WORLD TRADE WT/TPR/M/19
25November 1996
ORGANIZATION(96-4989 )
Trade Policy Review Body
30September -1October 1996
TRADE POLICY REVIEW
REPUBLIC OFKOREA
MINUTES OFMEETING
Chairperson: H.E. MsAnne Anderson (Ireland)
Page
I. INTRODUCTORY REMARKS BYTHE CHAIRPERSON 2
II. OPENING STATEMENT BYTHE REPRESENTATIVE OFKOREA 3
III. STATEMENT BYTHE FIRST DISCUSSANT 5
IV. STATEMENT BYTHE SECOND DISCUSSANT 7
V. STATEMENTS BYMEMBERS 9
VI. REPLIES BYTHE REPRESENTATIVE OFKOREA 15
AND ADDITIONAL COMMENTS
VII. CONCLUDING REMARKS BYTHE CHAIRPERSON 29WT/TPR/M/19
Page 2Trade Policy Review
I. INTRODUCTORY REMARKS BYTHE CHAIRPERSON
1. Thesecond Trade Policy Review ofKorea washeldon30September and1October 1996.
TheChairperson welcomed thedelegation ofKorea, which washeaded byAmbassador JounYung Sun
andincluded theHon.Dr.Duck-Soo Han,Deputy Minister ofTrade andIndustry, andthediscussants,
Ambassador Wade Armstrong ofNewZealand andMr.Chiedu Osakwe ofNigeria. Asusual, both
discussants would speak intheirpersonal capacities andnotasrepresentatives oftheircountries. In
accordance withtheestablished procedures, thediscussants hadmade available, inadvance, outlines
ofthemain issues theyintended toraise.
2. TheChairperson recalled thepurpose oftheTrade Policy Reviews andthemain elements of
theprocedures forthismeeting. Thereport bytheGovernment ofKorea wascontained in
document WT/TPR/G/19 andthatoftheWTO Secretariat indocument WT/TPR/S/19; themainissues
toberaised bythediscussants werecontained indocument WT/TPR/D/3. Copies ofwritten questions
submitted byseven delegations (Australia, Canada, theEuropean Union, Hong Kong, Japan, New
Zealand andSwitzerland) hadbeentransmitted inadvance tothedelegation ofKorea.1Iffullreplies
could notbeprovided during themeeting, supplementary written replies should beprovided later.
3. Recalling thatintergovernmental organizations could attend meetings oftheGeneral Council
through decisions taken onthebasisofadhocarrangements, theChairperson proposed thattheTrade
Policy Review Body invite theFAO, EFTA, IMF, OECD, UNCTAD andtheWorld Bank, which
hadrequested observer status, toitsnextmeeting. Itwassoagreed.
1Additional written questions were submitted atthetimeofthemeeting bythedelegations ofArgentina and
theUnited States.Republic ofKorea WT/TPR/M/19
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II. OPENING STATEMENT BYTHE REPRESENTATIVE OFKOREA
4. Therepresentative ofKorea noted thathispresentation would focus onthree broad areas:
(i)Korea 'seconomy andtradesince1992; (ii)Korea 'stradepolicy direction; and(iii)Recent measures
under themultilateral trading system onasector-by-sector basis.
(i) Korea 'seconomy andtrade since 1992
5. Since theprevious Trade Policy Review in1992, theKorean economy hadexperienced abrief
period ofeconomic sluggishness which persisted through 1992and1993. However, despite signs of
economicrecoveryin1994-95,thecurrentaccounthaddeteriorated.BytheendofAugust1996,Korea's
current account deficit hadsurged toarecord levelofmore thanUS$15 billion.
6. Defying these recent trends, theKorean Government steadfastly maintained itscommitment
totrade liberalization. Liberalization andopenness, despite theircosts, werekeycomponents inthe
enhancement ofbothdomestic andglobal welfare. Korea wastherefore doing itsbesttofaithfully
implementitsWTOobligations,andhadactivelypursuedabroadrangeofderegulationandliberalization
measures.
7. In1995, Korea 'strade volume exceeded US$260 billion, with imports amounting to
US$135 billion andexports toUS$123 billion onacustoms clearance basis, making Korea theworld 's
12thlargest trading nation. Korea 'simport liberalization ratiohadincreased to99.3percentfrom
97.7percentin1992. Remaining items would befullyliberalized bytheyear2001, orbrought into
conformity withtheprovisions oftheWTO Agreements. Korea hadalsoreduced tariffratesinstages,
withratesof1-3percentlevied onimported rawmaterials andarateof8percentapplied tomost
manufactured goods.
(ii) Korea 'strade policy direction
8. TheKorean Government continued topursue itslong-term goalofbalanced trade expansion,
withaviewtomaximizing economic welfare. Theincreases inKorea 'stradevolume andliberalization
ratio, andthereduction intariff rates, reflected thetwobroad-based policy initiatives which were
introducedin1993inthewakeofPresidentKimYoungSam'sinauguration.ThesepolicieswereKorea's
"New Five-Year Economy Plan" andSegyehwa (globalization). The"New Economy Plan" wasan
economic development mechanism toreduce government intervention intheeconomy infavour of
thecreative initiative oftheprivate sector. Segyehwa wasagrand policy initiative geared toward
bringing allofKorea 'sexisting socio-economic institutions intoconformity withinternational standards
andexpectations.
9. Thegoals ofKorea 'seconomic policy initiatives might besummarized asfollows: (a)balanced
tradeexpansion under theprinciple offreetrade; (b)greater efforts topromote industrial co-operation
withforeign countries inthecommodity, service andtechnology sectors; (c)strengthening ofthe
multilateral trading system; and(d)increased development co-operation andassistance totheless-
developed countries. Thespirit andtheprinciple oftheWTO Agreement would always govern Korea 's
efforts forachieving these goals. Korea would alsogobeyond itsWTO commitments, especially with
regard todevelopment co-operation efforts. Korea would share itsdevelopment experiences with
developing countries, transfer technology andknow-how forindustrialization, andexpand financial
assistance.WT/TPR/M/19
Page 4Trade Policy Review
(iii) Measures onasector-by-sector basis
10. Korea 's"New Economy Plan" andSegyehwa hadbeentranslated intosincere andtimely efforts
toimplement Korea 'sWTO obligations, interalia,byreforming relevant lawsandinstitutions. Korea 's
sectoral achievements since 1992included abroad range ofderegulation andliberalization measures.
Forexample, theCommittee fortheDeregulation ofEconomic Administration wasestablished inMarch
1993, andtheSpecial ActofDeregulation ofCorporate Activities wasenacted inJune1993.
11. In1993,theKoreanGovernmenthadintroducedathree-stagefinancialreformandcapitalmarket
liberalization plan. Aforeign-exchange reform planhadsubsequently beenintroduced in1994. These
plans included, interalia,theliberalization ofinterest ratesonmostloans anddeposits by1996, the
easing ofrestrictions onanumber offinancial instruments, measures tofacilitate foreign direct
investment, andthereduction oflimitation onportfolio investment. Todate,over90percentofthe
Korean financial sector hadbeenliberalized.
12. Foreign investment liberalization wasbeing pursued intheformofsimplified procedures and
enhanced transparency. Korea 'sFive-Year Foreign Direct Investment Liberalization Planhadbeen
introduced inJune1993, presenting aspecific timetable fortheliberalization ofinward FDI. Virtually
allbusiness areas would beopened toforeign direct investment byJanuary 2000, withtheexception
of14servicebusinesses,thusbringingKorea'sliberalizationratioinservicesto97.2percent.Restricted
sectors foroverseas direct investment hadbeenfullyliberalized byJune1996.
13. Theprotection ofIntellectual Property Rights (IPRs) inKorea hadbeenfurther strengthened.
In1995, Korea hadtaken necessary legislative actions incompliance withprovisions oftheTRIPs
Agreement. Korea 'sCopyright Act,Patent ActandTrademark Act,among others, hadbeenamended
asapartofsuchactions. Korea hadalsoacceded totheBernConvention fortheProtection ofLiterary
andArtistic Works earlier in1996.
14. Reform oftheagricultural sector remained adifficult taskinbothpolitical andpractical terms.
However, theGovernment hadtaken necessary legislative andadministrative measures inareas such
asmarket access, domestic support, andsanitary andphytosanitary inspection. Non-tariff measures
affecting some agricultural products werealsobeing eliminated orreplaced withnewWTO-consistent
measures. Forexample, tariff ratequotas (TRQs) hadbeenintroduced fortherelevant agricultural
products. In1995, theseTRQs werefilled atorabove Korea 'scommitment level. Furthermore, Korea
hadalready launched anambitious programme tostreamline itssanitary measures withaview to
harmonizingthemwiththerelevantinternationalprinciplesandstandards.Alltheseactionsandmeasures
hadbeencarried outinaccordance withKorea 'sobligations under theWTO Agreements andother
relevant international treaties.
15. Thepromotion offaircompetition wasahighpriority. TheGovernment hadstrengthened
itssurveillance oflargecompanies inorder toreduce competition-restricting practices. Forthispurpose,
theKorea FairTrade Commission (FTC) hadbeentransformed intoanindependent body, andupgraded
totheministerial level. TheMonopoly Regulation andFairTrade ActandtheFairSubcontract
Transactions Actwere alsobeing revised topromote faircompetition.
16. Korea wasasignatory totheWTO Agreement onGovernment Procurement. Necessary
legislative andother related actions would betaken bytheendof1996, inorder toimplement the
obligations under theAgreement.Republic ofKorea WT/TPR/M/19
Page 5
III. STATEMENT BYTHE FIRST DISCUSSANT
17. Thefirstdiscussant (Ambassador Armstrong) recalled thatduring theprevious Trade Policy
Review inJuly1992, Korea hadbeencomplimented forthesteps taken toliberalize itspolicies and
practices andforitsstrong commitment tothemultilateral system -despite remaining areas ofconcern
suchashighlevels ofsectoral assistance andinformal trade barriers. Since thatReview, henoted,
there hadbeenimportant policy developments, including those stemming from theUruguay Round.
18. ThecurrentKoreaneconomypresentedapictureofcontinuedsuccess,temperedwithshort-term
challenges. GDPgrowth for1996waspredicted at7.5percent,withinflation of4percent. According
todomestic commentators, Korea stood "atthejuncture ofasecond economic transformation intoa
mature andadvanced economy comparable toOECD member countries." Per-capita GDPwasprojected
torisefrom about US$10,000 in1995 toUS$18,000 by2000, withsubstantial sectoral shifts.
19. GDPforecastsfor1997byprivateresearchinstitutespresentedwhatsomesawasa"dullpicture"
of6.3-6.7percentgrowth, butthiswould compare favourably totheprevious business slowdown
in1992. Korea 'strade deficit hadincreased steadily since 1993, reaching US$10 billion in1995.
Strong export performance hadbeenmirrored byrapid import growth. With weaknesses emerging
inkeyexport sectors suchasmicrochips, however, thetrade andcurrent account deficits werepoints
ofshort-termconcern.TheSecretariatReportidentifiedtheexportpromotionmeasurestakeninresponse
tothissituation bytheGovernment inJune1996, butthese appeared tohavenoWTO implications.
Thediscussant wasalsopleased overtheGovernment 'sstatement thatthesituation would "notprovoke
animport backlash."
20. Theeconomic slowdown might highlight structural andsectoral aspects ofinterest toKorea 's
trading partners. The"Plan foraNewEconomy" emphasized theabolition ofunnecessary regulation
anddevelopment ofhigh-value andadvanced production -withexternal objectives suchasthepromotion
ofoutward investment andjointventures andthebuilding ofKorean brand identities -inorder toboost
exports andsoaddress thetrade andcurrent account problems.
21. Twomain sectoral aspects, bothofwhich hadimplications forKorea 'strade, were thecost
ofagricultural support and,intheindustrial sector, pressures forderegulation. Agriculture hadbeen
almost completely shielded from external developments, withthegapbetween domestic andworld
prices exceedingly highandshowing littlesignofdecline. Theneedforalonger-term, lessprotectionist
re-orientation offarmpolicies wasatheme raised prominently intheSecretariat Report.
22. Inindustry, developments suchasthe1996 OECD agreement onshipbuilding anddomestic
regulatorychangesintheautomobilesectorsuggestedthatcompetitivepressurewouldincrease.Domestic
deregulation wasneeded tocutcosts andremain competitive. IntheviewoftheKorean authorities,
support policies formachinery andother industries facing serious trade imbalances were within the
limits ofWTO disciplines. Nonetheless, members would continue totakecloseinterest ingovernment
support measures forbothindustry andagriculture. Comments would bewelcome, forexample, on
thestatus ofKorean subsidies notified earlier totheWTO. Thediscussant alsorequested details of
non-actionable subsidies, including the1995 Localization Scheme fortheCapital Goods Industry.
23. Since 1994, theguiding principle ofKorea 'strade policy hadbeenglobalization, including
reforms inawiderange ofareas. Inagriculture, theoutcome oftheUruguay Round negotiations had
notbeeneasily accepted. Nonetheless, tariffication hadbeenwidely applied while, inindustry, the
leveloftariff bindings increased from 10to90percent. Overall, thepaceofKorea 'sdevelopment
waswellreflected inthedecision toseekOECD membership. Atregional level, Korea hadbeenanWT/TPR/M/19
Page 6Trade Policy Review
active andconstructive participant inAPEC. Korea 'sGSTP concessions appeared limited, however,
andthediscussant wondered iftheauthorities envisaged changes.
24. Korea wastobecommended forrecent liberalization andderegulation inmany services sectors.
Insomeareassuchastelecommunications, however, itwasnotevident thattheliberalization programme
wouldbeambitiousenoughtoensuretheprovisionofinternationallycompetitiveservices.Thediscussant
advocated earlyefforts toincorporate reforms inKorea 'sGATS Schedule, notably infinancial services.
25. Thehorizontallimitationsimposedonforeigninvestmentandotherrestrictionsonforeignservice
suppliers wereanomalies. Heenquired howKorea planned toexpedite theprocess, already underway,
ofremoving many ofthese constraints. Within thetelecommunications sector, therehadinitially been
aprocess offirstpermitting newdomestic entrants, andthediscussant wondered ifthiswasageneralized
approach. Withregard toTrade-related Investment Measures (TRIMs), henoted thatthere hadbeen
nonotification byKorea todate.
26. Inthe1980s, Korea hadinitiated significant steps toprotect intellectual property rights, as
noted intheprevious Review. Korea hadsince become party totheBerne convention, butwasnot
yetparty totheRome Convention. Ithadalsorevised itslawsextensively, andtheauthorities had
indicated thatmostlegislative measures toimplement Uruguay Round obligations werealready inplace.
Every effort wasbeing made toliveuptodeveloped country requirements under theAgreement on
Trade-relatedIntellectualPropertyRights(TRIPS),althoughKoreahadnotyetnotifiedanimplementation
datetotheWTO. Thediscussant sought clarification oncertain bilateral undertakings thatKorea had
reportedly made inthisarea.Republic ofKorea WT/TPR/M/19
Page 7
IV. STATEMENT BYTHE SECOND DISCUSSANT
27. Thesecond discussant (Mr.Osakwe) tookashisstarting point Korea 'ssituation asadynamic
threshold economy, ontheverge oftransformation fromdeveloping country status toOECD accession.
Inthisregard, Korea 'sexperience wasofsignificant interest tobothdeveloping andindustrial market
economies. Thefollowing lessons could bedrawn: first,economic marginalization wassurmountable,
andcould beaddressed bycommitments totradeliberalization rather thanmedium orlong-term reliance
ontechnical assistance andaid;second, graduation waspossible fromdeveloping country toindustrial
market economy status; and,third, domestic efforts toeliminate traderestrictions should notbehalf-
hearted, andcountries should resist thetemptation torestrict andprotect.
28. Turning toanumber ofissues ingreater detail, thediscussant noted thatKorea 'sconsistent
trade liberalization included significant tariff reduction. Tariffs were bound across most items of
importance, including farmitems. Nonetheless, concern hadbeenexpressed ontheexclusion from
tariff bindings ofriceandriceproducts andofapproximately 10percentofindustrial tariff items,
notably "strategic" products suchasgasturbines, electric motors andcertain motor vehicles. Inaddition,
there wasadegree ofvariance between tariff rates, withapplied ratessubstantially lower thanbound
rates. Thissituation created uncertainty fortrading partners
29. Legislative provisions inKorea included "flexible tariffs," notcurrently recorded inthetariff
schedule, which could beapplied toimports. There wasapotential forarbitrary use,eventhough
some ofthetariffs hadnotbeenapplied todate. Inparticular, there wasconcern overtheuseof
"adjustment duties," involving changes within thescope oftheWTO tariff binding, toagricultural
andfisheries products, lightindustrial goods, etc.Thediscussant emphasized theneedtoclarify the
purpose, modalities, duration andcoverage ofthese duties.
30. Table AIV.1 oftheSecretariat report, featuring imports intoKorea under current andminimum
access commitments for1995, contained some blanks. Trading partners would beinterested inthe
filling ofthegapsforthesakeofprecision andcertainty; completion would alsohelpvisualize the
discrepancies between bound andapplied rates.
31. Arelated issue wascustoms clearance procedures andconcerns about thedelays involved.
Reforms entering intoeffect inJuly1996wereexpected toaddress theseconcerns, particularly inrespect
ofsanitary andphytosanitary inspections. Thediscussant encouraged theKorean delegation tomake
astrong statement, explicitly dispelling suspicions andproviding details ofthenewrégime. Regarding
sanitary andphytosanitary regulations, Korea hadproposed tocomplete theharmonization ofits
inspection systems withinternational standards andguidelines by2000; heasked whatstepshadbeen
taken tomeetthistarget date.
32. Significant liberalization hadtaken place intheareaoflicensing requirements. However, non-
automatic licensing would beretained foranumber ofproducts, 3,000 attheHS10-digit level, including
those which wereconsidered sensitive onthegrounds ofnational security, environmental conservation
andpublic health. Thediscussant wondered whether theitems subject tonon-automatic licensing would
bereviewed onaperiodic basis. Healsosought details onthe14items attheHS4-digit levelunder
export prohibition.
33. Inregard torulesoforigin andorigin markings, Korea applied a"marks oforigin" requirement
toimports 678items attheHS4-digit level, upbyabout 148items fromthe1992Trade Policy Review.
Therationale provided hinged essentially onconsumer protection. There wasserious concern, however,
thattheuse,andincrease, oforigin market requirements might prejudice theWTO 'sharmonizationWT/TPR/M/19
Page 8Trade Policy Review
programmeonnon-preferentialrulesoforigin.Atthistime,therewasaneedtoreassuretradingpartners
thatKorea would notputatriskthenational treatment principle.
34. Onsubsidies, thediscussant observed thatKorea hadnotified 26programmes under theWTO
Agreement onSubsidies andCountervailing Measures (anadditional 72non-actionable subsidies had
notbeennotified), andplanned tophase-out allprohibited subsidies bytheyear2002. Trading partners
were keenly interested inthesteps taken tomeet thetarget. Noting thatKorea didnotgrant direct
payments toindustry, offering instead taxbreaks andconcessional interest rates, thediscussant asked
whether therewerecriteria andguidelines governing thesemeasures. Clarification wasalsorequested
regarding policy-based lending, including specification oftheeconomic sectors concerned.
35. Korea wasoneoftheworld 'stoptentraders inservices andhadmade impressive gains, notably
inairtransport, construction, telecommunications andfinancial services. Concerns overmarket access
forforeignprovidersweresignificant,givenhorizontallimitationsacrossvirtuallyallsectorswithrespect
tocommercialpresenceandequityparticipation.Alargemeasureofprotectionwasaccordedviabarriers
totheparticipation offoreign investors inspecific transport, communications, financial andbusiness
services. Thediscussant urged Korea tobesensitive tothese concerns andofferfullinformation on
proposedfurtherliberalizationmoves,particularlyinregardtotelecommunicationsandfinancialservices.Republic ofKorea WT/TPR/M/19
Page 9
V. STATEMENTS BYMEMBERS
36. Participants commended Korea 'srapideconomic growth andtradeliberalization sincethe1992
Trade Policy Review, andexpressed appreciation forthereports prepared bytheSecretariat andthe
Korean Government.
37. Therepresentative ofAustralia saidthathercountry hadbeenastrong supporter ofKorea 's
liberalization andglobalization plans, including theapplication tojointheOECD byend-1996. She
welcomed Korea 'smore active rôleininternational policy formulation, particularly theconstructive
rôleplayed inAPEC andtheASEAN Regional Forum.
38. Korea wastobecommended forreducing government control oftheeconomy andestablishing
atrade régime withgenerally lowtariffs. However, many items oftrade significance forAustralia
continued tofacebarriers. Theaverage tariffforagricultural goods wasstillsome twoandahalftimes
thatforindustrial products, andpricegapsbetween domestic andworld markets wereextremely high.
Other problems included trade restrictive labelling, certification, testing andinspection regulations,
import licensing, onerous andnon-transparent foodstandards andquarantine requirements, andcertain
restrictive shelf-life measures.
39. While Australia welcomed theliberalization ofKorea 'sforeign investment régime, there was
aneedforfurther liberalization inareas subject topartial restrictions aftertheyear2000, including
parts ofthetransport, communications andfinancial services sectors. Australia looked forward to
theimplementation ofderegulation measures inthese sectors aswellasinprofessional services where
considerable market access barriers hadremained.
40. Therepresentative oftheEuropean Union stated thatthepolicies pursued inrecent years were
stepsintherightdirection, andencouraged Korea toproceed further andatafaster pace. While there
remained several areas ofconcern inKorea 'strade régime, heemphasized theneedtoensure the
continuation ofreforms towards amore predictable andopensystem. Announcing theexact modalities
ofregulatory changes sufficiently inadvance could helptominimize negative effects. Korea 's
"adjustment tariffs", withanannouncement period ofonly3-4days, wereacaseinpoint, particularly
asthegapbetween bound andapplied ratescreated permanent insecurity. Given Korea 'scontinued
recourse todeveloping country status, hestrongly encouraged theauthorities toassume alevel of
obligations commensurate withthestatus ofoneoftheworld 'sleading industrial nations.
41. Market access continued tobehindered bytariff andtaxstructures, tariff quotas, various
non-tariff measures andthelike. Such practices affected awide variety ofproducts, ranging from
alcoholic beverages toagricultural products ingeneral, cosmetics, pharmaceuticals, medical equipment
andmotor vehicles. Thesystem oftariff quota administration, often delegated toassociations
representing domestic interests, wasunsatisfactory. Other areas ofconcern included discriminations
inpublicprocurement,variousrestrictionsonforeigninvestment,regulatorybarriersinfinancialservices
andinadequate protection ofintellectual property.
42. Thesystem ofliquor taxation discriminated against imported spirits and,although Korea had
taken steps toreduce taxdifferentials inrecent years, more needed tobedone. Itwasstriking that
automobiles wereamong the10percentofindustrial products stillcarrying unbound tariffs. Despite
recent progress, access tomany markets washampered byspecial excise andlicensing taxes, which
werelevied athigher ratesinmany segments facing strong import competition, aswellasbyonerous
standards, inspection andapproval procedures. Korea, which hadbenefited somuch frominternational
trade foritseconomic vitality, boreaspecial responsibility forthefuture ofthemultilateral system.WT/TPR/M/19
Page 10Trade Policy Review
43. Therepresentative ofHong Kong expressed appreciation forKorea 'scommitment toreduce
tariff rates, increase tariff bindings and,thus,enhance predictability. Inregard toadjustment duties,
hestrongly recommended longer notification periods inorder toeasedifficulties forforeign traders.
44. TherepresentativewaspleasedthatKoreaintendedtoeliminateautomaticlicensingrequirements
formostimports, converting toa"negative" system by1997. Noting thatimports ofsilkfabrics and
waste from Hong Kong were subject toa"recommendation" from theKorea Export Association of
Textiles, withrestrictive effects, hewelcomed thattheseproducts would beliberalized gradually from
1997. Concerning anti-dumping legislation, therepresentative appreciated thatKorea hadtaken into
account some oftherecommendations made byWTO Members andrevised itsdomestic legislation.
45. Therepresentative ofCanada congratulated Korea onitscommitment totrade liberalization
and,inparticular, itsaccession totheWTO Agreement onGovernment Procurement. Hewelcomed
therecent changes totheCustoms Acttostreamline customs clearance procedures. Noting Korea 's
effortstodiversifyitseconomicbaseandcreatenewopportunitiesforsmallandmedium-sizedenterprises
(SMEs), therepresentative enquired about anyspecial import orexport procedures related toeither
thesizeofacompany orthevalue ofgoods.
46. Onagriculture, therepresentative noted thatKorea hadeliminated agreatnumber ofquantitative
import restrictions. However, thenon-automatic licensing forbeefandcattle would bemaintained
until2001, andthetariff ratequota forfood-quality soybeans continued tobemanaged through a
tendering system which wasbased largely onprice. With respect tointellectual property rights, he
sought information ontheborder enforcement measures inplace.
47. Therepresentative ofNewZealand acknowledged theprogress thatKorea hadmade inbringing
itstrading régime intoconformity withinternational standards, although there remained scope for
improvement. Animportant outcome oftheUruguay Round wasKorea 'sdecision tobindtariffs on
mostproducts, particularly agricultural items. However, NewZealand would nonetheless welcome
lower bound ratesintheagricultural sector.
48. Tariff bindings andaschedule forliberalization ofremaining balance-of-payments measures
hadenhanced transparency. However, these positive effects tended tobeundermined bytheselective
useoftariff adjustments onasix-month basis, together withother safeguard measures employed as
ameans ofmarket stabilization. Thishadbeenespecially thecaseforsuchunbound items asfish
products. During themostrecent round oftariff adjustments, announced inJune1996, theratefor
anumber ofseafood items hadbeenincreased from10percenttobetween 30-100 percent,running
counter tothegeneral direction ofKorea 'stariff policy.
49. According totheSecretariat Report, Korea hadrecently contemplated theuseofsafeguard
measures, forexample inthecontext ofaninvestigation onimports ofmilkpowders. NewZealand
wasconcerned about theadoption ofsuchrestrictive measures inrespect ofproducts thathadbeen
liberalized pursuant tobalance-of-payment andUruguay Round commitments. Inregard tothe
continuation ofveryhighdomestic prices intheagricultural sector, NewZealand wellunderstood the
political constraints ofmanaging thetransition from adomestic market insulated from world prices,
however, thisprocess hadtobeallowed toproceed.
50. Therepresentative alsoexpressed concern overKorea 'sapproach ofadministering tariffquotas
andthecentral rôleofstatetrading enterprises inthiscontext. Structural inefficiencies intheagricultural
sector rantheriskofbeing exacerbated unless amore neutral quota administration system wasadopted.
Heacknowledged theefforts thatKorea hadmade toalign itsregulatory régime withinternationallyRepublic ofKorea WT/TPR/M/19
Page 11
accepted standards andpractices through thereform ofitssanitary andphytosanitary (SPS) system.
Although thenewproducer-mandated system ofshelf-life indications hadnotbeenwithout difficulties,
heurged Korea tocomplete itsintroduction quickly, since there appeared tobenotechnical grounds
tojustify theremaining government restrictions.
51. Revision ofthePlantProtection Actwasapositive development, butsignificant work remained
tobedone, especially intheareaofpestriskanalysis. NewZealand wasworried about atendency
toaccord some ofthemore politically sensitive products, suchasapples, alowpriority inthebacklog
ofSPSaccess requests. Asaresult, there wasaneffective banonimports ofapples andother fruit,
which hadbeen theoretically liberalized in1995. Concern remained overthecontinuing lackof
transparency insome areas. Forexample, thelisting ofdeer-processing premises hadproved toinvolve
anunreasonably resource-intensive andnon-transparent process. Oninvestment, NewZealand agreed
withtheSecretariat 'sassessment thatcertain sectors oftheservices industry would benefit fromgreater
liberalization.
52. Therepresentative ofSwitzerland stated thatKorea hadremained among themostsuccessful
countries commercially andwasafaithful participant inthemultilateral trading system, setting an
excellent example inmany respects. However, Korea 'smarket access commitments weresomewhat
disappointing; while thebinding levelonindustrial products hadincreased to90percent,onlyabout
4percentofimports entered duty-free. Asubstantial share ofKorea 'sindustrial imports didnotyet
benefit fromthepredictability ensured bybound rates. Regarding adjustment duties, therepresentative
noted thatmany hadbeenineffect almost continuously since 1992. Inhisview, thisconstituted a
violation oftheStandstill Agreement oftheUruguay Round, andheurged Korea toabolish theduties
inthenearfuture.
53. AsKorea hadclaimed developing country status under theTRIPS Agreement, the20-year patent
protection under thenewPatent Law, effect from July1996, could notbeextended retroactively for
patents expiring between January andJune1996. Atthesame time, Korea ranked among theworld 's
topfivecountries interms ofapplication forindustrial property rights.
54. Therepresentative observed thatKorea hadpromised toreview thesystem ofmarks oforigin
requirements inthecontext ofitsOECD accession, andasked foradditional details. Inregard toKorea 's
expandingcurrentaccountdeficit,hesoughtfurtherinformationonanymeasuresenvisagedandexpressed
thehope thatthese would notrestrict imports orprovide more favourable treatment todomestic
producers. Onstandards, Switzerland hadalready expressed concerns onprevious occasions, and
therefore welcomed therevision ofcertain type-approval procedures. Concerning the1992Five-Year
PlanforLocalization ofMachinery, Parts andMaterials, which therepresentative hoped wasinfull
WTO conformity, heasked forcomments ontheimplementation todateandanyfurther initiatives.
55. Therepresentative ofJapan welcomed thedirection taken inliberalizing theKorean economic
andtraderégime, noting thattariffs hadbeensubstantially reduced andquantitative restrictions abolished
across virtually allsectors. Hecommended deregulation measures andother efforts toreduce thelevel
ofState control, particularly inregard tothegradual liberalization offoreign direct investment and
elimination in1997ofrestrictions onforeign-affiliated general trading companies. Appreciation was
alsoexpressed forKorea 'scontributions within APEC.
56. Japan hadsubmitted inwriting alarge number ofspecific enquiries, mostly ofatechnical or
detailed nature. Ofparticular importance wasthequestion ofwhether, other thaninagriculture, Korea
would accept itsWTO obligations from theperspective ofanindustrialized country. Regarding theWT/TPR/M/19
Page 12Trade Policy Review
Import Diversification Programme, therepresentative asked ifaconcrete schedule hadbeenestablished
fortheplanned phase-out byend-1999.
57. Therepresentative oftheUnited States recognized theprogress Korea hadmade inadapting
itspractices andprocedures tothose called forbytheWTO Agreements. Economic growth andtrade
expansion withtheworld, especially Asia, certainly demonstrated thebenefits thatcould begained
from trade liberalization.
58. However, theUnited States wasconcerned about serious andsubstantive problems flowing
largely from Korea 'sfailure toimplement various WTO Agreements inthespirit inwhich theyhad
beennegotiated. Excessive government regulation andbroad administrative haddiscretion resulted
incostly bureaucratic processes andarbitrary treatment ofindividual firms, bothforeign anddomestic.
Therepresentative urged Korea tochange thesituation withallpossible speed.
59. Although Korea hadmoved intotheranks ofthedeveloped countries, itcontinued tobenefit
fromextended WTO implementation periods fordeveloping countries andmaintained arange ofimport
restraints forbalance-of-payments reasons. Hecalled onKorea tovoluntarily accelerate the
implementation oftariffcommitments andtheelimination ofsubsidies, asithaddoneforTRIPS-related
commitments. Similarly, Korea wasurged toeliminate thepolicy biasagainst theintroduction and
consumption ofimported goods andservices. While theSecretariat Report wasfairly straight-forward
initsdescription ofthepresent environment, there were many areas inwhich itdidnotadequately
explain thetreatment accorded toimports. Customs clearance procedures, shelf-life requirements,
testing andinspection procedures, discriminatory taxes, administration oftariff quotas andimport
prohibitions wereamong theareas causing persistent, pervasive problems. TheUnited States looked
forward toworking withKorea inthisandother forainaneffort toimprove thesituation.
60. Therepresentative oftheCzech Republic saidthatKorea wasanattractive example ofacountry
whose steady economic growth benefited frommassive restructuring incoremanufacturing industries,
ofwhich themotor industry deserved particular attention.
61. Given theimportance offoreign direct investment, heenquired about additional measures to
liberalize inward investment. Henoted thatCzech exporters hadfaced certain difficulties inestablishing
representative offices inKorea andsought more information onKorean policies toexpand trade and
investment withcountries intransition. Noting thattheCzech Republic wasgranting GSPbenefits
togoods originating fromKorea, hewondered about Korea 'spolicy ondeveloping country status and
theeffects ofOECD accession inthisregard.
62. Therepresentative ofPakistan expressed hisadmiration forKorea 'sextraordinary economic
growth anddevelopment which hadbeenachieved despite limited natural resources. Thiswasatribute
totheGovernment 'seconomic management andtheprivate sector 'soutstanding contribution. Recent
economic andstructural changes inKorea, including thesubstantial expansion oftheSocial Overhead
Capital Programme, were indicative ofthecountry 'sfar-sighted development strategy.
63. TherepresentativeofThailand,speakingonbehalfoftheASEANcountries,notedtheimportance
ofpolitical co-operation withKorea inbothmultilateral andbilateral foratofurther strengthen trade
relations.
64. ExpressingconcernaboutKorea'suseofsanitaryandphytosanitarystandards,therepresentative
referred toabanoncertain fruitimports which wasallegedly intended toprevent theintroduction of
theoriental fruitfly.Korea hadnotprovided themeans forcomplying withsuchregulations, forRepublic ofKorea WT/TPR/M/19
Page 13
example, byacting onproposals foruseofvapour heattreatment. Thiscould beinterpreted asusing
SPSdisciplines forprotectionist purposes, rather thanforbonafide phytosanitary objectives. Inaddition,
despitemeasuresintroducedtofacilitatefoodimports,remainingquarantinerequirementsandprocedures
stillaffected thequality andmarketability ofimported fresh fruit, suchasbananas andpineapples,
aswellasmarine products suchasshrimp andprawns.
65. Korea 'smarks oforigin system required thatproducts hadatleast35percentlocalcontent.
ASEAN didnotseehowthissystem contributed toconsumer protection; forexample, whythelocal
content ofproducts such asfloppy diskdrives benefited Korean consumers. Under theImport
Diversification Programme, additional requirements hadbeenapplied toproducts withJapanese origin.
Products suchasricecookers, air-conditioning units, electrical transformers andintegrated circuits
manufactured inASEAN countries withJapanese parts andcomponents hadbeenaffected, andthe
Programme itself could beseenasaprotectionist measure.
66. Therepresentative ofIceland saidthatfewcountries, ifany,hadshared therapid economic
development ofKorea overthepastdecades. Trade liberalization andderegulation, which gained solid
momentum inthe1980s, hadremained atthecoreofKorea 'strade policy. Korea haddisplayed a
firmcommitment tothemultilateral trading system during theUruguay Round, andcontinued todo
sointheWTO.
67. Quantitative restriction onfisheries products, maintained forbalance-of-payment reasons,
represented themain stumbling block forIceland 'sexports toKorea. Therepresentative welcomed
thatremaining restrictions were tobelifted byJuly1997, andasked Korea toconfirm thatimports
offisheries products would onlybesubject totariffs from thatdate. Itwasdisappointing thata
significant number oftarifflinesinthefisheries sector remained unbound, andthattheUruguay Round
negotiations hadnotresulted inreductions inapplied rates. Iceland would welcome information on
anyplans tolower applied tariffs inthefisheries sector inthenearfuture.
68. Therepresentative ofIndia appreciated Korea 'stremendous economic progress since thefirst
Trade Policy Review in1992. Thiswasofsignificance notonlyforKorea, butalsofortheregion,
theAsian continent andthegrowth oftheglobal economy.
69. Observing thatKorea continued tomaintain quantitative restrictions onbalance-of-payment
grounds, heenquired about Korea 'sexperience withthephased elimination ofthese restrictions and,
especially, withtheuseoftariffs toregulate imports earlier covered byquotas. Healsoexpressed
interest ingovernment policies towards SMEs, including taxincentives, export financing andmeasures
tofacilitate technological transfer.
70. Therepresentative sought information onanygovernment controls overtheflowofinward
FDItodifferent regions orsectors andonlong-term policies toencourage investment outflows, given
theinterest ofKorean enterprises innewmanufacturing bases andcheaper labour abroad. Reference
wasmade tothebilateral understanding between Korea andtheEuropean Communities concerning
swifter implementation oftheTRIPS Agreement, with therepresentative wondering about the
consequencesforKorea'soverallimplementationoftheAgreement.HealsoexpressedinterestinKorea's
assessment ofregional arrangements suchasAPEC.
71. Therepresentative ofHungary saidthatKorea 'sperformance highlighted themerits ofan
outward-oriented development strategy andtheimportant rôleofforeign market access, especially for
small countries withpoorresource endowments. Economic growth inKorea wasfuelled notonlyby
exports, butbyimport expansion aswell, withthelatter contributing toefficient resource allocation.WT/TPR/M/19
Page 14Trade Policy Review
Stronger awareness ofthese beneficial effects would alsoleadtotheopening upofthose partsofthe
economy which hadsofarbeenprotected from foreign competition. Therepresentative noted that,
accordingtotheGovernmentReport,KoreaseemedtofearthattheprocessofexpandingEuropeanUnion
membership toEastern Europe resulted innon-tariff barriers, andasked forclarification.
72. Therepresentative ofArgentina praised Korea 'sgrowth performance andtrade liberalization
sincetheprevious Review. Henoted, however, thatvastsectors oftheeconomy hadremained protected,
notably agriculture andfisheries. Additional information wasrequested inregard totheoperation of
retaliatory duties, theuseofimport suspensions andrelated measures inconnection withsafeguard
actions, thedateforfullimplementation oftheSPSAgreement, thefunctioning ofKorea 'slocalization
schemes, theeconomic means testrequired forparticipation inwholesale foreign tradeand,inKorea 's
GATS Schedule, thelimitations imposed onthemovement ofnatural persons.
73. Therepresentative ofPerusaidthat,owing toitstrade policies, Korea hadbecome oneofthe
mostimportant trading partners among developing countries. Heasked foradditional information on
Korea 'splans forincreasing development assistance, theeffect oftheWTO Agreements onGSP
arrangements, government assistance toSME exports, andanyco-ordination between thegovernment
andlarge companies inregard tooutward FDI.Republic ofKorea WT/TPR/M/19
Page 15
VI. REPLIES BYTHE REPRESENTATIVE OFKOREA AND ADDITIONAL COMMENTS
74. Thereplies bytherepresentative ofKorea weredivided intofourbroad themes: (i)macro-
economic developments andtheimplications ofrapid economic expansion; (ii)policies related totariff
andnon-tariff measures; (iii)TRIPS, TRIMs, industrial andcompetition policy issues; and(iv)sectoral
issues. Following thereplies, theChairperson opened thefloortoTPRB members forfurther comments
andquestions.
(i)Macro-economic developments andtheimplications ofrapid economic expansion
75. Therepresentative ofKorea saidthat,following Korea 'sfirstTrade Policy Review in1992,
thegrowth ratedropped offsubstantially from the9percentlevelof1990 and1991 to5.1percent
in1992 and5.8percentin1993. Torestore economic dynamism, the"Five-Year PlanfortheNew
Economy" wasdrafted, focusing onmarket opening andderegulation. Korea subsequently returned
tohigher growth rates, reaching 8.6percentin1994 and9.3percentin1995. AshadbeenKorea 's
previous experience, theprimary factor behind renewed growth wasinternational trade.
76. Korea hadactively participated intheUruguay Round negotiations, overcoming considerable
difficulties posed bytheopening oftheagricultural sector. Increased trade through consistent market
opening, liberalization andderegulation wereattherootoftherapidrecovery. These positive economic
developments hadbeenovershadowed, however, byKorea 'scurrent account imbalance. Government
efforts tocontrol thecurrent account deficit focused onmedium andlong-term measures toenhance
thegrowth potential asopposed toshort-term price-distorting solutions.
77. Expansionofsocialoverheadcapital,educationalreform,R&Dassistance,andincreasedexposure
ofthefinancial sector toforeign anddomestic competition werefundamental tostrengthening Korea 's
competitiveness. Inward andoutward foreign direct investment were promoted. New financial
instrumentsandtaxincentiveswerecreatedtoincreasenationalsavings,stabilizepricelevelsandimprove
thecurrent account deficit. TheKorean Government would notresort toorpromote "anti-import"
campaigns orimport-discriminating austerity policies.
78. Korea wasactively participating inmultilateral organizations. Thisparticipation wascrucial
asKorea'stransactionswiththeworldeconomywoulddeterminefuturegrowthandprosperity.Although
ithadparticipated intheUruguay Round negotiations asadeveloping country andelected toretain
thisstatus intheimplementation process inconsideration ofitseconomic andpolitical environment,
Korea wasmaking utmost efforts toexpedite implementation. Bytheendof1995, Korea hadcompleted
theenactment andrevision ofalllegislation necessary toreflect theTRIPS Agreement. Although not
allthelawswereputintoforce bythetimedeveloped countries wererequired todoso,mostofthe
important lawsrelated toTRIPS werenowineffect, wellahead oftheschedule designated fordeveloping
countries. Under theAgreement onSubsidies andCountervailing Measures, Korea would abolish all
oftheprohibited subsidies notified totheWTO bytheendof1998, onlyoneyearbehind theallowable
grace period fordeveloped countries.
79. Korea hadactively affiliated itselfwithAPEC andwasstrongly committed tothetenetofopen
regionalism. Korea alsoexpected tobeinvited tojointheOECD soon; however, itdidnotbelieve
thataccession automatically carried thestatus ofafullydeveloped OECD member. Accession tothe
OECD wasregarded asastarting point forreinforced efforts forliberalization andderegulation of
theeconomy.WT/TPR/M/19
Page 16Trade Policy Review
80. Thefirstdiscussant emphasized thatKorea 'slesson from theprevious economic slowdown
wastheneedtomaintain long-term competitiveness through market-opening andderegulation. Current
official measures focused onmedium- andlong-term initiatives and,according totheGovernment,
hadnoanti-import bias. Hehoped thatGovernment would alsouseitsinfluence todiscourage any
anti-import campaigns attheprivate level. Inregard todeveloping-country status, Korea would need
toactinamanner commensurate withitslevelofgrowth andeconomic development.
81. TheseconddiscussantpointedoutthatKorea'sreactionstoslowdownwouldserveasanexample
todeveloping countries asawhole andwerelikely tobeemulated. Therefore, Korea should "bind"
itself tostricter compliance withmultilateral trading disciplines.
82. Therepresentative oftheUnited States saidthat,asthecriteria fordeveloping country status
hadbeenexceeded byKorea years ago,theGovernment should faceuptodomestic resistance inthis
regard.
83. Therepresentative oftheEuropean Communities saidthatKorea should consider further efforts
tocurbanti-import campaigns byprivate organizations andasked about anymeasures inthiscontext.
84. Therepresentative ofKorea expressed theexpectation that,interms ofdeveloping-country
status, hiscountry would notseeksuchstatus infuture WTO negotiations except inagriculture and
environmentalsectors.Theanti-importcampaignsbyprivateorganizationswereinsignificantinstatistical
terms; theGovernment wasinstead focusing itsattention onenhancing theinternational competitiveness
ofKorea 'seconomy bytaking appropriate structural measures tolower thehighcostinproduction
factor markets.
(ii) Policies related totariff andnon-tariff measures
General policy orientation
85. Therepresentative ofKorea saidthat, since themid-1980s, Korea hadpursued market
liberalization toimprove domestic industrial competitiveness, maintain harmonious traderelations with
trading partners andperform ofitsrôleasamember oftheinternational community. During the
Uruguay Round negotiations Korea actively participated ininternational tariffconsultations. Asaresult,
thenumber ofconcessionary tariffs reached 9,580 outof10,502 items (HS10-digit basein1995),
andtheaverage concessionary tariff rateformanufactured products wasreduced to8.2percent.
86. TheImport Diversification Programme wasfirstintroduced in1978torelieve thechronic and
structural trade imbalance withJapan andreduce Korea 'sexcessive reliance intheareaoftrade and
industry. Korea hadnever recorded atrade surplus withJapan inthepastthirty-five years, andin
1995thebilateral trade deficit amounted tooneandhalftimes thetotaltradedeficit. TheProgramme
wasprimarily aimed toshiftKorean companies 'out-sourcing toother foreign countries, inorder to
promote ageographically balanced import structure. Recently, Korea decided toabolish theProgramme
bytheendof1999, although thedeficit withJapan continued toincrease; thenumber ofitems under
theProgramme would bephased outonasemi-annual basis. There wasnolinkbetween rulesoforigin
andtheProgramme.
87. Theframework ofKorea 'srules oforigin wasbased ontwocriteria. Onewasthechange
oftariffheadings intheproduction process, while theother relied onvalue-added. Toreflect theresults
ofongoing workoftheWorld Customs Organization (WCO) andtosimplify theoperation ofthesystem,Republic ofKorea WT/TPR/M/19
Page 17
Korea reduced thenumber ofproducts subject tovalue-added criteria from 49to39atHS10-digit
level. Korea would continue torevise itssystem inaccordance withWCO harmonization efforts.
88. Under the"Five-Year PlanforLocalization ofMachinery, Parts andMaterials", implemented
inJanuary 1992, theGovernment hadprovided indirect assistance fordevelopment ofprototypes of
newproducts, introduction ofnewtechnologies onproduction lines, andcollection oftechnology-related
information. Korea hadintegrated thePlanintothe"Localization Scheme fortheCapital Goods
Industry" inMay1995. ThenewScheme focused onincentives interms ofraising demand, improving
theR&D climate, andattracting foreign investment, rather thanassistance inactual production.
89. Animport recommendation wasrequired for81items. Mostwereagricultural products, except
forthree saltcategories, oneanthracite product andfoursilkitems. Private associations hadbeen
mandatedtoissueimportrecommendationsbecausetheyhadspecialknowledgeoftheitems.Toincrease
transparency, theGovernment periodically audited theadministration ofthesystem. Allitems, except
8cattle andbeefcategories, would beliberalized in1997. These latter items would beliberalized
without anyrestriction from2001. Import recommendations weremaintained inthecaseofsilkfabric
until1997 because domestic producers needed acertain period toadjust toimport liberalization.
90. Anti-dumping duties were imposed bytheMinister ofFinance andEconomy. Thiswas
contingent onadetermination bytheKorean Trade Commission thataforeign product wassoldin
thedomestic market ataprice lower thannormal value, andthatadomestic industry wasmaterially
injured orthattheestablishment ofanindustry wasmaterially retarded. On31December 1993, the
CustomsActhadbeenamendedtomoreeasilyincorporatetheresultsoftheUruguayRoundnegotiations.
On31December 1994, thePresidential Decree andEnforcement Regulations oftheCustoms Acthad
beenchanged toimplement theWTO Anti-dumping Agreement. InDecember 1995, Korea hadrevised
theCustomsActandEnforcementDecreetoimproveitsanti-dumpingsystembasedonrecommendations
oftheWTO Anti-dumping Committee. Quantitative restrictions were notapermissible form of
undertakings under therevised Presidential Decree which wasputintoforce inJuly1996.
91. TheKorean Government believed thatsafeguard mechanisms werenecessary notonlytoprevent
serious injury todomestic industries, butalsotoestablish anenvironment conducive toliberalization.
TheGovernment wasfullycommitted totheimplementation ofsafeguard mechanisms inatransparent
andWTO-consistent manner. Toreflect theresults oftheUruguay Round, theForeign Trade Act
anditsPresidential Decree hadbeenamended inDecember 1994andJuly1995. InNovember 1995,
theWTO Committee onSafeguards hadreviewed theconsistency oftheKorean safeguard mechanisms.
Toreflect theoutcome ofthisreview, theKorean Government hadamended theCustoms Actin
December 1995, andarevision oftheForeign Trade Actwastobecompleted bytheendof1996.
92. Since 1992, therehadbeenseven petitions fortheapplication ofsafeguard mechanisms; four
ofthese hadbeenlaterwithdrawn, onehadreceived anegative decision andtwoaffirmative rulings.
Regarding milkpowder, theproducts concerned hadbeenliberalized during theperiod January 1993
toJanuary 1995. Thepetition forinvestigation hadbeenfiledinMay1996 andapublic hearing had
been heldon20August 1996. Safeguard measures would beenforced through transparent legal
procedures thatwere consistent withtheWTO framework.
93. Korea hadabandoned itspolicy oftargeting specific industries in1985, theyeartheIndustrial
Development Lawwasadopted. Present government programmes could bebroadly categorized as
assistance fortechnological andhuman capital development, development ofdisadvantaged regions,
andinvestments forenvironmental preservation. Korea operated these programs objectively, withas
much transparency aspossible. In1995, theGovernment hadabolished aspecial depreciation clauseWT/TPR/M/19
Page 18Trade Policy Review
aswellasatemporary taxdeduction fornewinvestment inaneffort tobring thelevelofsupport into
conformity withOECD guidelines. Atypical programme fortechnology development wastheHighly
Advanced National Programme; itwastargeted notatspecific sectors, butatcritical technologies
ofthefuture.
94. Theshare ofpolicy-based lending, asstated intheSecretariat Report, tended tobeoverestimated
because alarge proportion wasextended byspecial banks andconsisted ofgeneral loans, overdrafts,
loans onmutual instalments, etc.These were not,strictly speaking, policy-based operations. In
particular, therewasnopolicy-based lending forinvestments inshipbuilding capacity. TheGovernment
hadnever given direct public assistance orfinancing guarantees forconstruction ofnewvessels. Foreign
financing waslimited tohelpmaintain anoptimum money supply andensure price stabilization.
95. Small andmedium-sized businesses inKorea accounted forsome 69percent ofemployment,
48percentoftotalproduction, and42percentofexports. Thepopulation directly orindirectly related
toSMEs wasestimated at26million; thedifficulties facing SMEs werethusrecognized associally
andpolitically important. Currently, SMEs suffered from problems suchashighlabour costs, high
interest ratesandlabour shortages. Inthiscontext, therôleoftheGovernment centred onrestructuring,
forexample,throughgivingadviceonbusinessactivities,financialmatters,markettrendsandtechnology
development.
96. Thefirstdiscussant appreciated there-affirmation ofKorea 'soutward orientation. Noting that
thesubsidies notified byKorea would bebrought intoWTO conformity, heenquired about thenon-
actionable subsidies which hadnotbeennotified. Hefeltthatthepractice ofallowing private associations
togiveimport recommendations could havetrade restrictive implications.
97. Thesecond discussant advocated early elimination oftheImport Diversification Scheme in
order toreduce trade frictions. Atthesame time, trading partners should havesome understanding
fortheKorean situation. Concerning rulesoforigin, Korea needed toconsider thepotential fortrade
disputes assome trading partners didnotaccept value-added criteria. Import recommendations should
bephased out.
98. Therepresentative ofArgentina asked fordetails ofthelocalization scheme involving
105designated products andqueried whether Korea 'ssafeguard system included thepossibility of
adjustment talksbetween exporters anddomestic producers.
99. Therepresentative ofAustralia sought information onhowKorea waspreparing itsbeefmarkets
forliberalization in2001.
100. TherepresentativeofNewZealandwonderedabouttheWTObasisfortheImportDiversification
Scheme. Concerning beef,heasked whether tariffs would betheonlyaccess barriers afterliberalization.
Onsafeguards, hewelcomed Korea 'sassurance ofWTO conformity butwarned against extensive use.
101. Therepresentative ofJapan welcomed Korea 'sdecision toeliminate theImport Diversification
Programme by1999, andexpressed hopeforanevenearlier elimination. Healsostressed thatitmade
noeconomic sense toartificially attempt tobalance tradeflows, which reflected thedemand forcapital
goods helping todevelop theKorean economy. Therepresentative tooknoteofthestatement thatthere
wasnolinkbetween theImport Diversification Programme andKorea 'srulesoforigin. Korea 'simport
restrictions onusedgoods were difficult tojustify.Republic ofKorea WT/TPR/M/19
Page 19
102. Therepresentative oftheEuropean Communities alsowelcomed thattheImport Diversification
Programme would beeliminated, including inregard toJapanese parts usedinautomobile exported
bytheEC.DrawingattentiontoKorea'sbalancedapproachtotrade,heenquiredifthisimpliedmanaged
trade. Theinitiation ofasafeguard investigation ondairy products wasamatter ofconcern. Regarding
SMEs, hewassurprised thathighdomestic interest rates were stillcited asaproblem; financial
liberalization wasneeded inthiscase.
103. Therepresentative ofKorea replied thatKorea hadnotified onlysector-specific subsidies.
Export credits forSMEs werenotpreferential credits, buthadbeenextended bytheKorean EX-IM
Bank incompliance withOECD guidelines. Import recommendations were nowbeing dismantled.
Korea would fullycomply withWTO requirements forrulesoforigin; itwould bedifficult, however,
tosuspend measures before guidelines hadbeenagreed.
104. TheImport Diversification Programme wastobephased out; the105items referred toby
some delegations belonged totheCapital Goods Industry Promotion Programmes. Thesafeguard
procedures mentioned byArgentina would beeliminated through revision oftheForeign Trade Act.
Tariffs andSPSrequirements would ultimately betheonlymeasures applied tobeefimports when
theyarefullyliberalized in2001. Anysafeguards procedures would beinfullWTO conformity.
105. Onrules oforigin, therepresentative confirmed thatthere wasnolinkwiththeImport
Diversification Programme, andtherewerenointentions touseorigin rulestoreinforce theProgramme.
From thesecond halfof1997, import recommendations would apply onlytoeightitems. Most current
recommendations wereenvironment-related. While themarket forunguaranteed bonds forSMEs was
tobeopened in1996, theguaranteed bond market forlarge firms would beopened atalaterstage.
Tariffs
106. Therepresentative ofKorea stressed thatKorea hadmade asubstantial contribution tothe
UruguayRoundnegotiations.Withanaveragetariffreductionof54.2percentonatrade-valueweighted
basis -significantly higher thanthe33percentminimum reduction rateagreed upon during the
Uruguay Round -Korea 'saverage concessionary rateformanufactured products would decrease from
17.9percentin1986 to8.2percentbytheyear2004.
107. Korea 'sbound tariffrateswereinmostcases higher thanthose currently applied. Thereason
wasnotthatthereduction ofKorea 'sbound tariffs hadbeeninsufficient, butthatapplied tariffs had
beencutmore strongly. NotonlyhadKorea actively participated intheUruguay Round, ithadalso
implemented avoluntary tariff reduction planfrom 1989 to1994. Asaresult, theaverage applied
tariff rate(general tariff rate)hadfallen by60.3percentto7.9percentin1994. General tariff rates
for1995 and1996 werevirtually identical tothe1994 ratesand,atpresent, Korea hadnoplans for
revision.
108. Factors influencing thebinding oftarifflinesincluded thelevelofdevelopment ofanindustry
andthetariff ratestobebound. Korea would implement theWTO zero-for-zero initiative according
toitstariffconcession schedule, withtheratesfor28HS4-digit items, including electronic integrated
circuits, micro-assemblies andcranes, tobereduced tozeroby1999. Korea hadalsoharmonized
itstariff levels forchemical products.
109. Topromptly respond tochanges intheeconomic environment, Korea employed asystem of
flexible tariffs onspecific goods within thescope andlimitation oftheCustoms Act. Among the
10forms offlexible duties, however, countervailing duties, retaliatory duties andseasonal duties hadWT/TPR/M/19
Page 20Trade Policy Review
never beenimposed. Anti-dumping duties, emergency duties andspecial emergency duties werebased
ontherelevant WTO Agreements. Adjustment Duties could beimposed within thelimits of
Uruguay Round concessionary ratesifimport increases forspecific goods might destroy orotherwise
disturb thedomestic market.
110. Adjustment duties werenowemployed onasix-month basis, asopposed totheannual changes
applied prior to1995. Ingeneral, information ontheadjustment duties wasmade publicly known
onemonth prior totheofficial announcement. Itwasdesirable tolevytheadjustment duties overone
period; however, theperiod could beextended when thepurpose oftheduties wasnotfulfilled. In
these cases, thedutyrateswere lowered gradually.
111. Following theamendment oftheCustoms Act,effect July1996, thecustoms authorities could
impose anemergency dutyaccording totheWTO Agreement onSafeguards ifanincrease inthe
importation ofaspecified good caused orcould cause serious injury toadomestic industry which
produced similar orcompetitive goods. Before therevision, emergency duties could beimposed at
arateequivalent tothedifference between domestic andforeign prices. Since June1993, suchduties
hadnotbeenapplied. Their introduction would becontingent onaninvestigation andadecision by
theKorean Trade Commission identifying serious injury tothedomestic industry.
112. Korea 'sautonomous tariff quotas were designed tostabilize domestic commodity markets.
Under thecurrent system, customs duties could beadjusted foracertain quantity ofimported goods
within thelimits ofthegeneral rate,plusorminus 40percent. However, foragricultural, forestry,
marine andlivestock products, customs duties could reach alevelcalculated byadding tothegeneral
ratearatecorresponding tothedifferential between domestic andforeign prices ofthesameorsubstitute
goods. AsofDecember 1995, there were46items withcustoms duties lower thanthegeneral rates.
Thesoleitemwitharatehigher thanthegeneral ratewasbananas.
113. Ifaforeign country 'stradepractices infringed onKorea 'stradeinterests, i.e.through denying
therights accorded byinternational agreements, orwhere acountry tookunreasonable ordiscriminatory
measures, aretaliatory dutycould beimposed. Theratewould correspond tothelevel ofdamage
caused. Retaliatory duties weretobeintroduced byPresidential Decree, butnonehadbeenapplied
todate.
114. Korea employed itsTariff Reduction andExemption System inalimited number ofcases when
itwasdifficult toapply general ratesforthepurpose ofindustrial policy, socio-cultural objectives,
etc.Since 1992, there hadbasically beennochanges inthesystem. Korea planned torefocus the
system fromindustrial assistance toresearch anddevelopment, prevention ofenvironmental pollution,
etc.Asof1996, tariffreductions forspecific industries applied onlytorepair partsforairplanes, and
weretobeeliminated bytheendof1997. Inaddition, non-specific tariffreductions forpurposes such
asfactory automation, high-tech support, etc.,would beeliminated bytheendof1997. Tariff reductions
andexemptions forsocial purposes involved items forthehandicapped, anti-pollution andrecycling
equipment.
115. Thesecond discussant recommended thatKorea considered binding theremaining 10percent
ofindustrial tariff lines. Thegapbetween bound andapplied ratesreduced predictability fortrading
partners. Safeguard mechanisms could beanalternative totheuseofadjustment duties. Noting that
adjustment duties could beashighas100percentandthatmany hadbeenineffect since 1992, the
firstdiscussant shared thisview.Republic ofKorea WT/TPR/M/19
Page 21
116. Therepresentative oftheUnited States pointed outthathightariffs persisted onprocessed
products, anddrew attention tohightaxes imposed onbeeraswellastothecascading effect ofthe
education taxandsimilar measures.
117. Therepresentative ofAustralia expressed concern overpossible restrictions forenvironmental
reasons onsulphur-bearing coal, emphasizing theadvantage ofabroad-based supply structure.
118. Therepresentative ofKorea replied thatadjustment duties werecurrently applied to38items
andwerereviewed every sixmonths. Ontheother hand, 62items currently benefited fromreductions
inapplied ratesunder autonomous tariffquotas. Thenumber ofitems receiving alowtariffrateunder
thetariffquota wasfargreater thanthenumber ofitems receiving ahightariffrateunder theadjustment
duty. Thus itwasnotaccurate tosaythatthere wasatariff-increase effect. There wasnoplanto
limitcoalimports. Differential taxratesonalcoholic beverages hadexisted foralongtime, i.e.since
1968. TheEducation Taxwasimposed onvarious liquor products, based onalcohol content witha
viewtocapturing higher-income people anddiscouraging consumption ofsocially harmful products.
Non-tariff measures
119. TherepresentativeofKoreasaidthatKorea'snon-tariffpolicieswereintendedtoensureconsumer
safety, public health, environmental protection, etc.TheKorean Government hadimplemented and
would continue toimplement suchpolicies inaccordance withWTO rules, based onrecognized
international standards where possible.
120. Concerning customs clearance, Korea hadrevised theCustoms ActanditsEnforcement Decree
inDecember 1995 inorder tostreamline procedures. Previously, importers were usually required
tofileanapplication withcustoms aftergoods hadbeenstored inabonded area, andpayduties to
obtain animport permit. Therevised system replaced import permit requirements byatime-saving
declaration procedure; abolished theobligation tostore goods inabonded warehouse during the
processing period; converted thepre-clearance payment system intoapost-clearance system; and
permitted thefiling ofimport declarations before arrival ifgoods required prompt clearance. Since
July1996,theElectronicDataInterchangeSystemhadbeeninoperation,andhadacceleratedprocedures;
importers could make animport declaration bycomputer without visiting customs. Under therevised
system, theperiod during which imports stayed attheportofarrival hadbeenreduced totwoorthree
from 15daysonaverage.
121. With regard toimport licensing, about 3,100 of10,859 items attheHS10-digit levelwere
subject toapproval orinspection. Thegreat partofthese items wereregulated bythe49lawslisted
intheConsolidated Public Notice. In1997, Korea intended toconvert import licensing fromapositive
toanegative system. While automatic licensing -currently required formost imports -would be
eliminated, non-automatic licensing would bemaintained foralimited number ofproducts deemed
sensitive forreasons ofnational security, environmental conservation andpublic health.
122. Theorigin-marking system, introduced in1991, aimed toensure market order andprotect
consumers byproviding them withaccurate product information. Thesystem wasapplied non-
discriminately toimports onthebasis ofArticle 9ofGATT 1994. Atpresent itwasmandatory for
678items attheHS4-digit level, upfrom530items in1992. Theincrease wasnecessary toprotect
consumers fromcounterfeit origin-labels onlow-quality imports, inparticular ofagricultural products
fromacertain country. Inanycase,Korea would operate itsmarking system inlinewiththeprinciple
ofArticle 9,which stipulated thattrade should notbehampered excessively. Tothisend,the
Government intended toreview thecurrent system bytheendoftheyear. Regarding localcontentWT/TPR/M/19
Page 22Trade Policy Review
requirements, Korea hadnopolicy toencourage oroblige purchasers tochoose domestic goods or
services overimports, orachieve aminimum localcontent.
123. Korea 'snational standard wasthe"KS", i.e.theKorean Industrial Standard, which was
voluntary. TheMinistry ofTrade, Industry andEnergy wasincharge ofthesystem. Mandatory
requirements established bygovernment authorities wereregarded astechnical regulations which, in
turn, were based ontheAgreement onTechnical Barriers toTrade (TBT). Since 1995, Korea had
taken awiderange ofactions toreduce theinspection period forfood, andmeasures would betaken
toharmonize Korea 'ssystem withinternational foodtesting standards. Inparticular, arandom sampling
scheme would beintroduced in1996.
124. TheKoreanEco-MarkAssociation,aprivateorganization,wasfoundedinJune1994tofacilitate
theimplementation ofeco-labelling programmes, following interim arrangements from1992to1994.
TheEco-Mark Committee, atechnical sub-committee, andtheSecretariat werethemainorganizations
forthemanagement oftheKorean programme. Atend-1995, 198items from 33product categories
manufactured by110companies were authorized tocarry theEco-Mark. Under current award
procedures, norules existed forinviting inputs from outside, including from foreign companies.
However, theKorean Eco-Mark Programme wasstillevolving, anditwastheintention toenhance
transparency inproduct group selection andtheawarding procedure. However, there hadbeenno
suchrequests fromforeign companies todate. Ontheotherhand, theveryissueofwhether eco-labelling
wascovered byTBTdisciplines wasunder debate andKorea would define itsposition afteradecision
wasmade either intheCommittee onTrade andtheEnvironment orinadispute settlement panel.
Only oneWTO member hadsofarnotified itsscheme eco-labelling totheWTO.
125. Concerning procurement conditions, therepresentative noted thatsupply ofmaterials and
construction contracts should bebased onopencompetitive tendering. Korea 'srestricted tendering
procedures metallconditions oftheWTO Agreement. Fortimely procurement, theGovernment
publicized ashort ormid-term procurement planatthebeginning ofeachyear. Under thisplan, open
competitive tendering hadbeenpromoted. Purchases offoreign materials werebeing carried outthrough
world-wide sourcing.
126. Thefirstdiscussant saidthatimplementation ofKorea 'sWTO commitments would certainly
helpallay concerns oftrading partners about non-tariff measures. Thesecond discussant enquired
whether Korea 'sEco-Mark would benotified under theTBTAgreement.
127. TherepresentativeofCanadanotedthathisdelegationhadsubmittedinwritingspecificquestions
oncustoms clearance. HefeltthatSMEs often lacked sufficient expertise incustoms procedures, and
enquired whether Korea offered some form ofassistance.
128. Therepresentative oftheUnited States acknowledged thatprogress hadbeenmade onnon-tariff
measures, forexample, through theintroduction ofrandom sampling. Inthisregard, heasked for
information onthenewprocedures andenquired whether Korea would accept future shipments ofthe
same product without further testing ifthepackaging ortheexporter hadchanged.
129. Therepresentative ofJapan noted thatwritten questions hadalready beenposed onspecific
issues, including localcontent. Imports intoKorea ofJapanese movies, videos, CDs, etc.,weresubject
topermission which, however, wasnotnormally given.
130. Therepresentative ofKorea replied that,regarding theEco-Mark, Korea would consider making
aTBTnotification.NospecificprocedureswereinplacetoassistSMEsforcustomsclearance,however,Republic ofKorea WT/TPR/M/19
Page 23
general support wasavailable. Ifadditional shipments werebythesame manufacturer, further testing
would notberequired. Local content requirements wereabolished inJuly1996 forcertain products
included inKorea 'sLocalization Programme. Currently, exceptions fromrestrictions under theImport
Diversification Programme were onlyallowed inthecaseofinward FDI. Further replies would be
provided inwriting.
(iii) TRIPS, TRIMs, industrial andcompetition policy issues
131. Therepresentative ofKorea saidthathisGovernment hadbeenconsistently committed to
improvingprotectionofintellectualpropertyrights.Properprotectionwasconsideredvitalforachieving
economic development, aswellasforencouraging technological innovation andtheactive exchange
oftechnology withforeign countries. Korea hadtaken, prior toandimmediately aftertheentry into
force oftheWTO Agreement, aseries oflegislative measures tobring itslawsintofullconformity
withtheTRIPs Agreement asearly aspossible. Korea didnotexercise thelonger implementation
period provided forunder theAgreement. Efforts forearlyimplementation weremade onavoluntarily
basis, without prejudice toKorea 'srights under theTRIPS Agreement.
132. ThenewPatent Law, which hadbeenamended toreflect theTRIPS provisions witheffect
from1July1996, provided foratwenty-year protection period fromthedateofapplication ofexisting
patents orapplications filedonandafterthedateoftheentry intoforce oftheLaw. Inother words,
theextended 20-year protection fromapplication wasinaccordance withtherelevant provision ofthe
TRIPS Agreement. Concerning thepatents court, itwould beestablished byMarch 1998, andwould
operate atthelevelofanappellate court under theSupreme Court. Thecourtwould takeupIPR-related
cases when adecision oftheKorean Industrial Property Office wasappealed.
133. TheKorean Customs Lawhadbeenamended in1994 tointroduce enforcement procedures
asprovided forintheTRIPS Agreement. TheLawanditsimplementation decree stipulated specific
measures andprocedures toprevent import orexport ofgoods thatinfringed trademarks orcopyrights.
Theprovisions were infullconformity withtheTRIPS Agreement.
134. Theceiling onforeign shareholdings hadbeenraised from15percentto18percentinApril
1996, andwould beincreased to20percentinOctober. Itwould becompletely eliminated inthe
year2000. According toKorea 'sForeign Direct Investment Liberalization Plan, announced inMay
1996, 47business sectors outof81restricted sectors would befullyorpartially opened onagradual
basisbytheyear2000. In1997, 28business categories would befullyorpartially opened: primary
sectors: retail saleofgrain, wholesale selling ofgrain, manufacturing ofstarch andstarch products;
financial services: mutual credit companies, other financial intermediation, other activities auxiliary
tofinancial intermediation (partially liberalized); transport sector: airandlandfreight handling services,
ground handling ofaircraft services, inner-city bustransportation; communication andculture sector:
vocational training schools, preliminary training schools, retailsaleofartsandantiques, offset printing,
commercial printing bystencil plates orsimilar plates; miscellaneous services: employment agencies,
jobplacement services, detective services, security andguard services; themanufacturing ofexplosives
andpyro-technic products. Thelimits onforeign trading businesses would beeliminated byJuly1997.
135. Theimportance ofcompetition policy hadincreased duetotherapid paceofglobalization in
thepost-Uruguay Round era.Inresponse, thestatus andrôleoftheKorea FairTrade Commission
hadbeenelevated toministerial level. TheCommission wascurrently pursuing arevision oftheFair
Trade Acttocarryoutitsadvisory rôlemoreefficiently andensure itsactive participation ininternational
talksonconverging competition policies.WT/TPR/M/19
Page 24Trade Policy Review
136. There wasnospecial provision intheFairTrade Acttoprevent bid-rigging ingovernment
projects andprocurement. However, suchpractices could bemonitored bygathering information from
government agencies responsible forauditing, prosecuting, etc.Noenterprise thatproduced orsold
acommodity could engage inresale pricemaintenance under theFairTrade Act.Therelevant provision
didnotapply topublications defined intheCopyright Actandcommodities meeting specific conditions
andwhich theFairTrade Commission haddesignated inadvance asbeing eligible forresale price
maintenance. However, todatenosuchcommodity hadbeendesignated bytheFairTrade Commission.
Noenterprise wasallowed toagree withanother enterprise tojointly engage inactswhich substantially
restricted competition inarelevant areaoftrade. Thisprohibition didnotapply ifsuchanacthad
beenauthorized bytheFairTrade Commission inaccordance withtheprovisions ofaPresidential
Decree forthepurpose ofrationalizing anindustry, promoting research andtechnology development,
overcoming economic depression, promoting industrial restructuring andthelike. Nosuchcases had
beenauthorized bytheFairTrade Commission todate.
137. Ifanunfair collaborative actoccurred inviolation ofanti-cartel provisions, theFairTrade
Commission could initially impose asurcharge notexceeding fivepercentofthesalesrevenue recorded
during therelevant period. However, ifanenterprise which wasordered bytheCommission tosuspend
aviolation refused tocomply, itsrepresentatives were liable forimprisonment ofuptothree years
orafineofuptoWon200million. Interested parties could attend ahearing oftheCommission to
statetheirviews orpresent material. Thefinaldecision wasmade bytheCommission, which was
composed ofseven commissioners, including attorneys andeconomists. Lawsuits withrespect to
measures taken bytheCommission pursuant totheActcould befiledwithin 30daysfrom thedate
onwhich theparty concerned wasnotified oftheCommission 'sdecision.
138. Thefirstdiscussant welcomed Korea 'smeasures toconform withtheTRIPS Agreement, and
asked forclarification onKorea 'sTRIMs notification.
139. Therepresentative oftheEuropean Communities appreciated theincreases inthecumulative
ceilings onequity investments, andqueried ifindividual ceilings hadalsobeenraised.
140. Therepresentative oftheUnited States observed that,while progress hadbeenmade inthe
protection ofintellectual property, recourse todeveloping country status wasnotappropriate.
141. Therepresentative ofKorea replied that,inregard toTRIMs, there werenomeasures tobe
notified. Individual ceilings onequity investment hadalsobeenraised. Korea would continue torevise
andmodernize itspolicies andprocedures intheareas referred tobytheU.S.representative.
(iv) Sectoral issues
Agriculture
142. Therepresentative ofKorea saidthat,ashadbeenmentioned previously, Korean agriculture
underwent atransition period. Dominated byriceproduction, thesector wascharacterized bysmall
farms, withanaverage sizeofaround 1.3ha.,andsuffered from lowproductivity andanunder-
developed infrastructure. Itwasinevitable thatfarmprices inKorea werehigher thanabroad. However,
withthelaunch oftheWTO Agreement, theGovernment hadimplemented widespread reforms adopting
amore market-oriented direction. Increased efficiency andcompetitiveness, withparticular emphasis
onlong-term structural adjustment andimprovement, were hoped toreduce reliance ontraditional
price-support policies and,thus,allayconcerns expressed byotherWTO Members. Aseries ofongoingRepublic ofKorea WT/TPR/M/19
Page 25
developments, including farmmechanization, farmsizeenlargement andthefostering ofyoung farmers,
were expected topromote competitiveness.
143. Ingeneral, theKorean Government hadfaithfully implemented itsWTO commitments. This
wasreflected bythefactthatofthe190commodities specified initscountry schedule, 149items were
fullyimported in1995. Of67products (group basis), 48werefilled atorabove thecommitted levels,
andquotas foreight items werefilled atabout 80percent. Innomore than11cases, suchasbirds
eggsandsilkworm eggs, imports remained below 10percentofthequota levels. Hefeltthatauctioning
wasaveryefficient procedure forallocating actual import entitlements incertain areas.
144. Intheagricultural sector, atotalof15lawsandregulations hadbeenrevised since 1994, such
astheFood Grain Management ActandPlant Protection Act. Korea would continue tomake every
effort tofaithfully implement theWTO Agreement. Ashadbeenfrequently discussed intheCommittee
onAgriculture, tariff quota management hadbothadvantages anddisadvantages. However, overall,
Korea 'ssystem hadbeenasuccess, based onactual achievements. Some minor problems, suchas
unfilled quotas, hadarisen fromadverse market conditions (i.e.,lowdomestic prices) rather thanfrom
quota management procedures insufficient information orrestrictive measures. TheGovernment was
committed tooperate thesystem fullyinconformity withtherulesandspirit oftheWTO. Korea would
apply tariffs oragricultural products within thescope ofitscountry schedule andincompliance with
WTO principles. Allfarmcommodities were listed inthecountry schedule, andwere accordingly
subject totariffication withtheexception ofrice.
145. SafeguardmeasureshadbeentakenforspecialproductsbasedontheWTOSafeguardAgreement.
Inthecaseofmilkpowder blends, rapid import growth hadcreated serious problems, including the
distortion ofdairy trade, strong increases inmilkpowder stocks andasharp dropindomestic cattle
prices. Imports ofmilkpowder blends hadincreased from3,217 MTin1993to28,006 MTin1995.
Theresulting serious injury tothedairy industry appeared tonecessitate safeguard actions. The
investigation ofinjury hadbeeninitiated inMay1996, andtheprocess wasstillunderway. Whether
theKorean Government would takesafeguard measures depended onthedecision oftheKorean Trade
Commission. Korea would continue toendeavour tomake suchmeasures consistent withtherules
andprinciples oftheWTO.
146. Korea attached particular importance totheimprovement ofsanitary andphytosanitary rules
initspursuit ofderegulation. InMay 1995, Korea hadestablished anambitious "Sanitary and
Phytosanitary Measures Improvement Plan", designed toenhance efficiency inadministration. As
mentioned bymany delegates, substantive progress hadbeenmade. Thisincluded expedited customs
clearance forperishable agricultural products. Inconformity withtheIPPC, theconcept ofquarantine
pestwasintroduced through therevision ofthePlanProtection ActinDecember 1995.
147. TheMinisterialOrdinanceoftheFoodSanitationActhadbeenrevisedinAugust1995.Changes
included theintroduction ofapre-arrival application system andrecognition ofoverseas testresults.
Applications forsanitary inspection could nowbesubmitted fivedayspriortothearrival oftheshipment.
TheFood Sanitation Actitself hadbeenrevised inDecember 1995, whereby are-test system was
introduced totheexisting mechanism. Korea hadalsodevised andgradually implemented aplanto
convert thegovernment-designated shelf-life system intoamanufacturer-determined system by1998.
Further reforms inthesanitary andphytosanitary sector bytheendofthisyearwere envisaged.
148. TheKorean Government would introduce arandom sampling scheme withaviewtoenhancing
efficiency andreducing theshare ofitems subject tolaboratory testing. Under thescheme, samples
would beclassified intotwocategories: surveillance andcompliance. Mandatory laboratory testing
would apply onlytothesecond category. Onlyrandom sampling would beapplied tothesurveillance
group, which consisted ofallproducts notspecifically delineated. Thecriteria defining thecomplianceWT/TPR/M/19
Page 26Trade Policy Review
group wereenvisaged tocover newproducts, products withprior information ofsanitary risk,food
products fromproducers withprevious violations, products falling under health supplement orginseng
product categories, andshipments forwhich problems hadbeenfound during testing orpost-marked
surveillance. Therandom sampling scheme wastobeimplemented asearly asOctober 1996through
revision oftheMinisterial Regulation oftheFood Sanitation Act.
149. Having introduced theconcept ofquarantine pestsinDecember 1995, theKorean Government
wasnowpreparing aspecific listofQuarantine Pests based onanalysis consistent withtheIPPC. This
listwould bepublished aspartoftheMinisterial Regulation ofthePlant Protection Act. Quarantine
requirements oncosmopolitan pestswereplanned tobeabolished inDecember 1996, when therevised
PlanProtection Acttookeffect. Therequirement thatspoiled agricultural products besorted forfood
sanitation purposes wasplanned tobeabolished inOctober 1996; therevised draftoftheMinisterial
Regulation oftheFood Sanitation Acthadalready been published forpublic comment. Sorting
requirements forquarantine purposes werealsotobeabolished, beginning fromDecember 1996, when
therevised Protection Actcame intoeffect.
150. Korea currently requested importers offood products toreport allingredients andtheir
percentages. While intended tofacilitate thedetermination ofexemptions fromlaboratory testing, the
reporting requirement wasplanned tobeamended asofOctober 1996. Under thenewly envisaged
system, reporting ofthepercentage ofthemainingredient would stillberequired, while onlythenames
ofallother ingredients were necessary. Such aminimum levelofreporting wasdeemed necessary
toconfirm andidentify thecategorization ofproducts.
151. Korea hadfullyrecognized theconcept ofdisease-free areas. Withregard tospecific questions
raised bytheUnited States representative, some elements hadalready been presented intheSPS
Committee. Many oftheconcepts intheSPSAgreement hadyettobedefined, andinternational
standards hadtobedeveloped. Despite theseuncertainties, Korea hadintroduced changes toitsshelf-life
requirements andimport clearance procedures.
152. Inthebeefindustry, several regulations would beeased andlifted according tothemarket
opening schedule agreed uponintheUruguay Round. Asstated initscountry schedule, Korea would
maintain quantitative import restrictions onbeefuntiltheyear2000. From 2001, beefimports would
besubject onlytotariffs.
153. Concerning animal quarantine, bothedible andinedible materials must beinspected. Such
inspections werealsoundertaken inmany other countries. Korea required animal health certificates
according totheCode oftheInternational Office ofEpizootics. However, ifmaterials wereimported
fromdisease-free countries onthebasisofmutual agreement andmetcertain requirements, noanimal
health certificate wasneeded. Inthecaseofgame meat, itwasverydifficult toverify whether products
complied withhealth requirements. InKorea, suchmeatwasnottraditionally usedasfoodstuff and,
therefore, wasnotlisted under theFood Act. Theissue would bediscussed inmore detail within the
Ministry ofHealth andWelfare. If,however, suchproducts complied withinternational standards
(e.g.theCodex) andiftheexporting countries submitted dataconcerning sanitary requirements, Korea
would consider those supplies tobefoodstuff.
154. Korea hadnotyetcommitted itself toanyschedule forlowering tariffs onfishery products.
Liberalization would begradual, according toKorea 'sliberalization plan. Bytheendof1996,
18fisheries items would befullyliberalized, anadditional 30items would follow in1997.
155. Thefirstdiscussant stated thatprogress hadbeenmade inaverysensitive area. However,
concerns remained especially inregard tothebureaucratic aspects involved. Hewondered whether
itwasinthespirit oftheWTO toallocate import quotas toindustry associations andother suchentities.Republic ofKorea WT/TPR/M/19
Page 27
156. Therepresentative oftheUnited States enquired whether administrative methods hadmade
itdifficult forsome tariff quotas tobefilled. Onshelf-life regulations, henoted thatfresh andchilled
beefwere stillamong theitems yettobeliberalized.
157. Therepresentative ofNewZealand asked whatmeasures would betaken inregard tounfilled
tariff quotas. OnSPSregulations, hementioned concerns about topics suchasprioritization forrisk
assessment andthelisting offoreign export facilities. Regarding shelf-life regulations, heasked if
there wasaschedule forremoval oftheremaining items.
158. Therepresentative ofAustralia noted thatwritten questions hadbeensubmitted inadvance.
Regarding riceimports under tariff quotas, sheobserved thattenders hadbeenwontodatebyIndia
andChina, andexpressed concern about theinclusion ofanon-WTO Member. Onshelf-life regulations,
shesought clarification onthetiming forfullliberalization.
159. Therepresentative ofThailand enquired whether Korea would consider other ricevarieties
forimports under thetariff quota.
160. Therepresentative ofJapan asked details ontwoitems notincluded under Korea 'sagricultural
tariffication.
161. Therepresentative ofKorea replied that,onshelf-life issues, Korea believed thatithadfully
implemented itscommitments. Further information would becommunicated inwriting. Inresponding
tothequestion byJapan, henoted thatthetwoitems concerned werericeproducts; theirnon-tariffication
wastheresult ofchanges inHSclassification. Regarding amendments toSPSprocedures, foodproducts
were Korea 'stoppriority.
Services
162. TherepresentativeofKoreasaidthatrestrictionsimposedonforeignportfolioinvestmentlimited
individual foreign participants to3percentofacompany 'stotalstock, while aggregate foreign
investment could notexceed 10percent. Beginning October 1996, theceiling would beraised to
5percentforindividual investors and20percentforaggregate investments. Inaddition, Korea had
taken unilateral liberalization measures inseveral specific sectors.
163. Asforfinancial services, theKorean Government wasfirmly committed totheimplementation
ofallconcessions provided forintheGATS negotiations in1995. Inthemaritime transport sector,
inspite oftheundesirable suspension ofGATS negotiations, Korea notonly maintained its
Uruguay Round offer, butplanned toreduce thecoverage ofthecargo preference system fromeight
tothree items -coal, ironandliquefied gas-bytheendoftheyear.
164. Thevalue-added telecommunications services market hadbeen completely opened from
January 1995. Basic telecommunication services would begradually liberalized fromJanuary 1998,
according totheresults oftheWTO negotiating group. Korea 'sGATS draftschedule ofcommitments,
which wasverydifferent fromthestatus quo,covered various telecommunications services, including
international services andsatellite telecommunication. Limits onforeign equity ownership would be
increased fromzeroto33percentintelephone services, andnoeconomic needs testwould beimposed.
Resale ofbasic telecommunications services would bepermitted, butvoice resale services onlyfrom
2001. Thistimeframe reflected thepriority given inKorean telecommunications policy toestablishing
afacility-based network assoonaspossible.
165. Regarding professional services, Korea hadalsobeenfullyimplementing itscommitments.
Ithadrevised therelevant lawsinorder toallow theservices offoreign architects through jointcontractsWT/TPR/M/19
Page 28Trade Policy Review
witharchitects licensed under Korean law,fromJanuary 1996, according totheadditional commitments
intheschedule. Korea hadalsoeliminated nationality requirements fortaxaccountants.
166. Therepresentative oftheUnited States stated thatKorean policies ontelecommunications
equipment andservices involved controversial issues which would alsoberaised bilaterally.Republic ofKorea WT/TPR/M/19
Page 29
VII. CONCLUDING REMARKS BYTHE CHAIRPERSON
167. Overthepasttwodays, theTrade Policy Review Body hasconducted thefirstreview ofKorea 's
trade policies andpractices under theWTO framework. These remarks, intended tosummarize the
salient points, aremade onmyownresponsibility anddonotsubstitute fortheBody'scollective
evaluation andappreciation. Details ofthediscussion willbereflected intheminutes ofthemeeting.
168. Thediscussion developed under fourmainthemes: (i)macro-economic developments andthe
implications ofrapid economic expansion; (ii)policies related totariff andnon-tariff measures;
(iii)TRIPS, TRIMs, industrial andcompetition policy issues; and(iv)sectoral issues.
(i) Macro-economic developments andtheimplications ofrapid economic expansion
169. Korea 'srapid economic growth andcontinued tradeliberalization sinceitsinitial Trade Policy
Review in1992 were strongly commended. Thepositive lessons fordeveloping countries were
highlighted. Members noted, however, theexport promotion efforts adopted inresponse totherecent
riseinthecurrent account deficit, andsought confirmation thatnopublic orprivate "anti-import"
campaigns orother restrictive policies would beundertaken. Korea wasasked theconsequences of
itsrapiddevelopment anditsexpected OECD membership foritsclaims of"developing country" status,
itsimplementation ofWTO agreements, andtheeffects onitsownGSTP anddevelopment co-operation
schemes. Interest wasalsoexpressed incommitments undertaken under APEC, andtheirexpected
effects ontrade withWTO members.
170. Therepresentative ofKorea responded thattradeexpansion through consistent market opening,
tradeliberalization andderegulation wasattherootofKorea 'srecent economic growth. Theexpansion
ofsocial overhead capital, manpower development, R&D assistance andincreased domestic and
international competition inthefinancial sector were fundamental tostrengthening competitiveness.
Inward andoutward foreign direct investment werepromoted; andnewfinancial instruments hadbeen
createdtoincreasenationalsavings,stabilizepricelevelsandimprovethecurrentaccount.Heconfirmed
thattheKorean Government would notresort toorencourage "anti-import" campaigns orimport
discriminating policies.
171. Therepresentative emphasized thatactive participation inthemultilateral trading system was
crucial forKorea 'sfuture growth. Although Korea hadparticipated intheUruguay Round asa
developingcountryinconsiderationofitseconomicandpoliticalenvironment,Koreawasmakingutmost
efforts toexpedite theimplementation process. OECD membership wasseenasaspringboard for
further liberalization, rather thananaffirmation offullydeveloped country status. Within APEC, Korea
wasstrongly committed tofurthering openregionalism.
(ii) Policies related totariff andnon-tariff measures
172. Members commented favourably upon Korea 's"Five-Year PlanforaNewEconomy", with
itsemphasis ontheelimination ofunnecessary regulations, promotion ofindustrial co-operation with
foreign countries andincreased assistance toless-developed countries. Concern wasexpressed over
theImport Diversification Programme, including localcontent provisions, aswellasapparent import
substitution aspects ofthecapital goods "localization" programme. Korea wasrequested toclarify
variousaspectsofsubsidyprogrammesandtoexplainthecriteriausedforsector-specificsupportgranted
under policy-based lending, including government guarantees forshipbuilding andsupport forsmall
andmedium-sized enterprises.WT/TPR/M/19
Page 30Trade Policy Review
173. Members welcomed thetariff reductions implemented bothautonomously andinconnection
withWTO commitments, aswellasthegreatly increased levelofbindings foragricultural andindustrial
products. However, questions wereraised overthelackofbinding coverage forfishery andvarious
strategic industrial products. Thepossibility ofadditional reductions inbound levels wasraised,
especially inregard tohighratesresulting from tariffication andthesubstantial gapbetween bound
andapplied rates. Members observed thatrecourse toadjustment tariffs introduced instability into
thetariff system, andenquired about theirjustification.
174. MemberscommendedKorea'seffortstoreformcustomsclearanceprocedures,importlicensing,
standards andinspection procedures, andgovernment procurement, butexpressed significant concern
overthepaceofimplementation andtheadequacy ofthemeasures adopted. Questions werealsoraised
concerningtechnicalrequirementsforimports,changestosafeguardsprocedures,discriminatorytaxation
ofliquor, andjustification forexpanded label-of-origin requirements affecting imported agricultural
andother goods.
175. Therepresentative ofKorea indicated thatKorea wasfaithfully implementing theUruguay
Round Agreements andseeking toexpedite thisprocess where possible. TheImport Diversification
Programme, introduced in1978torelieve thechronic tradeimbalance withJapan, wastobeabolished
bytheendof1999. Rules oforigin would beapplied following WTO recommendations; there was
nointention thatthese rules should reinforce theImport Diversification System. Therepresentative
stated thatKorea hadalready abandoned itspolicy oftargeting special industries in1985. Most import
recommendation procedures would bephased outby1997 andallby2001. Quantity undertakings
hadbeenexcluded fromanti-dumping procedures from1July1996. Safeguard mechanisms werebeing
brought intoWTO consistency andwould bestrictly enforced. TheLocalization Scheme fortheCapital
Goods Industry, introduced inMay1995, sought topromote industrial demand andattract foreign
investment, improve theR&D environment, andfurther quality improvements. Thesystem forimports
ofusedgoods hadbeenrevised, andfurther modifications wereintrain. There werenorestrictions
onautoparts.Theshareofpolicy-basedlending,presentedintheSecretariatReport,wasover-estimated,
asitincluded alarge proportion ofgeneral loans extended byspecial banks; nopolicy based lending
wasextendedtoshipbuilding.Assistanceforsmallandmedium-sizedenterprisesfocusedoninformation
andtechnology dissemination.
176. Ontariffs, therepresentative emphasized thatKorea hadmade substantial tariff concessions
intheUruguay Round, withanaverage reduction of54percentonatrade-weighted basisandexpansion
ofbindings to91.2percentoftariff lines; further reductions would takeplace under "zero forzero"
andharmonization initiatives. Thefactthatmostbound rateswerehigher thanthecurrently applied
ratesreflected theimpact ofautonomous tariffreductions between 1989and1994; therewereatpresent
noplans forfurther revision ofgeneral tariffrates. While Korea 'sCustoms Actprovided fortentypes
offlexibletariffrates,countervailingduties,retaliatorydutiesandseasonaldutieshadneverbeenapplied;
theuseofanti-dumping andemergency duties wasbased ontherelevant WTO Agreements; andprice
stabilization duties would beeliminated from 1997. Adjustment duties could beimposed within the
limits ofWTO bound ratestoprevent import surges fromdisturbing thedomestic market; thesix-month
application period wasintended toavoid suchduties remaining beyond thetimenecessary. Lower
ratetariff quotas wereapplied more frequently thanadjustment duties. Theliquor taxandeducation
taxwereapplied differentially tohigher-alcohol products forfiscal, distributional andhealth reasons,
nottodiscriminate against imports.
177. TherepresentativeindicatedthatKorea'snon-tariffpolicies,primarilyaimedatensuringconsumer
safety, public health andsimilar objectives, were implemented inaccordance withWTO rules, and
werebased onrecognized international standards where possible. Recent changes incustoms clearanceRepublic ofKorea WT/TPR/M/19
Page 31
procedures hadreduced storage andprocessing from anaverage of15tosome 2or3days. Import
licensing would bechanged from apositive toanegative system in1997, confining non-automatic
licensing toalimited number ofsensitive products. Origin marking, introduced todiscourage
counterfeiting, would bereviewed byend-1996; Korea waspursuing awiderange ofactions tofacilitate
foodinspection, including harmonization withinternational testing standards; random sampling would
beintroduced byend-1996. Industrial standardization andlabelling wasessentially inthehands ofprivate
sectororganizations;wherestandardswereconvertedintotechnicalregulations,thesewereinaccordance
withtheTBTAgreement. Provisions oneco-labelling were stillbeing developed; norequests had
beenreceived fromforeign companies todate. Forgovernment procurement, Korea published ashort
ormedium-term planatthebeginning ofeachyear; opencompetitive tendering waspromoted and
Korea 'slimited tendering procedure wasconsistent withthePlurilateral Agreement.
(iii) TRIPS, TRIMs, industrial andcompetition policy issues
178. While expressing theirappreciation forKorea 'simplementation ofnewlegislative measures
toexpand theprotection ofintellectual property, Members sought information onthetime-frames for
fullimplementation ofWTO obligations inthisarea. Questions were raised regarding thelackof
retroactive patent protection, therôleofthepatents court andcurrent border measures forIPR
enforcement. Clarification wasalsosought oninvestment performance measures, noting thelackof
aTRIMs notification; current limitations onshareholding levels; andremaining difficulties interms
ofinward foreign direct investment. Various competition policy issues were alsoraised, including
therôleofState trading organizations.
179. Therepresentative ofKorea stressed thathiscountry hadconsistently sought toimprove
intellectual property protection. Aseries oflegislative reforms wasaimed atimplementing theTRIPS
Agreement asearlyaspossible; onavoluntary basis, Korea didnotresort tothelonger implementation
period provided forunder theAgreement. ThenewPatent Lawprovided fora20yearprotection
period fromthedateofapplication. Apatents court, tobeestablished byMarch 1998, would review
IPR-related casesonappeal ofdecisions taken bytheKorean Industrial Property Office. Recent changes
tocustoms legislation hadaligned provisions forborder enforcement withthose contained intheTRIPS
Agreement. Therepresentative recalled themain provisions ofthe1996 Foreign Direct Investment
LiberalizationPlan,includinganincreaseinforeignshareholdinglimitationsto20percentfromOctober
1996; hespecified liberalization totakeplace in1997andstated thatthese limitations weretobefully
eliminated bytheyear2000. Limitations onforeign companies 'trading operations would beliberalized
from July1997. Herecalled recent improvements inthestatus andrôleoftheKorea FairTrade
Commission, made tostrengthen competition legislation andsupport theeconomic globalization process
inthepostUruguay Round era.
(iv) Sectoral issues
180. Inregardtoagriculture,Membersagainnotedthehighdutylevelsresultingfromthetariffication
ofprevious quantitative measures, aswellaspotential conflicts ofinterest inconnection withKorea 's
practice ofoffering tariff-quota administration todomestic associations andotherdirectly related entities.
Additional information wasrequested inregard tostatistics onminimum access commitments, safeguard
investigations forrecently liberalized "sensitive" products, inspection andquarantine procedures, and
shelf-life regulations. Forfisheries, Korea wasasked toexplain thereasons forhightariff rates, the
lowlevelofbindings andcontinued useofquantitative restrictions.
181. Inconnection withservices, members commented onKorea 'sextensive useofhorizontal access
limitations, including restrictions oncommercial presence, landpurchase, foreign equity participationWT/TPR/M/19
Page 32Trade Policy Review
andthemovement ofnatural persons. Korea wasurged toconsider more rapid elimination ofbarriers
toforeignparticipationintransport,communicationsandfinancialservices;inthisconnection,problems
ofaccess fortelecommunications equipment were alsoraised. Problems were alsonoted inregard
tothecertification offoreign service professionals.
182. Therepresentative ofKorea recalled thathiscountry 'sagricultural sector, dominated byrice
production onsmall farms, suffered from lowproductivity andanunderdeveloped infrastructure.
However, widespread reforms were under wayinthecontext oftheWTO implementation process,
including mechanization andconsolidation offarms. Tariffication wasapplied inallareas other than
rice.Theoperation oftariffquotas hadgenerally beenasuccess; some minor problems, suchasunfilled
quotas, wereattributable toadverse market conditions rather thantoproblems inquota management.
Safeguard investigations forspecific products, suchasmilkpowder blends, were based onWTO
provisions. Thepossible introduction ofmeasures would bedecided bytheKorean Trade Commission.
InMay1995, Korea hadestablished anambitious plantoimprove itssanitary andphyto-sanitary system.
Recent reforms included expedited customs clearance forperishable products, theplanned introduction
ofrandom sampling, andthegradual conversion ofofficial shelf-life regulations intoamanufacturer-
determined system. Clarification wasgiven onbeeftariffication, limits ongame meat, andconditions
forimports ofwool. Inthefisheries sector, Korea didnotcurrently envisage anytariff reductions;
however, imports ofclose to50items were tobefullyderestricted bytheendof1997.
183. Onservices, therepresentative indicated thatKorea hadtaken important steps tofacilitate
commercial presence, including theincreasing ofceilings forforeign portfolio investment. Korea was
firmly committed toimplementing theconcessions offered inthenegotiations onfinancial services
in1995. Inmaritime transport, Korea 'senvisaged reforms went beyond thecommitments initially
tabledundertheGATS.Korea'sdraftscheduleofcommitmentsintelecommunicationswasverydifferent
fromthestatus quo,covering international services andsatellite telecommunication services. Foreign
equity ownership inbasic telephone services would beallowed upto33percent, andnoeconomic
needs testwould beimposed. Resale ofbasic telecommunications services would bepermitted, with
theexception ofvoice resale services which weretobeliberalized from2001. Thisdelay wasintended
toallow fortheestablishment anation-wide telecommunications infrastructure.
***************
184. Members acknowledged andappreciated thesteps taken bytheRepublic ofKorea overthe
pastfewyears towards economic reform andmarket opening, including intheareas oftariffreduction,
internal deregulation andliberalization oftheinvestment régime. They emphasized theimportance
offurther steps toimprove market access, toincrease predictability, transparency andcertainty in
Korea 'stradepractices, andtoensure thatKorea 'sregulatory andadministrative régimes areconsistent
withthestated aimsofincreased liberalization andopenness. Theneedforimproved access inthe
agricultural sector andcontinued liberalization invarious fields ofservices wasparticularly emphasized.
Overall, Members offered strong encouragement totheRepublic ofKorea tocontinue andaccelerate
thereform process inalleconomic areas andtobeready toundertake responsibilities within theWTO
fullycommensurate withthestrength anddynamism ofitseconomy.
185. Weunderstand thatKorea willprovide further written replies todetailed questions, andlook
forward toreceiving these induetime.