RESTRICTEDWORLD TRADE
ORGANIZATIONWT/TPR/G/73
28 August 2000
(00-3262)
Trade Policy Review Body Original:  English
TRADE POLICY REVIEW
REPUBLIC OF KOREA
Report by the Government
Pursuant to the Agreement Establishing the Trade Policy Review Mechanism
(Annex 3 of the Marrakesh Agreement Establishing the World Trade
Organization), the policy statement by the Government of the Republic of Korea
is attached.
Note: This report is subject to restricted circulation and press embargo until the end of the meeting
of the Trade Policy Review Body on the Republic of Korea.Republic of Korea WT/TPR/G/73
Page 3
CONTENTS
Page
I. KOREA AND THE MULTILATERAL TRADING SYSTEM 5II. ECONOMIC SITUATION AND PERFORMANCE 5
(1) C
HANGES IN THE ECONOMIC SITUATION 5
(2) E XTERNAL TRADE AND INVESTMENT 6
III. STRUCTURAL REFORM AND LIBERALIZATION 8
(1) F INANCIAL SECTOR 8
(2) C ORPORATE SECTOR 8
(3) L ABOUR SECTOR 9
(4) P UBLIC SECTOR 9
(5) F OREIGN INVESTMENT LIBERALIZATION 10
IV. TRADE POLICY DEVELOPMENTS:  1996-2000 11
(1) I MPLEMENTATION OF URUGUAY ROUND COMMITMENTS AND OTHER LIBERALIZATION
MEASURES 11
(2) B ILATERAL TRADE RELATIONS 14
(3) R EGIONAL ENGAGEMENTS 16
V. FUTURE TRADE POLICY DIRECTIONS 17Republic of Korea WT/TPR/G/73
Page 5
I. KOREA AND THE MULTILATERAL TRADING SYSTEM
1. Korea strongly supports the continued development of the open multilateral trading system.
In fact, Korea is one of its most outstanding beneficiaries.  The Korean economy has grown rapidly
since Korea joined the GATT in 1967.  This was made possible by the open trade under the
GATT/WTO system.  As of 1999, Korea’s total trad e was equivalent to approximately 65% of its
GDP.
2. Since its accession to the GATT, Korea ha s been fully committed to complying with
multilateral rules and obligations, and maintaining a free and open market at home.  Korea actively
participated in the multilateral trade negotiations of the Tokyo and Uruguay Rounds.  Since the
WTO’s inception in 1995, the Korean Government has, in cooperation with its trading partners,
concluded agreements on trade in information technology products, financial services, and basictelecommunications services.  In the past two years, the Korean Government has actively participated
in discussions on the New Round with the belief that an early launch of a comprehensive round is
essential to the strengthening of the multilateral trading system.
3. In December 1996, Korea joined the OECD.  As  part of its accession commitments, Korea
further liberalized the financial sector, in particular, the foreign exchange and capital markets.Through its participation in the various activities of the OECD, including the review of its economic
development and regulatory reform, Korea has stre ngthened its commitment to market openness and
stepped up measures to enhance market access.
4. Despite the serious downturn caused by the 1997 economic crisis, Korea has continued to
implement its commitments under the WTO agreements.  In fact, the crisis prompted Korea to
accelerate liberalization and market opening voluntarily.  Much progress was made in improving the
environment for foreign direct investment (FDI).  Korea is convinced that continued reform and
liberalization in trade will offer the best possible path to greater prosperity and economic growth.
5. In 1998, Korea consolidated the dispersed trade functions of the Government under the
Ministry of Foreign Affairs and Trade (MOFAT).  This institutional change was designed to improve
the trade policy-making process and to implement the policies in a consistent manner.
II. ECONOMIC SITUATION AND PERFORMANCE
(1) C
HANGES IN THE ECONOMIC SITUATION
6. Prior to the Asian economic crisis that began in 1997, the Korean economy experienced high
growth, low unemployment, and relatively moderate inflation.  However, in terms of external
balances, there were signs indicating a number of serious problems.  The most notable was the rapid
rise of the trade deficit in the 1990s.  The trade deficit reached more than 10 billion dollars in 1995,and peaked at more than 20 billion dollars in 1996.  While Korea had lowered its border trade
measures considerably by the 1990s, much of the increase in Korean imports in 1995 and 1996 may,
in fact, be attributable to the rapid increase in fo reign capital inflows, which increased the value of the
Korean won.
7. At the end of 1997, Korea experienced the worst economic crisis since the Korean War.  As
foreign debt holders refused to renew the short-term borrowing of Korean firms and banks, and
withdrew their funds, Korea’s foreig n exchange reserves were rapidly depleting.  As a result of the
capital flight, the value of the won swiftly depreciated, from 965.10 won per dollar at the end of
October 1997 to a low of 1964.80 won in December 1997.  At the request of the Korean Government,WT/TPR/G/73 Trade Policy Review
Page 6
the IMF agreed to provide a stand-by arrangement, supplying urgently needed liquidity to the foreign
exchange market in Korea.
8. From the onset of the crisis and throughout much of 1998, the Korean economy experienced a
serious downturn in all aspects.  Real GDP fell by 6.7% in 1998.  The unemployment rate rose,
reaching a high of 8.6% (seasonally adjusted) in February 1999.  At the height of the crisis, Korea’s
usable foreign exchange reserves were depleted down to just 3.9 billion dollars.  The crisis affectedthe manufacturing, construction, and service sectors, and caused private consumption to drop to its
lowest level.  Consequently, external trade volumes also dramatically decreased.
9. In late 1998, the Korean economy began to show signs of recovery, as a result of the Korean
Government’s efforts to stabilize the economy.  And by 1999, indicators showed that the economy has
returned to its pre-crisis levels.  For example, real GDP rose by 10.7% in 1999, the unemploymentrate fell to 4.8% by December 1999, and the value of the won recovered and remained stable at
approximately 1,200 won per dollar throughout 1999.  Korea’s current account recorded a surplus of
40 billion dollars in 1998 and 25.2 billion dollars in 1999.
Table 1
Major Korean Economic Indicators (1990-1999)
Nominal GDP
(US$ billion)Real GDP
Growth RateGross National
Income per capita
(US dollars)Unemployment
RateInflation Rate
(Consumer Prices)Won / dollar
1990 252.5 9.0 5,886 2.4 8.5 708.0
1995 489.4 8.9 10,823 2.0 4.5 771.0
1996 520.0 6.8 11,380 2.0 4.9 804.8
1997 476.6 5.0 10,307 2.6 4.5 951.1
1998 317.7 -6.7 6,742 6.8 7.5 1,398.9
1999 406.7a10.7 8,581a6.3 0.8 1,189.5
a Preliminary figures.
Note: Unemployment rate and exchange rate are annual averages.
Source: Bank of Korea.
(2) EXTERNAL TRADE AND INVESTMENT
10. The economic crisis took a heavy toll on Korea’s trade.  In 1998, the value of Korean exports
fell by 2.8%.  Despite the massive currency depreciation of the Korean won, Korea’s exports did notincrease because of widespread recession in other Asian markets, which accounted for a great share of
Korea's total exports.  Korean imports fell even further, by 35.5%, resulting in the highest trade
surplus in Korean history – 39 billion dollars.  This trade surplus indicated a weak economy rather
than a strong one, since it was largely due to the sudden decrease in imports rather than an increase in
exports.
11. In 1999, Korean exports and imports both recorded a substantial growth of 8.6% and 28.4%
respectively, and resulted in a trade surplus of 23.9 billion dollars.  While the size of the surplus was
smaller than that of 1998, it marked a positive turn for the economy, because it resulted from
increases in both exports and imports.Republic of Korea WT/TPR/G/73
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Table 2
Korean Trade Statistics
(US$ million)
Exports Growth Rate (%) Imports Growth Rate (%) Trade Balance Current Account
1990 65,016 4.2 69,844 13.6 -4,828 -2,003
1995 125,058 30.3 135,119 32.0 -10,061 -8,508
1996 129,715 3.7 150,339 11.3 -20,624 -23,005
1997 136,164 5.0 144,616 -3.8 -8,452 -8,167
1998 132,313 -2.8 93,282 -35.5 39,031 40,558
1999 143,685 8.6 119,752 28.4 23,933 25,000
Note: Figures are based on customs clearance statistics.
Source: Korea International Trade Association.
12. During the 1990s, the geographical distribution of Korean trade changed considerably.  While
the United States, Japan, and the European Union remained Korea's largest trading partners
throughout the 1990s, their shares in Korea's total trade fell as trade with other Asian countries
gradually increased.
Table 3
Geographical Distribution of Korean Trade(US$ million)
Exports Imports
1990 1996 1997 1998 1999 1990 1996 1997 1998 1999
Total 65,016 129,715 136,164 132,313 143,685 69,844 150,339 144,616 93,282 119,752
Asia 24,639 65,744 68,530 57,539 65,833 28,515 57,602 55,544 35,691 50,439
North
America21,091 22,874 23,140 24,356 31,113 18,408 36,029 32,726 22,378 23,715
Latin
America2,102 8,961 8,668 8,867 8,645 1,726 4,392 4,076 2,197 2,865
Europe 12,001 21,395 24,817 28,749 26,091 10,501 26,244 23,688 14,281 16,579
Africa 892 2,250 3,049 2,821 2,347 363 2,521 4,442 1,977 2,944
Oceania 1,214 2,433 2,685 3,222 3,061 3,201 7,404 6,846 5,302 5,486
Note: Figures are based on customs clearance statistics.
Source: Korea International Trade Association.
13. Throughout the 1990s, based on the Uruguay Round and OECD commitments, Korea
continued to remove its barriers to both incoming and outgoing foreign investment.  As a result,
Korea's overseas direct investment, as well as foreign investment into Korea, increased substantially
during this period.
14. Following the 1997 economic crisis, Korea actively dismantled nearly all of its barriers to
incoming FDI.  Such liberalization was intended not only to attract foreign capital, but also to
introduce greater world market competition and international management standards in the Korean
economy.WT/TPR/G/73 Trade Policy Review
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15. As a result, FDI into Korea grew by 90.4% in 1998 and 62.5% in 1999.  The European
Union's FDI into Korea grew by 117% in 1999, on a registration basis, making the European Union
the source of largest foreign investment in Korea and surpassing the United States.
16. Korea's outgoing FDI had been growing before the economic crisis.  However, it went
through fluctuations after the crisis, as Korean firms reassessed their overseas investment strategies.
In 1999, Korea's overseas direct investment fell by 15.7%, to 4.0 billion dollars.
Table 4
Foreign Investment in Korea and Outward Investment by Korea(US$ million)
1990 1995 1996 1997 1998 1999
Foreign Direct Investment 788.5 1,775.8 2,325.4 2,844.2 5,415.6 8,798.4
Net Portfolio Investment 83.6 11,590.7 15,184.6 14,295.3 -1,878.2 8,825.2
Outward Investment 1,051.6 3,552.0 4,670.1 4,449.4 4,799.4 4,044.1
Source: Bank of Korea.
III. STRUCTURAL REFORM AND LIBERALIZATION
17. Since the outbreak of the economic crisis at the end of 1997, the Korean Government
recognized that the root cause of the crisis lay in the structural weaknesses of the country’s economy.
Thus, intensive structural reform was undertaken to overcome the crisis and get the economy on the
right track for sustainable growth.  This reform in cluded a reform of the financial, corporate, labour,
and public sectors, and foreign investment liberalization.
(1) FINANCIAL SECTOR
18. Korea restructured its financial system first through closures, mergers, re-capitalization and
downsizing.  As a result, the number of commercial banks in Korea was reduced from 33 to 23, and
merchant banks from 30 to 21.  Foreign investors were encouraged to participate in the restructuring
process.  Their participation was expected to introduce more advanced international management
skills and governance practices.
19. The strengthening of prudential regulation has been another key strategy to ensure the sound
future development of its financial industry.  The Financial Supervisory Commission, created as a
new supervisory body in 1998, introduced and enforced the Basle Core Principles and other
international standards.  A new framework for prudential regulation was institutionalized as follows:
(i) implementation of forward-looking criteria;  (ii) adoption of prompt corrective actions;
(iii) refining of the risk assessment and risk management system;  (iv) strengthening of the credit
ceiling system;  (v) implementing of quarterly financial disclosure requirements;  and (vi) introduction
of mark-to market accounting, under which most asset values of financial institutions are denoted in
current market values.  Through these actions, Korea has embraced the new international norm of
"risk-based financial supervision," and improved overall transparency.
(2) CORPORATE SECTOR
20. The reform of the corporate sector has been carried out on three fronts;  (i) rationalizing the
scales of business;  (ii) improving corporate finance, and;  (iii) restructuring corporate governance.Republic of Korea WT/TPR/G/73
Page 9
21. To rationalize businesses, after the 1997 economic crisis, the Korean Government first eased
bankruptcy procedures for numerous financially weak firms, allowing many of them to go bankrupt,
while many others were either sold or merged.  Second, Korean firms were encouraged to reduce
excessive capacity and unprofitable investment, and to focus on their core competence.  Third, to
ensure smoother and easier business restructuring in the long run, the M&A process was fully
liberalized and bankruptcy-related laws were revised.
22. To improve corporate finance, "corporate workout programmes" were introduced.  Also,
inter-subsidiary cross-debt guarantees within large conglomerates ( chaebols)  were prohibited.
Corporations were also encouraged to reduce debt-to-equity ratios.  As a result, the top four chaebols
succeeded in reducing, by the end of 1999, their ratios to below 200% from previous levels of nearly
500%.
23. In terms of corporate governance, the institutionalization of effective checks and balances
against unaccountable management has been the key issue.  To address that issue, the Korean
Government has introduced several reform measures.  Firms are required to appoint more outside
directors to the corporate board and retain external auditing committees.  Minority shareholders’
voting rights were strengthened through a new cumulative voting system and a new class-action suitprocess.  Institutional investors’ voting rights were also strengthened, and controlling owners came to
face greater legal liabilities.
(3) L
ABOUR SECTOR
24. Since the 1997 economic crisis, the Korean Government has been engaged in dialogues and
cooperation with the labour and business sectors.  The Tripartite Commission, established in January
1998, has served as a policy coordination body and a channel for communication among labor
representatives, business leaders, and government policy-makers.  Based on the work of the TripartiteCommission, a new labour law was introduced, which, inter alia,  allowed layoffs based on
managerial needs.  This has contributed to greater flexibility in the labour market.
25. Along with the effort to introduce more flexibility, the Korean Government has been working
to ease the burden on workers in the nationwide re structuring process, by allocating more funds to
expand the social safety net and create more job training and unemployment benefit packages.
(4) P
UBLIC SECTOR
26. The public sector reform has been focused on:  (i) the privatization of state-owned enterprises
(SOEs), (ii) improvement of the management  of SOEs, and (iii) overall deregulation.
27. First, Korea has been working to privatize many of the SOEs, which in total have accounted
for around 8-9% of the GDP since the 1970s.  As a part of the reform, 13 SOEs (including theirsubsidiaries) were sold between 1998 and 1999.  At the same time, Pohang Iron and Steel
Corporation, Korea Electric Power Corporation, and Korea Telecom successfully issued depository
receipts in the international financial market.  In addition, stocks of Korea Tobacco and Ginseng
Corporation and Korea Gas Corporation were floated in the domestic market.  In this process, foreign
investment in SOEs has also been encouraged.  Aggregate as well as individual foreign ownership
ceilings have been raised.  In addition, the appointment of non-Koreans to either a board or senior
management position is now no longer prohibited.
28. Second, managerial reform was also implemented in order to enhance the accountability and
transparency of SOEs.  SOEs are required to fu lly disclose their financial statements, management
goals, results of management performance evaluations and other key financial data.  MinorityWT/TPR/G/73 Trade Policy Review
Page 10
shareholders' rights and the responsibility of corporate boards have been explicitly incorporated into
the provisions of the Commercial Code and the Securities Exchange Act.
29. Third, deregulation has been an important element of the public sector reform.  Its key
objectives have been to minimize government intervention in the economy, help introduce
market-based principles, remove market entry barriers, and eliminate corruption in various areas of
socio-economic activities.  Deregulation was undertaken through a centrally-managed, proactiveprocess, based on the so-called "zero-base" review.  All government regulations were reviewed, and
nearly half of them were eliminated.
(5) F
OREIGN INVESTMENT LIBERALIZATION
30. The Korean Government has implemented drastic policy measures to promote incoming FDI
since the economic crisis.  The Korean Government has accelerated its liberalization schedule andundertook a full-fledged liberalization of hostile cross-border M&A’s and foreign land ownership in
1998.
31. Since 1997, Korea has opened most of the business areas previously closed to foreign
investment.  As a result, by May 2000, out of the 1,058 business categories classified under the
Korean Standard of Industrial Classification, only four business areas (in-shore fishing, coastalfishing, radio broadcasting, and television broadcasting) remain wholly closed to foreign investors.
FDI in 24 business categories such as coastal transport, air transport and electric power generation
remain partially restricted.
32. The financial market has been significantly opened to foreign participation.  Foreign banks
were allowed to establish subsidiaries, and foreigners were allowed to join the boards of Korean
banks.  In the stock market, as mentioned earlier, ceilings on foreigners’ stock investments were lifted
with the exception of some state-owned enterprise s.  Bond and money markets were also completely
liberalized.  In addition, most current account transactions related to the operation of financial
institutions and corporations have been liberalized.  The regulation system for capital account
transactions was changed from a positive list that allows only certain transactions, to a negative one
that permits all transactions other than those specified.
Table 5
Major Measures of Liberalizing Korea’s Financial Market
Date Main Contents
December 1997 - Liberalized the corporate and government bond markets fully.
April 1998 - Allowed the establishment of subsidiaries for foreign banks.
May 1998 - Allowed foreigners to purchase all money market instruments such as CPs, CDs and RPs.
- Removed ceilings on foreigners’ stock market investments (with the exception of state-owned enterprises).
April 1999 - Changed the regulation system for capital account transactions from a positive list to a negative list.
July 2000 - Allowed foreign firms to list on the Korea Stock Exchange.
Source: Ministry of Finance and Economy.
33. The Korean Government has simplified and streamlined the overall investment process to
attract more foreign investment.  Foreign investment projects are now required to be notified rather
than approved.  The Korean Government has reduced the number of application documents required
for the establishment of businesses by foreign investors.  In 1998, the Korea Investment ServiceCenter was created to provide "one-stop" services .  In 1999, the Office of the Investment Ombudsman
was created to help foreign investors.Republic of Korea WT/TPR/G/73
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IV. TRADE POLICY DEVELOPMENTS:  1996-2000
(1) IMPLEMENTATION OF URUGUAY ROUND COMMITMENTS AND OTHER LIBERALIZATION
MEASURES
34. Korea has faithfully implemented the WTO agreements and Uruguay Round commitments.
While keeping its trade regime open and transpar ent in line with WTO rules, Korea actively
participated in the WTO’s initiatives and negotiat ions, including the liberalization of information
technology products, financial services and basic telecommunications services.  Korea strongly
advocates the launch of a New Round with a comprehensive agenda, and has played its due role in the
preparations for it.
35. In addition to the implementation of its WTO commitments, Korea undertook a number of
additional measures to further open its trade and investment regime.  These measures were takenduring the process of its accession to the OECD and as part of Korea’s overall economic reform and
restructuring efforts following the 1997-1998 economic crisis.
GATT
36. Korea increased the number of bound tariff lines in accordance with its Uruguay Round
commitments.  Approximately 91.6% of total tariff lines and 92.6% of industrial goods were bound in1999.  The applied MFN tariff rates are 1~3% for most raw materials, and 8% for most manufactured
goods.  Tariffs on agricultural products are higher than those on manufactured goods due to the
tariffication process under the Uruguay Round Agr eement.  In 1999, the trade-weighted average
applied tariff rates were 6.89% for all commodities:  4.71% for industrial goods, and 41.47% for
agricultural products.
Table 6
Bound Tariff Lines and Average Applied Tariff Rates by Industry (1999, numbers in HS 10-digit commodities)
Agricultural
ProductsFishery
ProductsIndustrial
GoodsTotal
Total Number of Tariff Lines 1,433 398 9,339 11,170
Total Number of Bound Tariff Lines 1,416 172 8,649 10,237
Percentage of Bound Tariff Lines 98.81 43.22 92.61 91.65
Average Tariff
(trade-weighted, per cent)41.47 10.75 4.71 6.89
Source: Ministry of Finance and Economy.
37. As part of an effort to further promote trade and economic cooperation with developing
countries, Korea extended its duty-free, quota-free treatment to 80 (HS 6-digit) products of major
interest to least developed countries, effective from January 2000.
38. Liberalization in the agricultural sector has been continuing in a progressive manner
according to Korea’s commitments under the WTO Agreement on Agriculture.  For the tariff quota
items, tariffs were lowered and quota levels increased progressively.  Remaining restrictions other
than tariffs and tariff quotas were eliminated, except for rice and beef.  The import of beef will be
fully liberalized as of January 2001.
39. Non-tariff trade barriers have also been eliminated or eased significantly.  Korea entirely
abolished import prohibitions on sensitive products from Japan under the Import DiversificationWT/TPR/G/73 Trade Policy Review
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Program in June 1999.  Korea also eliminated all six vo luntary export restraints that were subject to the
phase-out under the Agreement on Safeguards by 1999, according to the schedule notified to the WTO.
40. Korea has reduced the number of its subsidy programmes from 26 in 1996 to 19 in 1999.  In
particular, Korea eliminated four prohibited subsidies in 1997 well ahead of schedule.
41. Technical barriers to trade have also been significantly reduced and unnecessary requirements
have been eliminated.  The domestic regulatory framework has become more transparent andconsistent with international rules and norms.  For example, the Korean Government completed, in
1998, the first comprehensive review of Korean standards (KS standards) for the purpose of
harmonizing them with ISO or IEC standards.  The Korean Government expects to complete the
harmonization of KS standards with international standa rds over the next four years.  In the fields of
SPS, steps were also taken towards a more transparent and open regulatory environment.  Forexample, the Korea Food and Drug Administration initiated, in 1998, a programme to review the
food-related codes, specify the rules, and provide clear guidance to customs inspectors.
42. Korea applies contingency measures such as anti-dumping and safeguard measures as
sparingly as possible.  Despite its considerable import volume, Korea used a relatively limited number
of import-restrictive contingency measures.  Korea also removed two pre-existing GATT XIXmeasures on salt fermented shrimps and hot bean paste in 1998 and 1999, respectively, as notified to the
WTO.
Table 7
Number of Definitive Anti-Dumping (including price undertakings) and Safeguard Measures
1996 1997 1998 1999 June 2000
A n t i - D u m p i n g 36502
S a f e g u a r d s 10001
Source: Korean Trade Commission.
43. Customs procedures have become both more efficient and transparent mainly due to the
implementation of an immediate release system and an electronic data interchange (EDI) system for
both imports and exports.  Changes in customs-related legislation, regulations and guidelines are
published in the Korean Government’s Official Gazette.  Customs-related information is also
available on websites in English.
44. Korea has also implemented the WTO Government Procurement Agreement (GPA) by
introducing enforcement legislation to regulate th e procedures for the international tendering of
covered entities.  The relevant legislation was notified to the WTO in 1997 and examined in 1998 by
the Committee on Government Procurement.
GATS
45. The Korean Government has fully implemented the specific commitments made in the area of
services during the Uruguay Round.  Korea also actively participated in the extended negotiations that
were concluded in 1997, including those on the financial and basic telecommunications services
sectors, and consequently provided significantly liberalized commitments in both sectors.  As the
service sector has been liberalized since the Uruguay Round, Korea’s trade in services increased from
22.8 billion dollars in 1991, to 49 billion dollars in 1998, and the inflow of FDI in all service sectorsincreased from 2.1 billion dollars in 1991-95 to 6.3 billion dollars in 1998-99.  Likewise, Korea’s
share in the world’s total trade in services rose from 1.2% in 1991 to 1.8% in 1998.Republic of Korea WT/TPR/G/73
Page 13
46. As part of the efforts to overcome the economic crisis of 1997, particular emphasis has been
placed on restructuring the economy and attracting more FDI.  This involves, in part, accelerating the
elimination of horizontal and sector-specific restrictions in the service sector beyond the commitments
made during the Uruguay Round.  For example, restrictions on the foreign acquisition of land and
ceilings for foreign portfolio investment in stocks were eliminated.
47. The financial, distribution, telecommunications, and construction service sectors are areas
where the domestic market has been significantly liberalized.
- Financial sector:  The supply of services through commercial presence, including
banking, securities, insurance and other financial services, was liberalized in 1997.
Moreover, most of the current account transactions of corporations and financial
institutions were liberalized through revisions of the regulations related to foreignexchange transactions;
- Distribution sector:  All distribution sectors, except the wholesale of meat, were
opened by eliminating the economic needs test for department stores and shopping
centers in January 1998.  The wholesale of meat became open to foreign investment
of less than 50% in January 2000;
- Telecommunications sector:  The scope of market access was expanded by raising the
ceiling of foreign investment ratios for facility-based service suppliers, except for
Korea Telecom, to 49% in July 1999.  The ceiling on the foreign ownership of Korea
Telecom was increased from 20% to 33% in September 1998;  and
- Construction sector:  The construction sector was significantly liberalized.  The joint
venture requirement for general construction was eliminated in 1994, and the one for
special construction in 1996.  The establishment of local branches of foreign suppliersfor general and special construction was permitted in 1996 and 1998, respectively.
48. Indeed, the most significant and meaningful liberalization measures since 1996 were
introduced in the service sector.  As of 2000, foreign investment in as many as 471 (based on Korean
Standard Industry Classification system) service sectors have been liberalized, and only 24 service
sectors remain restricted.  These sectors mainly consist of those where public interest is of majorconcern such as mass-media services.  Regulatory reform policies pursued by the Korean Government
also contributed to the liberalization efforts.  Since 1998, a large number of government measures,
including those related to the service sector, have been eliminated or relaxed.
TRIPS
49. The TRIPS Agreement took effect for Korea on 1 January 2000.  In June 2000, Korea went
through a review of its IPR-related legislation by the TRIPS Council.  Korea’s current intellectual
property protection system is in full conformity with the TRIPS Agreement and provides more
extensive protection than what is required by the Agreement.
50. Although major amendments of the IPR-related legislation took place in 1995, the Korean
Government took additional measures during 1996-2000 to further strengthen IPR protection.Various amendments that were made to Korea’s IPR-related laws during this period aimed, inter alia ,
at improving the protection of copyright and related rights, trademarks, patents, geographical
indications, layout designs of integrated circuits and undisclosed information, simplifying the
application procedure for the registration of patents and industrial designs, and upgrading
enforcement.  Other amendments are also under preparation, for example, to reflect the provisions ofWT/TPR/G/73 Trade Policy Review
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the Trademark Law Treaty (TLT) and the Madrid Protocol Concerning the International Registration
of Marks, which Korea will join in the near future.
Dispute Settlement
51. Korea shares with other WTO Members the belief that the WTO’s dispute settlement process
is a central element in providing legal security and predictability to the multilateral trading system.
Korea endeavors to resolve trade disputes with its trading partners through amicable settlements.  Butfailing this, Korea resorts to the WTO dispute settlement procedures.
52. Since the launch of the WTO, Korea has been a party to 13 WTO dispute cases, acting as a
complainant in four of those cases.  Other parties to these disputes were the United States, the
European Union, Canada, and Australia.  Among those cases, six cases were settled in the phase of
bilateral consultations, four were concluded through a panel or appellate process, and three arecurrently in process.  Korea also participated as a third party in seven other dispute cases.  Korea
completed the implementation of the DSB’s recommendations, which were made in two cases where
Korea’s related measures were found inconsistent with WTO rules – cases on alcoholic beverage tax
and the definitive safeguard measure on dairy products.
(2) B
ILATERAL TRADE RELATIONS
The United States
53. Since 1995, the annual trade volume between Korea and the United States has exceeded
50 billion dollars, making the United States Korea’s largest trading partner as well as its largest export
market.  In 1999, 20.5% of all Korean exports went to the United States, while US goods accounted
for 20.8% of all Korean imports.  Bilateral trade with the United States, which had maintained a
steady balance throughout the early 1990s, began to post a deficit in 1994, and hit a record deficit of
11.6 billion dollars in 1996.  A sharp drop in import demand in the wake of the 1997-1998 crisis,compounded by increased exports due to weak currency , reversed the bilateral figures to a surplus in
1998, amounting to a 4.6 billion dollar trade surplus in 1999.
54. With regard to bilateral flows of FDI, the United States is currently the largest foreign
investor in Korea and the largest investment ma rket for Korean investors.  While US direct
investment into Korea was low during the early 1990s, investment mainly in the financial and otherservice sectors began to surge in 1995.  Meanwhile, direct investment by Korean firms in the
United States dramatically increased during the 1990s.
55. While scattered cases of trade tensions existed throughout the late 1990s, Korea and the
United States have addressed them in a cooperative manner.  The conclusion of the automobile
negotiations in October 1998 unfolded a period of smoother trade relations between the two trading
partners.  With a view to intensifying the cooperative economic relationship, Korea proposed to the
United States, in June 1998, that a bilateral investment treaty be concluded.  The negotiations are
currently under way.
The European Union
56. The annual trade volume between Korea and the European Union has exceeded
35 billion dollars since 1995.  As a result, the European Union is Korea’s second largest export
market, as well as third largest import market, following the United States and Japan.  In 1999, 14.1%
of Korean exports went to the European Union, and the European Union accounted for 10.5% of
Korean imports.  The EU’s investment in Korea, along with that of the United States and Japan,Republic of Korea WT/TPR/G/73
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represents one of the major shares of total investment in Korea.  In 1999, it was Korea’s biggest
investor, accounting for 40.3% of Korea’s total FDI.
57. Korea and the European Union hold regular consultations on economic and trade relations
through the annual Ministerial Meetings and High Level Consultations, as well as the sectoral
consultative meetings, which are held on an ad hoc basis.  Korea and the European Union signed a
Framework Agreement on Trade and Cooperation in October 1996, which is expected to enter into
force in the second half of 2000.  Once it enters into force, Korea and the European Union will be able
to expand dialogue channels to strengthen sectoral cooperation.
58. Korea has been addressing some of the trade concerns raised by the European Union.
Currently, the shipbuilding issue is one of the main ones to be dealt with.  Following the signing of an
agreement dealing with this issue in June 2000, both sides have been engaged in consultations.  Thetrade imbalance in automobiles has also been a major topic of bilateral discussions.  While market
access for pharmaceuticals and cosmetics was a source of trade friction in the past, this issue has
almost been completely settled as a result of a series of consultations.
Japan
59. Japan is presently Korea's third largest export market, taking 11% of Korea's total exports in
1999.  It has also been the second largest source of Korean imports since 1996, accounting for 20.2%
of Korea's total imports in 1999.  Since 1990, however, Japan's share of Korea's total trade has been
steadily decreasing, reaching 23.2% in 1990, 15.2% in 1997, and 12.9% in 1998.  Yet, in 1999, it
began to rise, accounting for 15.2% of Korea's total trade.  Korea has been running trade deficits with
Japan.  It culminated a record deficit of 15.7 billion dollars in 1996.  After a sharp drop to
4.6 billion dollars in 1998, it rebounded to 8.3 billion dollars in 1999.
60. Japan's share of Korea's total FDI peaked at 34.9% in 1994, dropped drastically to 5.7% in
1998, then rebounded to 11.3% in 1999.  Korea’s share of FDI in Japan has remained at a steady
2.0%, except in 1995 when it peaked at 3.4%.
61. Korea's Import Diversification Program, which had been claimed by Japan as imposing
discriminatory import restrictions on Japanese products, was completely eliminated in June 1999.
There has been many active dialogues between the two countries on trade facilitation, bilateral tradeimbalance, and technical cooperation.  Korea is currently negotiating a bilateral investment treaty with
Japan, and is carefully considering a mutual recognition agreement as well.  In addition, the feasibility
of concluding a free trade agreement with Japan is being studied at a non-official level.
Other Regions
62. Besides the traditional markets such as the United States, European Union and Japan, other
regions are emerging as important trading partners for Korea.  Korea is making efforts to expand trade
with these markets in order to diversify its global trading relationships.  China has rapidly become one
of Korea's largest major trading partners, since direct trade between the two countries was opened in
the early 1980s.  It is currently the fourth largest export and import partner to Korea.  ASEAN's share
in Korea's exports and imports nearly doubled in the last decade, and trade between Korea andASEAN is expected to grow rapidly, as Korea and the ASEAN countries recover from the recent
economic crisis.  Other than China and ASEAN countries, Latin America, the Middle East and
Oceania are also becoming increasingly important markets for Korean goods and larger sources for
Korean imports.WT/TPR/G/73 Trade Policy Review
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(3) REGIONAL ENGAGEMENTS
APEC, ASEM, and ASEAN Plus Three
63. Korea has been actively engaged in regional cooperation mechanisms, such as the
Asia Pacific Economic Cooperation (APEC), Asia Europe Meeting (ASEM), and ASEAN Plus Three
(Korea, China and Japan) processes.  Korea values the principle of open regionalism.  Thus, Korea
believes that regional cooperation should not reduce but promote global openness.  Korea alsobelieves that the promotion of market opening in the context of regional cooperation can significantly
contribute to worldwide trade liberalization.
64. Korea, as one of the founding members of the APEC, has participated in the various
initiatives of the APEC to accelerate market opening and strengthen the multilateral trading system.
Korea has been actively engaged in designing and improving the APEC’s Individual Action Plans(IAPs) and Collective Action Plans (CAPs) in an effort to promote trade and investment liberalization
in the Asia-Pacific region.  In addition, Korea hoste d in 1999 the APEC Investment Mart to promote
greater investment flows within the Asia-Pacific Region.  Korea also participated in the APEC’s
efforts to promote trade and investment liberalization at the multilateral level, including sectoral trade
liberalization initiatives and the discussions on the launching of the new multilateral tradenegotiations.
65. In the ASEM process, Korea has played an impor tant role in promoting various measures for
more trade facilitation and investment promotion between Asia and Europe, such as the Trade
Facilitation Action Plan (TFAP) and the Investment  Promotion Action Plan (IPAP).  Korea has been
actively engaged in evaluating TFAP deliverables (1998-2000) and designing TFAP concrete goals
(2000-2002), which will be reported to the forthcoming ASEM Summit Meeting to be held in Seoul in
October 2000.  Korea hopes that the Seoul ASEM Summit Meeting will provide further momentumfor reinforcing the efforts to promote cooperation between the two continents.
66. In addition to the APEC and ASEM, Korea ha s accelerated the efforts to promote economic
cooperation and freer economic exchange in the East Asian region through the ASEAN Plus Three
meetings.  Given the diversity and economic dynamism of the region, Korea regards this process as an
important element of its regional cooperation initiatives.
Free Trade Agreements (FTAs)
67. As an economy that has benefited greatly from the openness in global trade, Korea has
traditionally valued the multilateral trading system and did not support bilateral or regional free trade
agreements.  Though its commitment to multilateralism is still firm, Korea has recently begun to be
more flexible with regard to the role of FTAs in the world trade system.  Korea is now of the viewthat FTAs, if properly concluded and managed in accordance with relevant WTO rules, can
supplement the multilateral trading system and contribute to market opening in the world through
bilateral and regional acceleration of trade liberalization.
68. In November 1998, the Korean Government formally announced that it would seek an FTA
first with Chile.  Negotiations with Chile have been ongoing since December 1999.  Korea is alsostudying the possibility of negotiating FTAs with other trading partners.  In this regard, a Korean
research institute carried out a joint study with it s Japanese counterpart regarding the feasibility of
concluding an FTA with Japan.  Other joint feasibility studies are also being undertaken with
New Zealand and Thailand.Republic of Korea WT/TPR/G/73
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V. FUTURE TRADE POLICY DIRECTIONS
69. Korea's economic growth for the past four decades owes a great deal to its active international
trade, which was made possible by the world's open trading system.  When the economic crisis hit
Korea in 1997, the Korean Government accelerated the implementation of its open market policy,
which in turn critically contributed to Korea' s fast recovery from the economic turmoil.  This
experience reinforced Korea’s commitment to free tr ade.  As a result, the Korean Government's top
trade policy goal has been, and will continue to be, to expand trade and investment through the
promotion of further openness at home and abroad.
70. Under this policy goal, Korea's main priority is to strengthen the open, rules-based
multilateral trading system.  This calls for Korea's continued efforts to work with other countries in
launching, at the earliest date possible, a new round of WTO trade negotiations with a comprehensiveagenda.  Korea is convinced that the agenda of the New Round should encompass, in addition to
agriculture and services on which negotiations are under way, market access for non-agricultural
products, as well as the strengthening and/or developing of rules on anti-dumping, investment,
competition policy and other areas, so that the new round of trade negotiations can generate more
trade under the strengthened WTO rules.  Korea believes that through a new round the WTO systemwill provide added momentum for strengthening the multilateral trading system and remain relevant
in the global economy of the 21st century.  Korea will also play its due role in the implementation of
the WTO’s confidence-building work programmes.
71. Korea will also continue to actively participate in regional cooperation mechanisms, such as
the APEC, ASEM and ASEAN Plus Three processes.  Korea will also seek bilateral free trade
agreements with its trading partners.  While Kore a believes that WTO-centered multilateralism offers
the best framework for achieving openness in global trade, it is also of the view that frameworks ofproperly managed regional cooperation will also significantly contribute to creating freer trade
worldwide.
72. Korea will continue its best efforts to maintain  cooperative and mutually beneficial bilateral
trade relationships with its trading partners.  Through bilateral consultations, Korea will proactively
address any trade issues that its partners raise, in accordance with international rules.  In this process,
Korea will continue to oppose unilateral solutions for trade disputes and will resort to the WTO's
dispute settlement mechanism for unresolved bilateral disagreements.
73. Korea considers its trade policy an integral part of its reform efforts in building a fully
market-driven economy.  Through the continuous promotion of liberalization and the proactive
incorporation of global standards, Korea hopes to build an efficient economy that adheres to theprinciples of transparency and accountability and is fully open to the world market and global
competition.
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