WT/TPR/S/137 Trade Policy Review 
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II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES 
(1) OVERVIEW  
1. Since its last Review, in 2000, Korea has con tinued to liberalize its trade and investment 
policies to promote structural reform and improve  the economy's efficiency.  There have been no 
significant changes in the general legal or institu tional framework, nor in the way in which trade 
policy is formulated or implemented.  Trade and business laws have been strengthened, however, and 
transparency improved as part of the Government's  goal of achieving a "fair and transparent market-
driven economy".  Regulatory reform, driven by the Regulatory Reform Committee, remains a high priority;  improved customs procedures was selected as a trade-related strategic goal in 2003.   
2. Trade policy formulation and implementation is pr imarily the responsibility of the Ministry of 
Foreign Affairs and Trade (MOFAT).  The Minist ry of Commerce, Industry and Energy (MOCIE) 
regulates imports and exports.  The principal trad e policy objective is to build a "free and open 
economy" based on market principles to promote struct ural reform and efficiency.  Raising exports is 
seen as a major growth engine for meeting the po litical target of doubling average per capita annual 
income to US$20,000 (by 2010).  Korea's "global lead ership" trade and investment strategy in key 
sectors, such as motor vehicles, steel, and IT industries, is aimed at enhancing the economy’s 
efficiency and achieving economic, including export-led, growth.  Expanding high-technology 
industries and higher-value-added e xports, and making Korea a Northeast Asia business and financial 
hub are high priorities.  Although no independent st atutory body publicly assesses trade or assistance 
policies within a national welfare framework, trad e policy formulation and implementation is now 
more open.  Advisory Councils independent ly advise ministries, including MOFAT.  
3. WTO Agreements rank alongside domestic laws  and can be invoked in national courts.  
Korea participates actively in the multilateral trading sy stem to support stronger rules.  It took part in 
the extended GATS negotiations on fi nancial services and basic teleco mmunications, and is a member 
and observer of the plurilateral Ag reements on Government Procurem ent and Trade in Civil Aircraft, 
respectively.  It resolves trade disagreements using the WTO dispute settlement system, and has 
complied on time with the DSB's findings in cases brought against it since its last Review. 
4. A major departure from previous practice in Korean trade policy h as been an increasing 
willingness to negotiate regional free-trade agreements .  The Asian financial crisis was an important 
factor in altering Korea's past opposition to preferential trade agreements.  Korea sees these agreements as a means of liberalizing its trade a nd investment regimes to revitalize the economy, and 
to secure foreign markets and promote regional in tegration in response to the trend of growing 
regionalism.  Korea's first such agreement, with Chile, effective 1 April 2004, covered industrial and 
certain agricultural products comprehensively.  Ho wever, rice and a number of other significant farm 
commodities were excluded, some permanently, ther eby greatly reducing the agreement’s liberalizing 
impact on agriculture, where high protection persists.  Korea is also negotiating free-trade agreements 
with Singapore and Japan, due to conclude in 2004 an d by 2005.  It has also launched a joint study on 
an FTA with ASEAN, and agreed to conduct simi lar studies with Mexico and EFTA.  Korea's longer 
term goals include a trilateral ag reement with China and Japan, and the formation of an East Asian 
Free Trade Area (EAFTA) among "ASEAN+3" members. 
5. Korea's relatively liberal FDI regime has be nefited the economy.  Foreign firms play an 
increasingly important role and are seen as an essentia l source of export growth.  All kinds of FDI are 
allowed, including establishment, stock acquisitions, mergers (including hostile), and long-term loans.  
Sectoral restrictions on FDI have been relaxed.  Only radio and television broadcasting, plus rice and 
barley growing, are wholly closed to FDI.  Severa l, mainly infrastructure, sectors are partially closed Republic of Korea WT/TPR/S/137 
 Page 15 
 
 
and have foreign equity limits.  Korea provides ta x and other incentives to attract FDI, including in 
advanced technology activities, and in manufacturi ng, logistics, and tourism activities located in 
various types of designated zones.  Investment incentives are being extended, including through the 
creation of three Free Economic Zones (FEZs) in  2003 (Incheon, Busan, and Gwangyang ports).  A 
negotiable cash rebate was also introduced for foreig n investors in 2004.  On the other hand, income 
tax holidays are to be reduced from ten to seven  years from 2005, as incentives become available to 
more foreign investors. 
(2) GENERAL CONSTITUTIONAL AND INSTITUTIONAL FRAMEWORK  
6. There have been few, if any, significant changes in Korea's ge neral constitutional or 
institutional framework since its previous Review in 2000. 
7. A democratic unitary republic, Korea has a presidential parliamentary system.  The National 
Assembly (Parliament) exercises legislative power by enacting laws and monitoring state administration, including control of the Budget.  Executive authority rests with the President and the 
State Council (Cabinet).  It is chaired by the President, and comprises the Prime Minister and all 
ministers.
1  Korea has 16 provincial governments and 234 lower-level municipalities;  although they 
are empowered to collect local taxes and fees, local autonomy remains limited in certain areas.2  
Provincial governments (headed by an elected governor) serve mainly as administrative intermediaries between the Cent ral Government and lower-level municipalities.  The State has 
constitutional power to "foster, regul ate and coordinate" foreign trade. 
8. The executive, through relevant ministers, ma inly introduces legislation into the National 
Assembly.
3  Korea's legislative framework distinguish es between these acts and subordinate statutes 
issued under authority delegated by specific legisla tion.  In hierarchical order, these consist of 
presidential decrees, ordinances, and administrativ e rules (called directives, regulations or public 
notices).  The State Council endorses presidential decre es.  Ordinances are issued by the responsible 
minister, including the Prime Minister.  Administ rative rules published by the relevant ministry 
govern public administration.  When issued under sp ecific legislation or subordinate statutes, such 
rules are generally regarded as supplementary laws.  The President must promulgate bills passed by 
the National Assembly within 15 days by publication in the Official Gazette , unless vetoed by the 
State Council.4  Subordinate statutes are also gazetted.  Laws and subordinate statutes generally enter 
into force 20 days after publication. 
9. Treaties concluded and promulgated under the C onstitution, and generally recognized rules of 
international law have the same force and eff ect as domestic laws.  Proposed treaties must be 
deliberated on by the State Council.  The National Asse mbly has the right to consent to the conclusion 
and ratification of treaties, including on trade, and the President must ratify them. 
10. Korea has an independent judiciary.  Judicial power is vested in the Supreme Court, the 
highest court, five high courts and 13 district c ourts, which oversee some 100 municipal courts.  The 
President appoints the Chief Justice of the Supreme Court with the consent of the National Assembly 
for a single term of six years, as well as other justices (on the recommendation of the Chief Justice).  
                                                      
1 The President appoints the Prime Minister (subject to approval by the National Assembly), and 
ministers on the recommendation of the Prime Minister.   
2 The Act of Decentralization, enact ed in January 2004, provides for gr eater transfer of authority and 
financial resources from the Central Government to local governments.  
3 Members of the National Assembly can also introduce bills (Article 52 of the Constitution).  
4 If vetoed, the bill is returned to the National As sembly and re-considered.  If passed again by the 
National Assembly (two-thirds majority of at least half of the members) the bill becomes law within 20 days.   WT/TPR/S/137 Trade Policy Review 
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A specialized Patent Court and Administrative C ourt also exist;  and the Constitutional Court is 
responsible for constitutional matte rs, especially jurisdiction over judgements on the constitutionality 
of laws, impeachment, dissolution of political parties, competence disputes and constitutional 
complaints. 
11. Reducing public corruption is a high priority.  The Anti-Corruption Law passed in July 2001, 
effective from January 2002, established the Ko rea Independent Commission Against Corruption 
(KICAC).  It implements anti-corruption policies,  evaluates anti-corruption measures taken by public 
agencies, and recommends institutional improvements to curb corruption.  The Government signed 
the UN Convention Against Corruption in Decemb er 2003 and is currently amending relevant 
legislation for its ratification. 
(3) DEVELOPMENT AND ADMINISTRATION OF TRADE POLICY  
(i) Main trade laws 
12. Many of Korea's trade-related laws and regula tions were revised under the comprehensive 
economic and legal reforms introduced mainly foll owing the 1997 Asian fina ncial crisis.  Further 
reforms are aimed at achieving a "fair and transp arent market-driven economy".  Most attention 
remains focused on strengthening trade and business la ws and regulations to improve the commercial 
environment and to encourage competition, e fficiency and sound corporate governance.  The 
Government also sees a more effective regulatory framework underpinned by transparent institutional 
arrangements as facilitating investment, especially from overseas.  The Ministry of Government 
Legislation (MOLEG) is responsible for legislative affairs and reviews all draft acts and subordinate 
statutes to ensure their necessity, constitutionality,  and legal relevance, c onsistency, and clarity. 
13. Because treaties constitutionally have the same effect as domestic laws, Korea's multilateral 
commitments became automatically enforceable dom estically when the Government promulgated the 
WTO Agreement in December 1994.5  WTO provisions can, in principle, be invoked in domestic 
courts.  This has never happened,  however, and there have been no court cases where domestic laws 
have conflicted with WTO rules.  
14. Korea attaches a high priority to making laws  transparent and readily accessible, including by 
foreigners.  Many Korean laws are available in English, and are obtainable on the Internet from 
comprehensive websites maintained by relevant ministries and agencies.  The main legislation 
covering international trade is the Foreign Trade Act of 1996, last amended in 2003 to extend the 
scope of trade to include the cross-border flow of knowledge-based services, and to introduce WTO-
consistent safeguard measures relating to China.  The Act establishes the principle of "free and fair 
trade" in accordance with Korea's trade treaties and generally accepted international rules.  Trade 
restrictions sanctioned by international oblig ations and as retaliation for a trading partner 
discriminating against Korean trade or denying Korea its international rights are permitted.  
Authorities can also restrict trade to protect human , animal and plant life, health and safety, to 
preserve the environment or to protect domestic resources.  The Ministry of Commerce, Industry and Energy (MOCIE) publishes semi-annual regulations (mainly certification requirements) affecting 
foreign trade in the Consolidated Public Notice on Gu idelines of Exports and Imports,  last revised in 
July 2003.  According to authorities, these import requirements are consistent with Korea's WTO 
obligations and are maintained to protect human, pl ant and animal health and safety, public morals, 
natural resources or the environment.    
                                                     
 
5 The Special Act on the Implementation of the Agr eement Establishing the World Trade Organization 
on 1 January 1995, gazette d on 31 December 1994.  Republic of Korea WT/TPR/S/137 
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15. The Customs Act governs customs matters and rela ted measures.  It contains provisions on 
customs valuation, collection of customs duties (i ncluding tariffs, seasonal and adjusted duties), and 
contingency measures, such as anti-dumping, count ervailing, and emergency (safeguard) duties.  
Legislative amendments in December 2002 (effec tive from 1 January 2003) provided for Korea's 
application of transitional emer gency safeguard measures on certain Chinese imports as agreed under 
China's WTO accession, and enhanced regulati ons covering electronic processing of customs 
procedures.  Korea's main trade-rela ted laws are listed in Table II.1. 
Table II.1 
Main trade-related laws 
Title   Year of issue 
General legislation  
Special Act on the Implementation of the Agreem ent Establishing the World Trade Organization 1994 
Foreign Trade Act 1986 
Foreign Exchange Transaction Act 1998 
Designation and Operation of Free Economic Zones Act 2002 
Government Organization Act 1948 
Commercial Act 1962 
Monopoly Regulation and Fair Trade Act 1980 
Government Procurement Act 1994 
Act on Designation and Management of Customs-Fr ee-Zones for Fostering International Logistics 
Centres 1999 
Act on the Designation, etc. of Free Trade Zones 1970 
Free-trade agreements  
Korea-Chile Free Trade Agreement 2004 
Customs procedures  
Customs Act 1949 
Intellectual property  
Patent Act 1961 
Trademark Act 1949 
Computer Programs Protection Act 1986 
Unfair Competition Prevention and Bu siness Secret Protection Act  1961 
Sector-specific  
Banking Act 1950 
Securities and Exchange Act 1962 
Telecommunications Business Act 1983 
Electricity Business Act 2002 
Marine Transport Act 1983 
Broadcasting Act 2000 
Ship Act 1960 
Aviation Act 1961 
Foreign investment  
Foreign Investment Promotion Act  1998 
Special Tax Treatment Control Act 1998 
Act on Private Investment in Infrastructure 1994 
Source:  Korean authorities. 
(ii) Development and implementation of trade policy 
16. There has been little overall restructuring of go vernment ministries a nd agencies since 2000.  
There are 18 executive ministries.   Three further ministries (P lanning and Budget, Government 
Legislation, and Patriots and Ve terans Affairs) are under the Prim e Minister's responsibility.  The WT/TPR/S/137 Trade Policy Review 
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bureaucratic structure, including the names of minist ries, offices and other public agencies together 
with their respective functions, is contained in  the Government Organization Act of 1948, as 
amended.  Trade policy formulation and implementation involves several ministries.  The Ministry of Foreign Affairs and Trade (MOFAT) has primary res ponsible for international trade negotiations, and 
formulation and implementation of trade policies.
6  Other ministries are involved according to their 
spheres of responsibility.  MOCIE is responsib le for export and import measures as well as for 
policies on industry, energy, and resources.  Other ministries involved in trade policy formulation and 
implementation include:  Finance and Economy, wh ich also incorporates the National Tax Service, 
Customs Service, and the Public Procurement Service;   and those with sector-specific roles, such as 
Agriculture and Forestry, Information and Commun ications, Construction a nd Transportation, and 
Maritime Affairs and Fisheries.   
17. The National Economic Advisory Council (NEAC), established in 1999 under separate 
legislation in accordance with the Constitution, ad vises the President (its chairman) on development 
policies, including domestic and international ec onomic issues affecting national welfare.  The 
Minister of Finance and Economy is one of five ex-officio members.  Other commissioned members 
from the private sector, including academics, serve  on various sub-committees.  The Sub-committee 
on Trade and Industry advises on such policies and may launch related research projects.    
18. The Government continues to reform public administration and the regulatory framework, 
and to promote more transparent administrative procedures, including appeal procedures.  Korea has undertaken substantial regulatory reform, especial ly in areas of trade, investment, and business 
activities, so as to promote a more commercial and competitive environment.  The Regulatory Reform 
Committee (RRC), chaired by the Prime Minister and under the President's Office, plays a key role, 
and is currently reviewing trade-related regulati ons, including customs clearance procedures, as a 
strategic priority of regulatory reform.  A large number of dupli cative or unnecessary regulations have 
been eliminated, and existing regulations streamlined  or made more effective.  Ministries introducing 
new or modified regulations must submit a Regu latory Impact Analysis (RIA) to the RRC that 
includes a cost-benefit analysis of the proposed changes and an assessment of their competitive 
impact.  When approved by the RRC, such pr oposals are submitted to the State Council for 
deliberation and approval, and then to the Nationa l Assembly as government-sponsored bills.  In April 
2004, the RRC established a Corporate Difficulties Solving centre to help improve the business 
environment.  
19. While no independent statutory body public ly assesses trade or assistance policies from a 
national welfare perspective, Korea has made trad e-related policy formulation more open, fostering 
greater public debate and broader community input.   The Policy Evaluation Committee, assisted by 
the Office for Government Coordination and unde r the Prime Minister, evaluates publicly the 
performance of ministries in setting and implem enting policies (Framework Act on Evaluation, 
January 2001).  MOFAT intends to implement legislation to enhance the transparency of 
administrative procedures on trade policy (similar to  the 1996 Administrative Procedures Act).  Many 
ministries, including MOFAT and MOCIE, solicit pub lic views on trade-related policies, including 
over the Internet.  They widely use advisory coun cils and discussion groups that include academics, 
commentators, technical experts, and business leader s, to collect views on specific or general policy 
measures.  Most ministries have their own advisory  council, with members appointed by the relevant 
minister.  MOFAT's advisory council is the Forei gn Policy Consultative Committee.  According to the 
authorities, it provides independent ministerial advice on trade policy issues, when requested.    
                                                     
 
6 MOFAT has two ministers;  the Minister of Foreign Affairs and Trade and the Minister for Trade. 
While in principle the Minister of Fore ign Affairs and Trade is responsible fo r trade matters, such authority is in 
practice effectively delegated to the Minister for Trade. Republic of Korea WT/TPR/S/137 
 Page 19 
 
 
20. The Government interacts with the private sect or, especially through consultations with the 
business community.  MOFAT has operated 16 sectoral Trade Policy and Negotiation Private-Sector Advisory Groups since 1998, covering sectors like agriculture, automobiles, and telecommunications, 
to receive views on trade policy directions and strategi es.  It also organizes regular Enlarged Meetings 
to Promote Trade and Investment to consult with the private sector, including foreign firms, on trade 
and investment policy.
7  Foreign firms are also represented on the Advisory Council for Foreign 
Investment, which advises government on foreign i nvestment policy.  The Government consults 
widely with the private sector on bilateral trade d eals, usually through joint study groups with trading 
partners that include government, industry, and academic representatives from both countries, such as 
was done with Singapore and Japan (there was no joint study group for Chile).  Private-sector 
consultations on multilateral trad e negotiations occur through regular meetings of five 
Sub-committees of the Government-Private Sector Joint Forum on the WTO Doha Development Agenda (covering agriculture, services, non-agricu ltural products, intellect ual property rights, and 
environment).  MOFAT routinely exchanges views and shares economic and trade information with 
leading business groups, such as the Korea Chambe r of Commerce and Industry (KorCham), the 
Federation of Korean Industries (FKI), and th e Korea Federation of Small Businesses.    
21. Several public research institutes publish wi dely on trade-related matters, including on 
multilateral and bilateral policy issues, such as  assessing the impact of bilateral free-trade 
arrangements on Korea.  The government-funded thi nk-tank, the Korea Institute for International 
Economic Policy (KIEP), advises the Government on all major international economic policy issues 
affecting Korea.  Its public research and work programme covers many aspects of Korean trade 
policy, such as the impact on the economy of trade liberalization and of proposed free-trade agreements (section (5)(iii)).  Another public research institute with a deep in terest in Korea's trade-
related policies is the Korean In stitute for International Economics and Trade (KIET).  The Korean 
Economic Institute (KEI) works to further mutual understanding between Korea and the 
United States, and to keep officials informed of U. S. developments in economic  and foreign policies.  
The Korea Economic Research Institute and the Ko rea Rural Economic Research Institute also 
publish studies on trade-related issues.  The Trade R esearch Institute, formed in April 2002 and run 
by the Korea International Trade Association, work s closely with the public sector to develop private 
sector strategies and to promote public debate on Korea's trade policies. 
(4) T
RADE POLICY OBJECTIVES  
22. Korea's principal trade policy objective is to  build a free and open economy based on market 
principles, including fair competition and more liberal global trade, to promote international 
competitiveness and economic growth.  Openness and market principles form the main basis for 
Korea’s economic policies.8  Exports are expected to remain a major engine of economic growth for 
achieving the Government's mid-term "political" ta rget of doubling average per capita annual income 
to US$20,000 (by 2010).  Export-led economic growth  is to be boosted through further trade and 
investment liberalization aimed at promoting structural  reforms to develop efficient Korean industries.  
Korea's trade and foreign investment base is bein g strengthened to facilitate its globalization and 
integration into the world economy.  New expor t opportunities are envisaged, especially in high 
technology areas, as Korea develops its knowle dge-based economy in advanced innovation and 
strategic technologies, such as information tec hnology, bio-technology, and nano-technology.  Key 
elements of trade policy are to build on Korea' s geographical, transport, competitive, and other 
advantages to develop it as a business, including fina ncial, hub in Northeast Asia.  New free economic 
                                                      
7 OECD (2000), p.13. 
8 Prime Minister and Acting President, Opening Keynote Address , Asia Society’s 14th Asian Corporate 
Conference Gala Opening Dinner, Seoul, 12 May 2004. WT/TPR/S/137 Trade Policy Review 
Page 20 
 
 
zones have been created and various incentives offere d to attract large-scale foreign investment in 
major international industrial centres focused on ad vanced information technology (section (6)).   
23. To help meet the Government's growth target, exports are projected to double by 2010 under 
Korea's "global leadership" trade strategy, and its shar e of world exports are anticipated to rise to well 
over 3% to make Korea one of the top eight global exporters.9  Korea is envisaged to become one of 
the top four industrial exporting superpowers of not  only traditional basic industrial products, such as 
semi-conductors, ships, automobiles, petrochemicals , digital electronics, steel, and machinery, but 
also of high technology products and related services.   
24. The Government believes that open trade and i nvestment policies will enable the economy to 
upgrade its production base to specialize more in higher-value-added exports, including services, such 
as e-business and related trade.  The private sector  is seen as the main agent for growth.  Other 
policies to expand international trade include expa nding export markets and promoting balanced trade 
with major trading partners, including boosting Ko rean imports, and taking advantage of multilateral 
and regional initiatives to increase trading opportunities, especially within Asia.10  Despite Korea's 
strong support for trade liberalization and other stru ctural reforms, agricultu ral trade remains heavily 
restricted.  Agricultural trade liberalization is po litically sensitive and has progressed very slowly in 
Korea (Chapter IV).  Korea notified WTO Members that it wished to enter into negotiations on the 
possible continuation of the special treatment  exempting rice and certain rice products from 
"tariffication" beyond ten years (i.e. afte r 2004) as negotiated in the Uruguay Round.11  
25. Largely in response to the Asian financial crisis, Korea initially undertook substantial 
unilateral investment and other deregulatory "behind- the-border" trade reforms, especially in financial 
and a few other key services.  Most other trade lib eralization has been, however, from implementation 
of its WTO commitments, such as tariff reductions.  There are no plans to reduce tariffs unilaterally.  
Korea remains strongly supportive of further reduci ng tariffs and freeing trad e multilaterally, and to 
voluntary trade liberalization within APEC (section (5)(i) and (ii)(a)).  A  major departure in Korea's 
trade policy has been its increasing willingness to nego tiate regional free-trade agreements (FTAs);  it 
has recently concluded its first b ilateral FTA and is negotiating more (section (5)(ii)(b) and (iii)).  The 
Government believes that the emerging web of Asian FTAs will boost regional free trade.12  Along 
with its FTA efforts, Korea will continue to par ticipate actively in multilateral efforts to promote 
global openness in the Doha negotiations.13 
                                                      
9 MOCIE, Toward A 2010 Trade Policies , 2003 [Online] .  Available at:  www.mocie.go.kr/eng/ 
policies/trade/trade.asp]. 
10 MOCIE, Toward A 2010 Trade Policies , 2003 [Online] .  Available at:  www.mocie.go.kr/eng/ 
policies/trade/ trade.asp]. 
11 WTO document G/AG/W/62 and G/L/668, 20 January 2004.  Negotiations covering several trading 
partners (United States, China, Australia, Thailand, India, Canada, Egypt, Argentina, and Pakistan) commenced 
in May and are planned for completion by September 2004.  
12 Minister for Trade, Opening a New Era of Growth in the Pacific Region , presented at the 35th 
International General Meeting of the Pacific Basin Economic Council, Kuala Lumpur, 9 May 2002. 
13 Prime Minister and Acting President, Opening Keynote Address , Asia Society’s 14th Asian Corporate 
Conference Gala Opening Dinner, Seoul, 12 May 2004. Republic of Korea WT/TPR/S/137 
 Page 21 
 
 
(5) TRADE AGREEMENTS AND ARRANGEMENTS  
(i) WTO 
(a) Participation  
26. Korea participates actively in the WTO and is co mmitted to the multilateral trading system.  It 
supports a strong rules-based system that secur es market access to promote global economic growth 
and development.  Korea accords at least MFN trea tment to trading partners, including generally to 
23 non-WTO Members and to six other countries under bilateral agreements.14  Korea regards trade 
with North Korea as intra-Korean commer ce in accordance with the 1992 Agreement on 
Reconciliation, Non-aggression and Ex change and Cooperation.  Such trade is therefore exempt from 
tariffs.15  Trade with North Korea requires approval from the Minister of Unification on the kind of 
products traded, the type of transaction, and the settlement method.  The two countries are 
establishing by mutual agreement a special clearing settlement system to settle payments for certain 
traded goods (Agreement on Clearing Settlement, 2002).  Intra-Korean trade has been conducted 
mainly indirectly, through a foreign intermedia ry, but direct consulta tions and contractual 
arrangements have increased.   
27. As an export-dependant country, Korea acknowledges the key ro le that multilateral 
liberalization has played in opening foreign markets.  It is an original Member of the WTO.  Korea is 
also a signatory and observer of the plurilateral Agreements on Government  Procurement and Trade 
in Civil Aircraft, respectively.  It also ratified th e Fourth and Fifth protocol s to the General Agreement 
on Trade in Services on Basic Telecommunications and Financial Services, respectively, on 
27 November 1997 and 27 January 1999.  It was also an original Member of the Multilateral 
Declaration on Trade in Information Technology Pro ducts (the Information Technology Agreement).  
In the period under review, Korea has made many no tifications to the WTO (Table II.2).  Some are 
somewhat outdated, however:  the latest notificati ons on agriculture, for instance, were received in 
June 2002 and mainly cover arrangements in 2000.  Si milarly, the last notifications on state-trading 
activities and subsidies were in 1999 and 2001.  Kor ea submits tariff and trade data annually to the 
WTO Integrated Data Base;  the latest data submitted were for 2003 on tariffs and for 2002 on 
imports.16   
(b) Trade negotiations 
28. Korea attaches high priority to the successful conclusion of the Doha Development Agenda 
(DDA).  It has participated actively in the nego tiations and has developed detailed positions in all 
negotiating areas.  Korea is keen to ensure th at the DDA achieves a balanced outcome between 
developed and developing Member interests.  While  committed to agricultural reform, albeit difficult 
economically and politically, Korea believes that any lib eralizing outcome must not be so radical as to 
undermine Korea's food security and agricultural pr oduction viability.  Non-trade concerns in 
agriculture, including its "multifunctionality", must be recognized, and "special and differential" 
                                                      
14 Bilateral agreements extend MFN treatment to  Nepal, Cambodia, Kazakhstan, Uzbekistan, and 
Ukraine.  Nepal became a WTO Member in April 2004 and Cambodia has completed its accession to become a 
Member when ratified. 
15 While North Korea represents a relatively minor sh are of South Korea's trade, and covers mainly 
imports of agricultural and fishery products, textile  products, minerals, steel and metal products, and 
commercial exports of textiles and electronic products, So uth Korea is now North Kore a's second-largest trading 
partner, accounting for a third of its total trade (OECD, 2004a).    
16 WTO document G/MA/IDB/2/Rev.17, 14 October 2003. WT/TPR/S/137 Trade Policy Review 
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treatment for developing countries strengthened, especially in key staple commodities.17  Green and 
blue box exceptions to committed reductions in domestic support must  be maintained without limits, 
and the criteria for green box measures made more  flexible to better reflect agriculture's 
"multifunctionality".  Korea is flexible on export su bsidies, but believes that reduced commitments 
should also cover other measures, such as export cr edits, restrictions, taxes, and exports by state 
trading enterprises.18   
Table II.2 
WTO notifications, 2000 to end-March 2004  
Agreement Requirement/content Periodicity WTO document and date  
(latest document if recurrent) 
Agreement on Agriculture 
Articles 10 and 18.2 Tables ES.1 to ES.3 – E xport subsidies Annual G/AG/N/KOR/32, 5 June 2002 
Article 18.2 Table MA.2 – Tariffs and othe r quotas Annual G/AG/N/KOR/34, 5 June 2002 
Article 18.2 Table MA.1 – Administration of tariff 
quotas Annual G/AG/N/KOR/33, 5 June 2002 
Article 18.2 Table DS.1 to DS.9 – Domes tic Support Annual G/AG/N/KOR/31, 5 June 2002 
Articles 5.7 and 18.2 Tables MA.3 to MA.5 – Special 
safeguards Ad hoc G/AG/N/KOR/35, 5 June 2002 
Agreement on Implementation of GATT Article VI of the GATT 1994 (Anti-dumping) 
Article 5.8 Time-period for determination of 
negligible import volumes Ad hoc G/ADP/N/100/KOR, 13 February 2003 
Article 16.4 Semi-annual reports of anti-dumping 
actions (taken within the preceding six 
months Semi-annual G/ADP/N/112//KOR, 24 February 2004 
Article 18.5 Laws and regulations Once by March 1995, 
then changes G/ADP/N/1/KOR/5, 25 April 2001 
Articles 16.5 Competent authority to initiate anti-
dumping investigations Once, then changes G/ADP/N /14/Add.17, 7 October 2003 
Agreement on Implementation of Articl e VII of the GATT 1994 (Customs valuation) 
Article 22.2 Changes in laws, regulations and 
administration Ad hoc G/VAL/N/1/KOR/2, 27 April 2001 
General Agreement on Tariffs and Trade (GATT) 1994  
Article XXVIII:5 Reservation of  right to modify schedule 
of concessions for a three year period Triennial G/MA/147, 11 March 2003 
General Agreement on Trade in Services 
Article III:4 and IV:2 Contact and e nquiry points Within two years from 
entry into force of WTO, 
then changes  S/ENQ/78/Rev.5, 2 December 2003 
Article XXI:1(b) Claim of interest in members' proposed 
modification of schedules  Ad hoc S/L/132, 4 August 2003 
Agreement on Import Licensing Procedures  
Article 7.3 Replies to questionnaire on import 
licensing procedures Annual for questionnaire G/LI C/N/3/KOR/3, 14 June 2002 
Agreement on Government Procurement 
Article XIX:5 Government procurement statistics  GPA/76/Add.1, 7 January 2004 
Article XXIV:6 Modifications to Appendices I to IV Ad hoc GPA/W/250, 17 February 2003 
Table II.2 (cont'd) 
                                                      
17 WTO documents G/AG/NG/W/98, 9 January 2001, and WT/MIN/903)/ST/15, 10 September 2003 
(Statement by Korean Minister for Trade, Ministerial Conference, Cancun, 10-14 September 2003). 
18 WTO document TN/AG/GEN/2, 4 April 2003. Republic of Korea WT/TPR/S/137 
 Page 23 
 
 
Agreement Requirement/content Periodicity WTO document and date  
(latest document if recurrent) 
Annex 3 Threshold values in national currencies  GPA/W/251, 18 February 2003 
Agreement on Safeguards  
Article 12.1(a) – (c) Investiga tions, findings, and decisions 
related to safeguard measures Ad hoc G/SG/N/11/KOR/2/Suppl.1, 
7 August 2000 
Article 12.5  Consultations  Ad hoc G/SG/N/12/KOR/1, 16 May 2002 
Article 12.5 and Article 7.4 Mid-term review of safeguard measur es Ad hoc G/SG/N/13/KOR/2, 23 July 2001 
Article 12.6 Laws and regulations Once by March 1995, 
then changes G/SG/N/1/KOR/5, 26 October 2001  
Agreement on the Application of Sanitary and Phytosanitary Measures  
Article 7 and Annex B Laws, regulations and emergency 
measures 
Enquiry points Ad hoc 
 
Ad hoc G/SPS/N/KOR/151, 13 January 2004 
 
G/SPS/ENQ/16, 5 December 2003 
Agreement on Subsidies a nd Countervailing Measures  
Article 25.1 to 25.6 Annual report on subs idies Annual G/SCM/N/71/KOR, 2 August 2001  
Article 25.11 Semi-annual report on countervailing 
duty actions Semi-annual G/SCM/N/75/Add.1/Rev.4, 
24 October 2003 
Article 25.12 Competent authority to initiate 
countervailing investigations Ad hoc G/SCM/N/18/Add.17, 7 October 2003 
Article 32.6 Laws and regulations Once by March 1995, 
then changes G/SCM/N/1/KOR/4, 25 April 2001 
Agreement on Technical Barriers to Trade 
Article 10 Enquiry points  Once, then changes G/TBT/ENQ/23, 8 October 2003  
Article 10.6 Proposed and adopted technical 
regulations Ad hoc G/TBT/N/KOR/68, 29 January 2004 
Annex 3C Acceptance of code of good prac tice Ad hoc G/TBT/CS/N/139, 30 January 2002 
Agreement on Text iles and Clothing 
Articles 2.8(b) and 
2.11 Products to be integrated in third stage At least 12 months 
before coming into effect G/TMB/N/390, 1 March 2001 
Agreement on Trade-Related Aspect s of Intellectual Property Rights  
Article 63.2 Laws and regulations  Once, then changes IP/N/1/KOR/T/1, 17 March 2000 
Article 69 Contact points Once, then changes IP/N/3/Rev.7, 19 August 2003 
Agreement on Trade-Rela ted Investment Measures  
Article 6.2 Publications Once, then changes G/TRIMS/N/2/Rev.8, 19 July 2000 
Source:  WTO Secretariat.  
29. On fisheries, Korea believes that the negotiations should focus primarily on harmonizing 
trade liberalization with the objective of sustainabl e use of exhaustible fish stocks.  Although it is 
prepared to negotiate effective disciplines on fi shing subsidies that encourage over-exploitation, 
Korea feels the existence of such harmful subsidies mu st first be established.  Korea also rejected the 
inclusion of fish and fish products in the sectoral negotiations to eliminate tariffs.19  In Korea's view, 
elimination of tariffs would encourage over-fish ing and resource depletion by exporting countries 
without proper management schemes, thereb y disadvantaging mainly developing economies, 
especially LDCs. 
                                                      
19 WTO documents TN/MA/W/6/Add.2 and Add.3, 16 June and 15 July 2003. WT/TPR/S/137 Trade Policy Review 
Page 24 
 
 
30. Korea wants to see substantial progress in re ducing non-agricultural ta riffs through adoption 
of a formula that would substantially increase ma rket access by effectively addressing high tariffs, 
including peaks, and escalation, according to the D oha mandate.  Its other main interests include:  
improving anti-dumping rules to prevent the mis-use and over-use of these measures for protectionist 
purposes;  incorporating in the negotiations all four "Singapore issues" (investment, competition 
policy, transparency in government procuremen t, and trade facilitation);  and addressing the 
development-related concer ns of developing countries, including on  special and differential treatment.  
Korea also hoped for substantial progress in th e services negotiations, including enhanced 
commitments from developing countries, with appropriate recognition granted for autonomous 
liberalization. 
(c) Disputes and consultations 
31. Korea has made use of the multilateral dis pute settlement mechanism to resolve trade 
disputes.  Since its last Review, Korea has been directly involved in 15 cases (Table AII.1):  it was 
respondent in five of the disputes.   Panel/appellate body reports have been adopted in four cases, and 
Korea indicated that it had taken measures to comp ly on time with the Dispute Settlement Body's 
(DSB's) findings.  In the latest of these cases, on "Measures Affecting Imports of Fresh, Chilled and 
Frozen Beef", for example, Korea indicated that  it had implemented the DSB's recommendations by 
the set deadline of 10 September 2001.  The Panel is  still considering the fifth case, brought by the EC 
against Korean subsidies on commercial ship  production under the SCM Agreement ("Measures 
Affecting Trade in Commercial Vessels"). 
32. Korea's ten complainant cases involved mainly anti-dumping and safeguard disputes against 
the United States, and countervailing and ship subs idy disputes against the EC.  Four cases are 
pending.  Panels were established in January 2004 in the two cases involving complaints against the 
EC and United States countervailing actions on memo ry chips.  On EC commercial vessel subsidies, 
the Panel for the dispute on Measures Affecting Trade in Commercial Vessels was established in March 2004 covering mainly its Te mporary Defensive Mechanism, and Korea requested consultations 
in February 2004 under the dispute on Aid for Comme rcial Vessels.  Another case, involving the U.S. 
anti-dumping arrangements, is still being resolved because the United States did not implement the 
DSB's findings by the set date of 27 December 2003.  Korea (and most other co-complainants) has 
sought authorization to suspend U.S. concessions.  The United States has objected to the level of 
suspension proposed and the matter was referre d to arbitration in January 2004.   
33. Korea has also reserved its third-party rights in  eleven other cases, most of which involve 
anti-dumping or safeguard measures imposed mainly by the United States and EC. 
(ii) Regional agreements 
(a) Asia-Pacific Economic  Cooperation (APEC)  
34. Korea has traditionally given APEC high importan ce.  Its prosperity has benefited greatly 
from sustained economic growth in the APEC re gion underpinned by the expansion of trade, 
investment, and economic cooperation.  APEC econom ies account for some two thirds of Korea's 
trade and investment.  Korea strongly supports APEC's "open regionalism" approach based on 
"concerted unilateralism" to promote free and open tr ade (including in services) and investment by 
2020 for developing economies (2010 for developed countries).  It intends to meet the voluntary target of 2020, and is convinced that furthe r multilateral trade liberalization will contribute 
significantly to this goal.  It also believes that APEC goals will contribute to a stable multilateral 
trading system and help prevent the formation of  exclusive inward-looking trading blocks.  Korea Republic of Korea WT/TPR/S/137 
 Page 25 
 
 
continues to participate actively in APEC acro ss the full range of activities, including trade and 
investment liberalization, trade f acilitation, and economic and technical cooperation;  it also wishes to 
deepen relations with other members.  Like ot her APEC economies, Korea is required to submit 
annually Individual Action Plans (IAPs) that provide  a road map of its intended actions in 15 policy 
areas for realizing APEC's liberalization goals.  Korea last revised its IAP in 2003. 
35. According to APEC's key principles from the Osaka Action Agenda of comprehensiveness, 
WTO-consistency, and non-discrimination, trade li beralization should not in principle discriminate 
between APEC economies or against non-APEC countries.  Nevertheless, it appears that trade is becoming more discriminatory in the APEC regi on as member economies, including Korea, are 
increasingly entering into or contemplating the fo rmation of preferential trading arrangements.  
According to the authorities, APEC has endor sed these agreements as contributing to the 
liberalization of the multilateral trading system provided they comply with WTO rules and disciplines, and Korea was making efforts to ensure  such arrangements were WTO-consistent.    
36. APEC's strengthened peer review process is aimed at examining more rigorously the progress 
of member economies in achieving the Bogor target s.  Korea was reviewed in August 2003.  The 
independent study prepared as part of that review  concluded that Korea had made "impressive overall 
progress" towards achieving APEC's Bogor goals, especially in the areas of deregulation and regulatory review, investment, competition policy, standards and conformance, customs procedures, 
and to a lesser extent, intellectual propert y protection and government procurement.
20  Least progress 
was found in reducing tariffs, especially in agriculture. 
(b) ASEAN+3 cooperation 
37. Korea attaches high priority to relations with  ASEAN as well as with China and Japan.  It is 
increasing efforts to build closer trade and other ties between ASEAN member s, China, and Japan.  
Annual summit meetings of leaders under the A SEAN+3 framework promote such cooperation.  
Finance ministers also meet annually.  Korea's l ong-term vision is for ASEA N+3 summits to evolve 
into East Asian Summits that would eventually lead  to the formation of an East Asian Community.  
One of the building blocks would be the formati on of the East Asian Free Trade Area (EAFTA).  
"ASEAN+3" members agreed in November 2002 to study and formulate options to gradually 
establish an EAFTA.  With this in mind, Korea is considering an FTA with ASEAN, and would 
contemplate negotiating a trilateral FTA between China and Japan.21  These arrangements have added 
priority for Korea given the proposed formati on of the ASEAN–China Free Trade Area within 
ten years (i.e. 2010), and the announcement in 2002 that ASEAN and Japan would develop a 
framework for an ASEAN–Japan Comprehensiv e Economic Partnership within ten years.    
(c) Bangkok agreement (first agreement on trad e negotiations among developing member 
countries of ESCAP)  
38. Korea is a party to the Bangkok Agreement, signed in 1975, to which China acceded in 
2001.22  While it provides for liberalization of tariff a nd non-tariff barriers, the agreement is currently 
limited to tariff concessions.  Members also provi de additional special tariff concessions to the two 
least developed countries, Bangladesh and Lao PDR.  A third round of trade negotiations on 
                                                      
20 APEC (2003).   
21 A joint study on the feasibility and economic effects of a Korea-ASEAN FTA, launched in 
March 2004, is to be completed in November 2004.  KIEP  is also conducting joint research with its Japanese 
and Chinese counterparts on an FTA with China and Japan. 
22 Other members are Bangladesh, India, Lao Pe ople's Democratic Republic, and Sri Lanka. WT/TPR/S/137 Trade Policy Review 
Page 26 
 
 
preferential tariffs, launched in October 200 1, is due to be completed in 2004.23  Korea extends tariff 
preferences to a limited range of imports from me mber countries, including additional concessions for 
Bangladesh and Lao PDR (Chapter III(2)(iii)(e)).  Tari ff concessions were last modified in July 2002 
when Korea reduced preferential rates on 26 tariff items, including wood products and machinery.  To 
be eligible, Korea requires these imports meet cert ain rules of origin (Chapter III(2)(iii)(e)).    
39. The Government supports efforts to rev italize the Bangkok Agreement, including 
establishment of a Ministerial Council, revision of the text and re-naming it the Asia-Pacific Trade 
Agreement (APTA).  Members have agreed to the re vised text, but are still discussing the adoption of 
common rules of origin.  Korea believes that th e agreement has increased in importance following 
China's accession, and will play a more significant ro le in Korea's regional trade strategy, especially 
with China and India, providin g also the cornerstone for additional free-trade agreements.  
(d) Asia-Europe Meeting (ASEM) 
40. The informal process of dialogue and coopera tion among EU States and ten Asian countries, 
including Korea, addresses political, economic, soci al, and other issues to help strengthen regional 
relationships.  The Trade Facilitation Action Plan (TFAP) aims to reduce non-tariff barriers, increase 
transparency, and promote trade opportunities be tween the two regions.  It specifies biennial 
"concrete goals" in the priority areas of cust oms, standards and conformity assessment, public 
procurement, quarantine and SPS, intellectual prope rty, mobility of business people, and other trade 
activities, such as market access in retail and whol esale distribution.  The goals for 2002-04 include 
new initiatives to provide enhanced paperless custom s procedures.  The Investment Promotion Action 
Plan (IPAP) encourages two-way investment by focusing on promotion and policy issues.  Regional 
and bilateral free-trade arrangements negotiated by ASEM members are to be WTO-consistent with 
and complementary to multilateral rules.24  The Asia-Europe Business Forum (ABEF) fosters regional 
cooperation among the private sector.  The ASEM Trust Fund finances technical assistance on financial sector restructuring and to address povert y.  Korea is promoting cooperation with ASEM 
member countries, and participates actively in A SEM dialogue and cooperative projects, including the 
Trans-Eurasia Information Network and th e Initiative to Address the Digital Divide. 
(e) Asia Cooperation Dialogue (ACD) 
41. The ACD, launched in June 2002, aims to serve  as a "missing link" for all Asian sub-regions 
to create strategic partnerships and cooperation by drawing upon and combining Asia's diverse 
strengths so as to position it as a viable partner for other regions.
25  A number of areas of cooperation 
have been agreed, including information and tel ecommunications (IT), energy, security, agriculture, 
transport linkages, small and medium enterprise coope ration, poverty alleviation, tourism, and human 
resource development.  In June 2003, ACD minist ers adopted the Chiang Mai Declaration on Asian 
Bond Market Development, collectively providing political support for such a regional market.  ACD 
membership is open to Asian countries. 
                                                      
23 Korea has finalized the bilateral negotiations for ex changing tariff concessions with all participating 
members, including China and India.  
24 Chair's Statement, 8th ASEM Senior Officials Mee ting on Trade and Investment , 17 July 2002, Bali. 
25 Members are Bahrain, Bangladesh, Brunei, Cambodia, China, India, Indonesia, Japan, Kazakhstan, 
Republic of Korea, Kuwait, the Lao People's Democratic Republic, Malaysia, Myanmar, Oman, Pakistan, the Philippines, Qatar, Singapore, Sri Lanka, Thailand, and Viet Nam.  Republic of Korea WT/TPR/S/137 
 Page 27 
 
 
(iii) Bilateral agreements 
42. Korea hopes to expand regional integration a nd to secure foreign markets by negotiating 
FTAs with major trading partners.26  It sees this as a practical response to the spread of regionalism 
throughout the world.  The Government had also d ecided in 1998 to pursue FTAs as a major pillar of 
trade policy to help open and reform the Korean economy.  While Korea views FTAs as 
complementary to the multilateral system and to promoting global trade liberalization, it has also at times questioned the impact that the proliferation of regional FTAs could have  on the "validity" of the 
WTO.
27  It recently concluded its first bilateral FTA, with Chile, and is currently negotiating two 
more. 
(a) Korea-Chile free-trade agreement (KCFTA) 
43. KCFTA negotiations commenced in late 1999, and were concluded in October 2002.  The 
agreement, signed in February 2003, became ope rative on 1 April 2004.  The National Assembly 
ratified the KCFTA in February 2004 after several  attempts (due mainly to opposition from the 
agriculture sector).  The KCFTA covers trade in services and goods, subject to a number of 
exclusions, especially in agriculture.  It cont ains provisions on customs procedures, safeguard 
measures, anti-dumping and countervailing measures, sanitary and phytosanitary measures, standards-
related measures, investment, cross-border trade in  services, telecommunications, temporary entry of 
business persons, competition, government procurem ent, intellectual property rights, and dispute 
settlement.  Certain services and investment activ ities are excluded from the agreement via a negative 
list, which consists of:  Anne x I reservations (activities subj ect to non-conforming measures);  
Annex II reservations (activities subject to non-c onforming measures with the option to introduce new 
or more restrictive measures);  and Annex III reservations (activities subject to non-discriminatory quantitative restrictions). 
44. The agreement provided for immediate tariff-free access for a wide range of goods;  87.2% of 
tariff lines by Korea and 41.4% by Chile.
28  Tariffs on other products, except for excluded products, 
are to be uniformly phased out over periods of 5, 7, 9, 10 and 16 years for Korea, or 5, 7, 10 and 
13 years for Chile.29  Korean duties subject to the longest ph ase-in period (16 years) cover 0.1% of 
tariff lines, such as prepared dried milk and some ju ice mixes.  Korea also permanently excluded from 
lower tariffs 21 agricultural tariff lin es covering rice, apples, and pears.30  Moreover, tariff reductions 
on a further 373 agricultural tariff lines, such as ce rtain vegetables, grains, livestock, dairy products, 
fruit, and processed vegetable oils, were temporarily  excluded, to be determined after the Doha 
negotiations.  While KCFTA covered industrial products comprehensively, these considerable 
exclusions substantially undermin ed the Agreement's impact on liberalizing Korea's trade regime in 
                                                      
26 A recent study by the Korea Ins titute for International Economic Policy (KIEP) found  that Korea's 
accelerated trade liberalization would pr ovide greater economic benefits to th e economy, and that it should give 
priority to multilateral trade negotiations and a Kor ea-Japan FTA or a Korea-ASEAN FTA (Choi, Park, and 
Lee, 2003).   
27 Statement by Minister of Trade, Ministerial Conference, Cancun, 10-14 September 2003 (WTO 
document WT/MIN/903)/ST/15, 10 September 2003). 
28 This corresponds to 67% of Korean exports to Chile and to 77% of Chilean exports to Korea.  
According to the authorities, Korea w ill liberalize approximately 96.2% of its imports from Chile within ten 
years under KCFTA.   
29 Korea's ten-year phased tariff cuts on grapes apply only to imports between 1 November and 
30 April. 
30 Chile permanently excluded 54 tariff items, covering mainly refrigerators, washing machines, sugar, 
wheat, and oilseeds. WT/TPR/S/137 Trade Policy Review 
Page 28 
 
 
agriculture where most protection persists.31  Farm interests heavily opposed the KCFTA even though 
it excluded many key agricultural products from libera lization.  Imports must meet certain rules of 
origin to receive tariff preferences (Chapter III(2)(iii)(e)). 
45. Korea and Chile jointly notified the KCFTA to the WTO under GATT Article XXIV and 
GATS Article V in April 2004.32 
(b) FTA negotiations 
Japan 
46. Korea and Japan are to complete an FTA by  2005 (KJFTA).  Negotiations commenced in 
December 2003, after release in October of th e Joint Study Group Report that supported its 
formation.33  The Government believes it will promote dom estic deregulation and trade liberalization 
and thereby contribute significantly to Korea b ecoming a north-east Asian business hub.  In the 
Government's view, the KJFTA would be a catalyst fo r strengthening cooperation in East Asia and act 
as a "stepping stone" to creating an East Asia free trade area.34  According to officials, KJFTA will be 
comprehensive, practical and WTO-compliant.  It is  being negotiated under seven categories: trade in 
goods (covering such issues as tariff elimination, ru les of origin and trade remedies);  non-tariff 
measures (e.g. trade barriers, business practices, technical barriers to trade and sanitary and 
phytosanitary requirements);  investment/services;  other trade issues (government procurement and 
protection of intellectual property rights);  conf lict resolution;  mutual recognition (mainly of 
technologies in areas of electronics, electricity and telecommunications); and economic cooperation 
(e.g. SMEs, trade promotion, and science and technology).  A KJFTA would have significant 
competitive effects on certain Korean industries,  especially motor vehicles, machinery, and 
electronics.  Studies suggest that the KJFTA woul d yield substantial econom ic benefits to Korea.35  
However, while very useful, these results need to be interpreted cautiously, and may overstate the 
economic gains relative to non-discriminatory (MFN) liberalization.36 
                                                      
31 A number of tariff quotas were applied to certain meats, dairy products, fruit, and vegetables.  
However, the relatively low quota levels applied to impor ts reduce substantially the liberalizing impact of these 
arrangements. 
32 WTO documents WT/REG169/N/1 and S/C/N/302 of 19 April 2004, and WT/REG169/1 of 
30 April 2004. 
33 The Group, launched in July 2002, concluded that an FTA would produce positive economic benefits 
for both countries provided it reflected the fundamental prin ciples of comprehensiveness (covered all sectors);  
resulted in meaningful and substantial liberalization in all, including agricultural, sectors (by substantially 
eliminating non-tariff barriers, comprehensively liberalizin g services trade and achieving reasonable transitional 
periods for tariff elimination);  and was consistent w ith the WTO (GATT Article XX IV and GATS Article V). 
34 Minister for Trade, "Korea-Japan Hold Key to Asian Free Trade Area", The Korean Times,  
7 June 2003.  
35 For example, studies by KIEP and the Japanese Institute for Developing Economics (IDE) concluded 
that the KJFTA would increase Korean  long-term welfare over ten years by up to either 7.1% or 11.4%, due 
primarily to the dynamic effects on trade and foreign direct investment (KIEP, 2000 and IDE, 2000).   
36 Results can be very sensitive to the econometric models used and the values assigned to key 
parameters, such as for import and export elasticities.  Ex  ante studies are also pron e to overstate the perceived 
benefits from such arrangements wh ere the agreement negotiated actually ends up less liberalizing than assumed 
at the outset in the study, due to key sectors being either excluded from the tariff redu ctions or subject to much 
slower liberalization.  Benefits from FTAs will depend primarily on whether they are, on balance, trade creating 
or trade diverting.  Econometric studies tend to universa lly show that the economic gains to FTA members from 
such arrangements are well below those that would be achieved from comprehensive multilateral/unilateral liberalization, which also usually generate larger dynamic gains. Republic of Korea WT/TPR/S/137 
 Page 29 
 
 
Singapore 
47. Korea launched FTA negotiations with Singa pore in January 2004 (KSFTA).  The Korea-
Singapore FTA Joint Study Group Report, released in October 2003, supported its formation.  It 
recommended that the KSFTA should comprehensivel y cover trade in goods and services, including 
finance and broadcasting, investment, government procurement, intellectual property rights, and 
dispute settlement.37  It should be a "high standard" FTA, both consistent with WTO rules (GATT 
Article XXIV and GATS Article V) and "WTO-plus" in  several sectors.  Initial negotiations focused 
on lifting restrictions in nine categories, includi ng commodity trade, quarantine measures, technology 
barriers, a mutual recognition agreement, servi ces trade, investment, government procurement, 
competition, intellectual property rights, cooperati on, and conflict resolution.  Negotiations are 
expected to be completed in 2004, and to incl ude finance, telecommunications, technology, human 
resources development, and broadcasting. 
Other 
48. Korea is looking at possible FTAs with Mexico , Canada, and Members of the European Free 
Trade Association (EFTA), and in the longer term  with China, the United States, and the EU.38  This 
is in addition to considering negotiating an FTA  with ASEAN members and a trilateral FTA with 
China and Japan (section (5)(ii)(b)).   
49. Negotiation of numerous FTAs is likely to make  the Korean trade regime more complex, 
involving for example different tariffs being applie d to the same imports from various sources and the 
administration of several rules of origin.  This is likely to reduce economic efficiency by undermining 
the transparency of Korea's trade protection in unpredictable ways and introducing economic 
distortions.  Korea believes that the formation of a broad regional grouping like the EAFTA would 
reduce these concerns.   
(iv) Unilateral and other trade preferences 
50. In 2001, Korea extended the coverage of  its unilateral scheme (introduced from 
1 January 2000) to provide non-reciprocal preferential duty-free access to selected imports from UN-
defined least developed countries (Presidential Decree on Preferential Tariff for Least-Developed 
Countries).39  As a result, the number of eligible countri es increased from 48 to 49, and the number of 
tariff items covered rose from 80 to 87, although this  reflects mainly classification changes associated 
with Korea’s adoption of HS 2002.  Korea has not in voked provisions enabling such preferences to be 
suspended against imports causing or threatening to cau se injury to domestic industries.  It is currently 
studying the possibility of increasing preferential trea tment for LDCs.  Korea also provides reciprocal 
tariff preferences on 27 six-digit tariff items to 43 countries under the Global System of Trade Preferences Among Developing Countries (GSTP).  In addition, it participates in the GATT Protocol 
Relating to Trade Negotiations Am ong Developing Countries (TNDC), a nd grants concessional tariffs 
on 12 six-digit tariff lines for 15 countries.   Imported goods must meet certain rules of origin to be 
eligible for tariff preferences and be accompanied  by certificates of origin (Chapter III(2)(iii)(e)). 
                                                     
 
37 Korea-Singapore FTA Joint Study Group, October 2003, launched in November 2002. 
38 Korea has agreed to launch joint studies with Mexico and EFTA. 
39 WTO document WT/COMTD/N/12/Rev.1, 28 April 2000. WT/TPR/S/137 Trade Policy Review 
Page 30 
 
 
(6) FOREIGN INVESTMENT REGIME  
(i) Recent performance and developments 
51. Korea has made substantial efforts since its last Review to encourage FDI by further 
liberalizing and making more transparent its foreign i nvestment regime.  It welcomes FDI as vital to 
the economy's growth and providing the necessary fi nancial and technological resources for economic 
restructuring and enhancing Korea's international competitiveness.  FDI is seen as a major contributor 
to export and employment growth;  "foreign-capita l invested" companies play an increasingly vital 
role in the economy.40  FDI rose impressively during the crisis years of 1997 and 1998, largely 
reflecting the success of the Government's quick policy response.  FDI inflows peaked at over 
US$15 billion in both 1999 and 2000, up from US$3.2 billion in 1996.  Although falling from 
US$11.3 billion in 2001 to US$9.1 billion in 2002  and US$6.5 billion in 2003, due largely to the 
deteriorating international i nvestment climate, FDI inflows remain historically high.41  FDI is targeted 
by MOCIE to rise to US$8 billion in 2004,  assisted by extra incentives and new zones 
(section (6)(iv)).42  FDI has been mainly in "greenfield" projects, mergers and acquisitions, including 
privatizations.43  Portfolio investment has also risen substantially, buoyed by further liberalization of 
capital and foreign exchange controls.  Foreign sh are ownership of Korean stocks has increased 
steadily, to reach 40% of market capitalization at end-2003.44 
52. Korea also remains an important source of FDI for the rest of the world, even though FDI 
inflows have substantially exceeded outflows since th e crisis.  This reflects its liberal regime on 
outward investment.  During 1999-02, FDI out flows totalled US$22.4 billion, and exceeded 
US$4.8 billion in 2003.  
(ii) Legislative framework and procedures 
53. The Foreign Investment Promotion Act (FIPA)  of 1998 substantially liberalized Korea's 
investment regime and opened most sectors to FDI.   Its principal objective was to attract FDI by:  
eliminating burdensome regulations and anti-comp etitive market restrictions;  creating a more 
liberalized, transparent, and favourable business cl imate for foreign businesses and investors;  and  
expanding tax incentives.45  The FIPA permits all FDI types, including establishment of new 
businesses, purchase of shares in existing businesses, mergers and acquisitions, with at least 10% 
foreign ownership;  and loans of five years or longer from foreign parent or affiliated companies.46  
MOCIE has responsibility for FDI inflows, and MOFE for outflows.  The Commission on Foreign 
Direct Investment (CFDI), established under FIPA in 1998, makes all major policy decisions on 
                                                      
40 Foreign invested companies accounted for 13% of  Korea's total domestic sales, 13.2% of total 
manufactured exports, and 7.3% of manufacturing employment in 2000.  They accounted for the highest share 
of manufactured exports in medicines (30.5%), oil refining (29.4%), electricity and electronics (17.9%), pulp 
and paper (14.8%), and machinery (14.6%).  The lowest shares were recorded in fo od (9.9%), ceramics (6.6%), 
textiles and garments (4.4%), and metals (3.6%).  Mi nistry of Commerce, Indust ry and Energy (2002).  
41 Inflows during 2001 to  2003 accounted for almost 30% of Ko rea's total accumulated inward FDI. 
42 MOCIE (2004) and MOCIE Press Release, 28 January 2004, Ministry Sets Foreign Investment 
Inducement Target at $8 Billion . 
43 The share of "greenfield" FDI fell from 83.1% in 2001 to 68.7% in 2003 while that of mergers and 
acquisitions increased from 16.9% to 31.3%. 
44 Financial Supervisory Service Pr ess Release, 14 January 2004, Foreign-owned Stocks Account for 
40% of Korean Bourse at End of 2003 . 
45 MOFE (2003), p. 187. 
46 The legislation also recognizes foreign ownership of below 10% as FDI where the investor enters 
agreements concerning (a) officer's dispatch or  appointment;  (b) a technical licence or joint 
research/development;  or (c) the supply and purchase of products /raw materials exceeding one year. Republic of Korea WT/TPR/S/137 
 Page 31 
 
 
FDI.47  Korea continues to abide by OECD Codes of  Liberalization of Capital Movements and of 
Current Invisible Operations, and the National Treatment Instrument. 
54. Foreign investors enjoy more favourable tax treatment and selection of business sites than 
nationals, and are assured nationa l treatment and freedom in performing FDI activities, except as 
otherwise provided in other laws.  Korea's investme nt regime is applied on an MFN basis.  No FDI 
restrictions are allowed, unless they threaten national security, public order, public health, 
environmental preservation or social morals, or are re stricted by the FIPA or under other legislation, 
such as the Banking Act, Fisheries Act, Maritime Act and Telecommunications Business Act.  Minimum FDI levels required under the FIPA for i nvestment incentives (section (6)(iv)) were raised 
from W 25 million to W 50 million per fo reign investor in February 2001.
48   
55. Sectoral FDI restrictions under FIPA were relaxe d in 2000 and 2001;  five fully closed sectors 
(fishing, inshore and coastal, cattle raising, wholesale meat, and news agencies) were opened 
partially.  As of April 2003, out of a total 1, 058 business sectors (based on the Korea Standard 
Industrial Classification) only two, television and radi o broadcasting, were clos ed to FDI, along with 
rice and barley growing (Table II.3).49  Another 27 sectors were partially open, subject to foreign 
equity limits.  Foreign ownership, for example, must be less than 50% in fishing, beef cattle farming, 
power distribution and transmission, and air trans port services.  Foreign equity is also generally 
limited to no more than 49% in telecommunications  and 33% in cable and satellite broadcasting.  
Foreign companies can establish local branches subj ect to notification and registration as a foreign-
investment company, maintained for statistical and procedural purposes.   Foreign financial institutions 
are subject to approval requirements under th e Banking Act, Insurance Business Act and the 
Securities and Exchanges Act.50   
56. MOCIE regularly publishes FDI restrictions in English in the Consolidated Public Notice .  In 
addition to FIPA restrictions, it contains restricti ons on:  foreigners' capital transactions, including:  
acquisition of securities, establishment of domestic  branches by foreign companies, foreign 
investment by business sectors, registrations of ships and aircraft, "legally monopolistic" businesses;  
acquisition of domestic qualifications by foreigne rs (pilots, lawyers, architects, and public 
performances);  and on foreigners ' entry and residence in Korea. 
57. Government approval of FDI is not required.  On ly prior notification by foreign investors is 
needed, and this can be made at domestic or forei gn bank offices in Korea, Invest Korea or at any one 
of KOTRA's overseas trade centres.51  Foreign-capital invested companies must also register to be 
eligible for incentives (section (6)(iv)).  MOCIE a pproval is still required, however, to invest in 
85 designated Korean defence-related companies.  Th is list of companies covers many major Korean 
electronic and industrial conglomerates that are also major producers of non-defence products.    
                                                      
47 Consists of representatives of various agencies and ministries, such as MOFE and MOCIE, and 
heads of relevant local and city governments, such as from Seoul and Busan. 
48 MOCIE Press Release , 22 February 2001,  MOCIE Increases Minimum Foreign Investment .  
49 The number of partially closed sectors actually increased from 14 to 27 because of the partial 
opening of closed sectors and the disaggregation of some partially closed sectors.    
50 Notification for establishing a local branch is to be processed within five business days of 
establishment and approval decided within seven business days.  Additional approvals may be required from 
relevant ministries depending on the industry (MOCIE, 2003, p. 36).  
51 Post notification within 30 days is allowed for stock transfers related to mergers and acquisitions.  WT/TPR/S/137 Trade Policy Review 
Page 32 
 
 
Table II.3 
FDI restricted sectors 
Sector/business  FDI limitation 
A.  Closed  
Radio broadcasting Wholly closed 
Television broadcasting Wholly closed 
B.  Partially closed  
Growing of cereal crops and other crops Allo wed except for rice and barley growing  
Beef cattle farming  Less than 50% foreign equity 
Inshore fishing Less than 50% foreign equity 
Coastal fishing Less than 50% foreign equity 
Publishing of newspapers Less than 30% foreign equity 
Publishing of magazines and periodi cals Less than 50% foreign equity 
Processing of nuclear fuel Allowed except for the manufacture and supply of nuclear fuel for nuclear 
power plants 
Electric power generation Nuclear power generation businesses are excluded 
Electric power transmission Allowed provided total fore ign equity is less than 50% and that the largest 
shareholder is Korean  
Electric power distribution and ales A llowed provided total foreign equity is  less than 50% and that the largest 
shareholder is Korean 
Meat wholesaling Less than 50% foreign equity 
Coastal water passenger transport Allowed for transportation between South and North Korea 
Coastal water freight transport  Container transporta tion allowed between South a nd North Korea.  Allowed 
for other freight transportation provide d through a joint venture with Korean 
shipping company and foreign equity is less than 50% 
Scheduled air transport Less than 50% foreign equity 
Non-scheduled air transport Less than 50% foreign equity 
Leased line service No more  than 49% foreign equity 
Wired telephone and other co mmunications No more than 49% foreign equity 
Wireless telephone No more than 49% foreign equity 
Other electric communications  No more than 49% foreign equity 
Domestic banking Allowed only for commercial a nd local banking: restrictions apply only to 
branching by merchant banks a nd specialized finance companies 
Investment trust companies Permitted across-the-board in  securities investment trust businesses, but only 
allowed in banking trust industry in limited cases where a general or special-
purpose bank engages in management in connection with already established 
primary business  
Radioactive waste disposal Permitted except for radioactive waste management 
Broadcasting channels No more than 33% foreign equity 
Cable broadcasting – programme provider No more than 33% foreign equity 
Cable broadcasting – cable TV system operator and 
other cable operator No more than 33% 
Satellite broadcasting  No more than 33% foreign equity 
News agency activities Less than 25% foreign equity 
Source: APEC (2003),  IAP Study Report – Korea 2002 . 
58. Foreigners, regardless of residence status, can purchase land subject to the same restrictions 
as Korean nationals.52  Exclusions are limited to land of military, cultural or environmental 
significance, and farmland designated for rice and barley.53  Foreign land purchases must be reported 
                                                      
52 Since the Foreigners' Land Acquisition Land was revised in 1998.  Foreign land ownership may be 
denied to nationals of countries that do not allow Koreans to purchase land.  However, such reciprocity 
conditions have not been used. 
53 To acquire other farmland, foreigners, like Koreans, must be directly involved in farming. Republic of Korea WT/TPR/S/137 
 Page 33 
 
 
within 60 days.  Foreign land ownership has incr eased steadily since 1998, from 38 million square 
metres at end 1997 to 146.7 million square metr es at end-June 2003 (valued at W 20.3 trillion).54  
From 2003, nationals and foreigners receive the same  treatment for land expropriated by the State for 
public works (the Act on Acquisition of and Compensa tion for Lands to be Used for Public Works, 
which replaced the Land Expropriations Act). 
(iii) Promotion and facilitation 
59. Korea has continued to promote and facilitate FDI.  The Korea Trade Investment Promotion 
Agency (KOTRA), the official investment pr omotion agency, operates over 100 trade centres 
worldwide.  Its main promotional arm, The Korea Investment Services Centre (KISC) established in 
1998 by FIPA, was reorganized and rename d Invest Korea in December 2003.  It  serves as a "one-
stop shop" to help foreign investors complete  necessary administrative procedures, and with 
investment planning, legal and tax matters.  The "C yber Invest KOREA" portal site provides foreign 
investors with information on investment pro cedures.  The independent Foreign Investment 
Ombudsman, located within KOTRA and staffed with  personnel from Invest Korea, handles specific 
grievances encountered by foreign investors establis hed in Korea, and in conjunction with Invest 
Korea, operates an Investment Home Doctor Se rvice that provides one-to-one service.  FIPA 
amendments in March 2001 transferred author ity to nominate the Ombudsman's position from 
MOCIE to the President, thereby strengthening its role.  The CFDI was also given responsibility for 
preparing an annual FDI Environment Improvement Plan, based on plans submitted by all ministries and local governments to improve the FDI environmen t.  This has enabled more effective monitoring 
of the investment climate, and helped Korea improve its attractiveness to FDI. 
60. The Presidential Committee on the Northeast As ian Business Hub was formed to facilitate 
direct dialogue with the President on matters rela ted to Korea's establishmen t as a regional economic 
hub.  In addition to devising key strategies, plans, and policy directions, the Committee serves as a forum to enhance coordination among relevant mini stries.  Restrictions in Seoul and surrounding 
areas were also relaxed for three years in Novemb er 2001 to allow foreign-invested firms to establish 
new or expanded facilities to produce medicines,  machinery for semi-conductors, and liquid display 
facilities (bringing the number of permitted business lines to 28) in the "growth controlled" zone.
55  
Since 2001, companies with at least US$3 million fo reign investment have been exempted from the 
business feasibility evaluation test when appl ying for assistance to research technological 
development.56  A Corporate Grievance Resolution Centre  was also established recently under the 
Office of the Prime Minister to ensure effica cy and expediency in improving the business 
environment. 
61. The Government has opened public sector infrastructure projects to greater private sector 
participation, including by foreigners, who, accordin g to authorities, have the same access as domestic 
investors.  Legislative revisions to the Act on Private Investment in Infrastructure, 1994, in 
August 2001, increased the types of infrastructur e projects open to private investment, and added 
harbour facilities.  Contractual arrangements were also extended from BTO (build-transfer-operate), 
BOT (build-operate-transfer) and BOO (build-operate-own) contracts to include BLT (build-lease-
transfer), ROT (rehabilitate-operate-transfer), a nd ROO (rehabilitate-own-operate) contracts.  An 
                                                      
54 Ministry of Construction and Transportation Press Release, 23 August 2003, Foreign-owned Land 
Reaches 147 million Square Metres at End of June . 
55 MOCIE Press Release, 27 November 2001, Regulations Eased for Foreign-Invested Firms in Seoul . 
56 MOCIE Press Release, 30 August 2002, Gov't to Simplify Financial Support Procedures for 
Foreign-Invested Firms . WT/TPR/S/137 Trade Policy Review 
Page 34 
 
 
investment guidebook was released in December 2003 in  an effort to attract FDI into Korean harbour 
facilities.57 
(iv) Incentives 
62. Korea continues to provide a range of mainly tax incentives for FDI.  These generally consist 
of:  full and partial corporate income tax concessions for up to a total of ten years;  similar 
concessions on various local taxes (acquisition, pr operty, registration, a nd land taxes);  and full 
exemptions from customs duties (customs, special excise, and value-added taxes) on imported capital goods for up to three years.  They apply to "greenfi eld" FDI and foreign stock acquisitions in eligible 
advanced technology investments and industry-suppo rting service industries;  there are no minimum 
FDI levels for these tax incentives.  The number of eligible industries was raised from 578 to 634 in 
July 2003 (FIPA and the Special Tax Treatment Control Law of 1999).   
63. Korea also operates an elaborate system of zon es to provide tax and other incentives, such as 
rent subsidies on state land.  Certain FDI conditio ns for receiving tax incentives when locating in 
foreign investment zones (FIZs) we re also relaxed.  The requirement  to employ a minimum number of 
local employees was removed from 2004, and minimum FDI levels lowered from:  US$50 million to 
US$30 million for manufacturing;  US$30 million to US$20 million for tourism;  and from 
US$30 million to US$10 million for logistic businesses.   Smaller-scale FDI in high-technology and 
manufacturing-assisting service businesses also became elig ible for FIZ status in 2003.  Since its last 
Review, Korea has extended its system of zones to provide wider access to such incentives, mainly 
aimed at trying to attract FDI to offset its recen t decline.  New zones, called free economic zones 
(FEZs), were formed to induce FDI through eased regulations, improved living conditions for 
foreigners, and enhanced tax incentives.
58  These apply to "greenfield" FDI in manufacturing, high-
technology, logistics, and tourism activities located  in FEZs, subject also to reduced minimum FDI 
levels from 2004 (Table II.4).  The port city of Incheon was designated an FEZ in August 2003, and 
Busan and Gwangyang ports in October 2003.   The FEZ Committee oversees the implementation of 
FEZs (Presidential Decree of the Free Economic Zone Act, 2002). 
64. Tax incentives are to be reduced in 2005;  th e maximum ten-year corporate tax concession is 
to be lowered to seven years (100% exemption for five years and 50% for two years).  However, the 
five-year tax exemption for foreign engineers wo rking in Korea was extended until end 2006, and a 
17% single-rate income tax system for foreign ma nagers and employees is being considered.  A cash 
grant for "greenfield" FDI was also introduced  for investment of over US$10 million in high 
technology, parts, and materials, and of over US$5  million in R&D facilities.  The grant is to be 
negotiated on a case-by-case basis as a percentage reba te (of around 10%) of the investment amount.  
The criteria used by the national government to provi de financial support to local governments is also 
being revised in 2004 to enable them to take a “p ro-active” approach to attracting FDI.  A five-year 
plan also commenced in 2003 to improve foreigners ' business and living conditions in Korea, such as 
access to foreign education, immigration, residen tial and medical facilities.  Korea is committed to 
improving its system of incentives offered to forei gn investors, and continues to revise laws and 
regulations designed to promote FDI a nd to offer tax and other benefits.59  The policy emphasis 
appears to be on increasing the availability of tax incentives to more foreign investors while reducing 
the extent of certain incentives, including tax holidays. 
                                                      
57 Ministry of Maritime Affairs and Fi sheries Press Release, 5 December 2003, Ministry to Publish 
Investment Reference Material on Harbour Industry . 
58 MOCIE (2003), p. 8. 
59 Prime Minister and Acting President, Opening Keynote Address , Asia Society's 14th Asian Corporate 
Conference Gala Opening Dinner, Seoul, 12 May 2004. Republic of Korea WT/TPR/S/137 
 Page 35 
 
 
Table II.4 
Main FDI tax incentives 
Tax criteria Tax incentivesa  Conditionsa 
High technology businesses 
(FIPA & Special Tax 
Treatment Control Law, 1999, 
as amended)  - declared eligible industry by 
Finance Ministry  Corporate income tax:  full exemption for first 
7 years of profit & 50% reduction for next 3 
years 
Local taxes (acquisition, property, registration & land) full exemption for first 5 years and 
50% reduction for next 3 years (local 
governments can extend for up to 15 years) Customs duties, special excise & value-added taxes: full exemption on imported capital 
goods (extendable for 3 years with Finance 
Minister's approval) 634 eligible industries, including 111 industry-
supporting service businesses 
 - increased from 568 eligible businesses in 
July 2003 
Foreign Investment Zone (Foreign Investment Promotion 
Act, 1998) 
 - designated by regional governments subject to 
approval by Foreign Investment 
Committee Corporate income tax:  full exemption for first 
7 years of profit & 50% reduction for next 3 
years 
Local taxes (acquisition, property, registration & land) full exemption for first 5 years and 
50% reduction for next 3 years (local 
governments can extend for up to 15 years) Customs duties, special excise & value-added 
taxes: full exemption on imported capital 
goods (extendable for 3 years with Finance Minister's approval) Manufacturing (installing new or additional 
factory facilities)  in newly developed FIZ:  
 - FDI of at least US$50 million & FDI ratio of 
50% or more with 1,000 local employees or more 
Manufacturing in existing industrial complex:  
 - FDI of at least US$30 million & at least 300 local employees 
Tourism (new FDI notified by end-2003 & 
completed by end-2005):  
 - hotel/waterfront hotel/international convention 
 - FDI of at least US$20 million 
 - recreation/leisure/ente rtainment park facility 
 - FDI of at least US$30 million 
Logistics (composite freight terminal/operation 
of logistics hub and harbour facilities):  - freight transportation/handling/consignment 
and warehousing/freight terminal 
facility/freight transportation arrangement/logistics co mmissioner or agent 
 - FDI of at least US$30 million 
Free Economic Zone (Free 
Economic Zone Act, 2002) 
 - three ports designated Corporate income tax:  full exemption for first 
7 years of profit & 50% reduction for next 3 
years 
Local taxes (acquisition, property, registration & land) full exemption for first 5 years and 
50% reduction for next 3 years (local 
governments can extend for up to 15 years) Customs duties, special excise & value-added 
taxes: full exemption on imported capital 
goods (extendable for 3 years with Finance Minister's approval) 
Corporate income tax:  full exemption for first 
7 years of profit & 50% reduction for next 2 years Local taxes (acquisition, property, registration 
& land) full exemption for first 5 years and 
50% reduction for next 2 years (local governments can extend for up to 15 years) 
Customs duties, special excise & value-added 
taxes: full exemption on imported capital 
goods (extendable for 2 years with Finance 
Minister's approval) Manufacturing: 
 - FDI of at least US$50 million 
Hi-tech & manufacturing-assisting services:  
 - FDI of at least US$30 million Logistics: 
 - FDI of at least US$30 million 
Tourism:  
 - FDI of at least US$20 million 
 
  
Manufacturing: 
 - FDI of at least US$10-50 million Hi-tech & manufacturing-assisting services:  - FDI of at least US$10-30 million 
Logistics: 
 - FDI of at least US$10-30 million Tourism: 
 - FDI of at least US$10-20 million 
a As from 2004, the minimum FDI limits on new projects were reduced from US$50 million to US $30 million for manufacturing, 
from US$30 million to US$20 million for tourism, and from US$30 million to US$10 million for logistic businesses.  The 
minimum requirement for local employees was also removed.  A negotiable cash rebate of around 10% of the FDI amount was 
also introduced in 2004 for in vestment in high-tec hnology projects exceedi ng US$10 million and in R&D facilities exceeding 
US$5 million.  It was also announced that the ten-year inco me tax concession would be redu ced to seven years (100% for 
five years and 50% for two years) from 2005. 
Source: The Korean authorities.  WT/TPR/S/137 Trade Policy Review 
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65. Korea currently has five types of zone to assist  investors;  FIZs, foreign industrial complexes 
(FIC), FEZs, free trade zones created since 2000 (M asan, Iksan, and Kunsan), and various customs 
duty free zones.60  This would appear to unnecessarily complicate the FDI regime.  Rationalizing their 
use, as recently indicated by the Government, could reduce investor uncertainty.61   
66. According to the authorities, tax concessions can be decisive factors in attracting FDI among 
similar countries, with most beneficiaries in Ko rea indicating that such incentives have facilitated 
foreign investment.  However, these results are pr obably biased, and they do not take into account 
whether such investment, if reliant on incentives, is in the national interest.  All investment incentives 
(whether assisting foreign or domestic investors) risk  subsidizing efficient investments, which need no 
such assistance and would have been undertaken anyway (thereby providing windfall gains to 
investors at taxpayers' expense), or worse, making some inefficient investments profitable.  Tax incentives, therefore, may contribute to an in efficient allocation of resources in Korea.
62  The cost 
effectiveness of tax incentives is also questionable.63  They can undermine public accountability and 
fiscal transparency, especially where,  as in Korea, there is no detail ed information on revenue forgone 
from various tax incentives or any systematic evaluati on of the effectiveness of such incentives.  Care 
is therefore needed to ensure that the financial and efficiency costs of investment incentives do not 
exceed their stated benefits.   
(v) International investment agreements 
67. Since its previous Review, Korea has signe d a number of new bilateral investment 
agreements, including additional Investment Prom otion and Protection Agreements (IPPAs) with 
14 countries protecting post-establishment FDI.64  Korea also signed a Bilateral Investment Treaty 
(BIT) with Japan, operative January 2003, which covers pre-and post-investment protection and 
investment liberalization, including market access.  It facilitates investment between the two countries 
by:  extending MFN and national treatment for pre-establishment FDI;  prohibiting mandatory obligations on foreign investors, such as to export a certain share of production or to consume local 
raw materials;  guaranteeing overseas remittances;  a nd allowing foreign investors to use international 
arbitration courts to resolve disputes.  As of Ap ril 2004, Korea had concluded BITs with a total of 
73 economies (including with Japan).  Negotiations on a bilateral investment agreement with the 
United States commenced in 1999, but progress has stalled due to failure to resolve key issues, 
including Korea's insistence on maintaining "cinema screen quotas" (Chapter IV(6)(ii)(b)).   
                                                     
 
60 Masan and Iksan were previously designated as free export zones;  free trade zones replaced these in 
2000.  FICs provide smaller-sized foreign investment companies rent subsidies on state land, for example, up to 
75% for manufacturing businesses with a minimum investment of US$10 million.   
61 The Government has agreed to merge free trade z ones and customs duty free zones in 2004 so as to 
avoid confusion by foreign investors and to generate greater benefits (Invest Korea, 2003).  
62 Even in cases where the market is claimed to ha ve failed to finance enough efficient investment due 
to "externalities" (social benefits from the investment that  are not fully reflected in private costs), such as in 
R&D, it is unclear whether tax incentives can effectively address such "market failure".  
63 Experience of other OECD economies suggests that tax incentives are seldom cost-effective.  Most 
econometric studies show that forgon e tax revenues exceed incremental inve stment induced from tax incentives.  
Tax holidays are in particular an ineff ective incentive, compared to tax credits. 
64 These were Algeria (30 September 2001), Brunei (30 October 2003), Costa Rica (28 August 2002), 
El Salvador (25 May 2002), Guatemala (17 August 2002), Honduras (19 July 2001), Israel (19 June 2003), 
Mexico (27 June 2002), Morocco (8 May 2001), Nicaragua (22 June 2001), Oman (10 February 2004), Panama (8 February 2002), Saudi Arabia (19 February 2003), and Trinidad and Tobago (27 November 2003). Republic of Korea WT/TPR/S/137 
 Page 37 
 
 
68. Korea has signed new taxation treaties containing  provisions to avoid double taxation with 
several countries since 2000.65  As at March 2004, Korea had 76 such treaties (60 in force, 
three signed and pending parliamentary a pproval, and 13 provisionally agreed). 
                                                      
65 These include Albania, Chile, Croatia, Iceland, Iran, Jordan, Laos, Myanmar, Nepal, Sudan, 
Slovenia, the United Arab Emirates, and Venezuela;  th e treaties with Chile, Myanma r, and Nepal are currently 
in force.