WT/TPR/S/268/Rev.1 Trade Policy Review 
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  IV. TRADE POLICIES BY SECTOR 
(1) INTRODUCTION  
1. Korea's approach to protection of goods re mains dualistic.  Relatively low manufacturing 
protection, contrasts with higher levels of protec tion in agriculture, which was increasingly subject to 
FTA-driven trade liberalization during the review pe riod.  Emphasis was put on  support related to the 
2009 National Strategy for Green Growth, the reviva l of the "picking winners" support strategy now 
called new growth engine activities involving, inter alia,  the manufacture of highly innovative and 
R&D-intensive high-technology produc ts and related services, and on compensation for adjustment to 
the impact of FTA-driven trade liberalization on certain domestic activities. 
2. During the review period, government interventio n in agriculture was more market-oriented 
and environmentally friendly.  The sector's sh are in GDP remained relatively stable, labour 
productivity was low, and imports increased due, inter alia,  to FTA-driven liberalization and 
disappointing domestic harvests.  Although self-sufficien cy has been attained for some major products 
(i.e. rice), the average rate has dropped and targets fo r the years 2015 and 2020 were increased;  at the 
same time the volume of agricultural imports c ontinued to rise.  Average applied MFN tariff 
protection for agricultural goods remains more th an eight times the average for non-agricultural 
goods, with tariff peaks as high as 887.4% (manioc) .  Tariff-rate quotas are utilized, administered or 
allocated by state-trading entities or industry associations;  access was improved temporarily in response to recent domestic supply-side instability .  Quantitative import restrictions for rice will 
remain in force until 2014;  quantitative export restric tions have also been in place for rice since 2007.  
In 2011, the sector's contribution of GDP (2.7%) wa s little more than its support (2% in 2010).  Most 
assistance is product-specific support (Chapter III(4)(ii))(b));  non-product-specific support includes fuel tax exemptions, soft loans, and cross-subsidized  electricity prices.  Domestic support continues to 
affect agricultural production and trade, and forces Korean consumers to pay much higher prices than 
the world levels (on average 1.7 times).  The importance of direct payments has increased.  Action has been taken to, inter alia,  foster private investment in agricultural corporations, protect farm household 
income from natural disasters, support precision fa rming practices with lo wer use of fertilizers, 
expand the traceability information system protec ting consumer interests, and assist rural 
development.  Policies to stabilize milk supply and demand help to further reduce excess milk supply.  
Efforts to reduce over-fishing continued despite fish eries-related subsidies, and action was taken to 
encourage environment-friendly offshore aquaculture. 
3. During the period under review, efforts have been  made to reduce oil dependence and to cope 
with rising energy demand in several ways, in cluding through increasing the share of renewable 
sources in total primary energy supply and projects overseas.  State involvement in the gas and electricity sectors persists and impedes competiti on.  Some industries have licences to import gas 
directly for their own use rather than purchasing it from the state monopoly, which regularly adjusts 
the price of the commodity to costs.  Domestic coal production, mainly destined for power plants, 
continues to be assisted by direct  production subsidies, the com pulsory purchase of its expensive 
output by the loss-making state-run electricity company, and exemption from VAT.  The power 
exchange pool sets power generation prices to manage  electricity dispatch;  cross-subsidies between 
consumers distort prices, with agricultural a nd industrial users the main beneficiaries. 
4. The share of manufacturing in GDP increased, while its share in employment remained 
relatively stable.  The sector is heavily outward or iented and remains a world leader in information 
and communications technology (ICT), as well as in shipbuilding and cars, activities dominated by large conglomerates.  Border protection, which is al most totally confined to tariffs and adjustment Republic of Korea WT/TPR/S/268/Rev.1 
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  duties, is virtually unchanged since the previous Review of Korea.  As from 2009, support was 
focused on activities termed as new grow th engines with the objective of, inter alia,  increasing 
exports of green goods (e.g. electric cars) by the ma jor industries.  Several tax and non-tax incentives 
assist R&D and SME activities.  Other industry-sp ecific support was made available to improve 
global competitiveness of the automobile parts;  upgrade the steel industry;  help to regain the status 
of world's leading shipbuilding nation in 2011;  a nd foster the pharmaceuticals industry (including in 
biosimilars).  
5. Services, the largest sector of the economy, re mains characterized by relatively low labour 
productivity (now less than half the level in manufacturing) reflecting relatively low investment, and 
declining growth in total factor productivity (TFP).  This poor productivity performance is partly due 
to lack of sufficient competition owing to, inter alia , state-ownership and excessive regulations, 
including restrictions on foreign direct investme nt.  Measures were take n to improve corporate 
governance, transparency, soundness and capital adequ acy ratios in banking and finance services.  
The financial sector restructuring continues to benefit from public funds, and its macro-prudential 
regulations were strengthened.  Despite some dec line, state-ownership persists in financial and 
transport services.  Maritime and air transport are also subject to cabotage restrictions.  Several 
sectors, notably telecommunications, air transport, and coastal maritime services are subject to ceilings on foreign ownership;  fore ign ownership is prohibited in ra dio and television broadcasting.  
Legislation was passed for the planning and pr omotion of convergence of broadcasting and 
communications activities, as well as to create a more  competitive broadcasting market.  Restrictions 
on the access of large retailers (super supermar kets) to traditional markets are about to be 
implemented.  Korea's GATS commitments rema in unchanged, and commi tments beyond GATS 
commitments were undertaken in the context of recent FTAs.  
(2) A
GRICULTURE AND LIVESTOCK  
(i) Features 
6. The contribution of agriculture (including for estry and fishing) to GDP and employment 
continued to fall between 2007 and 2011, from 2.9%  to 2.7%, and 7.4% to 6.4%, respectively 
(Table I.2).  According to Korea Productiv ity Center data, although between 2009 and 2011 the 
sector's labour productivity improved by 16.6% in value terms (US$), it remained the lowest among almost all economic activities;  in 2011, it was 45 .6% of the national average (41.4% in 2009).  
Between 2009 and 2011, fa rmland declined from 1.74 million ha or 18% of the entire national land 
mass, to 1.69 million ha and 17.0%.
1  Between 2005 and 2010, the share of rice in the value of the 
agricultural production dropped progressively from 23. 5% to 15.6%.  While Korea is virtually 
self-sufficient in some major products (section (2)( ii)), such as rice, imports of agricultural products 
has continued to rise strongly.  Korea is a significant net food importer.  Between 2007 and 2011, agricultural imports grew at an annual average rate of 12%, peaking at  US$34.7 billion in 2011.
2  In 
2011, Korea's agricultural trade deficit hit US$25.5 billion, fuelled by  a rise in the world market price 
of grains as well as increased imports of vegetables,  fruits, and livestock products to compensate for 
weak domestic production caused by  unfavourable weather conditions. 
(ii) Policy developments 
7. The agriculture sector remains sensitive and s ubject to self-sufficiency policies aimed at 
addressing food security, especially for rice, and other "non-trade" concerns through, inter alia,  the 
                                                      
1 Statistics Korea (2010). 
2 UNSO Comtrade data. WT/TPR/S/268/Rev.1 Trade Policy Review 
Page 112 
  
  modernization of agricultural facilities and R&D.  The average food self-sufficiency rate (animal feed 
excluded) increased from 51.8% in  2008 to 54.9% in 2010 as a result of an increase in grain 
production.3  Self-sufficiency in rice, the staple food for Koreans, rose from 94.4% to 104.6%.4  On 
11 July 2011, the self-sufficiency targets for 2015 and 2020 were raised;  for food they were set at 
60% and 65%.5  Measures for attaining these targets include the diversification of farmland (e.g. rice 
paddies, utilization of idle farmland in the wint er), and the establishment of a national grain 
procurement system.  Korea considers that any multilateral agricultural liberalization must be 
sufficiently gradual to take account of the sector's "multifunctionality".  
8. In 2009, an agricultural policy reform fr amework was presented by a council for the 
modernization of Korean agriculture, where policy- makers and stakeholders agreed on more market 
orientation as well as on promoting mo re environmentally friendly practices.6  Recent policy 
initiatives centre on links between primary agricult ure and the development of the food industry7, 
support for private investment in agricultural corporations8, protection of farm household income 
from natural disasters, and support to precision farming practices with lower use of fertilizers.9  Other 
policy priorities include expanding a traceability inform ation system that protects consumer interests 
(section (2)(iii)(b)), and increasing direct payments for environmentally friendly agriculture, and rural 
                                                      
3 Statistics Korea (2010), Table 6.2. 
4 In 2010, self-sufficiency rates were 50% for b eef, 77.5% for pork, and 84.9% for chicken (MIFAFF 
online information.  Viewed at:  http://ebook.mi faff.go.kr/preview/viewer/main.php?site=2&menuno=1& 
previewno=8&iframe=0&dlbt= [6 January 2012]). 
5 Self-sufficiency targets for 2015 were changed from 25% to 30% for grains, 54% to 70% for staple 
foods, 90% to 98% for rice, 1% to 10% for wheat, 42% to 36.3% for soy beans, to 99% for root crops, 85% to 
86% for vegetables, 66% to 80% for fru its, 71% to 71.4% for meat, and to 65 % for dairy;  the target for eggs 
was lowered from 100% to 99%.  In 2020, these target rates will be 32% for grains , 72% for staple foods, 98% 
for rice, 31% for barley, 15% for wheat, 40% for soy beans,  99% for root crops, 44.4 % for animal feed, 90% for 
animal feed with fibres, 83% for vegetables, 78% for fr uits, 72.1% for meat, 64% fo r dairy, and 99% for eggs 
(MIFAFF online information.  Viewed at:  http://eb ook.mifaff.go.kr/preview/vi ewer/main.php?site=2&menu 
no=1&previewno=8&iframe=0&dlbt= [6 January 2012]). 
6 OECD (2010a). 
7 A December 2008 comprehensiv e plan to develop the food industry was aimed at mutual 
development of agriculture and the food industry.  A January 2009 action plan reduced entry barriers to 
agriculture for non-agricultural companies.  The strategy is to promote the supply of safe agricultural products 
and to develop the food export industry.  Korea puts high priority on enhancing the competitiveness of the food 
sector including agriculture and food processing industries (OECD, 2011a). 
8 Agricultural corporations are corp orate farms created by several indi vidual farmers, which are also 
financed by off-farm private investment mostly in ag riculture-related industries.  To attract investment in 
agricultural corporations, the limit on non-farmer investment was relaxed from 75% to 90%;  through reform of the Farmland Law in November 2009, the Government also relaxed restrictions on farmland ownership by 
agricultural corporations and farmland conversion regulations.  The number of agricultural corporations 
increased by 8.2% in 2009 to 6,824 corporations.  Employees in agricultural corporations increased by 6.5%, to 37,700, and the average area of operation increased by 27.3% to 11.1 ha per corporation.  In 2010, the 
Government created a fund of ₩ 60 billion (US$52 million) to attract more investment and external capital into 
various agricultural activities, includin g food marketing and farm input in dustries.  The fund participates 
indirectly in joint private sector investment in cooper atives or companies involved in agri-food management 
activities (OECD, 2011a). 
9 Precision farming or precision agriculture is a farming management concept based on observing and 
responding to intra-field variations.  It relies on new technologies like satellite imagery, information technology, 
and geospatial tools.  It is also aided by farmers' abilit y to locate their precise position in a field using a satellite 
positioning system like GPS. Republic of Korea WT/TPR/S/268/Rev.1 
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  development.10  The basic plan for agricultural and rural development for 2008-13 involves:  
strengthening agricultural competitiveness and st abilizing farm management;  improving agri-food 
safety and nurturing the agri-food industry;  and making the rural area a better place to live.  
(a) Border protection 
9. Korea relies most heavily on border protection through tariffs and tariff-rate quotas (TRQs).11  
Liberalization of agricultural imports through the WTO and various FTA negotiations is one of the 
most important challenges facing the sector.  The key agricultural commodities of rice, apples, and 
pears are permanently excluded from the Korea–Ch ile FTA, and tariff reductions were deferred on 
many other food items (e.g. some types of cabbage s) until after the conclusion of the Doha round of 
multilateral negotiations.  In the FTA with ASEAN (Chapter II), 71 sensitive ten-digit HS (or 36 on a 
six-digit HS basis) agricultural products are ex empt from tariff reductions.  The FTAs with the 
United States, EU, Peru, and the CEPA with India are expected to bring significant market opening 
and introduce competition in the domestic market.  Korea took action to comp ensate farmers affected 
by its FTA liberalization commitments and to stabilize their income and strengthen their competitiveness (see section belo w and Chapter III(4)(ii)).   
10. High MFN tariffs (peaks of up to 887.4% for manioc), including alternate duties and possibly 
prohibitive out-of-quota rates, remain in place for many commodities (Chapter III(2)(iii) and III(2)(iv)(a)).  At 55% in 2012 (i ncluding out-of-quota rates and ad valorem  components of alternate 
duties), the average applied MFN tariff on agricu ltural products (WTO defi nition, which includes 
processed food) is much higher than for non-agricultura l imports (6.6%) (Table III.1).  Moreover, the 
average fill ratio of TRQs rose from 62.7% (2010) to  66.2% (2011), but rema ins below its 2006 level 
(Chapter III(2)(iv)(a));  TRQs are either utilized, admi nistered or allocated by state-trading entities or 
industry associations, thus raising the risk of poten tial conflicts between their importing interests and 
those of their farm constituents.
12  Autonomous tariff-rate quotas (Chapter III(2)(iv)(b), Table AIII.6) 
were apparently revised seven times in 2011, raisi ng in-quota volumes for more than 110 items.  More 
such revisions are expected in 2012 in order to c ope with recent supply-side instability due to surging 
raw material prices, the foot-and-mouth disease (FMD), and disappointing harvests, which can fuel 
inflationary pressure.13  For some agricultural products, subject to tariff-rate quotas under WTO 
                                                      
10 Rural development policies are aimed at improving living conditions of rural residents and enhancing 
economic vitality of the rural regions;  they involve many ministries and govern ment agencies, encompassing 
for example education, medical services, roads, dwellin gs, drinking water supply, and infrastructure for the 
internet.  Since 2004, an integrated package programme  has applied to "hub villages" with a high growth 
potential (OECD, 2011a). 
11 OECD (2011a). 
12 The authorities indicated that industry associations manage the TRQ volumes for commodities 
whose domestic demand exceeds supply, and therefore, it is important to coordinate opinions among concerned importers.  In addition, they are of the view that it is unlikely that there would be conflict between importers and 
producers of those commodities.   
13 Korea's food price inflation rate in 2011 was th e second highest among OECD countries, at 7.9% 
from January to November 2011.  The OECD's food price index includes costs of food and non-alcoholic 
beverages ( Yonhap , "S. Korea's food inflation ranks 2nd among OE CD nations last year", 6 January 2012.  
Viewed at:  http://english.yonhapnews.co.kr/business/2012/01/05/0502000000AEN20120105007300320.HTML [10 January 2012];  Maeil Business,  "We will maintain quota tariffs on select items next year: Finance 
Minister", 19 December 2011.  Viewed at:  h ttp://news.mk.co.kr/english/ newsRead.php?sc=30800003 
&cm=Economy&year=2011&no=814959&selFlag=sc&relatedcode=&wonNo=&sID=308 [2 January 2012];  Yonhap , "S. Korea to use tariff quota to cope with supply in stability: minister", 19 December 2011.  Viewed at:  
http://english.yonhapnews.co.kr/business/2011/12/19/0502000000AEN20111219002100320.HTML 
[2 January 2012]). WT/TPR/S/268/Rev.1 Trade Policy Review 
Page 114 
  
  agricultural market-access commitments (Chapter III(2)(iv)(a)), such as corn grits, popcorn, and soy 
flakes (Table AIII.4), Korea aggregates raw and valu e-added products under the same quota.  It seems 
that domestic industry groups, which administer the quotas, frequently allocate the more favourable 
in-quota tariff rate to their larger members that import raw ingredients.14  Domestic producers of rice, 
the main staple crop, still benefit from a quantitative import restriction, which is to remain in force 
until 2014 (section (2)(iii)(a) and Chapter III(2)(vi)(b )).  During the period under review, Korea has 
made regular use of the special safeguard provisions (SSGs) under the WTO Agreement on 
Agriculture (Chapter III(2)(viii)(b));  SSGs, affecting mainly certain beans, wheat starch, and ginseng 
products, were imposed on 5 items in 2008, 5 in 2009, 2 in 2010, and 1 item in 2011.15  Export 
subsidies to reduce exporters' marketing co sts are in place for certain farm products 
(Chapter III(3)(iii)).   
(b) Domestic support 
11. According to the authorities, Korea has full y implemented its multilateral commitments on 
agriculture, and provides assistance consistent with  WTO obligations.  Although in the longer term, 
Korea has reduced its support to agriculture and some progress has been made towards more market 
oriented policies, its assistance level remains re latively high, and, based on OECD calculations (see 
below), the most production and trade distorting forms of support still represent 90% of total 
support.16   
12. In 2012, budgetary outlays for agriculture were ₩ 15.8 trillion, or 4.8% of total spending 
(₩ 15.1 trillion in 2011).17  Between 2008 and 2010, producer support (as measured by the OECD 
percentage Producer Support Estimate (PSE)18) increased by 6 percentage points in 2009 (51%) and 
dropped back to 45% in 2010 (down from 68% in 2002), thus remaining more than twice the OECD 
average.19  During the same period, support levels (as defined by the OECD Single Commodity 
Transfer (SCT))20 ranged from 15.7% (eggs in 2008) to 88.9% (soybean in 2010) of the commodity 
gross farm receipts (Table IV.1).  Korea's aver age annual total agricultural support net of specific 
sectoral budget receipts (Total Support Estimate (TSE)) for 2008-10 was ₩ 23.7 trillion, equivalent to 
about 2.2% of GDP (2% for 2010), one of the highest rates among OECD members.21  For the same 
period, over 88% of PSE-measured  assistance involved market price support (peak of ₩ 20.2 trillion 
                                                      
14 USTR (2011). 
15 WTO document G/AG/N/KOR/45, 31 January 2012. 
16 OECD (2011a). 
17 MOSF online information.  Viewed at:  http://english.mosf.go.kr/eco/view.do?bcd=E0001& 
seq=224&bPage=1 [16 January 2012]. 
18 The OECD-based support calculati ons are not directly comparable to domestic support calculations 
required under the WTO Agreement on Agriculture;  the OECD calculations do not correspond with the 
information on current total AMS vis-à-vis  final bound total AMS reflected elsewhere in this report 
(Chapter III(4)(ii)(b)).  The Producer Support Estimate (PSE) represents the annual monetary value of gross 
transfers from consumers and taxpayers to  agricultural producers, measured at the farm gate level, arising from 
policy measures that suppor t agriculture.  It includes market pri ce support, budgetary payments and budget 
revenue forgone. 
19 OECD (2011a),  Table III.1a. 
20 Single Commodity Transfers (SCT) are the annual monetary value of gross transfers from policies 
linked to the production of a single commodity, such th at the producer must produce the designated commodity 
in order to receive the payment. 
21 The average OECD TSE share of  GDP was 0.9% (OECD, 2011a,  Table III.4a). Republic of Korea WT/TPR/S/268/Rev.1 
 Page 115 
 
 
  in 2009)22, paid for by consumers subject to higher do mestic prices.  In the period 2008-10, Korean 
agricultural commodity prices averaged 1.7 tim es world levels (consumer nominal assistance 
coefficient (NAC))23, compared to 2.5 times in 2004-06, and total transfers from consumers to 
producers amounted to an average of ₩ 17.9 trillion.24  Despite some reductions, the high levels of 
support allowed under Korea's WTO commitments suggest that there is scope for increasing 
assistance without exceeding these commitments.  
Table IV.1 
Agricultural support by commodity, 1986-88, 1995-97 and 2008-10 
(₩ billion and %) 
 1986-88 1995-97 2008-10 2008 2009 2010a 
Total PSE ( ₩ billion) 9,645 19,277 20,393  18,541 22, 464 20,175 
Total producer SCT ( ₩ billion) 9,551 18,199 18,563  16,527 20, 775 18,388 
Share of producer SCT in total PSE (%) 99 94 91 89 92 91 
Grains       
Producer SCT ( ₩ billion) 220 208 74 82 91 50 
Percentage SCT 72.8 79.4 52.5 41.6 55.9 59.8 
Producer NPC 3.69 4.89 2.16 1.71 2.27 2.49 
Rice       
Producer SCT ( ₩ billion) 4,509 6,886 4,521  4,490 5, 557 3,517 
Percentage SCT 82.0 82.1 48.2 45.3 55.7 43.6 
Producer NPC 5.59 5.89 1.83 1.78 2.12 1.60 
Soybean       
Producer SCT ( ₩ billion) 156 235 358 294 324 457 
Percentage SCT 78.7 85.2 81.0 77.0 77.1 88.9 
Producer NPC 4.75 6.97 5.91 4.35 4.36 9.02 
Milk       
Producer SCT ( ₩ billion) 306 512 758 464 939 871 
Percentage SCT 67.8 59.9 44.8 28.9 54.0 51.4 
Producer NPC 3.11 2.50 1.88 1.41 2.18 2.06 
Beef and veal       
Producer SCT ( ₩ billion) 496 1,294 1, 117 876 1, 241 1,234 
Percentage SCT 54.0 65.0 30.0 29.0 31.0 31.0 
Producer NPC 2.23 2.89 1.43 1.41 1.44 1.44 
Pigmeat       
Producer SCT ( ₩ billion) 307 775 2,145  1,961 2, 421 2,052 
Percentage SCT 32.0 40.0 63.0 64.0 68.0 58.0 
Producer NPC 1.50 1.69 2.75 2.78 3.08 2.38 
Poultry       
Producer SCT ( ₩ billion) 132 385 576 324 628 775 
Percentage SCT 49.4 56.5 43.6 34.8 46.4 49.7 
Producer NPC 2.09 2.33 1.80 1.53 1.86 1.99 
Table IV.1 (cont'd)  
                                                      
22 For OECD calculations, market price support commodities were:  other grains, garlic, red pepper, 
chinese cabbage, rice, soybean, milk, beef and veal, pigmea t, poultry, and eggs.  Market Price Support is net of 
producer levies and Excess Feed Cost (OECD, 2011a,  Table 10.2.). 
23 The NAC measures the monetary value of support (transfers) from consumers and taxpayers to 
producers relative to current production valued at border prices.  It is expressed as a ratio between the value of gross farm receipts (including all form s of measured support) and the gross fa rm receipts valued at border prices 
(without support). 
24 OECD (2011a),  Table 10.2. WT/TPR/S/268/Rev.1 Trade Policy Review 
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   1986-88 1995-97 2008-10 2008 2009 2010a 
Eggs       
Producer SCT ( ₩ billion) 1 63 140 166 156 98 
Percentage SCT 0.5 10.7 12.4 15.7 13.3 8.3 
Consumer NPC  0.92 1.12 1.14 1.19 1.15 1.09 
Other commodities       
Producer SCT ( ₩ billion) 3,424 7,841 8,874  7,871 9, 416 9,334 
Percentage SCT 71.0 61.9 43.7 42.3 47.7 41.0 
Producer NPC 4.60 2.73 1.78 1.74 1.91 1.69 
a Provisional. 
Note: PSE:  Producer Support Estimate;  NPC:  Nominal Prot ection Coefficient;  SCT:  Single Commodity Transfer. 
Source: OECD (2011), Agricultural Policy Monitoring and Evaluati on 2011:  OECD Countries and Emerging Economies , 
Table III.17.  Viewed at:  http://dx.doi.org/10.1787/agr_pol-2011-en [6 January 2012]. 
13. Market price support is implemented through  government purchases and public stockholding 
schemes, supported by trade barriers (section above ).  Publicly funded purchase and stockholding 
schemes support agriculture by stabilizing prices at highe r than world market levels.  According to the 
authorities' notifications to the WTO, there are only five market price support commodities:  rice, barley, soyabeans, maize (corn), and rapeseeds;  in  2008, barley, maize, and soyabeans benefited from 
market price support, while currently, soyabean is the only commodity subject to such support 
through government purchase operated by the Korea Agro-Fisheries Trade Corporation.
25  A public 
stockholding scheme is maintained for rice (section (2)(iii)(a)).  
14. Direct payments remain part of Korea's fa rm income support policy, replacing in part 
previous market price support or supplementing market price support.26  The significance of direct 
product-specific payments relative to consumer-f unded producer support (PSE) increased from about 
1% of producer support in 1986-88 to 11.7% in 2008- 10, and 12.8% in 2010 (Tables IV.1 and IV.2).  
Total government payments, includi ng provision of general support services rose steadily from 2008 
to 2010 (Table IV.2).  Five types of direct pa yment programmes with different objectives remain in 
place:  direct payment for rice income compensation;  direct payment for environment-friendly agriculture (see below);  direct payment for di sadvantaged regions;  direct payment for rural 
landscape conservation;  and direct paym ent for early retirement from farming.
27  Direct payments, if 
sufficiently de-linked from production, are far less di storting than market price support, which, being 
output-based, distorts trade and production mo st by contributing to over-production.28  Korea has no 
output-based direct payment schemes per se , but makes such payments  based on overall farming 
income, area planted or animal numbers, and in put use.  Nevertheless, while likely to be less 
distorting than output-based assistance, such s ubsidies still stimulate production and input use, 
thereby affecting agricultural trade.  The potentia lly adverse effects are on the environment, even 
though these subsidies are accompanied by new, mo re widely implemented schemes to help reduce 
the harmful effects of pesticide and agricultura l chemicals, whose use dropped by 14% and 38.3% 
between 2005 and 2010, respectively.  
                                                      
25 WTO document G/AG/N/KOR/43, 16 September 2011. 
26 OECD (2011a). 
27 OECD (2011a). 
28 Output-based assistance is also re latively ineffective in transferring  income to poor farmers or in 
achieving environmental objectives. Republic of Korea WT/TPR/S/268/Rev.1 
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  Table IV.2 
Direct payments to agricultu re, 1986-88, 1995-97 and 2008-10 
(₩ billion) 
Type of payment 1986-88 1995-97 2008-10 2008 2009 2010a 
Specific       
Based on output 0 0 0 0 0 0 
Based on input use 70 871 765 861 689 746 
Based on current area planted/animal 
numbers/receipts/income, production required 24 206 936 689 941 1,179 
Based on non-current area planted/animal 
numbers/receipts/income, production not required 0 0 686 743 653 661 
Based on non-commodity criteria  0 0 0 0 0 0 
Total 94 1,077 2,387 2,293 2,283 2,586 
General services       
Research and development 52 275 760 813 700 768 
Agriculture schools 5 47 135 116 138 151 
Inspection services 21 80 116 118 116 114 
Infrastructure 374 2,121 1,814 1,733 1,969 1,740 
Marketing and promotion 0 12 64 57 65 69 
Public stockholding 394 341 364 374 419 298 
Total 846 2,876 3,253 3,211 3,407 3,140 
TOTAL 940 3,953 5,640 5,504 5,690 5,726 
a Provisional. 
Source:  OECD (2011), Agricultural Policy Monitoring and Evaluati on 2011:  OECD Countries and Emerging Economies , 
Table 10.2.  Viewed at:  http://dx.doi.org/10.1787/agr_pol-2011-en [6 January 2012]. 
15. Programmes to protect farm household income from natural disasters have been reinforced.29  
The scope of the crop insurance scheme rose from 7 agricultural products in 2006 to 30 in 201130;  a 
further extension to 35 commodities in 2012 and 40 in 2013 is under way.  In 2011, the Government 
paid 63% of insurance premiums (68% in 2006).  In  2009, 45,882 farms subscribed to this insurance 
(41% more than in the previous year), and land covered by the insurance increased by 85.6% to 
48,311 ha between 2008 and 2009.31  In 2011, 40% of farmers had subscribed to the insurance scheme 
and the government budget for the scheme was ₩ 97.2 billion.32  The scope of the livestock insurance 
scheme  for protecting farmers' income from outbreaks of animal disease and natural disaster, 
increased from 9 livestock products in 2006 to 15 in  2011, and a further increase to 16 is planned 
for 2012.33   
                                                      
29 OECD (2011a). 
30 By 2011, the scheme included ap ples, pears, peaches, grapes, Korean citrus, sweet persimmons, 
astringent persimmons, kiwi, plums, beans, onions, potatoes, chestnut, watermelon, pepper, rice, potatoes, corn, garlic, plums, dates, rubus coreanus, raspberries, and horticultural facility crops (strawberries, cucumbers, 
tomatoes, oriental melons, squash, green pepper, rose, chrysanthemum) (MIFAFF online information.  
Viewed at:  http://www.mifaff.go.kr/gonews/cont ent_view.jsp?newsid=155441724&section_id=b_sec_1 
[6 January 2012]). 
31 OECD (2011a). 
32 MIFAFF online information.  Viewed at:  http://www.mifaff.go.kr/gonews/content_view.jsp? 
newsid=155441724&section_id=b_sec_1 [6 January 2012]. 
33 In 2011, the livestock products under the sche me included cattle, pigs, horses, chickens, ducks, 
pheasants, quail, turkey, deer, geese, ostriches, sheep, bees, rabbits, and aquarium birds (MIFAFF online WT/TPR/S/268/Rev.1 Trade Policy Review 
Page 118 
  
  16. Policies for promoting environmentally fri endly farming have been strengthened34;  the share 
of environmentally friendl y products in total agriculture out put increased to 12% in 2010 (9.7% 
in 2007).  Direct payments for environmentally friendly agriculture with reduced fertilizer and 
pesticide use has resulted in the rapid increase of areas certified as adopting environmentally friendly 
farming practice35, from 0.2% of the total area of farmland in 2001 to 11.6% in 2009.  The 
Government currently provides support for prevention of soil erosion and soil acidification.  As from 2001, Environmentally-friendly Agricultural Products Certification has been in place.
36  
Following consumer demand for higher food-safety standards, certificati on has become more 
restrictive since 2010;  no new certificates are bei ng issued for low-pesticide agricultural products, 
and certification of these products will cease to exist in 2015.  As a result, chemical fertilizer use fell 
from 267 kg/ha in 2009 to 233 kg/ha in 2010.  In addition, in 2009, direct payments for 
environmentally friendly livest ock farming were introduced.37  Payments to operate this programme 
totalled ₩ 2.72 billion in 2010, and ₩ 3 billion in 2011;  the authorities indicated that support for this 
and other related programmes will be  calculated and included in Korea's notifications to the WTO 
regarding subsidies.  An output-related payment is  made to Hazard Analysis and Critical Control 
Points (HACCP)-certified livestock farms that pr oduce organic and antibiotic-free livestock products.  
Producers of Korean varieties of cattle, dairy ca ttle, pigs, chickens, and ducks (as from 2011) are 
eligible for the programme.  A total of ₩ 743 million (US$647,000) was paid for the operation of the 
programme in 2009, and ₩ 2.72 billion and ₩ 2.99 billion were paid in 2010 and 2011 respectively. 
17. Restrictions on farmland ownership by agricultu ral corporations were relaxed as a result of 
the Farmland Law in November 2009.  Foreigners a nd Korean nationals must prove that they are 
capable of cultivating farmland on their own in orde r to be eligible for ownership, seemingly for 
reasons of stable food supply (Chapter II).  The au thorities indicated that foreigners are not barred 
from investing in growing rice and barley, nor in land where those crops are grown, though their direct involvement in farming of these crops is pr ohibited for cultural and food-security purposes.   
18. The first phase of a 5-Year Plan to Improve the Quality of Life of Farmers and Fishermen and 
Promote Development in Rural, Mountainous a nd Fishing Communities was implemented from 2005 
to 2009;  its second phase began in 201 0, and is to be completed in 2014.
38  The Plan is to, inter alia,  
promote balanced and equitable development acro ss Korea by improving the welfare of rural and 
fishing villages.  A comprehensive ₩ 54.8 trillion 10-year plan for ag riculture and rural areas for the 
period 2005-14 was introduced, to finance various programmes in two 5-year stages;  funding is 
ensured from various sources (e.g. special account, general account, grant and funds).  
19. Under the Act on Trade Adjustment Assistance, Ko rea is to expand its support for adjustment 
in agriculture and fisheries, to ease their losses due  to a large influx of products under recently 
concluded free-trade agreements (FTAs) (Chapters II(6)(iii) and III(4)(ii)(b));  the Government will 
spend ₩ 24.1 trillion (US$20.8 billion) to provide fi nancial and fiscal support for domestic fishing 
                                                                                                                                                                     
information.  Viewed at:  http://www.mifaff.go.kr/gonews/content_view.jsp?newsid=155441724&section_ 
id=b_sec_1 [6 January 2012]). 
34 Korea launched the Presidential Committee on Gree n Growth and set the five-year Green Growth 
National Strategy in 2009 (section (5)).  In addition, the April 2010 Framework Ac t on Low Carbon and Green 
Growth included the agricult ure sector (OECD, 2011a). 
35 OECD (2011a). 
36 This certification covers organi c agricultural products, pesticid e-free agricultural products, and 
low-pesticide agricultural products. 
37 OECD (2011a). 
38 National Archives of Korea online information.  Viewed at:  http://contents.archives.go.kr/next/ 
content/listSubjectDescription.do?id=004895&pageFlag=A [6 January 2012]. Republic of Korea WT/TPR/S/268/Rev.1 
 Page 119 
 
 
  and agricultural households from 2008 to 2017.39  The financial support is triggered when the annual 
average product prices fall below 90% of the averag e annual standard prices of the last five years.40  
Initially US$1 billion was committed for the peri od 2004-10, primarily to assist horticultural 
producers after the implementation of the Korea- Chile Free Trade Agreement (FTA) in 2004.   
20. Policies to cope with growing consumer concer ns about food safety have been intensified:  
the 2004 Beef Traceability System was expanded ( section (2)(iii)(b));  and a country-of-origin 
labelling scheme was applied to every restaurant  serving beef (2007), pork meat (2008), chicken 
meat (2008), rice (2008), kimchi (2008), and duck (as from 2010).  With foot-and-mouth disease 
(FMD) in cows and pigs, in November 2010, the Government culled more than 3 million head, and 
prohibited all farms within a 20-kilometre radius of  the affected livestock from selling or removing 
any animals from the area, as a pre-emptive measure.41  Vaccination measures have been taken since 
January 2011.  Disease damage was estimated at about ₩ 3 trillion (US$2.6 billion).  As a result, the 
Domestic Animal Infectious Disease Control Law was amended, and a support package was 
implemented, including income tax relief, for farmers affected by FMD. 
21. Credit concessions for feed pur chases were increased in 2008 in response to higher feed 
import costs.42  A farm machine leasing programme was expanded to reduce costs of capital for 
farmers.  Korea also exempts farmers, forest ers, and fishers from taxes on petroleum products 
(section (4) and Chapter III(4)(ii)(d)).   
(iii) Selected activities 
(a) Rice 
22. Rice remains by far the most important single product and the dominant grain in Korea, as 
shown by its contribution to agricultural production and land use, as well as its weight in Koreans' 
diet.  Rice production remains heavily protected a nd assisted;  as a result, according to the OECD 
in 2010, its domestic price was 1. 6 times world levels (consumer NPC43), slightly more than half of its 
2006 ratio.  According to the authorities, in terms of middle grain variety, its domestic price was 
2 times world levels, compared to 4.3 times in 2005.  Despite its reduced shar e in the total value of 
agricultural production, rice production increased fro m 4,408,000 tonnes in 200 7 to 4,916,000 tonnes 
in 2009, reflecting an upward trend of prod uction per cultivated area unit, and dropped to 
4,295,000 tonnes in 2010.44  Nevertheless, in 2011 rice production almost reached its lowest level in 
more than 30 years;  since its peak in the 1970s, rice production has declined as farmers retire without 
being replaced and consumers' diets change.45  
23. Imports of rice are subject to a tariff of 5% but in May 2011, the authorities were considering 
levying higher tariffs on rice imports in 2012, in ad vance of the scheduled date of 2015, but no clear 
                                                      
39 Yonhap,  "Seoul to expand help for fishing, agricultural sectors under free trade deals", 
2 January 2012. 
40 Standard prices are calculated as follows:  the lowe st and highest of the aver age annual price of each 
of the preceding five years are excluded;  and the aver age of the remaining three years is then multiplied by 
90%. 
41 OECD (2011a). 
42 OECD (2010a) and (2011a). 
43 Consumer Nominal Protection Coefficient (consumer NPC)  is the ratio between the average price 
paid by consumers (at farm gate) and the border  price (measured at farm gate) (OECD, 2011a,  Table III.38). 
44 Statistics Korea (2010). 
45 USDA (2011c). WT/TPR/S/268/Rev.1 Trade Policy Review 
Page 120 
  
  policy has been established yet.  The MIFFAF believ es that the (unspecified) higher tariff will help 
control the inflow of rice imports and thus protec t the already heavily subsidized rice industry.  
However, with domestic rice consumption in steep declin e, stocks of rice are likely to continue to pile 
up.46  Following the re-negotiation of the quantitative restriction on rice imports in 2004 
(section (2)(ii) and Chapter III(2)(vi)(b)), the speci al treatment for rice was extended until 2014, and 
the minimum market access (MMA) volume is being increased from 225,575 tonnes in 2005 to 
408,700 tonnes in 2014 in equal annual instalments to  cover 8% of domestic consumption.  Korea 
considers that it meets its multilateral quota commitm ents in this area;  the MIFAFF controls all 
rice imports for use by food processors.  According to the authorities, between 2008 and 2011, 
Korea's total purchases of rice from the United Stat es, China, Thailand, and Pakistan increased by 
10.9% (in volume terms) to 317,929 tonnes.   Price mark-ups with a tariff-like effect were not imposed 
on imported rice (Chapter III(2)(vii)), since the selling price in the domestic market was higher than 
the import price.  Direct involvement in rice (and barley) farming remains cl osed to foreign direct 
investment (section (2)(ii)(a)).  Quotas are being set on the basis of an export-need recommendation 
for rice exports;  between 2008 and 2012, thei r volume was increased by 117.6% but remain little 
utilized (Chapter III(3)(ii)(b)).  
24. Under the Rice Income Compensation Act (RICA), rice farmers receive two types of income 
support payments:  an area payment and a deficiency payment.47  In 2011, combined support 
payments totalled ₩ 617 billion (US$557 million).  The area paym ent is made on a 'per hectare' basis 
and is calculated using the average area of rice production during the base period 1998-2000.  
The 2011 area payment was ₩ 701,169 (US$634) on average per hectare;  paddy area covered under 
this support programme declined to 875,000 hect ares, down 0.9% from the previous year.  The 
deficiency payment is 85% of the difference be tween the national-average market price during 
the 2011 harvest season (October-January) and th e 2011 target price, less the area payment.48  
In 2011, the deficiency payment amounted to zero since the average harvest price of ₩ 2,079 
(US$1.88) per kg (milled) was so close to the target price of ₩ 2,126 (US$1.92) per kg (milled).  The 
area payment of ₩ 701,169 per hectare is converted to a kg equivalent ( ₩ 144/kg) by dividing it by 
the 1999-2003 "Olympic" average yields (i.e. an average during a five-year period, dropping the highest and lowest values).  The Government re vised its acreage reduction programme for trimming 
rice production from 40,000 ha down to 5,000 ha. 
25. To ensure food security and price stability, under the Public Rice Stockholding Program 
(PRSP), a purchase and release mechanism, the Government procures domestic paddy rice during the 
harvest season (October-December) at the average market price and later sells it during the non-harvest periods at the prevailing domestic market price.
49  Purchases under this scheme ranged 
between 7% and 15% of dom estic production in 2005-10.50  Between October and December 2011, 
the Government purchased 261,000 tonnes (milled b asis) of paddy rice, or 6% of the 2011 rice 
production, under PRSP.  However, government procurements failed to reach the initial target of 
                                                      
46 Oryza,  "South Korea To Advance Higher Tariffs On Imports", 25 May 2011.  Viewed at:  
http://oryza.com/Asia-Pacific/South-Korea-Market/South -Korea-To-Advance-Higher-T ariffs-On-Imports.html 
[17 January 2012]. 
47 USDA Foreign Agricultural Service (2012a).  For information on past practices see WTO document 
WT/TPR/S/204/Rev.1, 4 December 2008. 
48 The deficiency payment calculation is: [(Target Price ₩/kg - Average Harvest Price ₩/kg) x 0.85] - 
Area Payment per HA /Avg. National Yield per HA [ ₩ 2,126 - ₩ 2,079] x 0.85] - ₩ 703,163/4,880 MT = 
minus ₩ 104 per kg.   
49 USDA Foreign Agricultural Service (2012a). 
50 USDA online information.  Viewed at:  http ://www.ers.usda.gov/briefing/southkorea/policy.htm 
[6 January 2012]. Republic of Korea WT/TPR/S/268/Rev.1 
 Page 121 
 
 
  340,000 tonnes because farmers were reluctant to pa rticipate in the programme.  In June 2011, the 
Government decided to increase its sales of rice produced in 2009 from the planned 50,000 tonnes to 
150,000 tonnes, and reduce the price for rice produced in 2009 to half the price of rice produced in 2010, to stabilize inflation.
51  Mid-year 2011/12 stocks (end of October) were forecast at 
0.9 million tonnes, equivalent to rou ghly 18% of domestic consumption.   
(b) Beef  
26. Beef imports continue to be subject to a tariff of  40%, the same as in 2008;  this rate is to be 
phased-out for imports under the KORUS and Korea-EU FTAs.  As the price of beef has been high, 
the number of cattle increased from 2.2 million in 2008 to 3.4 million in December 2010;  the volume 
of beef imports (based on quarantine record) also  increased, by almost 21% between 2007 and 2010 
from 202,785 tonnes to 245,146 tonnes.52  On account of the FMD outbreaks in 2011, 150,864 cattle 
(4.5% of the total herd) were culled (section (2)(ii)).53   
27. Although beef assistance has fallen, it remains high (SCT) of 31% in 2010 (Table IV.1 and 
section (2)(ii)).  At the end of 2011, Korea ended an  eight-year ban on imports of Canadian beef by 
passing import health requirements for Canadian be ef under 30 months of age;  Korea was the last 
major beef-importing country to agree to re lax its restrictions on Canadian beef.   
28. Payments under the Calf Breeding Stabilization Scheme, introduced in 2000 to assist beef 
producers (434,396 calves), have been made only once (from June 2008 to February 2009)54, as the 
calf price has remained above the base price.  As of 2011, 120,000 beef producers (76% of total), 
raising 1,069,000 calves, had joined th e Calf Breeding Stabilisation Scheme. 
29. Foreign direct investment of less than 50%  of investment assets is permitted (since 
March 2001) in cattle-raising and meat wholesale.  The 2004 Beef Traceability System led to gradual 
increase of market share for domestic beef from 44.2% in 2004 to 50% in 200955;  this share dropped   
to 43,2% in 2010 due to the outbreak of FMD.  In June 2009, the system was expanded to the distribution stage, and in December 2010 to cover beef import and distribution. 
30. Cattle imports are more competitive than the domestic animal, costing ₩ 1.66 million per 
head (including customs and quarantine costs) in June 2011 compared with ₩ 3.8 million.  The 
authorities state that this price competitiveness comparison is not appropiate. 
(c) Dairy  
31. Dairy production remains assisted (SCT of 51.4%  in 2010, Table IV.1), and tariff quotas tend 
to restrict imports.  Relatively high in-quota tariff rates of 20% or 40% apply to dairy products, and 
much higher out-of-quota rates, of 49.5%, 89% or  176% in 2010 (Table AIII.4), result from the 
"tariffication" exercise in the Uruguay Round.  In 2010, the fill ratio ranged from zero (evaporated milk) to 100% (butter)  (Table AIII.5).  In March and June 2 011, temporary duty reductions on limited 
                                                      
51 KOCIS online information, "Government Holds Ministerial Meeting on Price Stabilization 
Measures", 10 June 2011.  Viewed at:  http://www .korea.net/detail.do?guid=56860 [6 January 2012]. 
52 USDA (2011b). 
53 USDA (2011b). 
54 Farmers raising Han-woo cattle received ₩ 170,000 (US$155) per head as the trading price of calves 
had dropped under the stabilization level of ₩ 1,650,000 (US$1,500) at the third quarter of 2008 (OECD, 
2009a).  For data at the time of the previous TPR see WTO document WT /TPR/S/204/Rev.1, 4 December 2008. 
55 OECD (2011a). WT/TPR/S/268/Rev.1 Trade Policy Review 
Page 122 
  
  quantities of dairy products were introduced until end 2011, to ease inflation due to the massive 
slaughter of livestock relating to the FMD epidemic (sections (2)(ii) and (2)(iii)(b)), and colder than 
normal winter weather.56  The Korea-U.S. free-trade agreement eliminated the 36% import tariff on 
imported cheddar cheese (HS0406.90) over 10 year s, and duties on other cheese (0406.10) will be 
phased out over 15 years.57 
32. Under a differentiated pricing mechanism for surplus milk for all dairy farms in Korea 
operated by the Korea Dairy Committee (KDC)58 milk collected above the contracted volume is 
classified as surplus milk and pays dairy farmer s less than the normal price for the surplus.59  These 
lower prices are now at about 50% of  international milk powder prices.60  Currently, 5% (10% 
average in 2005-09) of total raw milk is subject to the differential price mechanism.  Domestic 
production dropped between 2005 and 2009, and the excess supply of raw milk fell from 116,479 
tonnes to 54,504 tonnes;  imports rose by 6.8%.61  Furthermore, the self-sufficiency rate for raw milk 
declined from 72.4% (2005) to 67.8% (2009) due to the outbreak of FMD;  after June 2012 it recovered to the pre-FMD level. 
(3) F
ISHERIES  
33. Korea remains a leading producer of fish products, although fish production was down from 
3.36 million in 2008 to 3.11 million tonnes in 2010.62  The majority of fish production is from capture  
fisheries (production that excludes shallow sea a quaculture), whose share declined from 58.7% in 
2009 to 56.4% in 2010.  Korea's capture production is the world's 13th largest.63  Korea's apparent 
consumption, of 57.4 kg of fish products per capita in 2010 (56.5 kg  in 2007, 54.9 kg in 2008, 49.8 kg 
in 2009), was more than three time s the world average, and higher than that of any developed country 
except Japan.64  As a result, in 2010, Korea imported a bout US$1.7 billion more fisheries products 
than it exported, making it the world's 11th largest importer of fisheries products by value65;  imports 
are expected to continue to outpace exports.  Dome stic fish production is not expected to increase 
                                                      
56 From March to end 2011, duties were eliminated temporarily on 30,000 tonnes of powdered skim & 
whole milk;  3,500 tonnes of butter;  40,000 tonnes of processed butter dairy spreads;  and 23,000 tonnes of mozzarella cheese.  Zero-duty TRQs on dairy products for the second half of 2011 included 18,500 tonnes of 
milk and cream;  1,200 tonnes of fresh cheese;  and 24,000 tonnes of other cheese (USDA, 2011a). 
57 USDA (2011a). 
58 Since 1999, the KDC has been entrusted with improving the structure of the dairy industry;  
balancing supply and demand of raw milk and dairy produ cts;  stabilizing prices;  and enhancing the distribution 
structure. 
59 The normal (farm gate) milk price is calculated by adding to or subtracting from the basic milk price 
(not provided by the authorities) ot her amounts depending on hygiene factors (e.g. bacterial counts, somatic cell 
counts, milk composition factors).  
60 Until March 2009, these lower prices ranged from 7% (level of international milk powder prices) to 
70% below the normal price. Korea Dairy Committee online data.  Viewed at:  http://www.dairy.or.kr/english/2-
2-2_bu_ Purchase.htm [16 January 2012]. 
61 Korea Dairy Committee online data.  Viewed at:  http://www.dairy.or.kr/english/3-2_ko_Supply.htm  
[16 January 2012]. 
62 This includes 1.23 million tonnes from adjacent wate rs fisheries, 1.31 million tonnes from shallow 
sea aquaculture, 612,000 tonnes from deep-sea fishing and 30,000 tonnes from inland water fishing (USDA, 
2010b). 
63 FAO online statistics, Table A(0)a.  Viewed at:  ftp://ftp.fao.org/FI/STAT/summary/a-0a.pdf 
[18 January 2012]. 
64 USDA Foreign Agricultural Service (2012b);  and FAO online statistics.  Viewed at:  
ftp://ftp.fao.org/FI/STAT/summary/FBS _bycontinent.pdf [18 January 2012]. 
65 FAO online statistics, Table A3.  Viewed at:  ftp://ftp.fao.org/FI/STAT/summary/a3ybc.pdf 
[18 January 2012]. Republic of Korea WT/TPR/S/268/Rev.1 
 Page 123 
 
 
  significantly due to declining fish stocks in co astal and offshore areas, and the enforcement of 
exclusive economic zones (EEZs)66 by neighbouring countries.  To cope with this situation, the 
Government has accelerated the downsizing of th e fishing fleet;  the number of fishing vessels 
decreased from 80,766 vessels (621,338 GT) in 20 08 to 76,974 vessels (600,622 GT) in 2010.67  
Recognizing the potential economic impact of this st ep and the reduction in fishery agreements, the 
Government is undertaking an in-depth study of aquaculture and researching how to secure higher 
fish-catch quotas in foreign waters.  Shallow-sea aq uaculture is expected to continue to increase due 
to tighter restrictions on fresh-water aquaculture a nd expectations of continuing reductions in wild 
catches in the future.  Since 2008, shallow-sea a quaculture production has been 1.31 million to 
1.38 million tonnes;  in 2010, output was 1.3 million tonnes, equivalent to 44.4% of total fish 
production. 
34. In 2009, the scope of the total allowable cat ch (TAC) system run by the MIFAFF, which 
applies to off-shore and coastal fishing, w as expanded to cover 11 species (previously 7)68;  in 2010, it 
was 602,300 tonnes, 53% more than in 2008, as a r esult of the expansion of the species covered, 
especially squid, and in 2011, it was increased by 330,805 tonnes.  A comprehensive monitoring and 
enforcement programme is in place for the TAC-b ased management system.  The Central Committee 
on Fisheries Resources Management sets TACs fo r each species, based on an annual assessment of 
fish stocks by the National Fish eries Research and Development Institute:  70% of quotas are 
allocated equally to fishermen, and the rest on a "first-come first-served" basis, as fishermen opposed 
auctioning of quotas.  Quotas are not tradeable.   
35. Fisheries resources have also been protected thr ough regulating the mesh size of fishing nets, 
fishing grounds, fishing seasons, etc.  In 2012, 15 (1 2 in 2009, 10 in 2008) species were included in 
the Fish Stock Rebuilding Plan (FSRP) designed to rebuild depleted stocks, based upon voluntary 
participation by fishermen.69  A key aspect of these plans, which are being implemented pursuant to 
the Fisheries Resource Management Act of 22 Apr il 2009, is the systematic assessment of fisheries 
resources.  The Community-based Fisheries Manageme nt (CBFM) self-regulation of coastal fisheries 
is designed to enhance the sense of responsibility of fishermen, and to prevent illegal fishing; 
financial incentives are provided to communities th at have shown good performance, based upon an 
evaluation carried out by an Evaluation Commit tee whose Secretariat is the Korea Fishers 
Association.70  Following the May 2010 revision of th e Fishery Resource Management Act, a 
Fisheries Resource Agency was established in January 2011;  it is in charge of fisheries resources 
management and development.  
36. Access to Korean EEZ waters by foreign fishing vessels is controlled by bilateral agreements;  
vessels must be licensed.  Quotas for foreign vessels are renewed annually in consideration of fish 
stock developments, and the allocation process do es not involve the TAC.  Currently, China and 
Japan are the only foreign countries allowed to fi sh in Korea's waters.  In 2011, there were 
870 licensed Japanese vessels (1,000 in 2008, 900 in  2010) and 1,700 Chinese vessels (1,859 in 2008, 
1,750 in 2010);  in 2012, the latter were reduced  to 1,650 as a result of efforts to preserve fish 
                                                      
66 Korea ratified the United Nations Convention on the Law of the Sea in 1996.   
67 OECD document TAD/FI(2010)9/PART25, "Draft Re view of Fisheries", 15 December 2010, Paris. 
68 The species managed under the TAC are:  four sp ecies of pelagic fish (mackerel, jack mackerel, 
sardine, mottled skate);  three species  of shellfish (pen shell, purplish Washington clam, spiny top shell);  
three species of crab (snow crab, red sn ow crab, blue crab), and common squid. 
69 OECD document TAD/FI(2010)9/PART25, "Draft Re view of Fisheries", 15 December 2010, Paris. 
70 In 2007, financial incentives totalling ₩ 1.18 billion (US$121 million) were provided to fishing 
communities pursuant to this policy.  No data from 2008 onwards were available from the authorities who 
indicated that they will provide them in their notif ication to the OECD later in 2012 (OECD, 2011c). WT/TPR/S/268/Rev.1 Trade Policy Review 
Page 124 
  
  stocks.71  Korean vessels operate in foreign waters  under similar agreements with the Russian 
Federation, China, Japan, Tuvalu, Solom on Islands, Kiribati, and Papua New Guinea.   
37. Korea provides a wide range of financial suppor t for its fisheries sector.  To implement its 
support measures, according to OECD data, a total of ₩ 720.6 billion was transferred to the fisheries 
sector in 2009, down from ₩ 968.2 billion in 2008.72  Most of the transfers were used to improve 
fisheries infrastructure, such as fishing ports, a nd to enhance fishery resources.  Furthermore, 
according to its latest notification to the WTO Committee on Subsidies and Countervailing Measures, 
Korea provides grants and/or concessional loans un der a variety of programmes, including for the 
development of deep-sea fisheries, fish produc t processing development, for fishing activities, for 
aquaculture fishery development, for old fishing vessels and equipment replacement, and for vessel 
decommissioning.73  In 2010, these programmes gave rise to approximately ₩ 145 billion 
(US$125 million) in grants and ₩ 1.578 trillion (US$1.36 billion) in loans, of which one-year loans 
for fishing activities represented the large majority .  Exemption of fishing from taxes on petroleum 
products resulted in a savings to the fishing industry of ₩ 614 billion (US$559 million) in 2008 
(section (2)(ii)).74  Korea has continued to participate in the WTO Negotiating Group on Rules, 
including through joint submissions for a frame work for disciplines in fisheries subsidies.75  
38. Korea encourages environment-friendly offshore aq uaculture as part of the efforts to promote 
sustainable and responsible fisheries developmen t and ecosystem-based aqu aculture management;  
inland aquaculture accounts for less than 1% of all aquaculture.76  The Plan to Promote Eco-Friendly 
and High Valued Added Offshore Fisheries, drawn up in 2009, aims to establish five areas for 
offshore aqua farms (three bluefin tuna farms, two for other species), and to lay the R&D foundation 
for 'complete tuna farming', which encompasses the en tire life cycle of tuna.  The authorities indicated 
that information on progress in implementing these plans cannot be disclosed.  An aquaculture 
insurance scheme to protect fish farmers from natu ral disasters such as typhoons and red tides began 
in 2008 with one species;  it was expanded to cover fi ve species in 2011 and will cover ten species in 
2012.77 
39. Fish and fish products are subject to relativel y high tariffs of 10% or 20%.  To insulate 
selected domestic seafood producers from imported pr oducts (mainly from China), Korea maintains 
higher adjustment tariffs ranging from 22% to 43% (as of 2012, 47% in 2011) for nine fish species 
that are not subject to WTO binding commitments (Table AIII.3).  Since August 2008, a traceability system has been in place to provide consumers with the information from the vessel to the table;  the 
                                                      
71 Korea and China agreed to cut back on fishing in  each other's EEZs for 2012.  China's fishing quota 
in Korea's EEZ will be cut by 2, 500 tonnes to 62,500  tonnes in 2012 wi th the number of Ch inese fishing boats 
allowed to operate in Korean waters also reduced from 1,700 to 1,650.  The number of Korean boats to be 
allowed into China's EEZ remains int act in 2012 at 1,600, but their total catch will be reduced from 
64,000 tonnes to 62,000 tonnes.  Under the 2010 fishing-quota agreement, 1,600 Korean vessels were allowed to catch 66,000 tonnes, down from 68,000 tonnes in 2009, inside China's EEZ, an d in return, 1,750 Chinese vessels 
could catch 67,500 tonnes in the Korean zone ( Korea Herald , "Korea, China to cut fishing quotas in exclusive 
waters", 25 October 2011.  Viewed at:  http:// www.koreaherald.com/business/ Detail.jsp?newsMLId=20111025 
000531 [2 January 2012];  and USDA, 2010b). 
72 OECD document TAD/FI(2010)9/PART25, "Draft Re view of Fisheries", 15 December 2010, Paris. 
73 WTO document G/SCM/N/220/KOR, 23 September 2011.   
74 WTO document G/SCM/Q2/KOR/37, 15 October 2010. 
75 WTO documents TN/RL/W/245, 24 November 2009;  and TN/RL/W/251, 29 March 2011. 
76 OECD document TAD/FI(2010)9/PART25, Draft Review of Fisheries , 15 December 2010, Paris. 
77 The five insured fish products in 2011 were halibut, abalone, jacopever, oysters, and seaweed 
(MIFAFF online information.  Viewed at:  http:// www.mifaff.go.kr/gonews/content_view.jsp?newsid= 
155441724&section_id=b_sec_1 [6 January 2012]). Republic of Korea WT/TPR/S/268/Rev.1 
 Page 125 
 
 
  system now covers 18 species.  Similarly to agri culture and livestock products (section (2)(ii)), a 
country of origin labelling scheme has applied to  some fisheries products since 11 April 2012.  
40. Foreign investment in coastal and offshore fishing ventures is generally limited to less than 
50%.  In  coastal fishing, permission is required from the local government.  Foreigners wishing to 
invest more than 50% must obtain permission from the MIFAFF.  At present there is no foreign 
investment in offshore and coastal fishing.   
(4) ENERGY  
41. Energy security remains of paramount importance to Korea.  With limited natural resources, 
Korea imports around 96.5% (2010) of its energy.  Korea's high economic growth has created a 
substantial increase in energy demand.  Betw een 2008 and 2010, energy consumption increased by 
8.3%, considerably faster than the sector's GDP growth rate.  In 2008, Korea was the world's 
9th largest energy consumer of primary energy co nsumption, with 2.1% of the worldwide energy 
consumption, at 11,295 million TO Es (tonnes of oil equivalent).78  Total energy demand is projected 
to rise by 1.4% annually until end 2035.  In 2010,  the main energy sources were oil (40.1%), coal 
(29.2%), liquid natural gas (LNG) (15.7%), and nucl ear energy (12.2%).  Industry remains the largest 
consumer and its share in final consumption ro se from 55% in 2009 to 59.3% in 2010 (including non-
energy uses), while the share of households and th e services sector dropped from 26% to 19.6%.  The 
share of transport has remained relatively stable over time (18.8% in 2010).79  
42. Korea's Energy Vision 2030, launched in N ovember 2006 and aimed at reducing energy 
intensity by 46% between 2007 and 2030, determines the direction of the national energy policy until 
2030.  Its three basic directions (3 Es) are:  energy security, energy efficiency, and environment-
friendly as recommended by the International Energy Agency.80  T h e  4th five-year Basic Rational 
Energy Utilization Plan 2008-2012 set an energy-i ntensity reduction target  of 11.3% between 2007 
and 2012.81  The National Strategy for Green Growth up to 2050, announced in July 2009 is aimed at, 
inter alia,  mitigating climate change, creating new engi nes for economic growth (section (5)), and 
improving the quality of life.  Its ten policy agend as include:  effective mitigation of greenhouse gas 
emissions;  reduction in the use of fossil fuels and the enhancement of energy independence;  
strengthening the capacity to adapt to climate ch ange;  development of green technologies;  and 
advancement of the industrial stru cture to increase the role of services.82  Despite the current low 
electricity tariffs and the energy-intensive manuf acturing sector (section(4)(ii)), higher pricing of 
energy is to be focused on saving energy thr ough demand-suppression and the shift of businesses and 
households to energy-efficient equipment and technolog y.  However, in order to allow ample time for 
businesses and households to adjust, energy prices w ill be the raised gradually.  Such conservation 
measures would also have the effect of curbing gr eenhouse gases.  Korea plans to realize "universal 
energy services" across the nation by 2016 so that no citizen will be excluded from the systematically 
expanded energy welfare scheme.  It aims to beco me an advanced energy security nation by reducing 
the energy poverty rate ("energy poverty househol ds" with energy expenditures of over 10% of 
                                                      
78 Statistics Korea (2010). 
79 ABB (2011). 
80 In addition, nuclear power plants  will account for 41% of total powe r-generation facilitie s in 2030 up 
from 26% in 2007.  It will also cut energy consumpti on by 42 million TOEs.  Foss il fuels will account for only 
61% of total energy consumption, down from the current  83%, while the use of renewable energy will increase 
from 2.4% in 2007 to 11% in 2030 (International Energy Agency press online information.  Viewed at:  http://www.iea.org/papers/roundtable_slt/korea_oct08.pdf). 
81 ABB (2011). 
82 OECD (2010). WT/TPR/S/268/Rev.1 Trade Policy Review 
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  income) from 7.8% in 2006 to zero by 2016, and cutting the ratio of fire accidents caused by 
electricity to 10% by 2030 (from 25.4% in 2006). 
43. The Ministry of Knowledge Economy (MKE) sets energy policy.  A National Committee on 
Saving Energy envisages meeting a third of Korea's energy consumption from Korean investment in 
resources overseas83, seeks to raise the ratio of renewabl e energy use (see below) and reduce 
dependence on petroleum to 33% by 2030.  In 2010,  Korea's energy self-sufficiency rate for 
petroleum and gas was 10%  (3.2% in 2006) and renewable energy 2.61%  (2.24% in 2006);  its 
dependency rate on petroleum was 39.7% of to tal energy production (43.6% in 2006).  
44. Korea remains at an early st age in the use of renewables.84  At the same time, it is a major 
player in the global renewable energy products ma rket, accounting for 7.1% (2010) of the world's 
photovoltaic (PV) market.85  Its 2008 Third National New and Rene wable Energy Plan set a target of 
increasing the share of renewable sources in total pr imary energy supply from 2.4% (according to 
Korea's definition of renewables) to 6% in 2020, and 11% in 2030.  These objectives appear to be 
modest compared with targets in many comparab le countries, although the pace of change envisaged 
is remarkable considering that Korea increased its renewable ener gy supply by only 0.37 percentage 
points to 2.43% from 2005 to 2008.86  Achieving this objective requires an effective and efficient 
policy framework.  An estimated ₩ 111.4 trillion of investment is required by 2030;  the public sector 
will provide ₩ 32 trillion of this amount.  Moreover, a Renewable Portfolio Standard (RPS) was 
introduced in 2012 to support the attainment of large-scale renewable-energy deployment and 
industrialization goals.  In addition, despite the recen t Fukushima incident in Japan, there are plans to 
increase the use of nuclear power, which is the least  expensive means to generate electricity and 
produces almost zero greenhouse gas;  its share of electricity generation capacity is targeted to 
increase from 26% in 2007 to 41% in 2030.  Stronger safety measures budgeted at ₩ 1.1 trillion will 
be implemented and in-depth nuclear power R&D focused on safety will be undertaken.  
(i) Hydrocarbons 
(a) Oil 
45. Diversifying oil imports away from the Middle East remains a policy goal (Chapter III(2)(v)); 
all oil is imported, of which 87.1% was from the Middle East in 2011 (81.8% in 2010).87  Korea was 
the world's ninth largest oil consumer in 2010 (fifth in 2009).88  It has the second, third, and seventh 
largest oil refineries in the world, and is now a majo r exporter of refined products .  About half of total 
refinery output is exported.   
46. The oil industry was deregulated in 1998 and reta il prices have been liberalized.  Imported 
crude oil is subject to a tariff of 3% and refined pr oducts at zero (naphtha, natural liquid gas), 3%, 5%, 
7%, and 8% (waxes), thereby encouraging domestic refining.  Surcharges on imported crude oil and 
                                                      
83 The authorities consider overseas resource development by Korean companies as a means of 
ensuring security of supply to domestic market.  At end-December 2011, the Korea National Oil Company 
(KNOC) was participating in 215 promising overseas oil development projects in 24 countries. 
84 Jones and Yoo (2011). 
85 Korea produces and exports PV and wind energy  materials and components, as well as finished 
products. 
86 United Nations Environment Programme (2010). 
87 In 2010, diversification of oil suppliers was largely the result of increased imports from Indonesia 
and the Russian Federation (UNSO Comtrade statistics). 
88 CIA (2009). Republic of Korea WT/TPR/S/268/Rev.1 
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  domestically produced refined products finance the Energy Project Special Account 
(Chapter III(2)(v)).89  Four private companies account for over two thirds of oil refining market.90   
47. The state-owned Korea National Oil Company (KNOC) handles oil and gas exploration, 
development and productio n, and maintains Korea's emergency oil reserves.91  KNOC is participating 
in oil development projects overseas.  MKE issues c oncessions for oil and gas exploration, which also 
specify future tax treatment in the event of disc overy.  Most exploration is offshore, where all 
concessions issued to date (seven blocks) have gone to KNOC and private Korean companies.  In 
2008, KNOC  launched the "GREAT KNOC 3020" initiative,  to transform the corporation into one of 
the world's 50 most productive oil exploration and production companies with daily production of 
300,000 barrels and 2 billion barrels of reserves by 2012;  it is in the final stages of achieving this 
goal.  In April 2010, a 3-phase 30-year oil stoc kpiling construction plan was completed, raising 
Korea's storage capacity far above the level of IEA members.92  
(b) Natural gas  
48. Korea is the world's second largest importer of LNG (liquefied natural gas) and LPG 
(liquefied petroleum gas).  All LNG is imported,  although small quantities (less than 2% of annual 
domestic consumption) of natural gas have been pr oduced offshore since July 2004.  SK Gas and E1 
(formerly LG-Caltex Gas) import just over half  of Korea's LPG requirements, while domestic 
refineries produce the rest;  there is no state participation in LPG import companies or domestic refineries.  In 2011, LNG was used mainly for generating electricity (45.6%) and cooking and heating (54.4%).   
49. The Korean gas industry is shielded from compe tition.  The majority state-owned enterprise, 
Korea Gas Corporation (KOGAS), the world's larges t LNG importer, has a monopoly over the entire 
wholesale chain.  KOGAS' goal is to enhance productivity by 100% (41% in 2011), achieve 25% 
self-sufficiency (3.6% in 2011) and increase the sh are of overseas profits up to 60% (42% in 2011).
93  
It supplies natural gas to private city gas compani es, for retail distribution.  Nevertheless, since 2005, 
some companies (POSCO, K-POWER (joint-venture company between SK & BP)) have been able to 
obtain licences to import gas directly for their "own use".  Wholesale gas tariffs must be approved by 
MKE, and retail gas prices by local governments.  Price regulation is essentially by rate of return on 
assets.94  KOGAS has a policy of long-term "take or pay" deals.95  It adjusts applied prices (supply 
cost plus fuel cost), every two months for city  gas consumers and every month for power plants.  
                                                      
89 The surcharge applies to all refined sales, including imports, at a rate not exceeding ₩ 36 per litre 
(The Act on Petroleum Businesses). 
90 The top four in terms of market share are SK Corp (27.7%), GS Caltex (22.2%), S-Oil (12.7%), and 
Hyundai Oilbank (11.4%).  GS Caltex is 50% foreign owned by Chevron, S-Oil is 35% owned by Saudi 
Aramco, and Hyundai Oilbank is entirely owned by Hyundai Heavy Industries, the world's largest shipyard, since 2010.   
91 As a member of the International Energy Agency (IE A), Korea is required to hold reserves of at least 
90 days of net oil imports.  In December 2011, Korea's stock levels were at 189 days (Korea National Oil Company online information.  Viewed at:  http://w ww.knoc.co.kr/ENG/sub03/sub03_3_3.jsp;  and Korea 
National Oil Company, 2010). 
92 Korea National Oil Company (2010). 
93 Self-sufficiency rate refers to the volume of resources developed by domestic companies as a 
proportion of the annual imported volume (Korea Gas Corporation, 2010). 
94 KOGAS does not earn any profit on sales, only a handling charge;  it is allowed to recoup its costs 
for infrastructure and personnel through a rate of return that gives a reasonable profit. 
95 A "take or pay" is a provision, written into a cont ract, whereby one party has the obligation of either 
taking delivery of goods or paying a specified amount. WT/TPR/S/268/Rev.1 Trade Policy Review 
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  According to the authorities, the supply cost, which is adjusted once a year, varies for residential and 
industrial consumers according to demand patterns.  
50. No reforms have been undertaken since 2004.  The Government announced the restructuring 
and further privatization of KOGAS in 1999, when it was partially privatized (Natural Gas Industry 
Restructuring Plan).96  The plan provided for an independent regulator to facilitate a competitive gas 
market by instituting an open access regime, including  third-party access to LNG terminals for a fee.  
However, implementation of the plan slowed in 2000 as the relevant bill was not enacted.  Some 
progress was made by introducing Third Party Access for LNG importers (POSCO, K-Power) in 2007.  In 2008, the authorities were working on a deregulation plan by revising the Gas Act to adopt 
open Access for LNG importers.  In October 2008,  the MKE also announced a road map to permit 
other companies to enter the LNG import and wholesal e market in Korea starting in 2010.  The road 
map contemplates gradual liberalization, starting with the market for power-generating companies followed by the market for industrial usage.  Th e introduction of the competitive system in the LNG 
industry is expected to bring about significan t changes in KOGAS's business environment and 
financial performance.
97  Revision of the Gas Act, to introduce a competitive system for 
power-generating companies has been under review  by the National Assembly since September 2009 
due to strong opposition by the KOGAS labour union.   
(ii) Electricity 
51. The Korea Electric Power Corporation (KEPCO) generates 82.6% of power and handles 
distribution and transmission.  KEPCO has six gene ration subsidiaries and four affiliates, with an 
installed capacity of 73,869 MW.  A few independe nt (gas-fired) power producers (IPPs), including 
co-generation facilities, also supply electricity.  Korea has no network interconnections with other 
countries.  In 2010, most electricity was generated by coal (40.9%), followed by nuclear (31.3%), gas 
(20.3%), oil (5.3%), and hydro (1.4%).98  Thermal electricity is generated mainly from imported 
bituminous coal, supplemented by domestic anthrac ite coal, which KEPCO must purchase at nearly 
twice the price of imported, better quality, coal (section (4)(iii)).   
52. The Government imposes fees on electricity consumption to finance the Electric Power 
Industry Basis Fund.  This fund, which amounted to ₩ 2.2 trillion in 2011 ( ₩ 1,832 billion in 2007), 
is disbursed on activities aimed at achieving non- commercial objectives (see below);  KEPCO is 
entrusted with some public services covered by th e Fund.  It made a long-term "take or pay" 
arrangement with KOGAS in 2006 to stabilize natura l gas supply until 2026.  LNG is dispatched to 
power generators according to costs, which are adjusted monthly.  A reference-price system 
subsidizes costs of power generated from alterna tive renewable energy (e.g. solar and wind).  
53. The electricity sector was progressively deregulated and partially privatized to allow greater 
competition.  KEPCO's state-owned equity stands at 51.1% (Table III.4).  Plans to privatize KEPCO's five thermal power-generating subsidiaries, announced in April 2002, have not yet been 
                                                      
96 KOGAS is 38.82% privately owned.  The Government owns 26.86% and the Korea Electric Power 
Corporation 24.46%;  14 provincial/city governments hold  the remaining equity, with the largest share held by 
Seoul City (3.99%).  The maximum permitted aggregate foreign ownership of KOGAS is 30%, and individual share ownership (foreign or domestic) is capped at 15% (Korea Gas Corporation, 2010). 
97 Korea Gas Corporation (2010). 
98 Korea Power Exchange (2010). Republic of Korea WT/TPR/S/268/Rev.1 
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  implemented.99  Specific action plans detailing the time fra me, methods, etc. were  under consideration 
in 2008.  
54. The Korea Electricity Commission (KOREC) regulates generation, transmission, distribution, 
independent power producers (IPPs),  generation companies, and the Korea Power Exchange (KPX), 
in addition to overall industry functions.  The electri city market, including KEPCO, is also subject to 
general competition legislation administered by the Korea Fair Trade Commission.  The Ministry of Government Legislation ensures coordination of  the regulatory roles and responsibilities between 
KOREC and the KFTC.  KOREC monitors activities that stimulate fair electric-power trading and facilitate competition;  it monitors prohibited behavi our specified in the Electricity Business Act and 
other unfair behaviour in the electricity market, and imposes sanctions.   
55. The KPX, a state-owned electricity pool, uses administratively set generation prices to 
manage dispatch.
100  Operating expenses are covered through electricity trading fees.  The pool is 
mandatory for all generators (above  20 MW) with a few exceptions.  KPX is responsible for operation 
of the grid.  IPPs are paid the marginal cost-bas ed price (i.e. the bid price of the most expensive 
generator) except for nuclear and coal (section (4)(iii)).101  These resources (nearly 80% of supply) are 
paid a set base-load price that is lower than the cost-based marginal price.  The authorities indicated 
that currently the marginal price takes partly in to account location or transmission constraints (e.g. 
between mainland and Jeju island);  generators are penalized or rewarded for their distance or 
proximity to demand.  The country introduced separate zonal prices in 2010.  
56. According to a recent IEA report, Korea had the lowest electricity rates among OECD 
countries in 2009 despite its state electricity providers ' chronic deficits and their struggle to provide 
enough power for the growing demand.102  MKE approves electricity tariffs.  Retail rates do not 
reflect directly the hourly cost-based prices derived from the KPX mechanism.103  Industrial, 
residential, and commercial consum ers pay higher tariffs for power in  order to subsidize agricultural 
consumers;  in December 2011, tariffs for the f our groups of users repr esented 94.4%, 86.4%, 87.7%, 
and 32.8% of power produc tion cost-recovery, respectively.  In July 2011, a fuel cost pass-through 
system (reflecting international fuel cost changes) was integrated into the tariff;  the system is 
expected to reduce KEPCO's financial risk against fu el cost fluctuations and encourage customers to 
consume energy at an appropriate/reasonable level.104   
                                                      
99 The sixth subsidiary, the Korea Hydro and Nuclear Power Corporation, remains a subsidiary of 
KEPCO for security reasons. 
100 The Electricity Pool defines the market trading rules and procedures  but does not itself act as market 
maker buying or selling electricity.  The pool facilitates mechanisms to support competition in supply, where 
customers may choose their supplier (KOGAS online in formation.  Viewed at:  http://www.kocoal.or.kr/ 
english/business/domestic01.html [6 January 2012]). 
101 In addition to marginal price payments, genera tors receive capacity payments.  The capacity 
payment is paid to all generators who submit capacity o ffers, whether or not they are dispatched.  Capacity 
payments are provided to ensure recovery of capital costs and to underpin further investment. 
102 The state-run KEPCO incurred an estimated net loss of ₩ 2 trillion in 2010.  For the first time in 
three decades, KEPCO was allowed to raise electricity pri ces in 2011 by 4.9% in July and 4.5% in December 
(Korea Herald , "Korea has OECD's cheapest electricity ", 18 January 2012.  Viewed at:  
http://www.koreaherald.com/business/Detail.jsp?news MLId=20120118001164 [24 January 2012];  and 
International Energy Agency, 2011). 
103 Although KEPCO does not offer real-time pricing, it has 2,002,047 (300,000 in 2007) one-way 
digital meters capable of remotely recording consumpti on every 15 minutes.  These meters covered over 75% of 
total consumption in 2011 (70% in 2005).  
104 KEPCO (2011). WT/TPR/S/268/Rev.1 Trade Policy Review 
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  57. Under the 2001 Electric Industry Restructur ing Law, most of KEPCO's non-commercial 
objectives remain set by the Government, which is also  in charge of the Electric Power Industry Basis 
Fund;  the Fund is financed with revenue collect ed through a charge of 3.7% of the consumer's 
electricity bill, and currently totals ₩ 2.19 trillion (April 2012). 
58. There have been no reforms in the distribution network during the review period.  KEPCO 
owns the distribution network and is responsible for retail supply.  It purchases power directly from 
KPX and supplies it to customers.  In 2011, the ra te of power loss in distribution was reduced to 
3.69% (3.99% in 2007) while the observance rate  of power voltage requirements remained at 
99.9%.105  The manufacturing sector accounts for just over half of total sales, the public and 
commercial sectors for about a third, a nd the residential sector for the rest.106  
(iii) Coal 
59. Coal is dominant in electricity generation (section (4)):  five domestic mines produce 
anthracite coal;  three are operated by the state- owned Korea Coal Corporation (KCC) and accounted 
for 52% of domestic production in 2011.  Korea' s production, mainly of high-cost low quality 
anthracite coal, declined from 2.89 million tonnes in  2007 to 2.09 million tonnes in 2011.  It is used 
mainly for power generation (23% in 2011) and briquettes (77%).  Imported (bituminous) coal 
covered about 92.1% of domestic c onsumption in 2010.  Korean investment in overseas coal joint 
ventures is encouraged, including direct par ticipation by the state-owned Korea Resources 
Corporation, and provision of loans;  there were 77 projects in 11 countries in the first half of 2011.  
The target is to procure 50% of bituminous coal imports from such projects by 2016;  in 2010, it 
procured about 48.3%.   
60. Domestic coal production is supported by direct production subsidies, including insurance 
benefits, support for production re ductions, social benefits, and h ealth premiums;  the policy of 
downsizing the coal industry has brought about a steady decline in production subsidies since 2000 with annual subsidy costs equivalent to ₩ 164 billion in 2008, ₩ 100 billion in 2009, ₩ 66 billion in 
2010, and ₩ 62 billion in 2011.  Consumption subsidies ar e also available in the form of social 
welfare benefits to low-income users of briquett es for residential and commercial purposes, such as 
heating and cooking.  Coal imports are duty free but a 10% VAT is levied on imported bituminous 
coal while domestic anthracite coal is exempt.  KEPCO may buy domestic coal at well-above import 
prices in line with the Government's non-commercia l objectives of supplying electricity to remote 
areas and supporting the domestic coal industry.  As  a result of its purchase of the Bylong Mine in 
Australia and the acquisition of shares of Bayan Resources in Indonesia in 2010, KEPCO has secured 
an additional 24 million tonnes of coal per annum, ra ising its coal self-sufficiency rate from 12% to 
34%.
107  
(5) MANUFACTURING  
61. Manufacturing's share of GDP increased to 31.2% in 2011 from 27.3% in 2007 (Table I.2);  
its share in employment remained relatively stable , at around 17%, except for a slight decline to 
16.3% in 2009.  Between 2009 and 2011, labour productivity in manufacturing grew by 32.7 % in 
value terms (US$);  in 2011, it was roughly 88% higher than in the rest of the economy (73.2% 
                                                      
105 KEPCO online information.  Viewed at:  http://www.kepco.co.kr/eng/ [6 January 2012]. 
106 KEPCO (2011). 
107 KEPCO (2011);  and KEPCO online information.  Viewed at:  http://cyber.kepco.co.kr/kepco_new/ 
pr/news/press_view.jsp?kwd=&page=10&sch=&sn=3471. Republic of Korea WT/TPR/S/268/Rev.1 
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  in 2009).108  High labour productivity is partly due to substantial capital investment.   Manufacturing 
is heavily export-oriented.  About 90.4% of expor ts in 2010 were heavy industry products, comprising 
mainly electrical and electronic machine products ;  cars;  machinery, and precision equipment;  
chemicals;  iron and steel;  and ships.  Korea remains a leader in information and communication 
technology (ICT), as well as a major player in other areas of manufacturing, such as ships (the world's 
largest producer) and cars (fifth largest).109  The electronics sector is considered as the main engine of 
growth.110  Korea's competitiveness in manufacturing is unde rpinned by a high level of investment in 
R&D and a high share of young adults in tertia ry education.  Reportedly, large business 
conglomerates (many of which are family-controlled ( chaebols )) still dominate Korea's major export 
industries such as cars, electronics, telecommuni cations, shipbuilding, steel, and petrochemicals.111  
The authorities were unable to provide data on large business conglomerates , including their exports, 
because data differentiate only between SMEs and ot her enterprises.  A particular concern is that 
significant manufacturing industries may relocate o ffshore, especially to China, where production 
costs are lower;  from 2004 to 2007, 5,965 Korean manufacturers set up operations in China.  No recent data on relocations were available from the authorities.   
62. The Government, including the Prime Minister's Office, the MKE, the MOSF, and the Small 
and Medium Business Administration, pursues a wide range of industrial strategies with a particular 
focus on five objectives:  building a favourable inv estment environment;  promoting the growth of 
local economies;  establishing an innovative R&D system;  upgrading core industries;  and supporting small and medium-sized enterprises (SMEs).  In Janua ry 2009, a blueprint of 17 new national growth 
engines, which would drive the economy over the following 3 to 10 years was announced; the 
authorities planned to inject ₩ 6.3 trillion to implement green R&D projects over the following 4 
years, while raising the ratio of investment in basic research into original technologies from 17% ( ₩ 
150 billion) in 2007 to 35% ( ₩ 700 billion) by 2012.
112  However, in order to produce an early 
outcome, in April 2011, the scope of the project was narrowed to ten "strategic" industries classified as new growth engine activities involving, inter alia,  the manufacture of highly innovative and R&D-
intensive high-technology products and related services.
113  In 2011, the government provided 
₩ 6.5 trillion in policy funds, including loans, guarantees, and other financial support for SMEs 
engaged in the new growth engine sectors (Chapter III(4)(ii)(b)).  The July 2009 National Strategy for 
Green Growth envisages a rise in exports of green goods in the major industries from 10% in 2009 to 22% in 2020, and supp ort for SMEs to "green" their business;  the Five-Year Plan for Green Growth 
(2009-13) includes ₩ 28.6 trillion (2.8% of 2009 GDP) to support new growth engine activities until 
2013, of which ₩ 4.6 trillion is allocated for "greening" existing industries and promoting new 
industries.
114 
                                                      
108 Korea Productivity Center data. 
109 Statistics Korea (2010). 
110 Concentration on five mass-produced items (cellular phones, memory semiconductors, non-memory 
semiconductors, wireless communication components, and LCD monitors) has allowed for economies of scale 
since 2005 (Statistics Korea, 2010). 
111 EIU (2011a). 
112 KOCIS online information, "Gov't finalizes blueprint for 17 new growth engines", 14 January 2009.  
Viewed at:  http://www.korea.net/deta il.do?guid=24761 [6 January 2012]. 
113 The ten industries are fourth generation mobile communications, system semiconductors, 
biotechnology, the cultural contents industry, electric cars and related infrastructure, offshore wind energy 
power, thin film solar cells, energy efficient build ings, and water treatment technology (KOCIS online 
information, "Gov't to focus on nurturing ten new growth engine sectors",  20 April 2011.  Viewed at:  
http://www.korea.net/detail.do?guid=54515 [6 January 2012]). 
114 Jones and Yoo (2011). WT/TPR/S/268/Rev.1 Trade Policy Review 
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  63. Since 2008, Korea's average applied MFN ta riff on imports of industrial products has 
remained virtually unchanged, at 6.6% (Table III. 1).  Adjustment duties protect only one industrial 
item (plywood at 10%) (Table AIII.3) in 2012;  autonomous tariff quotas have allowed concessional 
tariff treatment for imports of inputs (including hides and skins, polymers, and copper foil) and 
machinery necessary for domestic industry (Table AIII.6).  Several tax and non-tax incentives support 
R&D and SME activities (Chapter III(4)(i)(c) and III(4 )(ii));  manufacturers benefit from the lowest 
average electricity prices among consumer groups, othe r than agriculture (section (4)(ii)), as well as 
the possibility to seek support for adjustment (advi ce, information, loans) whenever adversely 
affected by a bilateral FTA (Chapter III(4)(ii)(b)).   
(i) Automobiles 
64. Between 2008 and 2011, total automobile production (passenger and commercial vehicles), 
rose by 21.7% to 4.7 million units;  Korea accounted for 5.8% of global production in 2011.115  Sales 
of domestic automobiles increased by 27.7% as a result of, inter alia, release of new models;  as a 
result of product quality and brand awareness improveme nts, exports rose by 17.4% (in units), mostly 
increasing in emerging markets.  In 2011, 67.7% of domestic production w as exported (70.1% in 
2008).116  During 2008-11, car imports grew by 46% (117,586 units as of 2011)117;  in 2011, 
foreign-made passenger cars originated ma inly from the EU (74.1%) and Japan (18%)118, and their 
share in the domestic car market increased from 6.04% (2008) to 7.98% (2011), as a result of, 
inter alia , changing consumer perceptions concerning imported cars.119   
65. The customs tariffs is 8% on passenger vehicl es and 10% on commercial vehicles.  Used car 
imports are subject to the same ad valorem  duty as new vehicles, and special customs valuation 
procedures are used.  The rates of the individual c onsumption tax (5%, 10%) and the local automobile 
taxes depend on engine capacity, with the highest rate  applied to cars with engines exceeding 2,000 cc 
(Chapter III(4)(i)(a));  hybrid cars (from 2009 to 2012), and electric cars (from 2012 to 2014) have 
been exempt from this tax.  
66. Since October 2009, the authorities have offered full support for Korean firms to secure about 
10% of the global electric car market by 2015.120  The MKE has targeted mass production of electric 
cars as from 2011 set earlier at 2013, by allocating ₩ 70 billion (US$62.3 million) between 
October 2009 and 2014 to support development of  high-performance batteries and other related 
systems.  It also plans to invest jo intly with the private sector a total of ₩ 0.1 trillion for battery plants 
for electric cars, to make Korea the world's larges t electric car manufacturing country, accounting for 
40% of the world's total production in the long term.  The Government intends to help local car-
makers produce 1.2 million "green" cars (electric cars,  hybrid cars, fuel cell electric cars, etc.) and 
export 0.9 million units by 2015, and produce up to 1.9 million "green" cars by 2020.  In June 2011, 
                                                      
115 Korea Automobile Manufacturers Association online statistics.  Viewed at:  http://www.kama.or.kr/;  
and Statistics Korea (2010). 
116 Korea Automobile Manufacturers Association onlin e statistics.  Viewed at:  http://www.kama.or.kr/ 
[6 January 2012]. 
117 Korea Automobile Manufacturers Association onlin e statistics.  Viewed at:  http://www.kama.or.kr/ 
[6 January 2012]. 
118 Korea Automobile Importers and Distributors Association online statistics.  Viewed at:  
http://www.kaida.co.kr/site/kaida_eng/dataroom/year data.jsp;  and Korea Automobile Manufacturers 
Association statistics.  Viewed at:  http://www.kama.or.kr/ [8 March 2012]. 
119 Korea Automobile Importers and Distributors Association online statistics.  Viewed at:  
http://www.kaida.co.kr/statistics/home.actio n?programId=117# [20 January 2012]. 
120 Article 3.1(a) of the WTO Agreement on Subs idies and Countervailing Measures prohibits all 
subsidies contingent upon export performance. Republic of Korea WT/TPR/S/268/Rev.1 
 Page 133 
 
 
  the MKE announced a comprehensive scheme to  enhance the global competitiveness of the 
automobile parts entailing marketing support and the introduction of a new logistics system for the purpose of the "expansion of the global support".  In  this connection, the MKE planned to select at 
least one project every year, out of the "industrial sources projects" in support of R&D, and to provide 
financial support of up to ₩ 1 billion over three years.  
(ii) Shipbuilding 
67. Despite being edged out temporarily by China in  terms of market share in new orders and 
global share in order books, Korea maintained its t op rank in global share of building volume (35.2%) 
in 2009.  It regained its status as the world's leading shipbuilding nation in 2011, and its 
competitiveness through the development of new technology
121;  each shipbuilding company puts 
emphasis on R&D, developing eco-friendl y and highly efficient ship design.122  In 2011, Korean 
shipbuilding companies received new orders tota lling 13.55 million compensated gross tonnes (CGT), 
and representing 48.2% of wo rld shipbuilding orders.123  Seven of the world's ten largest shipbuilding 
companies are in Korea.  Exports of vessels incr eased by 15.8% (in volume terms) per year on 
average during 2008-11.124  
68. The authorities took action to help overcom e difficulties faced in 2009 and 2010.  In 
April 2009, in response to the global financial crisis, a ₩ 9 trillion loan programme was introduced 
providing temporary financial assistance to shipbuilding companies and their partners.  At the same time, creditor banks took the lead in an ongoing market-based restructuring of small and medium shipbuilding companies.  Between April 2009 a nd end 2011, the state-owned Korean Asset 
Management Corporation (KAMCO) implemented a purchase-and-leaseback scheme of used vessels 
for Korean shipping companies, based on a shipping fund stipulated in the May 2002 Ship Investment Act.
125  The authorities indicated that this KAMCO fund programme cannot be regarded as a subsidy 
                                                      
121 Korea became the world's top shipbuilding nation in  2003, overtaking Japan in shipbuilding volume, 
order backlogs, and new orders.  In 2009 and 2010, Chin a outpaced Korea in terms of new orders received and 
order backlogs focusing on new orders at cheap prices, while Korea continued to focus on high-priced vessels and offshore facilities.  Online artic le, "S. Korea Overtakes China as World's Top Shipbuilder in 2011", 
11 January 2012.  Viewed at:  http://en.eshiptrading .com/news/d/222/1401/ [20 January 2012];  and Korea 
Shipbuilders' Association (2010). 
122 Online article, "From Our Dock to Yours-The Reason Why Korean Shipbuilding Companies are 
Ranked Number One", 3 November 2011.  Viewed at:  http://www.advancedtechnologykorea.com/?p=8454 
[19 January 2012]. 
123 The CGT was devised to provide a more accurate  measure of shipyard activity than could be 
achieved by the usual gross tonne (gt) and deadweight tonne (dwt) measures.  The CGT is intended to provide a common yardstick to reflect the relative output of merchant shipbuilding activity in large aggregates such as 
"World", "Regions" or "Groups of many yards" (OECD, 2007a;  and online article, "South Korea's shipbuilding 
orders in 2011 over China", 13 January 2012.  View ed at:  http://www.f-paper.com/?i1141283-South-Koreas-
shipbuilding-orders-in-2011-over-China [20 January 2012]). 
124 UNSD Comtrade database. 
125 Companies participating in this scheme could improve their liquidity by selling and leasing back 
part of their fleet.  In the first r ound, shipping companies su ccessfully offered 62 ships to KAMCO, and 33 used 
vessels were purchased by 7 ship investment companies.  The companies have the option to buy back sold ships 
when business improves.  Under the 2002 Ship Investment Act, governing a Ship Investment Company (SIC) system:  (i) a ship investment company is established with the capital invested by public investors, (ii) a ship is 
acquired by the SIC with the capital raised by the public investors and the loans made by financial institutions, 
(iii) the ship is chartered out under the lease/charter agreement to a ship  operating company, and (iv) the 
chartering revenues of the ship operating company are paid out as dividends to public investors and 
interest/principal repayment to the financial institutions (Korea Ship Finance Co., Ltd. online information.  
Viewed at:  http://koreashipfinance.co.kr/n ewhome/eng/sic/sic01.htm [16 March 2012]). WT/TPR/S/268/Rev.1 Trade Policy Review 
Page 134 
  
  because the vessels were acquired at market price re gardless of the origin of their shipyard, and a 
market interest rate was applied.  In additi on, the Export Import Bank of Korea (EXIM-Bank) 
provided loans of up to ₩ 4.7 trillion for the purchase of ships c onstructed by financially stricken 
local shipping companies.  The Korea Expor t Insurance Crop introduced a package support 
programme that could reduce the burden on shipping lines and would provide ₩ 2.1 trillion.  Up to 
₩ 500 billion would be offered as loans to shipyards to build and launch new ships, with efforts made 
to link direct loans with greater export insurance coverage, which can help shipping companies place 
orders for new vessels.  The authorities indicated  that these loan program mes to shipyards were 
commercial loans, unrelated to government al policies and financial subsidies.   
69. In March 2011, the Ministry of Land, Transpor t and Maritime Affairs (MLTM) set out its 
third five-year Long-Term Development Plan for th e Shipping Industry, including apparently a policy 
goal of "making Korea become one of the most powerful marine nations in the world by 2020 as a means of accumulating the nation's wealth", based  on 4 strategies and 21 projects (core agendas).
126  
The strategies entail:  enhancing competitiveness of marine enterprises;  expanding businesses 
through the creation of new markets;  fostering th e knowledge-based marine industry;  and achieving 
low-carbon and green growth.  The MLTM unveiled a wide range of projects, but these did not 
specify the scale of financial support for the indus try.  In April 2011, a company-specific payment 
guarantee was set for local shipbuilders, to ensure  the financing needed to cover ship orders.127  No 
information on the estimated amount of financia l support to be disbursed in implementing these 
measures was available from the authorities, who i ndicated that these were policy goals rather than 
government subsidies.   
70. Tariff protection for ships ranges from zero to 8%.  A subsidy (Local Tax Reduction for 
Building and Acquisition of International Line Vessels and Deep Sea Fishing Vessels) aimed at promoting the shipping industry by  relieving the tax burden on international line vessels, deep-sea 
fishing vessels and coastal line vessels is to be eliminated at end 2012.   Between 2006 and 2012, 
Korea was not involved in any WTO dispute settlement case concerning shipbuilding. 
(iii) Other manufacturing activities 
71. Plans to support the pharmaceutical industry were implemented during the review period.  In 
2009, the Government identified 'biopharmaceutical and medical equipment' as one of the future 
engines for economic growth  and intended to raise ₩ 2 trillion in funds by 2015 to bolster R&D in 
these areas.  A nine-year ₩ 1 trillion New Drug Development Project, in cooperation with the private 
sector, was announced in June 2010 and in November  of the same year, the MKE's Industrialisation 
Strategy for Global Exports of Biosimilars
128 indicated plans for investment of ₩ 6.5 billion until 
2014 in a pilot project for upgrading the data management system for clinical testing.  This is expected to enhance the global co mpetitiveness of Korea's biosimilars and thus their exports.  The 
MKE expects Korea's private-sector bio-industry to  produce biosimilars worth US$20 billion (22% of 
the world market) after 2020, with the exports  worth US$10 billion and employment for 120,000 
people.  A Special Act on Pharmaceutical Industry Promotion and Support, which involves a systematic master plan to promote the pharmaceutic al industry, became effective on 31 March 2012.  
The Act serves as the legal basis for national treatment for R&D incen tives focused on "innovative 
pharmaceutical firms" with R&D investment in new drug development above a certain amount of 
                                                      
126 European Commission (2011). 
127 European Commission (2011). 
128 Biosimilars or follow-on biologics are officially approved subsequent versions of innovator 
biopharmaceutical products made by  a different sponsor following patent and exclusivity expiry. Republic of Korea WT/TPR/S/268/Rev.1 
 Page 135 
 
 
  their sales revenue.129  Implementing regulations containing specific provisions on standards, 
procedures, and methods for accreditation as "innovative pharmaceutical firm" were enacted on 31 March 2012;  under the Act, a foreign pharm aceutical company may be designated as an 
"innovative pharmaceutical firm" pr ovided it meets the same accredita tion requirements and standards 
applied to domestic firms.  The authorities indicat ed that these measures do not involve tax breaks, are 
not reserved to domestic R&D, and are not tied to th e capacity of the firm for advancing into global 
markets. 
72. Under the Ministry of Health and Welfare (MOHW) "Rearrangement of Already Listed 
Drugs" project, drugs listed on Korea's National H ealth Insurance reimbursement list have been re-
evaluated for pharmaco-economic va lue and generally receive price reductions, which raised some 
concern to foreign firms.
130  The authorities indicated that the Rearrangement project targeted 
pharmaceuticals whose patents expired before 2006;  to  address the concern of foreign firms, patented 
drugs and drugs that had undergone 20% price cuts  after listing of follow-up drugs, have been 
excluded from the project since July 2010. 
73. MKE's June 2011 strategy for upgrading the st eel industry foresees substantial funding for 
raising its competitiveness in high-end products;  30 steel products are to be selected over a period of 
10 years (3 products per year).  Financial support worth ₩ 100 billion is to be provided until 2019, 
with the aim of manufacturing the world's best  eco-friendly smart steel  plates under the World 
Premier Materials project.  To achieve a "Gr een-Steel Industry", the MKE is to provide ₩ 150 billion, 
representing 54% of the firm's total R&D costs (possibly from 2012) for 8 years, to develop CO 2-free 
technologies for steels.  
(6) SERVICES  
(i) Features 
74. The services sector makes a major contribution to the Korean economy but, due to faster 
growth in manufacturing, its GDP share decreased fro m 60.8% in 2008 to 58.1% in 2011.  Its share of 
total employment (mainly in trade, hotels and restaurants, and real estate)  rose from 67.9% to 69.2% 
during the same period (Table I.2).  Despite an improvement by 18.6% in value terms (US$) from 
2009 to 2011, shortfalls in labour produc tivity persist in services (Chapter I).131  Labour productivity 
in services remains much higher than in agriculture and fisheries (81.5% more in 2011), but it is still 
only 41% of the level in manufacturing and 82.8% of the economy-wide level.132  In November 2011, 
                                                      
129 To qualify as an "innovative pharmaceutical firm", the following  criteria apply, depending on the 
case:  a company with annual sales revenue of ₩ 100 billion or more should have an R&D investment ratio of 
sales revenue of 5% or more;  a company with less than ₩ 100 billion, should have a R&D investment ratio of 
7% or more or ₩ 5 billion or more;  and a company with Good Manufacturing Practice (GMP) facilities in the 
EU or the United States the R&D investment ratio should be 3% or more.  
130 These concerns refer to the Rea rrangement Project not taking properly into account the value of 
innovation or previous price reductions on the same drug (USTR, 2011). 
131 According to a joint report by the MKE a nd the Korea Productivity Center, Korea ranked 
23rd among the 31 member states of the OECD in labour productivity in 2009, and second-to-last among 
19 countries whose service industry labour productivity was surveyed (Korea Business Central online article, "Korea Fares Poorly in Labor Productivity: Ministry of Knowledge and Economy", 28 January 2011.  
Viewed at:  http://www.koreabusinesscentral.com/forum /topics/korea-fares-poorly-in-labor?xg_source=activity 
[5 December 2011];  and OECD, 2011b). 
132 Korea Productivity Center data.  The authorities indicated that the comparison of labour 
productivity between the services and manufacturing indu stries is impractical;  only chronological analysis is 
possible. WT/TPR/S/268/Rev.1 Trade Policy Review 
Page 136 
  
  the authorities were planning to launch a committ ee of policymakers and experts to coordinate 
policies to enhance the compe titiveness of the services sector.133  The largest contributor to gross 
value added within services remains wholesale and reta il trade, followed by real estate, renting and 
leasing, and financial intermediation.   
75. Between 2008 and 2011, exports of non-factor services rose by 4.8% to over US$95 billion 
(17.2% of merchandise exports), mostly due to incr easing travel services (Table I.3).  Over the same 
period, services imports increased at 3.1%, helping to reduce the services trade deficit from US$5.7 billion to US$4.4 billion.  Transporta tion and travel are the main traded services.   
(ii) Overall commitments under the GATS 
76. Korea's commitments cover 89 of the 155 sectors under the GATS.  Foreign equity limitations 
of 49% on commercial presence are scheduled for basic telecommunications businesses.  Korea's GATS schedule contains specific national treatment limitations and additional commitments relating 
to accounting (auditing and book-keeping servi ces), taxation, and architectural services.
134  To be able 
to provide professional services, such as legal, accounting, and audit and taxation services, foreign 
qualifications need to be approved in Korea.  Acce ss to other services, such as newspapers and news 
agency business, is subject to different foreign equity ceilings (Chapter II).  
77. Korea is interested in further liberalization of  the five key infrastructure services: maritime 
transportation, construction, telecommunications, dist ribution, and financial services.  In bilateral and 
multilateral services negotiations, Korea's main objectives in these 5 sectors are:  the non a priori  
exclusion of sectors and modes of supply;  reduc tion of commercial presence barriers;  and reduction 
of economic needs tests (ENTs) and establishment of a clear set of criteria for the ENTs.    
(iii) Regional and bilateral agreements on services 
78. During the period under review, Korea liberalized  services trade at the regional and bilateral 
levels.  Its trade agreements include provisions on services (Chapter II) that exclude subsidies from 
their application and involve a negative list (Kor ea-Chile, Korea-Singapore, Korea-Peru, Korea-US) 
or a positive list (Korea-ASEAN FTA, Korea-EFTA  FTA, Korea-EU FTA, Korea-India).  All the 
agreements were notified to the WTO Council for Trade in Services.135  The levels of FTA 
commitments, which are based on the revised offer of the DDA negotiations in May 2005, vary from 
one agreement to another, and  go beyond Korea's GATS commitments in general.  For instance, in the 
Korea-EU FTA, Korea's commitments cover 115 of 155 sectors much more than under the GATS.  
                                                      
133 Yonhap , "S. Korea to set up panel on service-sector growth", 2 November 2011.  Viewed at:  
http://english.yonhapnews.co.kr/business/2011/11/02/0502000000AEN20111102006800320.HTML. 
134 In order to practice as a Certified Public Accoun tant (CPA), a candidate must have field experience 
of two years in Korea after passing the CPA examination.  Temporary movement is allowed for natural persons 
qualified as CPAs under their home country's laws and em ployed by international accounting firms.  Entry and 
stay of these persons is limited to one year, extendable if necessary.  In order to practice as a Certified Tax 
Accountant (CTA), a candidate must have field experience of six months in Korea after passing the CTA 
examination.  Supply of services by foreign architect s through joint contracts with architects licensed under 
Korean law is allowed.  Foreign architects licensed under their home country's law may acquire a Korean 
architect licence by having five years of architectural experience in their home country and by passing a 
simplified examination, which covers only  two of the regular test's three subjects:  architectural design 1 and 2. 
135 The latest notifications are contained in WTO documents WT/REG286/N/1, S/C/N/558, 1 July 
2010, WT/REG287/N/1, S/C/N/559, 8 July 2010, WT/COMTD/N/36, S/C/N/570, 29 September 2010, 
S/C/N/560/Add.1, 3 May 2011, S/C/N/559/Add.1, 3 May 2011, WT/REG296/N/1, S/C/N/594, 8 July 2011, 
WT/REG298/N/1, S/C/N/598, 10 August 2011, and WT/REG311/N/1, S/C/N/621, 16 March 2012.   Republic of Korea WT/TPR/S/268/Rev.1 
 Page 137 
 
 
  All FTAs contain a provision encouraging recogniti on; some agreements have an annex covering 
future work on a number of professional services.  
(iv) Financial services 
79. The contribution of financial and insurance services to GDP dropped slightly between 2008 
and 2011, from 7.1% to 7%;  in 2011, the sector employed 3.5%  of the labour force, making labour 
productivity in the sector the second highest (half of the level in real estate, renting, and leasing) in the overall services sector (Table I.2).
136  The sector comprises banks and several non-bank financial 
institutions (NBFI), including insurance companies (Table IV.3).  
Table IV.3 
Structure of the financial system, 2007 and 2011a 
Institutions No. of establishments Assets 
(₩ billion) Loans and discounts 
(₩ billion) 
2007 June 2011 2007 June 2011 2007 June 2011 
Banks 54  55  1,559,288 1,978,291  1,031,242  1,309,269  
Commercial banks 49  50  1,091,695  1,374,640 721,066  871,532  
   Nationwide 7  7 872,655  1,067,024  636,424  753,163  
   Regional 6  6  93,195  120,985  62,489  82,170  
   Foreign bank branches 36  37  125,845  186,632  22,153  36,200  
Specialized banksb 5  5  467,593  603,651  310,176  437,737  
   (KDB) 1  1  122,616  122,787  57,029  73,473  
   (Korea EXIM) 1  1  23,639  47,337  20,099  40,137  
Non-bank financial institutions 1,270 1,256 560,586 836,483 154,424 205,157 
Mutual savings banks 107  97  57,898  69,965  44,388  45,843  
Credit unions 1,007 960 27,439 48,425 17,576 29,295 
Credit-specialized financial companiesc 54  64  89,160  149,116  21,964  35,757  
Life insurance companies 22  23  297,339  425,037  56,361  66,578  
Non-life insurance companies 28  30  63,828  112,887  11,285  19,073  
Asset management companies 51  81  2,499  3,665 24  37  
Korea Securities Finance Corporati on 1  1  22,423  27,388 2,826  8,574  
Totald 1,324 1,311 2,119,874 2,814,774 1,185,666 1,514,426 
a End of period figures. 
b The Korea Development Bank, the Export-Import Bank of Kor ea, the Industrial Bank of Korea, the National Agricultural 
Cooperative Federation, and the National Federation of Fisheries Cooperatives. 
c Credit card companies, leasing companies, installment fina ncing companies, and venture capital finance companies. 
d Does not include other quasi-non-bank financial institutions such  as securities companies, investment advisory companies, 
futures companies, postal savings, etc. 
Source: Financial Superv isory Commission. 
80. Financial sector regulation a nd supervision remains the r esponsibility of the Financial 
Services Commission (FSC), and its executive body, the Financial Supervisory Service (FSS).  The 
Securities and Futures Commission (SFC), located  within the FSC, supervises and regulates the 
securities and futures markets.  
                                                      
136 Korea Productivity Center data. WT/TPR/S/268/Rev.1 Trade Policy Review 
Page 138 
  
  (a) Banking and finance  
Structure and ownership 
81. Korean banking remains dominated by nationwid e banks, which held 77.6% of the assets of 
commercial banks in June 2011137;  foreign banks were responsib le for 13.6%, and regional banks, 
with lower capital requirements (operating in a sp ecific area or geographical territory) for 8.8% 
(Tables IV.3 and IV.4).138  At end-September 2011, there were  134 foreign banks operating in Korea 
through 55 branches, 37 offices, and 42 local subsid iaries.  Foreign holdings in Korean commercial 
banks have risen overall (Table IV.4);  the av erage foreign holdings rate in the seven largest 
commercial banks was 68.4% at the end of 2011.  
Table IV.4 
Government and foreign ownershi p of commercial banks, June 2011 
(%) 
Commercial bank  Type of ownership 
Government Foreign 
A.  Nation-wide banks   
Woori (formerly Hanvit Bank)a Woori Financial Group(WFG) - KDIC(100) - 
Korea First - 100 (Standard chartered) 
Korea Exchange EXIM Bank (6.25), Bank of Korea (6.12) LSF-KEB Holdings SCA(51.02) 
Kookmin - KB Financial Group(100) 
Shinhanb - Shinhan Financial Group(100) 
Citibank Korea(formerly KorAm) - Citigroup Korea (100) 
Hana - Hana Financial Group(100) 
B.  Local banks   
Daegu - DGB Financial Group (100)  
Pusan - BS Financial Group (100) 
Kwangjua Woori Financial Group(WFG) (99.99)  - 
Jejub - - 
Jeonbuk - 8.05 
Kyongnama Woori Financial Group(WFG) - KDICa (99.99) - 
- Nil. 
a Woori (100%), Kwangju (99.99%), and Kyongnam (99.99%), ar e owned by the Woori Financial group.  The KDIC owns 
77.97% of Woori Financial group. 
b Shinhan (100%) and Jeju (68.88%) are owned by the Shinha n Financial group. 
Source: Information provided by the Korean authorities. 
82. State involvement persists both in comme rcial banks (see belo w) and specialized 
(development) banks (Tables IV.3 and IV.4), including the EXIM Bank (Chapter III(3)(v)), the 
Industrial Bank of Korea (IBK), the Korean De velopment Bank Financial Group (former Korea 
Development Bank, see below and Ch apter III(4)(ii)(a), Chapter III(4)(iii), Table III.5).  Since the last 
TPR of Korea, the Government has continued to  divest its holdings in banks (Table IV.4, 
Chapter III(4)(iii)).  The reduction of the state-ow ned Korea Deposit Insurance Corporation's holding 
in the Woori Financial group to 57% in April 2010 was significant.139  In May 2009, legislation was 
                                                      
137 There were 4,195 domestic branches of nati onwide commercial banks in December 2009.  Bank 
branches are authorized to engage in both short- and long-term financing (Financial Supervisory Service, 2010b).  
138 Regional banks aim to better balance regional economic development and provide greater access to 
financial services to regional and rural areas.  The regional banks primarily serve small and medium-sized enterprises (SMEs), households, and individual borrowers in their respective regions.  There were 745 domestic 
branches of regional banks operating in December 2009 (Financial Supervisor y Service, 2010a and b). 
139 EIU (2011a). Republic of Korea WT/TPR/S/268/Rev.1 
 Page 139 
 
 
  amended to permit the privatization of th e state-owned Korea Development Bank; at 
end-October 2009, KDB and its four  affiliates were put under a holding company, which must be 
privatized before May 2014, by law.140  
83. According to the authorities there is no st ate presence in NBFI activities.  Foreign 
participation is limited to just one mutual savi ngs bank and 13 credit specialized companies (foreign 
ownership accounting for nearly 11% of the total ass ets of such companies).  The authorities indicated 
that foreigners can participate in the management  of NBFIs, just like Ko reans, according to the 
relevant legislation. 
Restructuring 
84. Since the 1997 financial crisis, financial sector  restructuring has been focused on improving 
the financial infrastructure.  Between November  1997 and June 2010, total government support for 
financial restructuring was ₩ 168.6 trillion, of which ₩ 63.5 trillion was used for recapitalization, 
₩ 38.5 trillion for the purchase of non-performing loans, and ₩ 30.3 trillion for the payment of 
deposit insurance claims.141  Important measures taken during the period under review included a 
reshuffle of financial institutions, the reduction in bad loans, tightening of prudential regulation, the 
enhanced transparency of financial information, and the reorganization of the corporate governance of 
financial institutions.  To support corporate restru cturing, between 2009 and 2011 the Korea Asset 
Management Corporation purchased ₩ 10.2 trillion of impaired loans from financial institutions.  For 
2011, the authorities intended to conduct a corporate -restructuring programme but decided to maintain 
existing financial reform measures focused on reducing  bad loans, strengthening  relevant regulations, 
and enhancing transparency in co rporate financial governance.  
Profitability and non-performing loans 
85. According to the IMF, the commercial banking system remains sound, liquid, and well 
capitalized, but residual risks in the mutual savi ng banks require immediate attention and action.142  
Capital adequacy ratios improved from 12.8% in 2006 to nearly 13.9% in 2011, considerably higher than the minimum 8% required by the Basle core principles (Table IV.5).
143  Return on assets 
decreased during the period under review (Table IV.5 ).  Although the interest rate spread widened 
considerably, profitability decreased, from net income after tax of  ₩ 15 trillion in 2007 to 
₩ 6.9 trillion in 2009, and subsequently rose to ₩ 9.4 trillion in 2010, and ₩ 14.7 trillion in 2011 
(Chart IV.1).144  
86. "Substandard and below loans" (SBLs) as a proportion of total loans increased overall for all 
categories of banks during the period under review (T able IV.6);  in 2011, their share peaked in 
                                                      
140 EIU (2011b). 
141 Bank of Korea (2010). 
142 IMF (2011).  Furthermore, according to Nout Wellink, the former chairman of the Basel Committee 
on Banking Supervision (BCBS), it appears that Korean banks need to strengthen their balance sheets through 
more deleveraging in order to cope with a set of ne w global capital requirements.  "Complex securities and 
derivatives are proven less profitable for banks ... they need to turn to anothe r direction, deleverage their balance 
sheets and comply with th e Basel requirements" ( Yonhap News Agency , "Korean banks need more deleveraging 
in Basel III climate", 21 November 2011.  Viewed a t:  http://english.yonhapnews.co.kr/business/2011/11/21/ 
0502000000AEN20111121006400320.HTML. 
143 Bank of Korea (2010);  and IMF (2011). 
144 Financial Supervisory Service (2010). WT/TPR/S/268/Rev.1 Trade Policy Review 
Page 140 
  
  MSBs, while a decline was estimated for all other banks.145  The rise was due to corporate 
restructuring and a surge in bad debt, especially in real estate and at small and medium-sized enterprises, which are not financially backed by large business conglomerates.
146    
Table IV.5 
Banking indicatorsa, 2006-11 
(%) 
 2006 2007 2008 2009 2010 2011 
Capital adequacy ratio 12.8 12.3 12.3 14.4 14.6 13.9 
Tier 1 capital ratio 9.2 9.0 8.8 10.9 11.6 11.1 
Return on assets 1.1 1.1 0.5 0.4 0.5 0.7 
Net interest margin 2.6 2.4 2.3 2.0 2.3 2.3 
a Includes nationwide commercial banks, regional banks, and specialized banks.  
Source:  IMF (2011), Republic of Korea: 2011 Article IV Consultation— Staff Report and Public In formation Notice on the 
Executive Board Discussion , IMF Country Report No. 11/246, Table 5, August.  Viewed at:  http://www.imf.org/ 
external/pubs/ft/scr/2011/cr11246.pdf [7 December 2011];  and information provided by the Korean authorities. 
5.56.57.58.59.510.511.512.513.514.515.5
3.03.54.04.55.05.56.06.57.07.5
2006 2007 2008 2009 2010 2011
Source:     Bank of Korea (2011), Monthly Statistical Bulletin 2011.6; and Korea Federation of Banks online information.  
Viewed at:  http://www.kfb.or.kr/kfb_eng_09/index.htm.Per centChart IV.1
Interest spreads and profits, 2006-11
Trillion ₩
Left-hand scale: Deposit rate
Lending rateRight-hand scale: Net income
 
                                                      
145 An SBL is a bank loan or other interest-earning asset that is protected inadequately by current net 
worth and paying capacity of the borrower, or the colla teral pledged.  Loans cla ssified as substandard are 
characterized by the distinct possibility that the lend er will sustain some loss if the deficiencies are not 
corrected.  Some loss of interest is anticipated, or may ha ve already occurred, but loss of principal is considered 
unlikely. 
146 EIU (2011b);  and Financial Supervisory Service (2010). Republic of Korea WT/TPR/S/268/Rev.1 
 Page 141 
 
 
  Table IV.6 
Sub-standard and belo w loans, 2006-11 
(% of total loans) 
 2006 2007 2008 2009 2010 2011 (provisional) 
Commercial banks 0.9 0.7 1.2 1.2 1.9 1.36 
Specialized banks 0.7 0.7 1.1 1.4 2.0 1.5 
Mutual savings banks 10.5 8.8 9.1 9.3 10.6 16.5 
Credit unions 4.5 3.8 3.5 3.7 3.7 3.6 
Source:   IMF (2011), Republic of Korea: 2011 Article IV Consultation— Staff Report and Public In formation Notice on the 
Executive Board Discussion , IMF Country Report No. 11/246, Table 5, August.  Viewed at:  http://www.imf.org/ 
external/pubs/ft/scr/2011/cr11246.pdf [7 December 2011];  and information provided by the Korean authorities. 
Regulatory and supervisory framework 
87. Amendments to the Banking Act and Financia l Holding Companies Act on 9 June 2009 and 
31 July 2009, respectively, relaxed the limits for non-financial business operators' (NFBOs) holdings 
of shares issued by a bank, and for a bank holding company shares.147  The amendment of the 
Banking Act stipulates that a financial institution may not extend credit to its large shareholders for 
the purpose of investing in another company.148  The Financial Investment Services and Capital 
Markets Act (FSCMA) (see below), which in Febr uary 2009 replaced the Securities and Exchange 
Act, prohibits the sharing of restricted inform ation (e.g. on non-public clients and any trading 
position) between a Korean Financial Investment Company and any of its affiliates (foreign bank 
branches conducting over-the-counter derivatives busin ess are also subjected to this regulation).149  
88. The FSC requires banks and other creditors to closely monitor credit risks of corporate 
borrowers.  The FSC maintains generally accepted accounting principles and disclosure requirements 
that closely reflect internationally accepted accounting standards.150  Regular on-site examinations and 
off-site surveillance of banks and other financial institutions are c onducted based on risk assessment.  
Where problems are detected, such as the BIS cap ital ratio of a bank falling below the minimum 
criteria, the FSC issues management improvement  recommendations and requirements or orders, 
depending upon the severity of the case.  Be tween 2010 and 2011, it issued 1 improvement 
recommendation, 2 requirements, a nd 17 orders.  As from January 2008,  Korean banks must measure 
their capital adequacy ratios and assess credit a nd operational risks in line with the Basel II 
framework set by the Bank of International Settlements (BIS).151  Under the Banking Act, the 
minimum legal capital requirement is ₩ 100 billion for nation-wide commercial banks and 
₩ 25 billion for regional banks.  
89. A foreign bank branch locating in Korea mus t:  have permission from its own regulatory 
authority and be conducting banking business at home under appropriate supe rvision;  be from a 
reputable foreign bank;  and have the necessary expe rtise in international banking business.  It must 
also have proper risk-management procedures, a viab le and sound business plan, and be able to supply 
                                                      
147 Bank of Korea (2010). 
148 EIU (2011b). 
149 EU Chamber of Commerce in Korea online information, "Trade Issues and recommendations 2011".  
Viewed at:  http://trade.eucck.org/site/2011/en/market_3.htm [19 October 2011]. 
150 Domestic financial holding companies have been required to adopt International Financial 
Reporting Standards (IFRS) since January 2011 (WTO document WT/T PR/S/204/Rev.1, 4 December 2008). 
151 The BIS capital ratio of domestic banks under Basel II was 14.62% at end-September 2010 (14.21% 
at end-September 2009, and 14.29% at end-June 2010) (EIU, 2011b). WT/TPR/S/268/Rev.1 Trade Policy Review 
Page 142 
  
  the FSC with data needed for supervision.  In add ition, a foreign bank branch is required to have core 
operational funds of ₩ 3 billion at the time of establishment.   
90. Prudential regulations apply e qually to domestic and forei gn financial institutions, in 
accordance with internationally accepte d standards.  Following the rece nt financial crisis, in 2010 the 
Korean authorities introduced a series of macro-pruden tial regulations in line with standards agreed at 
the G20 and the Financial Stability Board.  Th ese included the introduction of new limits on the 
banks' net open FX derivatives pos ition implemented in January 2010, the re-introduction of 
withholding tax on non-resident holdings of government bonds beginning 2011, and the 
announcement of a Macro Prudential Bank Levy on banks' foreign currency liabilities, implemented 
in July 2011.152   
91. Korea applies the BIS Core Principles for Banking Supervision, and implemented the 
information management system to support risk-based  supervision, as well as the risk assessment and 
dynamic analysis rating system.  The Advanced In ternal Ratings Based (IRB) (A-IRB) approach for 
credit risk and the Foundation IRB (F-IRB) approach  for operational risk under the Basel II capital 
adequacy rules were implemented in early 2009.  At end 2011, eight banks (Kookmin, Shinhan, KDB, 
Woori, Hana, KEB, Nonghyup, and Gyoungnam) were approved for the F-IRB approach, and 
two (SC First Korea and IBK) for the A-IRB approach.   
Non-bank financial institutions 
92. The prudential and supervisory fra mework of non-bank financial in stitutions is similar to that 
for banks.  All types of credit-specialized finance companies must be registered with the FSC, and 
must meet certain minimum capital requirements.  Merchant banks must extend 10% to 30% of their 
loans to SMEs, while mutual savings banks must exte nd at least 50% of their loans to individuals and 
SMEs within their authorized geographical territory.  
93. Weaknesses in the construction and real estate sector were the predominant cause of the run 
on deposits in eight MSBs in the first half of the year 2011;  the authorities responded swiftly by 
suspending the operations of these banks  while protecting insured deposits.153  In July 2011, plans to 
enhance the soundness of mutual saving bank's ma nagement included:  additional purchase of 
non-performing project finance (PF) loans from MSBs;  extension of a deadline for MSBs to settle 
their sale of PF debts to KAMCO;  five-year grace  period for adoption of International Financial 
Reporting Standards (IFRS) for listed savings banks (i.e. by 1 July 2016).  Out of 98 mutual savings 
banks, 85 were subject to review in 2011;  as a r esult of the review, the authority suspended 8 MSBs 
in the second half of the year 2011.  To enhance co nsumer and investor protection, action has been 
taken to change the way MSBs charge penalty inter est (May 2009), to reduce fees for the certification 
of the outstanding debt (December 2009), and to strengthen disclosure rules on subordinated debt 
issued by MSBs (July 2009).154   
94. Several measures have been take n to reinforce the soundness of credit unions in the wake of 
the global financial crisis.155  The FSS conducted regular supervis ory review of the National Credit 
                                                      
152 EU Chamber of Commerce in Korea online information, "Trade Issues and recommendations 2011".  
Viewed at:  http://trade.eu cck.org/site/2011/en/market_3. htm [1 December 2011]. 
153 At end-March 2011, the assets of 98 mutual savings banks in operation totalled ₩ 74 trillion, down 
2% (from ₩ 75.5 trillion) from end 2010 (FSC and FSS joint on line press release, "Plans for the Soundness of 
Mutual Savings Banks' Management", 4 July 2011;  and IMF, 2011). 
154 Financial Supervisory Service (2009). 
155 Financial Supervisory Service (2009). Republic of Korea WT/TPR/S/268/Rev.1 
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  Union Federation of Korea to ensure expeditious  implementation of the on-going business turnaround 
plan and prevent the growth of non-performi ng assets in 2009.  Since December 2009, the FSS has 
implemented more stringent loan-to-value and debt-t o-income regulations.  As deposits grew at credit 
unions, the FSS set new guidelines on deposit and investment management, including investment 
ceilings on corporate debt issues.  At the same time credit unions and cooperatives were encouraged 
to voluntarily establish internal  operational guidelines on securities investment to ensure risk 
prevention and asset soundness.   
95. All financial investment (securities) companies or related businesses must be licensed by the 
FSC in order to conduct business with Kor ean residents.  Foreign and domestic  financial investment 
companies  must have an operating fund of at least ₩ 0.5 billion depending on the type of business. 
96. The securities sector compris es mainly securities compan ies and asset management 
companies.156  As of September 2011, the 62 securities companies produced a net profit of 
₩ 1.2 trillion, of which 12 were foreign branches (net profit of ₩ 0.2 trillion).  In addition, there were 
60 domestic and 21 foreign asset management companies with a net profit of ₩ 35.9 billion and 
₩ 141.8 billion, respectively.   
97. The 2009 Financial Investment Services and Ca pital Market Act (FSCMA) consolidates 
several capital-market-related laws , defines financial investment pr oducts in broader terms, removes 
regulatory barriers restricting financial companie s from engaging in multiple areas, and promotes the 
growth of globally competitive local investment ba nks.  Measures to enhance consumer protection are 
incorporated in the FSCMA, which also introduced  the know-your-customer and suitability rules;  
financial investment companies must disclose to th eir customers the risks and structures of financial 
investment products.  Companies operating in each functional category may enter another as long as 
"Chinese walls" are in place to avoid conflicts of interest.157  
(b) Insurance 
Structure 
98. Korea has the second-largest insurance sector in Asia, after Japan.  The sector's assets 
amounted to ₩ 537.9 trillion in June 2011, a 48.9% increase over 2007 (Table IV.3).  There are 
23 firms offering life insurance, including 8 foreign firms.  At end-December 2011, the life insurance 
sector was dominated by the three largest firms, which collectively accounted for 64% of the sector's 
assets;  the largest, Samsung Life, accounted for 35.4%.158  Although the share of foreign firms has 
been rising, it remains below 20% (as in 2008).  Th e non-life insurance sector is equally concentrated 
(4 firms, 67.6% of assets) but smaller, with ₩ 123.4 trillion of assets in 2011;  it comprises 
30 non-life insurers, including 17 foreign firms.  The largest, Samsung Fire and Marine, accounts for 
30% of the sector's assets;  the share of foreign non-li fe insurers is less than 3%.  There is no vertical 
integration between banks and insurers in Korea, although it is not prohibited.  Life insurers lend 
                                                      
156 The Act on the Business of Operating Indirect Investment and Assets is now integrated into the 
Financial Investment Services and Capital Market Act. 
157 "Chinese/Information Wall" restrictions under th e FSCMA are limitations on sharing 'restricted 
information' between a Financial Investment Company (FIC) and any of its affiliates, except in a few limited 
situations (Positive List system) (EU Chamber of Comm erce in Korea online information, "Trade Issues and 
recommendations 2011".  Viewed at:  http://trade.eucck .org/site/2011/en/market_4.htm [19 October 2011];  and 
EIU, 2011b). 
158 EIU (2011b). WT/TPR/S/268/Rev.1 Trade Policy Review 
Page 144 
  
  heavily to the corporate sector, especially to large companies affiliated with large business 
conglomerates.  
Regulation 
99. Life and non-life insurance is strictly divided;   life insurers are prohibited from offering 
non-life products, and vice versa.  There are no barriers to foreign entry.  Foreign branches must 
maintain funds of at least ₩ 3 billion to do business with Kore ans and foreigners.  The June 2010 
amendments of the Act, allowed insurers to create  and sell insurance products as they wish, and 85% 
of products require only internal review.159  The same amendment contains more stringent regulation 
concerning illegal twisting and churning by agents.160  In addition, the fiscal year for insurance 
(1 April to 31 March) was changed to the intern ational standard of calendar year.  Life-insurance 
contracts receive preferential treat ment in terms of personal tax. 
100. Since April 2009, the FSS has progressively im plemented a new risk-based capital (RBC) 
solvency regime, replacing the solven cy margin ratio regime based on the EU's Solvency I Model;  
both regimes were used until March 2011.161  Concerning consumer protection, the FSS amended the 
Best Practice Guidelines for Claims Payout in October 2009, and issued guidelines for insurance 
companies preparing product disclosure documents in April 2009.  The FSS's Insurance Fraud 
Analysis System, was upgraded in December 2009, and a number of awareness programmes were 
implemented.162  Customers may also seek investment advice or asset-management services from their 
insurers.  Regulations on non-bank financial holding  companies have been eased, so that insurance 
companies will not be required to sell shares in  non-financial companies when they create holding 
companies.163  
(v) Telecommunications 
101. The telecommunications market grew more slowly than other sectors in Korea during the 
review period, accounting for 3.7% of GD P in 2010, compared with 4.2% in 2008.164  Growth was led 
by mobile telephony;  in December 2010, mob ile phone penetration w as over 100%, with about 
50.8 million subscriptions for Korea's 48.2 million population.165  On the other hand, fixed line 
penetration continued to decline166, from 46.4% in 2008 to 40% in 2010, due to substitution by 
                                                      
159 Previously, all products had to go through a three-phase review, and authorities had to give prior 
approval for 90% of insurance products before companies could market them  (Financial Supervisory Service, 
2009). 
160 Twisting is the act of replacing insurance coverage by one insurer with that of another, based on 
misrepresentations.  Churning is replacing coverage by an existing insurer with 'different' coverage by the same 
insurer.  While replacement of existing coverage is legitimate, inducing change s in coverage based on 
misrepresentation or deception is unethical and illegal (http://www.walls treetinstructors.com/ 
ce/continuing_education/ethics2/id40.htm) (EU Chamber of Commerce in Korea online information, 
"Trade Issues and recommendations 2011".  Viewed at:  http://trade.eucck.org/site/2011/en/market_15.htm [19 October 2011]. 
161 Financial Supervisory Service (2011). 
162 Financial Supervisory Service (2009). 
163 EIU (2011b). 
164 Data by the Korea Association for ICT Promotion and the Korea Bank.   
165 National IT Industry Promotion Agency (2011) ;  and U.S. Commercial Service (2011).   
166 In November 2011, the Korean communications provider, KT, decided to stop investing in its 
fixed-line telephony services, as mobile and internet communications are growing;  the company was to focus 
instead on smartphones and other mobile internet devices (ITU online information, "KT gives up on fixed-line Republic of Korea WT/TPR/S/268/Rev.1 
 Page 145 
 
 
  broadband and internet protocol tele phony and mobile services.  Growth in the internet sector has 
been significant, with penetration at nearly 78% in 2011 (74.1% in 2006), among the highest in the world.
167  
102. Since December 2011, there have been three ca rriers for local service (KT, SK broadband and 
LG U+), five operators for national long-dist ance services (KT, LG U+, Onse, SKbroadband, and 
SKTelink), and seven for the international mark et (KT, LG U+, Onse, SKbroadband, SKTelink, 
Sejong, KCTTEL), as well as other resale companies.   KT, which merged with KTF in 18 March 
2009, is by far the dominant carrier in non-mobile telephony services, with nearly 94% of the local 
market, 80% of the long-distance, and 26.5% of th e international market;  KT, SKbroadband and LG 
U+ are the only integrated operators providing all three services.  As of December 2011, the mobile 
phone sector had three suppliers, SK Telecom, KT, and LG U+, with market shares of 50.6%, 31.5%, 
and 17.9%, respectively.168  
103. Korea's main policy goals are to:  achieve convergence between telecommunications services 
and broadcasting and audio-visual services169;  guarantee the freedom of broadcasting and its public 
and public-interest nature; and ensure balanced gr owth between broadcasting and telecommunications 
so as to strengthen the interna tional competitiveness of both services.170  Korea Communications 
Commission aims to create a unitary legal framework for all communications services, including telecommunications and broadcasting services; various  efforts have been undertaken to improve the 
existing legal and regulatory system in line with the convergence environment.   
104. The Telecommunications Basic Act provides the basic telecommunications policy 
framework, and the Telecommunications Business Ac t regulates the sector.  An amendment to the 
Telecommunications Business Act of 22 March 2010 advocates a wholesale system, promoting the establishment of new communications service provi ders and giving consumers a wider range of 
options.
171  It enables telecommunications businesses to  expand and advance their communications 
networks by using the telephone poles and pipelin es of major carriers (the Korea Electric Power 
Corporation, and the Korea Expressway Corporation) through (colocation) agreements.  It also sets a 
fine of up to 3% of sales for major carriers in violation of accounting regulations.  The 
Telecommunications Business Act Enforcement De cree, enforced on 1 October 2010, provides the 
standards for wholesale providers and their mandatory services for the implementation of a wholesale system, as well as the requirements for service resellers.  
105. The Korea Communications Commission (KCC), an independent single regulatory entity 
under the President's Office, is responsible for licensi ng, pricing, promotion of fair market conditions, 
and consumer protection.  It is also responsible  for arbitration in disputes between carriers, and 
between carriers and users.  The Korea Fair Trade Commission (KFTC) and KCC are jointly responsible for curbing unfair trade practices in th e sector.  KFTC and KCC cooperated in preventing 
                                                                                                                                                                     
telephony", 7 November 2011.  Viewed at:  h ttp://www.itu.int/ITU-D/ic t/newslog/KT+Gives+Up+On+ 
Fixedline+Telephony+South+Ko rea.aspx [7 December 2011]. 
167 Korea Internet & Security Agency (2011). 
168 Korea Association for ICT Promotion (2011). 
169 Convergence is difficult to define precisely, but it may be expressed as:  the ability of different 
network platforms to carry essentially similar kinds of services, or the coming together of consumer devices such as the telephone, television and personal computer (European Commission, 1997). 
170 Korea Communications Commission (2011). 
171 Korea Communications Commission (2011). WT/TPR/S/268/Rev.1 Trade Policy Review 
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  any possible conflicts.172  The KCC is responsible for activating Internet Protocol TV (IPTV) and 
WiBro (Wireless Broadband) service, a separate service that can be offered via smartphones and other computing devices such as laptop computers.
173  
106. Total foreign investment in basic telecoms is subject to a 49% ceiling while value-added 
telecom services are fully open to foreign investment.  In the KORUS FTA, Korea relaxed the foreign 
ownership requirements and allowed 100% indirect ownership two years after the entry into force of 
the FTA, except for the ownership of two major Korean telecommunication service providers, KT and 
SK Telecom Co. Ltd (SK Telecom).  This commitme nt was also included in the Korea-EU FTA for 
EU telecommunication service providers.  Under the Telecommunications Business Act the KCC may 
prohibit a foreign shareholder from becoming the la rgest (individual) shareholder (5% or more of 
shares) in KT.174  Other operators also have significant fo reign investment (Table IV.7).  Whereas 
very few OECD countries maintain barriers to FDI in telecommunication providers, Korea is one of 
only two OECD members that apply them to basic telecommunications services.   
Table IV.7 
Ownership structure of major telecom operators, June 2011 
(%) 
Company State-participation Foreign participation 
(% of shares) 
Korea Telecom None 49.0 
SK Telecom None 49.0 
LG U+ None 21.78 
SK Broadband None 3.75 
Source:  Korea Communications Commission. 
107. All customers are eligible for handset subsidies provided by the three mobile operators in the 
form of price discounts on handsets purchased by co nsumers who enter into a fixed-term contract 
(usually 2 years) with the operator.  In Sept ember 2010 and September 2011, corrective action orders 
were issued to, and fines imposed on all three operators for the issue of  differentiated handset 
subsidies (depending on the duration of the contract  and type of service plan purchased), which were 
seen as undermining users' welfare.175  
108. Number portability, allowing a subscriber to transfer their number from one network to 
another after cessation of a contract, applies to fi xed-line and mobile services.  According to data 
                                                      
172 Although the Telecommunications Business Act and the Fair Trade Act may be applied to the 
telecoms sector, the duplicate jurisdiction is resolv ed according to Article 54 of the Telecommunications 
Business Act, which stipulates that once a correctiv e order or penalty is issued in accordance with the 
Telecommunications Business Act, the KFTC cannot take action on the same issue. 
173 IPTV, an emerging internet technology standard for use by television broadcasters, is one of the 
core services in converging broadcasting and telecommunications.  It was first launched at the end of 2008 and 
grew rapidly to occupy 15% of the pay cable market with more than 3 million subscribers.  WiBro (Wireless Broadband) is a wireless broadband internet technology developed by the Korean telecoms industry.  WiBro 
service expanded from only Seoul and the metropolitan ar ea in 2008 to other metropolitan cities and towns in 
2009, and to main highways in 2010;  its population coverage increased from 25% in 2008 to 66% in 2010 (Hankyung , "3 yr. old KCC's success and future task s", 27 February, 2011.  Viewed at:  
http://www.hankyung.com/ne ws/app/newsview.php?aid=2011022757178&intype=1). 
174 However, owing to an exception, in 2008 the largest individual shareholder in KT was foreign.  This 
shareholder sold its shares in January 2009, reducing its ownership from 5.79% to 4.99%.  The largest 
shareholder now is the National Pension Fund, which holds approximately 6% of KT.  
175 Korea Communications Commission (2011). Republic of Korea WT/TPR/S/268/Rev.1 
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  provided by the authorities, 12 million subscribers changed their mobile phone service in 2011, up 
from 10.2 million in 2007, indicating increased compe tition;  on the other hand, the number of fixed 
line subscribers changing service providers dropped by 40% to 415,069.   
109. Price discounts are permitted on sales of bun dled products, such as local telephone, high-
speed internet, and mobile telephony services.  Th e number of bundled service subscribers increased 
from 4.1 million households in 2008 to 8.8 m illion in 2010.  The pre-screening process for the 
approval of prices on bundled products was eased in 2009 (maximum discount rate eligible for 
pre-screening waiver raised from 20% to 30%).176  Prices of mobile phone communications were 
lowered considerably following the improvement of  the mobile tariff system in September 2009.  
Tariff approval waiver was extended to more typ es of bundled services, which resulted in various 
service bundles offering large discounts, being made available to consumer s, helping to reduce 
telecom expenses for households.177  
110. Facilities-based businesses may apply for a licence  at any time;  the screening period for 
licence applications is one to two months.  To obtain a licence, facility-based providers must furnish a business plan, a sales plan, a technology plan, an d an R&D plan.  Facilities-based providers are 
required to contribute 0.5% of the previous year's  total revenues to the R&D expenditure fund, while 
dominant providers are required to contribute 0.75%.  Telecom operators that pay spectrum fees are exempt, as well as telecom operators that make net losses or whose previous year's revenue does not exceed ₩ 30 billion.
178  The R&D contribution is managed by the Ministry of Knowledge Economy.  
(a) Interconnection 
111. The KCC formulates the scope of interconnection agreements.  Operators must conclude an 
agreement within 90 days of receiving a request from another operator.  The KCC sets interconnection charges based on a long-run incr emental cost methodology (LRIC), which is 
applicable to interconnection of local, long-distance,  and mobile services.  In November 2010, the 
KCC adopted guidelines on "Criteria of What C onstitutes a Negligible Item Concerning an 
Interconnection Agreement", and "Criteria fo r the Interconnection of Telecommunications 
Facilities".
179  The two guidelines are aimed at reducing the administrative burden on operators who 
previously required approval from the KCC for a ll changes to interconnection agreements.  Minor 
changes made to interconnection agreements alrea dy approved by or reported to the KCC need only 
undergo a simple reporting procedure.  In 2010 an d 2011, the KCC applied the LRIC methodology to 
change the guidelines on interconnection of local, lo ng-distance, mobile, and internet networks.   
                                                      
176 Korea Communications Commission (2010). 
177 Korea Communications Commission (2011). 
178 Under Article 11.3 of the Radio Waves Act, spectrum fees are determined either through 
administrative pricing or auction.  In the case of administrative pricing, the KCC calculates the economic value 
of the designated spectrum, taking in to account indicators such as expect ed sales and business value of the 
spectrum.  In the case of auction, the KCC sets the minimum competition/ auction baseline pri ce.  Spectrum fee 
revenue is placed into the Broadcasting and Communi cations Development Fund and the Information and 
Communications Promotion Fund, which are designed to assist public policy goals such as universal service, assistance for low-income and special-needs families, public education/training programmes, research and 
development. 
179 Korea Communications Commission (2011). WT/TPR/S/268/Rev.1 Trade Policy Review 
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  (b) Price regulation 
112. The KCC approves the dominant operator's (KT)  local telephony prices, which include the 
monthly subscriber charge and local calls.  The Telecommunications Business Act provides for the reduction of communications fees imposed on socially  disadvantaged people.  The KCC undertakes 
an annual evaluation of market competition in each service segment, and d esignates the services and 
service suppliers that require price approval by the K CC;  in February 2012, KT in the local fixed-line 
telephone market, and SKT in the mobile telephone market were subject to KCC price approval.  
Price changes are to be approved within 30 days, with the possibility of a one-time extension.  
Telecommunications tariffs that do not require KCC approval still need to be notified/reported before 
becoming effective;  long-distance and leased-line pri ces also need to be filed with the KCC.  The 
broadband market is no longer subject to price approval (since 2010).  
113. In 2010, the basket of Korea's rates for m obile, internet, and local, long-distance and 
international fixed-line services we re less than the OECD average.
180  
(c) Universal service obligations  
114. Universal service includes provision of local  telecommunications services, subsidized 
services for low-income and disabled customers, provision of services in remote areas, and wireless 
communications for ships.  Providers of universal services tend to incur losses and are thus subsidized 
through a universal service compensation fund, to wh ich all operators contribute a proportion of their 
revenue.   The KCC takes responsibility for universal service costing.  The losses from universal 
services operations totalled ₩ 89.7 billion in 2008, and ₩ 83.4 billion in 2009.  Subsidized prices 
(discounts) for the disabled and lo w-income families increased from ₩ 413.6 billion in 2008 to 
₩ 563.7 billion in 2011.  
(d) Broadcasting  
115. Convergence between telecommunications servi ces and broadcasting services remains a 
major policy objective.  The 2010 Framewor k Act on Broadcasting and Communications 
Development now regulates the planning and pr omotion of broadcasting and communications 
activities.181  It provides for the establishment of techni cal standards, disaster management, and the 
Broadcasting and Communications Development F und, which consists of funds collected from 
spectrum auction and pricing, deposit fees for spect rum, special fees from broadcasting operators, and 
earnings from fund operation.  In 2012, the Fund w as used to assist the transition from analogue to 
digital broadcasting ( ₩ 105.5 billion), to improve broadcasting infrastructures ( ₩ 61.9 billion), 
protect viewers' rights ( ₩ 14.5 billion), and assist special-need families ( ₩ 6.9 billion). 
116. The 2009 Amendments to the Broadcasting Act were aimed at creating a more competitive 
broadcasting market.182  Ownership restrictions in the broa dcasting industry have been eased across 
the board, and new regulatory mechanisms are now  in place to guarantee the diversity of public 
opinion.  New types of advertising, such as virtual and indirect advertising are now authorized.  The 
                                                      
180 Nevertheless, in August 2008, Korea's charges for international calls were among the highest in 
OECD countries, at up to 2.7 times the OECD average (residential consumers) in terms of US$ purchasing 
power parity.  The OECD does not compare international call rates (since 2008), since 2011 it has compared a 
basket of telephone prices, which include local, international, mobile, and fixed-line services for home/business use (OECD, 2011d and 2009b). 
181 Korea Communications Commission (2011). 
182 Korea Communications Commission (2010). Republic of Korea WT/TPR/S/268/Rev.1 
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  pre-screening scheme for TV ads was abolished.  Ot her changes included ensuri ng transparency of the 
management of daily newspapers  planning to provide multi-genre programming.  Several ex-ante 
regulations were further relaxed, such as improvi ng the certification system for broadcasting and 
telecommunications equipment, and adoption of sa mple testing policy for installation of radio 
stations.  
117. Terrestrial radio and television broadcasting ar e closed to foreign investment, while the 
ceiling on foreign investment in other areas of broadcasting is 49%.   
118. The KCC handles all functions related to the broa dcasting subsector.  It is responsible for 
managing broadcasting spectrum, licensing, mon itoring transmission and programming, and policy 
for technical standards. 
(vi) Transport 
119. Roads continue to dominate domestic transport in Korea, while seaborne transport is used 
mainly for cargo and freight;  intern ational passenger transport is predominantly by air.  Both road 
and air transport are subject to competition laws, wh ile maritime transport is exempt.  The authorities 
indicated that this exemption is aimed at preven ting reckless competition and maintaining order in 
maritime transport.  Concerted action involving line r shipping companies is permitted;  the authorities 
believed that it can enhance the competitiveness of national-flagged liner companies (see below), as 
mega-sized global shipping companies increasingly dominate the industry.  
(a) Maritime transport 
120. The maritime transport sector continued to grow during the period under review;  Korea's 
merchant fleet capacity rose from 15 million gross tonnes in 2006 to approx imately 32 million gross 
tonnes in 2011.  According to UNCT AD data, Korea had the world's fi fth largest fleet in deadweight 
terms (3.79% of total dwt) consisting of 47. 4 million tonnes (1,189 vessels), of which 61.8% 
(453 vessels) were foreign flagged.183  The sector remains less, albeit highly, concentrated, with the 
five largest operators controlling 53% of the market (over 70% in 2007).  
121. The maritime sector is regulated through th e Maritime Transport Ac t, which covers sea 
passenger transport, sea freight transport, ship's brokerage, shipping agents, ship rental, and ship 
management.  The Ministry of Land, Transport and Maritime Affairs, which administers the Law, is 
also responsible for maritime safety and devel opment, port policy, and improving the competitiveness 
of the shipping industry.   
122. There are no restrictions on the access of forei gn carriers to the Korean liner market, and they 
are accorded national treatment at Korean ports and in the registration process.184  Cabotage is 
reserved for Korean vessels, but foreigners may pa rticipate in goods and passenger transport between 
North and South Korea, as a minority joint-venture partner with a South Korean firm.  The captain 
(Master) and chief engineer of a Korean-flagged v essel should be of Korean nationality;  no other 
                                                      
183 UNCTAD (2011a). 
184 Following the amendment of the enforcement regu lations of the Maritime Transport Act, as from 
1 January 2010 carriers need to be registered to benefit from such treatment;  registration requirements include 
capital stock of ₩ 1 billion or more and carrier cargo capacity of 10,000 tonnes or more, or equity of 
₩ 1 billion and a cargo capacity of 10,000 tonnes ( Newsis,  "Changes in Maritime and Transport in 2010", 
29 December 2009.  Viewed at:  http://news.naver.com/ main/read.nhn?mo de=LSD&mid=sec&sid1=101&oid 
=003&aid=0003018748). WT/TPR/S/268/Rev.1 Trade Policy Review 
Page 150 
  
  limits are in place on the number of foreigners a llowed on board, except for specifically designated 
vessels (including vessels transporting materials that significantly affect the national economy or national security, e.g. military supplies, petroleum, LNG, coal, etc.) which are limited to eight foreigners.  Ten foreign crew members are pe rmitted on a registered international Korean ship. 
123. The Government does not intervene directly in providing shipping services, but provides 
various financing and tax schemes to assist shipping companies;  no data on budgetary costs of these 
schemes since 2008 were available from the author ities.  A voluntary tonnage tax system (TTS)
185, 
based on the net tonnage of individual vessels, has been in place since 2005.  When operation profits 
are generated it allows for a lower effective tax rate  than the corporate income tax system;  84 carriers 
were participating in this system in 2008, but drop ped to 64 in 2009 due to the global financial crisis, 
as many shipping companies have faced difficulties in generating operating profits (i.e. earned from 
normal core business operations), several have gone bankrupt or out of business in the bulk sector.186  
Most maritime auxiliary services, including tug services, freight forwarding, and maintenance and 
repair services are provided by the private sector;  pilots must be Korean.  
124. Vessels registered at the Jeju and Seogwipo ports in Jeju island benefit from local tax breaks 
relating to acquisition and property taxes.  In order to  be eligible for international shipping registration 
these vessels need to be of 500 gross tonnes or more, and 20 years old or less;  foreign bareboat chartered-in hire purchase vessels (BBCHP) by a Ko rean charterer for the purpose of hire purchase 
(HP) are required to convert to the Korean flag to  qualify for Jeju island's re gister.  The same terms 
apply to bulks and liners;  no additional fiscal or employment conditions are attached to the 
registration requirements.  Foreign ship-owners are no t allowed to register.  At end 2011, 912 vessels 
totalling 31 million tonnes (dwt) were registered at the Jeju and Seogwipo ports. 
125. Government policy is directed towards making Korea a logistics and shipping hub for 
North East Asia, and turning the country into one of  world's five largest marine powerhouses by 2020.  
Base ports are to be built in Incheon, Gwangy ang, and Ulsan, and antiquated ports will be 
renovated.
187  The Ministry of Land, Transport and Maritime Affairs invested ₩ 2.5 billion in 2009 
for the installation of an intelligent port automati on system at Sinseondae of Busan Port and Dongbu 
Busan Container Terminal;  it is expected to redu ce port time and yard tractor movement, and cut oil 
usage and carbon emissions.188  On 19 April 2010, Port-MIS 2.0 software was launched to enable 
electronic port-use reporting.189  
                                                      
185 Under the TTS qualified shipping companies may divide their income into shipping income and 
non-shipping income.  The mandatory period for application of the TTS is five years, and companies that opt for it must pay it even when they experience operating losses ( Munhwa,  "5 biggest carriers give up tonnage tax", 
5 April 2010.  Viewed at:  http://www.munhwa.c om/news/view.html?no=2010040501031 2243150020). 
186 Between 2009 and 2011, 54 companies went out of business. 
187 Blue House online information.  Viewed at:  http://m.president.go.kr/news/view.php?uno=1569& 
cur_page_no=. 
188 Ministry of Land, Transport and Maritime Affairs online information.  Viewed at:  
http://english.mltm.go.kr/USR/BOR D0201/m_28286/DTL.jsp?id=eng0301&cate=&key=&search=&search_reg
date_s=&search_regdate_e=&order=&desc=asc&srch _prc_stts=&item_num=0&search_dept_id=&search_dept
_nm=&srch_usr_nm=N&srch_usr_titl=N&srch_usr_c tnt=N&srch_mng_nm=N&old_dept_nm=&search_gbn=
&search_section=&source=&lcmspage=59&mode=view&idx=1347. 
189 Ministry of Land, Transport and Maritime Affairs online information.  Viewed at:  
http://english.mltm.go.kr/USR/BOR D0201/m_28286/DTL.jsp?id=eng0301&cate=&key=&search=&search_reg
date_s=&search_regdate_e=&order=&desc=asc&srch _prc_stts=&item_num=0&search_dept_id=&search_dept
_nm=&srch_usr_nm=N&srch_usr_titl=N&srch_usr_c tnt=N&srch_mng_nm=N&old_dept_nm=&search_gbn=
&search_section=&source=&lcmspage=27&mode=view&idx=1750. Republic of Korea WT/TPR/S/268/Rev.1 
 Page 151 
 
 
  126. The Ministry of Land, Transport and Maritime Affairs administers ports.  They are 
state-owned and provided free of rent to the Korea Co ntainer Terminal Authority, which in turn rents 
port facilities to private terminal operators.  C ontainer throughput grew strongly between 2007 and 
2011, from 17.5 million TEU to 21.6 billion TEU.190  Transhipment cargoes grew by 16.2% in 2011 
to 1,079,000 TEU, since more shipping companies use Busan port as a hub spot for transhipment.  
127. Port charges in Korea are moderate compared with other ports in the region;  total harbour 
charges at Pusan were lower than those at Singapore,  Kaohsiung, and Shanghai in 2008.  In line with 
the global trend to relieve shipping lines from their difficult financial situation by allowing deferral or 
discounting of port charges due to the recent economic  downturn, the Busan Port Authority froze port 
charges in 2010, and a port charge deferment system was put in place temporarily (rescinded in 2010), 
in response to the global financial crisis.191  
(b) Air transport 
128. Air passenger traffic and freight  have continued to grow sinc e 2003.  Air transport policy and 
licensing arrangements are under the Ministry of Land , Transport and Maritime Affairs (Air Transport 
Policy Bureau and Civil Aviation Bureau), which administers the Aviation Act.  The Ministry 
announced the 1st Aviation Policy Basic Plan in 2009192, and the 2010 Aviation Policy 
Implementation Plan on 6 May 2010193, to specify strategies for the implementation and management 
of the Aviation Policy Basic Plan.  The 2009 am endment of the Aviation Act included:  the 
reorganization of the air transport licensing system from scheduled and non-sche duled (charter) traffic 
to domestic, international, and small air transport syst em;  the insertion of light aircraft provisions in 
                                                      
190 Ministry of Land, Transport and Maritime Affairs online information.  Viewed at:  
http://english.mltm.go.kr/USR/BOR D0201/m_28286/DTL.jsp?id=eng0301&cate=&key=&search=&search_reg
date_s=&search_regdate_e=&order=&desc=asc&srch _prc_stts=&item_num=0&search_dept_id=&search_dept
_nm=&srch_usr_nm=N&srch_usr_titl=N&srch_usr_c tnt=N&srch_mng_nm=N&old_dept_nm=&search_gbn=
&search_section=&source=&lcmsp age=2&mode=view&idx=1976. 
191 EU Chamber of Commerce in Korea online information, "Trade Issues and recommendations 2011".  
Viewed at:  http://trade.eucck.org/site/2011 /en/market_17.htm [19 October 2011]. 
192 The 1st Aviation Policy Basic Plan covers 5 fields:  strengthening global competition, which 
includes more open-skies agreements and promoting low-cost carriers and general aviation;  improving 
efficiency, which includes organizing a new aviation system;  developing pre-emptive safety measures;  
diversifying the industry, and training professional staff;  and promoting environmentally friendly measures while upgrading global status (Ministry of Land, Trans port and Maritime Affairs online information.  Viewed 
at:  http://www.mltm.go.kr/USR/po licyData/m_34681/dtl.jsp?search=&srch_dept_nm=&srch_dept_id=&srch 
_usr_nm=&srch_usr_titl=Y&srch_usr_c tnt=&search_regdate_s =&search_regdate_e=& psize=10&s_category= 
p_sec_7&p_category=701 &lcmspage=1&id=256). 
193 The 2010 Aviation Policy Implementation Pl an analyses the outcome of aviation policy 
implementation in 2009.  Through the plan, air serv ices liberalization and capacity entitlement between 
Korea-EU, Korea-ASEAN, and Korea-China will be promoted, to enhance competitiveness.  The Ministry will 
develop air transport risk indicators, establish a system for continuous monitoring and preventative risk 
management, and enforce the autonomous safety management system.  An MRO roadmap (maintenance repair & overhaul) will be completed to promote the aviation industry (Ministry of Land, Transport and Maritime 
Affairs online information.  Viewed at:  http://english.mltm.go.kr /USR/BORD0201/m_28286/ 
DTL.jsp?id=eng0301&cate=&key=conte nt&search=safety&search_regdate_s=&search_regdate_e=&order=&d
esc=asc&srch_prc_stts=&item_num=0&search_dept_id =&search_dept_nm=&srch _usr_nm=N&srch_usr_titl=
N&srch_usr_ctnt=N&srch_mng_nm=N&old_dept_nm= &search_gbn=&search_sec tion=&source=&lcmspage=
5&mode=view&idx=1772. WT/TPR/S/268/Rev.1 Trade Policy Review 
Page 152 
  
  the Aviation Act;  the introduction of aviation safety duties and a self-reporting system;  and setting 
the legal basis for allocating transportation rights and overflight.194   
129. At present, Korea's seven privately owned nationa l flag carriers are:  Korean Air, Asiana 
Airlines, Jeju Air, Air Busan, Jin Air, Eastarjet, and t’way.  All national air carriers operate 
international and domestic services.  Internationa l air services are governed by bilateral air services 
agreements (ASAs) negotiated primarily by the Mini stry of Land, Transport and Maritime Affairs.  
Korea has signed bilateral ASAs with 92 countries195, including open-skies agreements with Brazil 
and the United States.  Korea plans to negotia te additional agreements, while progressively 
liberalizing existing bilateral arrangements.  Cabotage is prohibited under the Aviation Act 
(Article 149). 
130. Foreign ownership of Korean airline operators  providing scheduled or non-scheduled services 
is limited to less than 50%, and operators must regist er their aircraft in Korea.  There are no limits on 
sales of transportation services by foreign airlines in the domestic market exist.  There is no monopoly computer reservation system (CRS) provider or an  obligation to use a certain CRS supplier.   
131. There are eight international and seven domestic airports in Korea.
196  All except Incheon are 
managed and operated by the Korea Airports Cor poration, which is government owned.  Incheon 
Airport is operated and managed by another government-owned entity, the Incheon International 
Airport Corporation.  Efforts to privatize the In cheon International Airport are at a standstill and a 
plan to sell a 15% stake through public offering in late 2011 or early 2012 was dropped.197  T h e  
operating rights of the Cheongju International Ai rport were sold to a private consortium in 
February 2012.  Take-off and landing slots are allo cated in order of priority, according to slots 
retained from the previous season for scheduled air services, slots used for scheduled air services in 
the previous equivalent and no n-equivalent season, and new slots requested for scheduled and 
non-scheduled air services.  Landing and take-off char ges at Incheon are lower than at airports in 
Hong Kong/China, Singapore, and Japan, but apparently  higher than those in Shanghai and Taipei.  
132. Self-handling, mutual handling and/or third-party handling are allowed, and there are no 
limits to the number of ground-handling suppliers at ma jor airports.  No restrictions are in place for 
national carriers having their aircraft repaired /maintained abroad;  however, overseas mechanics 
should possess Designated Overseas Mainte nance Mechanic Certificates.   
(c) Land transport 
133. Road transport in Korea, accounts for over 85%  of national passenger transport and freight 
needs.  The Ministry of Land, Transport and Maritim e Affairs is responsible for land transport policy, 
national road construction and maintenance, and managing toll expressways.  Korea has over 
105,000 km of road, with 32 expr essways and 51 national highways.  According to the National 
Highway Network Plan, 5,953 km of expressways are to be built by 2020;  3,913 km had already been 
built by the end of 2011.  Private investment in roads is encouraged thr ough build-transfer-operate 
(BTO) contracts.  The main barrier to entry to passenger transport is an economic-needs test, while 
bus and taxi fares are regulated by local government s based on costs.  Bus companies receive partial 
                                                      
194 Ministry of Land, Transport and Maritime Affairs online information.  Viewed at:  
http://www.mltm.go.kr/USR/NEWS/m_71/ dtl.jsp?lcmspage=2&id=155353136. 
195 Korea entered into an ASA with Turkmenistan in  November 2008, signed an ASA with Lao PDR in 
April 2010, and entered an open-skies agreement with  Brazil and an ASA with Seychelles in July 2010. 
196 Ministry of Land, Transport and Maritime Affairs (2009). 
197 EIU (2011a). Republic of Korea WT/TPR/S/268/Rev.1 
 Page 153 
 
 
  subsidies for losses, in the form of matching central -local government funds (total support provided to 
buses was ₩ 174 billion in 2011), and, along with taxi ope rators, receive a portion of the fuel tax 
revenue back as a subsidy;  this amounted to ₩ 940 billion in 2011.  
134. In late 2009, railways were responsible for 15% of domestic passenger and 7% of freight 
transport;  the Government expects the share of  railways in the domestic transport market to 
approximately double by 2020.   
135. The Korea Railway Network Authority, a state monopoly and the owner of high-speed 
railways, is responsible for a ll railway construction activity198, while the Korea Rail Corporation 
(Korail), an independent state-ow ned corporation, runs the railway  network operations.  Both entities 
are under the Rail Policy Bureau within the Ministry of Land, Transport and Maritime Affairs.  Any 
changes with respect to train fares, including freig ht rates, need to be notified to the Ministry. 
136. Under the Railroad Enterprise Act, all railway ope rators need to be licensed.  There are no 
restrictions on foreign enterprises supplying rail tr ansport services for routes built since 1 July 2005, 
but they must comply with the eco nomic needs test and regulations on licences, as stipulated in the 
Railroad Enterprise Act.  At present, though Korail is  responsible for all rail operations, and there are 
no private or foreign companies in the sector.  Th e Government is preparing to open the market in 
order to enhance competition among co rporations in railway operations. 
(vii) Distribution services 
137. During the period under review (2008-12), growth in the distribution services (wholesale and 
retail trade, wholesale and retail trade averaged a modest 7.6% per annum, and its contribution to 
GDP remained static at 8.2%.  On the other hand, the share of distribution services in total 
employment rose to 8.8%.  
138. Liberalization of the subsector has been contin uous since 1996;  the number of stores of large 
distributors has increased, and apparently there is little foreign participation in the sector.  Between 
2008 and 2011, the number of large stores increased by 14.2%.  Foreign investment in distribution 
services varied considerably during 2008-11, ra nging from US$938 million to US$1.7 billion.  The 
share of traditional family stores has been declini ng.  Growth in the distribution sector has been 
fuelled by hypermarkets, as these are also the prefe rred choice of foreign participants in the sector.   
139. The sector is subject to the competition policy and consumer protection legislation 
(Chapter III).  It is also subject to the Distribu tion Industries Development Act, enacted in April 1997 
to facilitate the development of di stribution industries.  Along with policies to promote fair business 
practice between SMEs and large enterprises, the amendments in the Distribution Act during the 
review period focused on achieving fairness in the di stribution market and restricting the expansion of 
Super Supermarkets (SSMs) (1,000 m2-3,000 m2), which are smaller than hypermarkets.199  Under the 
2009 amendment of the Act, large stores of floor space of 3,000 m2 or more must undergo a 
registration process rather than just reporting to the local authorities prior to starting a business.  As a 
result of a 2010 amendment of the Act, local govern ments may enact ordinances to limit access by 
large retailers and SSMs to traditional markets within  a 500 m radius.  A 2011 amendment to the Act, 
increased the area of limited SSM access to a maximum radius of 1 km, and the validity of the 
                                                      
198 Nevertheless, under the Act on Public-Private Partnerships in Infrastructure, an independent 
corporation may carry out railway construction activities. 
199 The Distribution Industries Development Act define s SSMs as supermarkets directly managed by a 
company that owns large retail businesses su ch as marts, depart ment stores, etc. WT/TPR/S/268/Rev.1 Trade Policy Review 
Page 154 
  
  restrictive rules was extended from 3 to 5 years.   There are no restrictions on foreign entry in trading 
activities other than those explicitly excluded200, and foreign participants are accorded national 
treatment.  Economic needs test requirements affect  wholesale and retail services related to used cars 
and gaseous fuels.   
 
                                                      
200 Foreign entry is exclud ed in the trade of:  pha rmaceuticals, medical, and functional goods;  firearms, 
explosives, and swords;  works of art and antiques;  and operation of and distribution services at public 
wholesale markets for agricultural, fi shery, and livestock products.   Republic of Korea WT/TPR/S/268/Rev.1 
 Page 155 
 
 
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