korea Exhibition Center (KOEX) is a bonded area. Exhibition goods will be kept without charge at KOEX during the exhibition period, after which they must be either: 1) reshipped directly out of Korea without payment of duty; 2) presented at Customs for payment of regular duty on value declared at time of entry; or, 3) transferred to the Seoul Customs house bonded storage area. Goods stored in a bonded warehouse can incur, if applicable, storage costs, customs brokerage charges, local transportation costs, and moving equipment fees.

Labeling, Marking Requirements

Country of origin labeling is required for commercial shipments entering Korea. The Korean Customs Service (KCS) publishes a list of the country of origin labeling requirements by Harmonized System Code number. Further labeling and marking requirements for specific products, such as pharmaceutical and food products, are covered by specific regulations from the Korean Government agencies responsible for these items. Korean labels, except for country of origin markings which must be shown at the time of customs clearance, are allowed to be locally attached on products in the bonded area either before or after clearance. The Ministry of Agriculture, Forestry and Fisheries has its own set of standards for markings for agricultural products. Local importers usually print Korean labels when imported quantities are not large, and can consult with the KCS as to where they can be attached to the product.

Effective April 1, 1998, the government made the following changes in relation to country of origin listing requirements: (1) defined "minimum processing" in more detail to increase transparency; (2) gave a more concrete description of when country of origin listing is required; and, (3) replaced value added reports used to determine the country of origin for six items using the Harmonized System Code Number instead.

For pharmaceuticals, all imported containers and packages must be conspicuously marked to show:
1) country of origin and manufacturers' and importers' names and addresses; 2) name of product;
3) date of production and batch number;
4) names and weights of ingredients;
5) quantity;
6) number of units;
7) storage method;
8) distribution validity date;
9) instructions for use;
10) import license number;
11) effectiveness;
12) import price and suggested retail price.

Imported food products should have Korean language labels. (Stickers may be used instead of Korean language labels, but such stickers must be in Korean. It should not be easily removable and should not cover the original labeling). Labels should have the following inscriptions printed in letters large enough to be readily legible:

1) Product name: Product name is the name of a product and the name shall be the same as what was reported to the license authority (the report authority for imported food products).
2) Product type: Product type is the minimum classification unit for standards and specifications for food et al in accordance with Article 7 of the Food Sanitation Act. If a product type is not classified, a product kind should be indicated. 3) Importer's name and address, and address where products with defects may be returned or exchanged.
4) Manufacturing date, month and year (only designated products are subject to this category): Manufacturing date must be indicated on such products as lunch box, sugar, and liquor which is not required to carry shelf life (but liquor may not have manufacturing date if it has manufacturing number (lot number) or bottling date).
5) Shelf life: Food products should identify their shelf life stipulated by the manufacturer. If various kinds of products that have different shelf lives are packaged together, the shelf life to be labeled should be the shortest one. The shelf life for products that are subject to mandatory shelf life limits in accordance with the Korea Food Code should meet such standards.
6) Contents: Weight, volume or number of pieces (if the number of pieces is shown, the weight or volume must be indicated in parentheses).
7) Ingredient(s) or raw material(s) and the contents of the ingredient(s) (contents of the ingredients only when certain ingredients are used for the product name or for part of the product name): Excluding artificially added purified water, it should first indicate the name of the major ingredient determined by the standards and specifications for food products in accordance with Article 7 of the Act. After that, names of at least the top four ingredients or raw materials should be indicated.
8) Nutritients: Only special nutritional foods, health supplementary foods, products wishing to carry nutritional labels and products wishing to carry a nutrients emphasis mark are subject to nutritional labeling.
9) Other items designated by the detailed labeling standards for food et al: This includes cautions and standards for use or preservation (for products which must be kept at a low temperature, such temperature should be indicated), detailed labeling requirements for canned products, radiation-processed products, etc.

Note : Labeling standards for food additives, equipment, container and packaging for food products are set separately. "Labeling Standards for Food et al" is available from the American Chamber of Commerce in Seoul.

In August 1998, the requirement to list the import prices on the label was eliminated. Retail price marking is still required for both imported and domestic products for goods sold in shops with a floor-space greater than 33 square meters.

Prohibited Imports

In principle, all commodities, subject to specific conditions, may be freely imported into Korea unless they are included on the negative list of prohibited or restricted items. The negative list is published by the Ministry of Commerce, Industry and Energy as the Annual Trade Plan (Export and Import Notice). Restricted items include firearms, illicit drugs, endangered species, etc. More important than the negative list however, are market access barriers related to imports prohibited from entry into Korea due to non-compliance with standards and/or testing as set by relevant the Korean ministries responsible for the particular industry/agricultural category. Pharmaceuticals (including over-the-counter products), medical devices, cosmetics and food products are particularly vulnerable to lengthy, cumbersome and costly testing requirements. See the "Standards" section which follows.

Export Controls

Although not a member of COCOM, Korea has observed COCOM licensing procedures since 1993. In 1995, the Korean government became a member of the post-COCOM regime, known as the "Wassenaar Arrangement." Korea is also a signatory to the Chemical Weapons Convention (CWC). Under the Foreign Trade Act, if an export control is deemed necessary for the maintenance of international peace and security, national security, or other national interests, an exporter or importer is required to obtain a certificate or permit from the head of the related administrative agency or MOCIE. The list of controlled items is published, and includes nuclear products, arms, chemical weapons, and missiles.

On its negative export list, Korea also prohibits the export of 13 items by Harmonized System 6 digit classification, including whale meat, uncut pieces of stone (granite, etc), and dog fur or skin products. In the past, any person wishing to export industrial equipment, or technical services together with industrial equipment, had to obtain approval from MOCIE. This mandatory license requirement was abolished in March 1997.

In accordance with the elimination of "gray area measures" under the WTO/Safeguards Agreement, the number of items which require export licenses was reduced from 834 items to 778 items. Around 90% of the 778 items are related to quota agreements, including textiles, and the remaining 10% are license requirements aiming at protecting natural resources and intellectual property rights.

Standards

The Korean Government adopted the ISO 9000 system (modified into the KSA 9000) as its official standard system as of April 1992, and published related regulations in September 1993. However, there are still concerns about the implementation of the commitments Korea made when it signed the GATT Agreement on Technical Barriers to Trade (the "Standards Code") in 1980. Korea seems to develop standards that effectively block imported goods by affecting only imported goods, or which are not applied in an equal manner to domestic products. In addition, the Korean government sometimes issues new regulations without using public rule-making procedures. The absence of a comment period and adequate time for industry to adjust can be a significant barrier to trade. Finally, implementation periods sometimes do not give foreign exporters sufficient time to comply, which lead to unnecessary and costly interruptions in trade. The government has indicated that it will work to address these problems and reduce these barriers. Whenever there is a change of standards, the government is required to notify the WTO's Committee on Technical Barriers to Trade (TBT).

Korean firms consider compliance with the ISO 9000 Quality Management System necessary in order to compete in the international market. There are local testing laboratories authorized to certify firms under the ISO 9000 system, so certification is locally available. In 1997, Korean companies also adopted the ISO 14000 environment management system.

Free Trade Areas/Warehouses

The government has designated several free export zones for the bonded processing of imported materials into finished goods for export. The free export zones are specially established industrial areas where foreign invested firms can manufacture, assemble, or process export products using freely imported, tax-free raw materials, or semi-finished goods. Tax incentives are provided for foreign invested firms.

The Masan Free Export Zone is located near Pusan at the southern end of the country. The Iksan (formerly Iri) Free Export Zone is located near Kunsan on the western coast. There are two industrial parks specifically for foreign firms in Kwangju and Chonan (for high technology industries), offering incentives including large discounts on land rental fees and self-contained shopping and educational facilities. To encourage foreign investment, the government reduced the minimum foreign ownership requirement from 30% to 10% for Kwangju and from 40% to 30% for Chonan in 1998. Another new industrial park solely for foreigners is planned in Daebul.

Under the Regulations on Foreign Direct Investment, which were largely revised in November 1998, any foreign investor whose investment exceeds $100 million can request designation as a Foreign Investment Zone (FIZ). This new system is aimed at attracting large-scale foreign direct investment by providing various incentives. Once designated as an FIZ, national taxes on the investment (income tax and corporate tax) are waived for the first seven years and reduced by 50% for the following three years. Local taxes (acquisition tax, registration and property tax) can also be waived for 8-15 years in accordance with a decree by local authorities. In addition, national property can be rented free of charge and financial support for infrastructure construction can be given.

For more information on these free export zones may be sent to the Director, Industrial Site and Factory Division (Tel: 82-2-500-2425, Fax: 82-2-503-9462), and for more information on Foreign Investment Zones may be sent to the Director, Foreign Investment Policy Division (Tel: 82-2-500-2535), Ministry of Commerce, Industry and Energy, Choongang-dong, Kwachon City, Kyunggi-Do, Korea.

From January 1, 1999, six separate types of bonded facilities which previously required individual licenses can be designated as a comprehensive bonded area. A Foreign Investment Zone can be designated as a comprehensive bonded area just through filing a notice which does not require approval. There is no restriction on the types of business and goods as long as those goods will not hamper national security, health and environment. The storage period is unlimited. Within the bonded area, goods can be stored, manufactured, processed, sold, constructed or exhibited without going through customs clearance.

Bonded storage facilities in Korea are under the supervision of the Collector of Customs. With the introduction of the new comprehensive bonded area, Korea has three kinds of bonded areas: 1) designated bonded areas (designated storage sites and customs inspection sites); 2) licensed bonded areas (bonded storage sites, bonded warehouses, bonded factories, bonded exhibition sites, bonded construction sites, and bonded sales sites); and, 3) comprehensive bonded area. The period for which goods may be stored was extended from three months to one year in a bonded warehouse, and from one year to the valid date of the license for a bonded factory. Duties are payable only when goods are cleared through customs. The previous 15-day storage period limit in a bonded warehouse for goods for which an import declaration was made was eliminated on January 1, 1999. Storage fees are high, and the use of a bonded warehouse to maintain inventories is limited. The storage period does not apply to the storage of live animals or plants, perishable merchandise, or other commodities that may cause damage to other merchandise or to the warehouse. The Collector of Customs bears no responsibility for goods while they are stored in customs facilities. Inquiries regarding bonded facilities in Korea can be addressed to: Director, Customs System Improvement Division, MOFE (82-2-02-5332) or Director, Cargo Division, Korea Customs Administration (Tel: 82-420-481-4114).

With the permission of the Collector of Customs, goods stored in bonded facilities may be repacked, stored, divided and combined, or repaired, provided that the nature and quality of the goods are not changed in doing so.

In addition to the Comprehensive Bonded Area designated as a Foreign Investment Zone, bonded warehouses are the facilities available in Korea to foreign companies where a U.S. exporter can store shipped goods and still maintain title until they are cleared through customs by normal import procedures. Korea's customs law specifies that any person who desires to establish a bonded warehouse shall obtain a license from the Director of each Customs Zone. Applications must include the name of the bonded warehouse, location, structure, numbers and sizes of buildings, storage capacity and types of products to be stored, and where applicable, must be accompanied by articles of incorporation and corporate register.

Special Import Provisions

Under its IMF program, Korea also agreed to advance the elimination of its Import Diversification Program, which prohibited the import of many items from Japan. Rather than the December 31, 1999 expiration date agreed to under the WTO, Korea removed 32 items from the list on January 1, 1999 and the last 16 items on June 30, 1999. Among the last 16 items were passenger cars, video recorders, color TVs, and electric rice cookers. This will make it easier for U.S. firms to import parts or equipment into Korea from Japan. However, U.S. products will have to compete with Japanese goods.

Membership in Free Trade Agreements

The Republic of Korea is a member of the Asia-Pacific Economic Cooperation (APEC) forum. The goal of the APEC as outlined in their 1994 pledge is to establish a Free Trade Area among its member countries by the year 2020. Substantive principles which are encompassed in the APEC forum include investment liberalization, tariff reduction, deregulation, government procurement, and strengthening IPR protection.

The Republic of Korea is a member of the World Trade Organization (WTO) and has signed subsidiary agreements including TRIPs (Trade Related Aspects of Intellectual Property) and the Government Procurement Agreement. In December 1996, Korea joined the Organization for Economic Cooperation and Development (OECD).

Customs Contact Information

The International Cooperation Division of the Korean Customs Administration may be able to provide assistance with general customs questions. Contact information is: Mr. Park, Sang-Tae, Director General, International Cooperation Division, Korea Customs Service based in Taejon, Tel. 82-42-481-1950, Fax. 82-42-481-1969; Mr. Lee, Jong-In, Director, Cargo Control Division, Korea Customs Service, Tel. 82-42-481-1860; Fax. 82-42-481-1869.