RESTRICTEDWORLD TRADE
ORGANIZATIONG/STR/Q1/KOR/6
7 June 1999
(99-2278)
Working Party on
State Trading EnterprisesOriginal:  English
STATE TRADING
Replies to Questions Posed by the UNITED STATES1
concerning the New and Full Article XVII Notification of KOREA2
The following communication, dated 27 May 1999, has been received from the Permanent
Mission of Korea.
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Question 1
In its notification, Korea does not include certain Trade Associations, or fails to include
certain products that we understand are under the purview of a notified Association.  It is our
understanding that these associations, listed below, maintain significant influence or even
absolute control over the allocation of specified  tariff-rate quotas for the products indicated.
Trade Association Commodities Tariff Quota
Agricultural Fishery Marketing Corp. (AFMC) Green tea, processed cereal grains
Korea Animal Improvement Assoc. (KAIA) Breeding livestock (cattle, swine)
Korea Corn Processors Assoc. (KOCPIA) Corn (processed)
Korea Dairy Industries Organization (KDIO) Whey, butter, lactose
Korea Feed Ingredient Assoc. (KFIA) Bone meal, supplementary feed
Korea Feed Milk Replacer Assoc. (KFMRA) Mixed feed, supplementary feed, whey
Korea Feed Millers Assoc. (KFA) Corn
Korea Paper Manufacturers' Assoc. (KPMA) Manioc starch
Korea Poultry Assoc. (KPA) Purebred breeding chicks
National Agricultural Cooperative Fed. ( NACF) Malting barley, malt, manioc starch,
other starches, sweet potato
National Livestock Cooperati ves Federation (NLCF) Corn
Could Korea please elaborate in greater deta il the type and level of control that these
associations have on the noted markets by completing the state trading questionnaire for each of
the associations listed above?
                                                     
1 G/STR/Q1/KOR/4
2 G/STR/N/4/KORG/STR/Q1/KOR/6
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Reply
According to the working definition, STEs are enterprises which have been granted exclusive
or special rights or privileges in the exercise of which they influence through their purchases or sales
the level or direction of imports or exports.
The roles of the associations mentioned in the US questions are confined only to the
mechanical allocation of the tariff quotas to import demanders who meet the pre-determined criteria,
including the first-come first-served or historical performance.
It is true that the associations have been granted exclusive rights in the allocation of TRQs but
they have not been directly involved in purchases or sales activities of the listed products and have noindependent control over the level or direction of imports.
It is our understanding, therefore, that the associations are not relevant to the notification or
completing the state trading questionnaire.
For your reference, the TRQ allocation criter ia for the listed products are as follows:
(1) First-come first-served
- Green tea, bone meal, supplementary feed, mixed (concentrated) feed, whey,
sweet potatoes;
(2) Historical performance or production capacities
- Processed cereal grains, corn, manioc starch, malting barley
- Breeding livestock (numbers of livestock registered)
Question 2
In its most recent notification, Korea indi cates that MAF has the exclusive right to
import tariff quotas on rice and barley.  On the other hand, in the same notification, Korea
asserts that barley is imported directly by the feed companies.  It is our understanding thatbarley is only imported by MAF, not the privat e sector.  Would Korea please clarify whether or
not barley can be imported directly by private feed companies?  If so, do these private
companies conduct import operations independently, or are they simply acting as import agents
for the government?  Could the Republic of Korea please clarify how import prices for barley
imported by the Ministry of Agriculture and Forestry are determined?
Reply
As stated in Korea's notification regarding the Tariff Quota Administration (G/AG/N/KOR/1),
allocation of TRQ for barley is made by the Ministry of Agriculture and Forestry (MAF), and KoreaFeed Association (KFA).
For human consumption, it is true that barley is only imported by MAF.  But traditional food
demand for barley has been very limited recently and the import demand has been almost nil since
1995.
For feed use, Korea Feed Association allocates the tariff quotas to its member companies  on
a first-come first-served basis, and the feed companies independently conduct import operations of the
allocated quantities.G/STR/Q1/KOR/6
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Question 3
We note that in its notification to the Working Party, Korea did not include beef
(HS 0201 and 0202) in the description of prod ucts affected by the National Livestock
Cooperatives Federation (NLCF).  Accordingly, we would appreciate additional information on
the NLCF and a description of its operations affecting the importation, sale, and domestic
distribution of imported beef.  This would include a summary of the legal basis for granting the
exclusive or special rights or privileges with respect to the importation of beef, including legal
provisions and by-laws and a summary of statutor y or constitutional powers, how import levels
and resale prices of imported beef are established by the NLCF, and how the NLCF sets and
announces standards by which it will purchase beef on behalf of its customers.
Reply
The beef TRQ has been administered by the Livestock Products Marketing Organization
(LPMO) as indicated in the notification.  The quota is allocated in two ways:  first, to the  LPMO
itself as a designated agency;  second, to the SBS super groups which are private importers.
NLCF is one of the SBS super groups and the rights and obligations with respect to its import
of beef are the same as those of the other SBS super groups.  NLCF has been granted no additional
rights or privileges with respect to the importation of beef.
The SBS import quantity of NLCF is determined taking into account the import demands and
the previous year's sales performance of outlet s of imported beef which are NLCF's customers.
While domestic sales prices of LPMO-imported beef are determined by auctions in wholesale
markets, those of NLCF-imported beef as one of SBS super groups are determined considering therelevant costs and fees.
NLCF establishes the standards in due consideration of its customers' requests and informs its
customers of them by way of forwarding written not ifications or of convening explanatory meetings.
Apart from its import of the SBS quotas, NLCF is engaged in domestic processing, marketing
and sales of LPMO-imported beef in accordance with mutual contracts between the twoorganizations.
Question 4
We also note that the Government of the Republic of Korea did not include in its
notification the following enterprises:  Kore a Cold Storage Co. (KCSC), the Korea Tourist
Hotel Supply Centre (KTHSC), the Korea Restaurant Supply Centre (KRSC), the Korea Meat
Industries Association (KMIA), the Korea Super Chain Association (KOSCA), the Korea
Federation of Meat Purveyors (KFMO), the Korea Livestock Marketing Corporation (KLMC),
and the Korea Meat Packers Association (KMPA).  Similar to our requests pertaining to theNLCF, we would appreciate additional information on these organizations and a description of
their operations as they affect the importation, sale, and domestic distribution of imported beef.
This would include a summary of the legal basis for granting exclusive or special rights or
privileges with respect to the importation of beef, including legal provisions and by-laws and a
summary of statutory or constitutional powers, how import levels and resale prices of imported
beef are established by each enterprise, and how each enterprise sets and announces standards
by which it will purchase beef on behalf of its customers.G/STR/Q1/KOR/6
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Reply
As explained in Question 3, the beef TRQ is allocated by LPMO in two ways.  One way is the
allocation to the SBS super groups which are organizations representing their members (end-users and
private marketing enterprises).
To prepare for the import liberalization of beef by the year 2001, Korea has gradually
expanded the SBS share as agreed with the major trading partners during the Uruguay Round
negotiations, and the number of SBS super groups has increased continuously reflecting the
increasing share of SBS.
Annual SBS share:  15 per cent (1993) → 20 per cent (1994) → 30 per cent (1995) → 40 per
cent (1996) → 50 per cent (1997) → 60 per cent (1998) → 70 per cent (1999-2000).
Currently, there are 12 SBS super groups including the associations mentioned in the
question.  Considering each super group's performance in the previous year, LPMO makes allocation
of the quotas.
The super groups, simple recipients of TRQs, import and distribute the allocated amount of
beef on their own responsibilities.
Question 5
In its responses to section III.A of the ne w notification format, Korea does not provide
adequate information about the operations of it s state trading enterprises.  Could Korea please
supply a basic summary of these operations for each STE that is notified?  This could include
additional information on whether the STE in que stion issues credit guarantees, engages in the
domestic marketing or distribution of imported products, either directly or through subsidiaries
or joint ventures, or determines the domestic sales price of imports.
Reply
Korea's STEs do not provide credit guarantees.
Most of them are engaged in importation and domestic marketing of imported products in
ways of selling through wholesale markets or of distributing them directly to end-users.
In the case of imported natural honey, however, NLCF is directly involved in its wholesale to
retail marketing.
Question 6
In section III.B, we would appreciate it if Korea would provide additional information
on its exclusive right to import tariff quotas on rice and barley.  Specifically, do Korea's STEshave the exclusive right to raise or lower quota ceilings on imported agricultural products?  Do
these STEs have the right to arbitrarily dictat e which companies have quota access rights?  How
are these allocation decisions announced publicly so that the quota allocation process is fully
transparent?
Reply
The fundamental roles of Korea's STEs are conducting the importation and distribution of
relevant products in an orderly manner within the tariff quotas as set out in Korea's Schedule.G/STR/Q1/KOR/6
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Reflecting the increasing market demand, however, there have been such occasions that some STEs
imported, in cooperation with the Government, more than the originally scheduled level of TRQs.
Regardless of the domestic demand situation, even in the case of lack of import demand,
Korea's STEs have always guaranteed the multilaterally committed level of market accessopportunities for the relevant products.  Therefore it is not true that Korea's STEs have the exclusive
rights to raise or lower quota ceilings on imports.
The tariff quotas are allocated in a transparent manner according to the criteria specified in
the notification regarding the tariff quota administration (G/AG/N/KOR/1).
These pre-set criteria and the results of each allocation decision have been announced by way
of written notifications or public notices.
Question 7
Concerning Korea's response to question III.E, we understand that the NLCF plays a
role in determining the price for pork exports.  Could Korea please describe in detail the way in
which pork export support prices are determined by the NLCF?
Reply
Currently Korea has more than eighty exporters of pork and the NLCF itself, as one of the
largest exporters, has been directly involved in the pork export activities.  Of course, NLCF
determines its own export price of pork.
Because NLCF's contribution accounted for about 13 per cent of total pork exports in 1998, it
might influence the level of export price that much through the market mechanism.
But export prices cannot be determined by a single player such as NLCF.  They are
determined in the international market through a collective interaction between exporters and
importers of the product.
Question 8
Concerning Korea's response to question III.F, we would appreciate additional details
on how resale prices of imported products are determined. For example, we understand that
beef resale prices are determined by adding a mark-up which is based on a 3-month rolling
average of prices for imports and domestic cuts.  Is there a set methodology for determiningresale price that carries across commodity lines?  If not, could Korea please describe the
methodology for calculating the mark-up or for otherwise determining the resale price for each
imported product?
Reply
There has not been a uniform methodology for determining domestic resale prices that carried
across imported products.  In most cases, they have been determined by auctions in the wholesale
markets.  In the other cases which are raw materials, domestic processors and manufacturers have
been directly or indirectly involved in the import activities.G/STR/Q1/KOR/6
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The United States' understanding of the way in which beef resale prices are determined
applies only to beef imported by the SBS super groups, and resale prices of beef imported by the STE
(LPMO) have been determined by auction in the wholesale market.
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