Republic of Korea WT/TPR/S/73
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II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES
(1) OVERVIEW
1. During the period under review (1996-2000), political and economic developments,
particularly the Asian financial crisis, together with increased multilateral commitments have resulted
in major changes to Korea's trade and foreign investment regime.  The deep recession prompted by
the Asian crisis highlighted the need for far-reaching structural reforms and associated legislativechanges.  Policies have been aimed at liberalizing the Korean economy and increasing its
attractiveness to foreign direct investment, thereby fostering its rapid recovery.  These reforms have
been reinforced by multilateral undertakings at the WTO, including those designed to enhance the
transparency of Korea's trade and related policies.  However, in what would appear to be a significant
break with its traditional policy of eschewing regional and bilateral free-trade agreements, Korea hasrecently shown signs of negotiating or considering negotiating bilateral agreements with several
countries.  Adherence to a rules-based system was reflected, inter alia,  in increased involvement in
dispute settlement cases.
(2) G
ENERAL CONSTITUTIONAL AND INSTITUTIONAL FRAMEWORK
2. Since its previous Review, Korea's constitutional, executive, legislative, judicial and
administrative framework has little changed.
3. Under the 1948 Constitution (amended most recently in 1987), Korea is governed by a
directly elected President for a single five-year term.  The President is responsible for deciding all
important government policies (including the conclusion and signing of international treaties) and
performs his functions through the executive branch, the State Council;  the State Council is chaired
by the President and is further composed of the Prime Minister (appointed by the President with the
approval of the National Assembly) and 17 ministers (appointed by the President uponrecommendation of the Prime Minister regardless of whether they belong to his party).  The
1997 presidential elections led to the first transfer of power to the opposition party since 1948;  the
next elections are due in December 2002 (presidential).
4. The legislative branch consists of a unicameral 299-member National Assembly, which is
elected every four years by direct elections (253 seats) and proportional representation of politicalparties that win five or more seats in direct elections (46 seats);  the next elections are due
in April 2004.  The legislature may inspect government operations, impeach the President, and
recommend the removal from office of the Prime Minister or a State Council member.  The
National Assembly may also review the qualifications of its members and may take disciplinary
action against them.  The National Assembly is, inter alia,  empowered to propose, deliberate and
approve or reject bills;  finalize and inspect closing accounts of the national budget;  consent to the
conclusion and ratification of treaties negotiated by the executive branch;  and approve the President's
emergency orders (none since 1996).  Under the Constitution and the National Assembly Act, the
executive branch, a Committee of the Assembly or any Assembly member (with the concurrence of
twenty or more Assembly members) may introduce bills.
1  Bills passed by the National Assembly are
sent to the executive branch, and the President promulgates them within 15 days.  If the President has
any objections to a passed bill, he may, within this period of 15 days, return it to the
National Assembly along with written explanations for the objection, and request re-deliberation;
however, the President is not authorized to request the Assembly to re-deliberate only part of the bill
                                                     
1 Article 53 of the Constitution and Sections 2 and 3 of the National Assembly Act [Online].  Available
at:  http://node3.assembly.go.kr:6060/english/lows/index.html [2 March 2000].WT/TPR/S/73 Trade Policy Review
Page 22
nor to propose any amendments for the Assembly's re-deliberation.  Upon receiving the request, the
Assembly re-deliberates the bill, and, if re-passed with the attendance of more than half of all
members and the approval of more than two thirds of the members present, the bill becomes an Act.
Unless otherwise provided for in the Act, it enters  into force 20 days later.  Presidential Decrees,
Ordinances of the Prime Minister, and Ministeria l Ordinances, instructions, regulations and notices
that contain provisions for the implementation of a law or a matter delegated by the law must beremitted to the National Assembly.
5. The three-tier judiciary comprises a 14-member Supreme Court, five high courts, and
15 district courts in the major cities.  The President, with the consent of the National Assembly,
appoints the Chief Justice (head of the Supreme Court)  for a single six-year term;  the President, on
the recommendation of the Chief Justice, appoints the judges of the Supreme Court for a six-year term(renewable).  Judges at all lower courts are appointed by the Chief Justice with the consent of the
Conference of Supreme Court Justices.
6. Regional authorities consisting of mayors, governors and other local government
representatives were first elected in 1995 for a three-year term, thus replacing a system of
appointments by the central government;  the next elections for regional and local authorities are duein June 2001.
2  These authorities, which have gradually been given administrative and financial
autonomy, are empowered to levy several types of local taxes (e.g. acquisition tax, registration tax,
licence tax, inhabitant tax, property tax, automobile tax, farmland tax, butchery tax, race-pari-mutual
tax, tobacco consumption tax, aggregate land tax, urban planning tax, community facility tax,
business place tax, regional development tax).3
(3) STRUCTURE OF TRADE POLICY FORMULATION
(i) Executive branches of government
7. Since its previous Review, Korea has, inter alia,  reduced the number of ministries from 22 to
17 and has undertaken some ministerial restructuring.4  As of February 1998, the Ministry of
Foreign Affairs was enlarged to become the Ministry of Foreign Affairs and Trade (MOFAT), now
conducting both the political and economic aspects of Korea's foreign affairs;  it has two ministers,
a Minister of Foreign Affairs and a Minister of Trade.  The latter deals, inter alia,  with the
development and coordination of international trade policies as well as with multilateral, regional and
bilateral negotiations and cooperation.  These tasks were transferred from the Ministry of Commerce,
Industry and Energy (MOCIE).  The MOCIE, in co ordination with the Ministry of Finance and
Economy (MOFE) and numerous other relevant govern ment agencies, formulates and implements all
other trade policies.
                                                     
2 At present, Korea is divided into 7 metropolitan cities, 9 provinces, 72 cities, 93 gun and
65 autonomous gu (Korea Investment Service Center online information.  Available at:  http://www.kisc.or.kr/
kisc/CMN/html/KISC_2.html [1 March 2000]).
3 Most of these taxes are discussed in Chapter III(4)(i)(a) and more information may be found in
Ministry of Finance and Economy (1999b).
4 Korea Investment Service Center online informatio n.  Available at:  http://www.kisc.or.kr/kisc/CMN/
html/KISC_2.html [1 March 2000];  and OECD online information.  Available at:  http://www.oecd.org/
puma/focus/compend/ko.htm [8 October 1999].Republic of Korea WT/TPR/S/73
Page 23
(ii) Advisory bodies
8. Since 1990, the Korea Institute for International Economic Policy (KIEP), a government
think-tank with affiliates in China and the United  States, has provided advice on major international
economic policy issues, including those related to international trade and investment rules.  In this
context, KIEP monitors and analyses challenges and opportunities faced by the Korean economy all
over the world.5  It is currently studying the potential benefits of a Korea-Japan free-trade agreement.
The KIEP aims to promote a liberal international economic order and cooperation among the world's
leading think-tanks on international economic issues.  The Korea Institute for Industrial Economics
and Trade (KIET), another government think-tank, has also provided advice on domestic industrial
and commercial policies, including strategies for raising productivity, efficiency, and competitiveness.
As from July 1998 a Steering/Standing Committee (of joint government agencies) for theNew (WTO) Round has organized public hearings for civic, social, and economic groups so as to
properly reflect their views on this matter in the negotiation process (section (4)(iii)(a)).
(4) T
RADE POLICY OBJECTIVES
(i) General trade policy objectives
9. Since 1996, Korea's principal trade policy objective has been to support structural adjustment
within the framework of its multilateral, plurilateral, and bilateral commitments, and thereby improve
the competitiveness of Korean business.  This objective has been implemented in a WTO-based
manner through, for example, the progressive elimination of agricultural non-tariff barriers and their
replacement with tariffs (the process of "tariffication"), together with export facilitation measures.
10. Korea's trade policies have been based on the principles of multilateralism and
non-discrimination.  Accordingly, it has accorded MFN treatment to all trading partners, regardless of
whether they are WTO Members, and improved its tariff binding under the GATT and servicescommitments under the GATS.  Nevertheless, in respon se to the recent financial crisis and growing
regionalism elsewhere, regional and bilateral trade agreements are now being considered by the
authorities as useful means of securing greater market access for Korea's exports (section (iii)(b)).
6
(ii) Sectoral trade policy objectives
11. Despite increased openness since 1998, Korea maintains certain measures designed to
implement sectoral trade-policy objectives;  these include disproportionately high levels of border
protection, in the form of tariff and non-tariff barriers, coupled with domestic support, albeit for a
declining number of sensitive items in the agriculture and livestock sector (e.g. rice and beef).  Such
measures potentially distort resource allocation, to the costs of the economy.  These potential
distortions to competition have been compounded by state involvement and intervention (mainly inagriculture and livestock) in the economy and the dominance of the chaebols.  However, decreasing
border protection and new post-Uruguay Round binding commitments have increased the exposure of
manufacturing (e.g. the information technology and automobile industries) to foreign competition,
while concessional entry and autonomous tariff quotas for inputs have been used to reduce production
costs in several industries.  Market access in a large number of services has been or is being improved
                                                     
5 Korea Institute for International Economic Policy online information.  Available
at:  http://www.kiep.go.kr/ENGLISH/ekiephome.html [1 March 2000].
6 WTO documents WT/MIN(98)/WS/M/1, 19 June 1998, and WT/MIN(98)/WS/M/2, 19 June 1998;
and information from Korea Institute for International Economic Policy (KIEP) report published in The Korea
Herald  [Online], 18 December 1998.  Available at:  ht tp://www.koreaherald.co.kr/ [2 March 2000].WT/TPR/S/73 Trade Policy Review
Page 24
gradually with a view of facilitating structural adjustment.  In addition, recent regulatory reforms have
lessened state involvement in the economy.
(iii) The WTO Agenda
(a) The Seattle Ministerial Conference and the next Round
12. At the third WTO Ministerial Conference (Seattle) in December 1999, Korea expressed the
view that the continued liberalization process offered the best possible path to greater prosperity,including global trade growth.
7  Korea considered that the next Round required a comprehensive
approach (including in services) rather than a narr ow focus on market access, and had to conclude as a
single undertaking.  Other elements of the Korean position were that commonly agreed rules on
competition and trade and investment, as well as a pro-active approach in government procurement
were required;  electronic commerce was an important issue;  in the light of Korea's recent experience(section (7)(i), and Chapter IV(4)), shortcomings and ambiguities in the WTO Anti-dumping
Agreement had to be corrected;  further trade liberaliz ation in agriculture had to take into account its
multifunctionality;  and efforts relating to fishery and forestry products had to take into consideration
their conservation management needs.
13. Reportedly, Korean steel, synthetic fibres, semiconductors, automobiles, telecommunications,
electronic commerce, and insurance services are expected to benefit most from the market opening
that could result from a new Round.
8  Korea seems to oppose the lifting of its import restrictions on
rice prior to 2004.9  It also sees an opportunity for tightening existing rules so as to prevent abuse of
anti-dumping measures by developed countries.  Since July 1998, a Steering/Standing Committee
(of joint government agencies) for the New (W TO) Round has undertaken public hearings to
disseminate information on the process of the prepar ations to the public and to collect the opinions
and recommendations of the general public and private organizations.10
(b) Other Korean WTO activities
IMF, World Bank, and WTO coherence
14. While recognizing the role of the IMF in times of severe financial difficulties, at the
December 1997 meeting of the WTO General Council, Korea emphasized the need to assess the
impact of the IMF's conditions on individual trade regimes and trade flows, as well as to establish an
                                                     
7 WTO document WT/MIN(99)/ST/34, 1 December 1999.
8 Information from the LG Investment Securities Co. research report New Round and the Emergence of
New Trade Order,  published in The Korea Herald  [Online], 12 December 1999.  Available
at:  http://www.koreaherald.co.kr/ [10 January 2000].
9 Statements by the Assistant Minister for Economic Policy Coordination at the Prime Minister's
Office (Mr. Maeng Jung-ju) published in The Korea Herald  [Online], 27 November 1999.  Available
at:  http://www.koreaherald.co.kr/ [10 January 2000].
10 These organizations include farmers groups (consideration for the multifunctionality of agriculture,
special tariff treatment for rice, maintenance of the stat us of developing country in agricultural negotiations);
environmental groups (opposition to market opening for genetically modified organisms, stronger safety andquarantine standards, maintenance of trade barriers in environmentally sensitive forestry and fishery);"progressive" groups (opposition to participation in  the investment, competition policy, and government
procurement agreements);  and economic groups (amendment of the Anti-dumping Agreement, emphasis on
tariff reduction on industrial products in the United States market) (Ministry of Foreign Affairs and Trade online
information.  Available at:  http://www.mofat.go.kr/main/etop.html [3 March 2000]).Republic of Korea WT/TPR/S/73
Page 25
informal common framework on coherence among the IMF, the World Bank and the WTO.11  I n
December 1998, Korea raised questions on whether reductions in trade barriers tied to IMF or
World Bank programmes were of a permanent nature.
Regionalism
15. Since 1996, Korea has participated actively in the work on regional integration agreements in
the WTO Committee on Regional Trade Agreements.  It expressed views and/or made writtensubmissions on several issues, including the relationship between regionalism and the multilateral
trading system;  the systemic implications of re gional trade agreements for the multilateral trading
system;  recommendations ensuring that regionalism  complemented multilateralism;  the examination
process and notification format;  preferential rules of origin in light of Article XXIV;  and specific
aspects of several regional integration agreemen ts in America and Europe under WTO examination.
Least developed countries
16. Since its previous Review, Korea has intensified its support to least developed countries in
line with its statements in several WTO fora.  In addition to unilateral preferential tariff treatment
(section (6)(ii)(a)), it has provided technical assistance to least developed countries (Bangladesh,
Tanzania, Uganda) by, inter alia,  financing or undertaking wide-ranging infrastructure and
technical assistance (including WTO-related seminars) projects.
12  In the context of the
WTO Committee on Trade and Development, since 1996 Korea has s upported cooperation between
the WTO, UNCTAD and ITC, especially where they  produced tangible results such as the joint
programme on technical cooperation for Africa, with a view to fostering the integration of developing
countries, particularly the least developed, into the multilateral trading system.
Accessions
17. Since 1996, Korea has participated in many accession working parties;  it considers that all
acceding countries need technical assistance.13  In particular, Korea has consistently supported China's
early WTO membership having concluded bilateral negotiations with China in August 1997.
According to the KIEP, China's entry to the WTO is likely to increase Korea's imports of agricultural
products as well as low-priced consumer goods from China;  raise its exports of automobiles,
electronics and petrochemicals as well as financial services to China;  and lead to increasedcompetition with Korea's merchandise exports in overseas markets.
14
(5) TRADE LAWS AND REGULATIONS
18. All Korean laws, regulations, and most administrative guidelines and directives are published
in the publicly available official gazette (the Kwanbo )15, at least 20 days prior to their implementation,
                                                     
11 WTO documents WT/GC/M/25, 4 February 1998, and WT/GC/M/32, 9 February 1999.
12 WTO documents WT/COMTD/M/7, 19 August 1996;  WT/COMTD/M/9, 14 October 1996;
WT/LDCV/HL/M/1/Add.1, 18 December 1997.
13 WTO document WT/COMTD/M/16, 30 May 1997;  and Ministry of Foreign Affairs and Trade
online information.  Available at:  http://www.mofat.go.kr/main/etop.html [3 March 2000].
14 Forecasts by the Korea Institut e for International Economic Policy (KIEP), the Korea International
Trade Association (KITA) and the Daewoo Economic Research Institute, published in The Korea Herald
[Online], 17 November 1999.  Available at:  http://www.koreaherald.co.kr/ [10 January 2000].
15 In some cases the authorities concerned may choose not to publish administrative guidelines and
directives.  In this case any citizen or foreign resident in Korea may request their disclosure.  Furthermore, these
subordinate regulations must be based on laws;  otherwise they are not admissible.WT/TPR/S/73 Trade Policy Review
Page 26
except in cases where special reasons for urgent enforcement arise;  about 800 laws and regulations
(about 30% of the total), including those pertaining to trade and investment have been translated into
English.16  In response to concerns over the complexity, transparency and implementing peculiarities
of the regulatory environment (e.g. retroactiveness, unpublished or unwritten guidelines, discretion),
Korea pledged to make efforts to publish all laws, regulations and administrative guidelines pertaining
to trade and investment in English, and make them publicly available in a prompt and readilyaccessible manner, and to establish a web-based computer network service allowing access to all legal
texts on trade and investment as of May 2000.  As from April 1998, a Regulatory Reform Committee
operating on a public-private partnership basis has intensified the regulatory reform activities initiated
the previous year.
17  Numerous regulatory changes have affected virtually all trade and trade-related
areas discussed in this report.  Regulatory reform is considered an essential part of Korea's economicgrowth strategy;  it is expected to lead to produ ctivity gains, and reductions in prices and costs in
several sectors (e.g. electricity, construction, distribution, road transport, telecommunications).
18  It is
estimated that between 1999 and 2003 the regulatory reform may help to create 1.66 million jobs;
ease the burden/cost to the private sector and citizens by US$15.6 billion (equivalent to 4.4% of the
GDP in 1997);  generate public savings of US$492 billion;  and attract US$36.5 billion of additionalforeign direct investment.
19
19. Under Article 6 paragraph 1 of the Constituti on, the provisions of WTO Agreements enjoy
the same status as those of domestic legislation and cannot be superseded by them.20  Provisions of the
WTO Agreement may be invoked before a Korean court;  nevertheless, so far there has been no court
case examining a conflict between WTO and domestic provisions.
20. Korea's Constitution covers several economic policy areas.21  It permits the State to foster,
regulate and coordinate foreign trade.  The State may also regulate and coordinate economic affairs inorder to maintain balanced growth and stability of  the national economy, to ensure proper distribution
of income, and to prevent domination of the market and abuse of economic power.  Natural resources
and powers may be exploited, developed, or utilized under licence.  Restrictions or obligations
necessary for the efficient and balanced utilization, development, and preservation of the land are
authorized.  Tenant farming is prohibited;  leasing of agricultural land and the management ofagricultural land to increase agricultural productivity and to ensure the rational use of agricultural land
or due to unavoidable circumstances is recognized.  Policies to foster agriculture, fisheries and small
and medium-sized industry through protection and s upport measures (price stabilization, marketing,
and distribution) are authorized.  Consumer protection is guaranteed.  In cases of national defence or
emergencies faced by the national economy, private enterprises may be nationalized or transferred tolocal government ownership, or be managed, controlled or administered by the State.
                                                     
16 APEC (1999).
17 US Embassy (1999);  USTR (1999);  OECD (1998a).
18 Korea Institute for Industrial Economics and Trade/Regulatory Reform committee (1999).
19 Byungki Ha (1999).
20 The WTO Agreement was published in the Kwanbo  as Treaty No. 1265 on 31 December 1994.
Under Article 3 paragraph 1 of the "Special Act on the Implementation of the Agreement Establishing theWorld Trade Organization", the authorities undertook to exercise their rights and fulfill their obligations incompliance with the basic principles of the Agreement.  Under Article 27 of the Vienna Convention on the Lawof Treaties, Korea may not invoke the provisions of its internal law as justification for its failure to perform atreaty.
21 Chapter IX of the Constitution [Online].  Available at:  http://node3.assembly.go.kr:6060/english/
lows/index.html [2 March 2000].Republic of Korea WT/TPR/S/73
Page 27
21. In the period under Review, Korea has made numerous WTO notifications (Tables AII.1 and
AII.2), including tariff and trade data submissions to the Integrated Database (Chapter III(2)(ii)(a)).
Furthermore, Korea's commitment to transparency has been reflected in the presence of internet
websites at most public sector agencies, institutes, and entities;  the fact that a large part of the
information available on these websites is in English language greatly facilitated the preparation of
this Review.
(6) TRADE AGREEMENTS AND ARRANGEMENTS
(i) Multilateral agreements
22. Korea, a founding Member of the WTO, is a signatory to the Plurilateral Agreement on Trade
in Civil Aircraft, and on Government Procuremen t, which has been implemented since January 1997
(Chapter III(2)(vii)).22  As from December 1996, Korea has been a member of the Organization for
Economic Co-operation and Development (OECD), where it undertook commitments (including
export credits, financial services, shipbuilding) that reinforced its multilateral undertakings;  as a
consequence, its policies in several areas (e.g. agriculture, services, investment, competition) are now
examined systematically in this forum.
(ii) Preferential, regional and bilateral arrangements
(a) Preferential arrangements for developing and least developed countries
23. As of January 2000, Korea implemented its first preferential market-access measures for
80 commodities from 48 least developed countries, a measure representing forgone customs duty
revenue estimated at US$1.1 million23;  it has encouraged other WTO Members to make similar
unilateral market-access concessions.24  The implementation of its preferential treatment for
least developed countries was announced in 1997 but was delayed due to the lack of adequate legal
basis in WTO rules, including under the Enabling Clause for accommodating commitments forunilateral market-access improvements.  Korea has continued to grant preferential tariff treatment for
a limited number of items under the Global System of Trade Preferences (GSTP)
25, the 1976 Bangkok
Agreement (Bangladesh, India, Laos, Sri Lanka) , and the GATT Protocol relating to Trade
Negotiations among Developing Countries (TNDC) (Chapter III(2)(ii)(k)).
                                                     
22 WTO document WT/L/291, 3 December 1998.
23 The scheme covers 22 agricultural items (e.g. palms, sugar beets/molasses, coffee and cocoa), four
fishery products (including lobster and octopus), 13 forestry items (e.g. tropical timber, coniferous wood), and42 industrial raw materials (e.g. aluminum/titanium/c obalt/copper items, natural rubber, raw cotton, clothing,
footwear, diamonds) (Presidential Decree No. 16553 on Preferential Tariff for Least-Developed Countries);
sensitive items such as rice, beef and sesame seeds were excluded (Ministry of Foreign Affairs and Trade
information, published in The Korea Herald  [Online], 26 November 1999. Available at:
http://www.koreaherald.co.kr/ [10 January 2000]).  In 1998, imports (excluding petroleum) from 33 leastdeveloped countries (WTO Members, acceding countrie s or observers) stood at US$95 million (mainly oilseeds
and oleaginous fruit, textile fibres, cork, and wood) or 0.07% of total imports (UNSD, Comtrade database).
24 Korea, which is one of the 11 major developing country markets for least developed countries' exports,
considers market access an important and fundamental element contributing to th e trade-led development of
least developed countries.  WTO documents WT/COMTD/W/31, 17 September 1997;  WT/LDC/HL/14,23 October 1997;  WT/COMTC/12, 12 November 1997;  WT/LDC/HL/M/1, 26 November 1997;WT/COMTD/M/21, 8 July 1998.
25 By participating in the second round of GSTP negotiations Korea has expanded its commitments,
which allow for a 10% tariff cut on a pre-set level of duty;  they mainly cover unprocessed agricultural and
livestock items, chemicals, bovine leather, woven fabrics, and metallic inputs.WT/TPR/S/73 Trade Policy Review
Page 28
24. Korea is a beneficiary under the Generalized System of Preferences (GSP) schemes of several
countries, including Canada (excluding motor vehicles and certain poultry), the Czech Republic,
New Zealand (full exclusion expected by 1 July 2000), Norway, and the Russian Federation
(excluding consumption goods and machinery as of 26 January 1996).  Since its previous Review,
Korea has graduated progressively from GSP beneficiary status in the European Union (EU) (full
exclusion as from 1 May 1998), Japan (1 April 2000), and Switzerland (1 March 1998).  Japan'sscheme covered 600 items representing an estimated 75.4% of imports from Korea (mainly
agricultural and textile items), and absorbed 94% (1999) of Korean exports benefiting from GSP
treatment in donor countries.
26  Preferential access losses from the graduation from the EU scheme
were expected to be compensated by the EU's implementation of WTO market opening undertakings
in products of export interest to Korea (e.g. machinery goods, cameras, computers, semiconductors,automobile tyres, synthetic staple textiles, certain types of cold-rolled carbon steel, upright pianos,
clothing accessories, tights and stockings, ski clothing).  As a result of graduation developments,
between 1996 and 1999 the share of eligible exports to total exports to GSP donor markets declined
from 25.5% to 21.1%;  at the same time the share of GSP eligible exports (mainly crustaceans,
iron/steel/aluminium items, textile/clothing articles and chemicals) to total exports dropped from 3.9%to 2.8%.
(b) Regional arrangements
25. Korea has continued to participate in the Asia-Pacific Economic Cooperation (APEC), which
since 1989 has promoted more open trade and practical economic cooperation with a view to fostering
Asia-Pacific economic dynamism and sense of community.
27  The pillars of APEC activities are:
trade and investment liberalization;  business facilitation;  and economic and technical cooperation.  A
cooperative growth strategy to end the financial crisis and strengthen regional finance has beenpursued within the group.  Since 1996, members have indicated their commitment to meeting APEC
objectives by 2010 and 2020 through Individual Action Plans.  In 1997, an Early Voluntary Sectoral
Liberalization (EVSL) initiative was agreed, involving trade liberalization in 15 sectors, and in 1998
efforts to encourage adherence of non-APEC WTO Members to this project were undertaken
(Chapter III(2)(ii)(f));  in 1999, discussion on eight sectors was brought to the WTO but there hasbeen no progress owing to the difficulties in launching a new round at the Seattle Ministerial Meeting.
APEC strongly supports the launching of a new round of multilateral trade negotiations.  At the
June 1999 APEC trade ministers meeting in Auckland, Korea (and Japan) opposed a proposal for the
removal of tariffs on fruit, vegetables, and processed grain food by 2002, and on oilseeds and related
products by 2004, on the grounds that such a move would undermine completely the pricecompetitiveness of Korea's agriculture sector.
28  The largest part of Korea's external trade and outward
foreign direct investment has remained with APEC  members (Chapter I).  Korea's participation in
APEC is aimed at fulfilling its attachment to open trading principles.
26. Since 1989, Korea has maintained relations with the Association of South-East Asian Nations
(ASEAN) and has participated regularly in consultative meetings related to the operation of jointeconomic and development cooperation projects cove ring numerous areas (e.g. trade, investment,
science, technology, human resources development).
29  In a November 1999 Joint Statement on
                                                     
26 Information by the Korea Trade-Investment  Promotion Agency (KOTRA), published in The Korea
Herald  [Online], 23 December 1997, 1 October 1998, 13 January 1998, 28 January 1998, 20 December 1999.
Available at:  http://www.koreaherald.co.kr/ [10 January 2000].
27 APEC Secretariat information online.  Available at:  http://www.apecsec.org.sg/ [2 March 2000].
28 Ministry of Agriculture and Forestry information published in The Korea Herald  [Online],
11 September 1999.  Available at:  http://www.koreaherald.co.kr/ [30 September 1999].
29 ASEAN Secretariat information online.  Available at:  http://www.asean.or.id/ [2 March 2000].Republic of Korea WT/TPR/S/73
Page 29
East Asia Cooperation, ASEAN and Korea/China/Japan agreed to strengthen efforts in areas such as
trade, investment, technology transfer, technical cooperation in information technology and
e-commerce, industrial and agricultural cooperation, small and medium-sized enterprises, promotion
of tourism, active participation in the development of growth areas in East Asia, and broader private
sector participation in economic cooperation activities through networking initiatives such as an
East Asian Business Network.  Furthermore, they ag reed to strengthen policy dialogue, coordination
and collaboration on financial, monetary, and fiscal issues of common interest, while focusing
primarily on issues related to macroeconomic risk management, corporate and industrial governance
reforms, regional monitoring of capital flows, strengthening of banking and financial sectors,
reforming the international financial architecture, and enhancing self-help and support mechanisms in
East Asia.
27. Since March 1996, Korea has participated in the "region-to-region" dialogue carried out in a
formal (i.e. Summits) or informal dialogue in the context of the Asia-Europe Meeting (ASEM).30
ASEM promotes regional cooperation by strengthening collaborative relations that lead to common
development and prosperity between Asia and Europe.  ASEM cooperation goes far beyond the
business and economic dimension to encompass political, social, environmental, and cultural issues.Korea is to host and chair the third Asia-Europe Meeting to be held on 20-21 October 2000 in Seoul.
(c) Bilateral free-trade arrangements
28. In a major break with Korea's traditional poli cy of non-involvement in bilateral free-trade
agreements (section (4)(i)), discussion began with Chile in November 1998 with a view to reaching a
free-trade agreement;  Chile, an APEC partner with a complementary industrial structure and similar
economic and trade policy objectives, represents an entry base to the Latin American market.
31
Although no specific date is set for concluding the negotiations, it was agreed to expedite the
negotiations to the extent possible;  according to the authorities, the agreement is likely to cover trade
in goods and services, which will be liberalized with only minor reservations.  This agreement is
expected to respond, inter alia,  to the expansion of other regional groups (i.e. NAFTA, EU, and
ASEAN);  secure export and investment markets;  increase consumer welfare through low-price and
high-quality foreign products;  and strengthen competitiveness of domestic firms.  The authoritiesestimate that when implemented, the agreement would increase Korea's exports by US$10 billion per
year, mainly involving cars, household electronics goods, tyres, batteries, textiles, and PVC;  major
imports from Chile would include non-ferrous metals and fruit.
32
29. In 1999, other important initiatives involved the evaluation of the impact and feasibility of
free-trade agreements with Japan, New Zealand, and Thailand.  Apart from a surge in foreign direct
                                                     
30 In addition to EU countries, other ASEM participants are:  Brunei, Indonesia, Japan, Malaysia,
Singapore, the Philippines, Thailand, and Viet Nam (ASEM online information, availableat:  http://www.asem3.go.kr/english/index.htm [13 June 2000].
31 Ministry of Foreign Affairs and Trade online information.  Available at:  http://www.mofat.go.kr/
main/etop.html [3 March 2000].
32 Statements by Mr. Chung In-kyo (economic researcher) of the Korea Institute for Industrial
Economic Policy forecast published in The Korea Herald  [Online], 16 October 1999.  Available
at:  http://www.koreaherald.co.kr/ [2 March 2000].  Between 1995 and 1998 Korea's trade deficit with Chiledeclined but the composition of trade remained unchan ged;  imports (0.8% of total, 1998) from Chile are
dominated by mining products (e.g. copper, iron ore) and wood, while exports (0.4% of total, 1998) consist
largely of motor vehicles, household electrical machin es, textiles and clothing (UNSD, Comtrade Database).WT/TPR/S/73 Trade Policy Review
Page 30
investment, the trade creation effects (particularly intra-industry trade) from an agreement with Japan
are thought to entail increased imports of 1.2% by Korea and 1.4% by Japan.33
(7) TRADE DISPUTES AND CONSULTATIONS
(i) Dispute settlement under the GATT/WTO
30. Despite the stated objective of resolving disputes through consultations34, since the previous
Review, Korea has become increasingly involved in the WTO dispute settlement mechanism(Table AII.3);  this seems to be due both to domestic and world economic developments as well as
wider and easier access of all WTO Members to the multilateral settlement rules.  Korea has been a
complainant in three cases involving anti-dumping actions taken by the United States on certain
television receivers, semiconductors, and steel items;  it also reserved its third party rights in
five cases and participated in consultations involving, inter alia,  other partners' measures on clothing
(Turkey), computer equipment (EU), and the automotive industry (Brazil, Canada, Indonesia).
Korea's measures on alcoholic beverages, dairy products, beef, and government procurement have
been subject to complaints by other WTO Members (mainly the EU and the United States), and panel
and/or Appellate Body examination;  complaints against measures affecting shelf-life of products,
bottled water, and procurement in the telecommunications sector were resolved through mutuallyagreed solutions.
(ii) Other
31. Commercial dispute conciliation, mediation, and arbitration between private parties have been
governed by the Korean Arbitration Law and the Commercial Arbitration Rules of the Korean
Commercial Arbitration Board (KCAB);  Korea is currently a member of the United Nations
Convention on the Recognition and Enforcement of Foreign Arbitral Awards
(New York Convention).
35  The KCAB has signed arbitration agreements with 22 foreign arbitration
bodies and cooperative accords with 21 foreign arbitration, including the AAA
(American Arbitration Association) and the Court of  Arbitration of the ICC (International Chamber of
Commerce).  Between 1996 and 1999, the KCAB dealt with cases involving mainly domestic firms,
while international disputes affected mainly non-payment, contract cancellation and delayed
shipment.
(8) FOREIGN INVESTMENT REGIME
32. Following the financial crisis, Korea has undertaken significant efforts to attract foreign direct
investment (FDI) through increased openness and in centives, so as to foster economic growth;  as
from March 1999, these changes have been coupled with the liberalization of the foreign exchange
and capital transaction system (Chapter I).36  The shift in emphasis from control and regulation to
promotion and support also reflected the implementation of WTO and OECD commitments
(Chapter IV(5)(ii)) as well as IMF-induced reforms.
                                                     
33 Ministry of Foreign Affairs and Trade online information.  Available at:  http://www.mofat.go.kr/
main/etop.html [3 March 2000];  and excerpts from a study by the Korea Economic Research Institute publishedin The Korea Herald  [Online], 1 June 1999.  Available at:  http://www.koreaherald.co.kr/ [10 January 2000].
34 APEC (1999).
35 APEC (1999).
36 Korea Investment Service Center online informa tion.  Available at:  http://www.kisc.or.kr/kisc/
CMN/html/KISC_2.html [1 March 2000].Republic of Korea WT/TPR/S/73
Page 31
33. As of April 1998, foreign participation in hostile mergers or acquisitions has been permitted
and the prohibition on cross-ownership between co mpanies repealed (Chapter III(4)(iii)).  In
November 1998, a new Foreign Investment Promoti on Act (FIPA) entered into force.  The FIPA
considerably liberalized Korea's foreign investment regime in an effort to attract investment from
abroad.  One of its main features was the easing of restrictions on foreign investment, more
specifically the lifting of the limits on foreign investment in the corporate and special bond markets;
the removal of restrictions on purchases and sales of local real estate;  and elimination of ceilings on
aggregate and individual foreign equity ownership, except for certain activities and state-owned
firms (Table II.1 and Chapter IV).37  As of April 2000, the negative list consists of 24 partly
liberalized and four wholly closed activities out of the 1,058 i ndustries listed in the Korean Standard
Industrial Classification, representing a liberalization ratio of 99.6%38;  this compares with 90.7% of
industries in 1995.  Other important features of  the FIPA were further protection of FDI from
expropriation;  simplified procedures;  the provision of a one-stop service for foreign investors;  the
establishment of foreign investment zones (FIZs);  the establishment of the Commission on Foreign
Direct Investment Policy;  and an expansion of the scope of tax incentives and subsidies.  As of
November 1998, national treatment was strengthened with the elimination of the requirement to reportthe arrival of foreign capital to the authorities.  As of May 1999, MOCIE has been in charge of FIPA
administration.
34. Under the Special Tax Treatment Control Act, foreign investors receive more favourable
treatment than domestic investors as regards tax incentives linked to location, which have been
considerably expanded under the FIPA and the Special Tax Treatment Control Law (Table II.2).  As
of 1999, local governments, in cooperation with foreign investors, have been able to establish
specially designated FIZs (Chapter III(3)(v)) for large-scale FDI projects (Table II.3).  Not only doFIZ-designated firms qualify for several tax incentives, they are also exempted from payment of rent
on state-owned property used in the FIZ  and from charges normally levied on traffic generation.
Moreover, FDI in plants constructed in agricultural or mountainous areas is exempt or subject to
reduced contributions for changing land usage.  Despite its use of tax incentives, in the context of the
WTO Working Group on the Relationship between Trade and Investment, Korea acknowledged thatsuch measures had generally failed to achieve their desired effects and that their costs often
outweighed their benefits.
39  Tax concessions available to foreign-invested firms were notified to the
WTO Committee on Subsidies and Countervailing Measures.
35. Applications for foreign investment must be notified in advance to designated foreign
exchange banks;  these notifications are pro forma, and approval is normally processed withinthree hours.
40  Applications may be denied on grounds of national and international security, public
order and morals, public health, environmental preservation or social morals.  Repatriation of capital
and overseas remittance of dividends, interest, and royalties from officially approved investment are
guaranteed.  All foreign investment is protected from expropriation;  expropriation may take place for
a public purpose and then in a non-discriminatory manner, while prompt compensation is granted atfair market value.  Since May 1998, the Korea Investment Service Center (KISC) within the
Korea Trade and Investment Promotion Agency (KOT RA) has provided a one-stop service for foreign
                                                     
37 As of mid 1996, Korea restricted foreign inve stment in 120 activities, including production and
trading in agricultural goods, publishing, utilities (pow er generation, water), transport, telecommunications,
banking, insurance, securities dealing, broadcasting, and legal services.
38 The Bank of Korea online information.  Available at:  http://www.bok.or.kr/index_e.html
[13 March 2000].
39 WTO documents WT/WGTI/M/5, 3 November 1998, and WT/WGTI/M/8, 11 May 1999.
40 Exceptions to the advance notification-approval sy stem exist for certain projects that are subject to
joint-venture requirements or those in the distribution sector.WT/TPR/S/73 Trade Policy Review
Page 32
investment in Korea;  the KISC, which handles 90% of the administrative process, provides support
free of charge to the investor at all stages.41  An ombudsman (Office of the Investment Ombudsman,
as of October 1999) has been established to address the grievances of and difficulties faced by foreign
investors and enterprises with foreign participation;  all agencies must respond to its queries within
seven days.  An Automatic Authorization System was introduced in November 1999 to simplify the
FDI notification procedure, by abolishing the requirement for government acceptance of anFDI notification and replacing it by a simple notification, thus minimizing the grey areas where the
government could reject an FDI project.
Table II.1
Foreign direct investment (FDI) limitations, 2000
Activity Limitations
(a) FDI participation or liberalization ratio
Cattle raising
Meat wholesaleFDI share less than 50% (as of January 2000)
Growing of cereal grains Fully liberalized, except for rice and barley
News agency activities FDI share less than 25% (as of January 2000)
Publishing of newspapers FDI share less than 30% as of January 2000 (Act on Registration of Periodicals)
Publishing periodicals
Coastal water passenger transportation
Coastal water freight transportationScheduled air transportation
Non-scheduled air transportationFDI share less than 50% as of January 2000
Wire telegraph and telephone
Wireless telegraph and telephone
Telecommunications n.e.c.FDI share less than 49%
Domestic banking Allowed only for commercial banking
Cable broadcastingaFDI up to 33 % (programme provider, system operator) or 49% (network
operator) (as of March 2000, Broadcasting Act)
Satellite broadcastingaFDI up to 33% (programme provider, satellite operator) (as of March 2000,Broadcasting Act)
Electricity power generation Fully liberalized, except for the public power generation sector that is partially
liberalized (i.e. FDI share below 50%;  and the largest shareholder and its
representative to be Korean nationals)
(b) Activities wholly closed to FDI
Inshore and coastal fishing
Radio and television broadcasting
a FDI is not permitted in general- or news-programme providers.
Source: APEC (1999), Korea's 1999 Individual Action Plan , [Online], September.  Available at: http://www.apecsec.
org.sg/iap/99/ [17 September 1999].
                                                     
41 Korea Investment Service Center online informa tion.  Available at:  http://www.kisc.or.kr/kisc/
CMN/html/KISC_2.html [1 March 2000].Republic of Korea WT/TPR/S/73
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Table II.2
Incentives of foreign invested enterprises
(a) Tax incentives
Tax Past Present
Corporate tax
Income taxFull exemption for the first 5 years.
50% reduction for 3 years thereafter.Full exemption for the first 7 years.
50% reduction for the 3 years thereafter.
Corporate tax on dividendsIncome tax on dividendsFull exemption for the first 5 years.
50% reduction for 3 years thereafter.Full exemption for the first 7 years.
50% reduction for the 3 years thereafter.
Local taxes
- Acquisition tax
- Property tax- Aggregate land tax
- Registration tax
- Customs duty- Special excise tax
- Value added taxFull exemption for the first 5 years.
50% reduction for 3 years thereafter.
No registration tax break.Local tax incentives can be granted for 8 to
15 years.
The minimum required by law is:- full exemption for the first 5 years.
- 50% reduction for the 3 years thereafter.
Registration tax is now covered.
Customs dutySpecial excise tax
Value-added taxFull exemption on imported capital goods. Full exemption on imported capital goods.
(b) Property incentives
Rental period of state-owned properties expanded from 20 to 50 years (renewable).
Purchase payments may be delayed for 1 to 20 years.
Rental fee reductions up to 100% are provided for:
- Foreign invested enterprises located in a foreign investment zone.- Foreign invested enterprises with advanced technology making an FDI over US$1 million located in one of the three Industrial Parks
for foreign-invested enterprises.
Rental fee reductions up to 75% are provided for:
- Manufacturing companies located in one of the 3 Industrial Parks for foreign-invested enterprises making an FDI of over
US$10 million.
- Companies, to be determined eligible by the Commission on Foreign Direct Investment Policy, which contribute to the augmentat ion
of SOC, to industrial restructuring, or to the financial independence of local governments from the central government.
Rental fee reductions up to 50% are provided for:- Foreign-invested enterprises located in national industrial parks (35 parks) with advanced technology making an FDI of over
US$1 million or manufacturing companies making an FDI of over US$10 million.
Source: Ministry of Commerce, Industry and Energy (1999), The New Foreign Direct Investment Regime,  June.
36. Korea subscribed to the 1976 Declaration by the Governments of OECD Member countries
on International Investment and Multinational Enterprises comprising Guidelines for Multinational
Enterprises, as well as commitments on national treatment, conflicting requirements, and international
investment incentives and disincentives;  in the light of recent liberalization (Chapter IV(5)), only afew sectoral reservations on national treatment undertaken upon OECD accession are in force (e.g. on
activities in Table II.1).
42  Korea participated in the negotiations on the Multilateral Agreement on
Investment (MAI), maintaining reservations simila r to those on national treatment.  Korea has also
ratified the 1997 Convention on Combating Bribery of Foreign Public Officials in
International Business and passed the Act on Preventing Bribery of Foreign Public Officials in
                                                     
42 The Declaration is a policy commitment to improve the investment climate, encourage the positive
contribution multinational enterprises can make to eco nomic and social progress, and minimize and resolve
difficulties that may arise from their operations (OECD online information.  Available at:  http://www.oecd.
org//daf/cmis/CODES/declarat.htm [9 March 2000]).WT/TPR/S/73 Trade Policy Review
Page 34
International Business Transaction, which entered in force in February 1999.43  As a consequence,
both the offering a bribe to a Korean official and the official's acceptance of a bribe are criminal
offences under Korean law.  In addition, Korea does not allow tax deductions for bribes paid to
foreign public officials since they are not considered to be business-related expenses.
Table II.3
Foreign investment zone designation standards
Classification by business Criteria
Manufacturing or business entities bringing in advanced
technologies or providing industry support servicesNewly developed FIZ.
Where FDI amounts to US$100 million or more.
Where FDI ratio is 50% or more, and new regular employees number  1,000 or
more.
Where FDI amounts to US$50 million or more, and new regular employees
number 500 or more.
Where already developed industrial districts are designated as FIZ.In cases where parts or all of already developed national or regional industrial
districts are designated as FIZ, FDI amounts are to be US$30 million or more,
and new regular employees to number 300 or more.
Tourist Businesses Tourist hotel  or international convention facility businesses:
FDI newly filed until 31 December 2001, whose amounts are equal to orexceed US$30 million (FDI whose contributions are completed by
31 December 2005 is to be considered as new FDI).
Comprehensive leisure businesses:
Newly notified FDI up to 31 December 2000, if FDI is equal to or exceeds
US$50 million invested in the comprehensive leisure business on Cheju Islandor within tourist areas under Article 23 of the Tourist Promotion Act (FDI
whose contributions are completed by 31 December 2003 is to be
acknowledged as new FDI).
Source : Korea Investment Service Center online information.  Available at: http://www.kisc.or.kr/ [13 July 2000].
37. Since 1996, Korea has signed 26 new bilateral investment promotion and protection treaties
largely intended to protect its investment overseas;  52 treaties are currently in force, mainly with
European and Asian countries.44  Plans for negotiating a treaty with the United States were agreed in
June 1998;  as from the same date, the US Overs eas Private Investment Corporation (OPIC) resumed
writing policies under its insurance programmes for companies making new investments in Korea.45
38. Korea is a member of the World Bank's International Center for the Settlement of Investment
Disputes (ICSID) and the Multilateral Investment Guarantee Agency (MIGA).  It would appear that
no serious investment disputes have arisen in Korea in recent years, except for those involving
intellectual property rights.46  Despite efforts to weaken their dominance of the domestic economy,
                                                     
43 Ministry of Foreign Affairs and Trade online information.  Available at:  http://www.mofat.go.kr/
main/etop.html [3 March 2000];  and OECD information online.  Available at:  http://www.oecd.org/
news_and_events/release/nw99-08a.htm [9 March 2000].
44 Korea Investment Service Center online information.  Available at:  http://www.kisc.or.kr/
kisc/CMN/html/KISC_2.html [1 March 2000];  and WTO document WT/WGTI/M/5, 29 July 1998.  Thesetreaties provide for fair and equitable treatment, full protection and security, national treatment and MFNtreatment, free transfer of funds, rules on expropriation and dispute settlement.
45 US Embassy (1999).
46 US Embassy (1999).Republic of Korea WT/TPR/S/73
Page 35
chaebols (Box IV.1) continue to cause some practica l concerns for foreign investors;  these concerns
include influence by the chaebols on small and medi um-sized (SME) enterprises not to supply foreign
enterprises, restrained access to distribution channels, and the chaebols dominated access to credit.
But, whereas imports of goods have been the object of private frugality campaigns
(Chapter III(2)(xi)), foreign investment has not been subject to opposition by non-governmental
groups.
39. As of April 1996, controls on overseas portfolio investments were eased;  Korean corporate
investors and individuals can purchase certain foreign securities (stocks, bonds, commercial paper,
and certificates of deposit) without limitations.47  In case of acquisition of more than 10% of the
shares, investors are required to make a declaration to the Ministry of Finance and Economy (MOFE)
and make an "acceptance";  acquisition of less than 10% is subject to declaration only.
40. Since 1997, in the context of the WTO Working Group on the Relationship between Trade
and Investment, Korea has explained its experience on developments in its FDI regime and has
indicated that in recent years FDI has contributed significantly to its economic development;  strong
macroeconomic fundamentals were essential for FDI liberalization.48  It also focused on issues like
the complementarity between FDI and trade;  the  relationship between FDI liberalization and therationale for granting investment incentives;  th e relationship between competition, investment, and
trade policy;  the contribution of multilateral rules on investment, in enhancing transparency and
stability of the legal environment for foreign invest ment;  and the role of FDI in the Asian financial
crisis.
                                                     
47 US Embassy (1999).
48 WTO documents WT/WGTI/M/3, 10 February 1998;  WT/WGTI/M/4, 5 June 1998;
WT/WGTI/M/5, 29 July 1998;  WT/WGTI/M/5, 3 November 1998;  and WT/WGTI/M/8, 11 May 1999.