WORLD  TRADE  
ORGANIZATION   
WT/TPR/S/268/Rev.1 
8 November 2012 
 
 (12-6144) 
Trade Policy Review Body  
  
 
   
 
TRADE POLICY REVIEW 
 
Report by the Secretariat 
 
REPUBLIC OF KOREA 
 
Revision 
 
   
This report, prepared for the sixth Trade Policy Review of the Republic of 
Korea, has been drawn up by the WTO Secretariat on its own responsibility.  
The Secretariat has, as required by th e Agreement establishing the Trade Policy 
Review Mechanism (Annex 3 of the Ma rrakesh Agreement Establishing the 
World Trade Organization), sought clarification from the Republic of Korea on 
its trade policies and practices. 
 
Any technical questions arising from this report may be addressed to 
Sergios Stamnas (tel:  022 739 5382). 
 
Document WT/TPR/G/268 contains the policy statement submitted by the 
Republic of Korea. 
 
 
 
 Republic of Korea WT/TPR/S/268/Rev.1 
 Page iii 
 
 
CONTENTS 
 
    Page 
SUMMARY   vii 
 (1) E CONOMIC ENVIRONMENT  vii 
 (2) T RADE POLICY FRAMEWORK  viii 
 (3) T RADE POLICY DEVELOPMENTS  viii 
 (4) S ECTORAL POLICY DEVELOPMENTS  x 
 (5) O UTLOOK  xii 
I.  ECONOMIC ENVIRONMENT 1  
 (1)   OVERVIEW  1 
 (2)   RECENT ECONOMIC PERFORMANCE  2  
 (3)   BALANCE OF PAYMENTS  6  
 (4)   KEY POLICY DEVELOPMENTS  9  
 (i)   Macroeconomic policies 9  
 (ii)   Structural policies 10  
 (5)   COMPOSITION AND PATTERN OF TRADE  13  
 (6)   TRENDS AND PATTERNS IN FOREIGN DIRECT INVESTMENT  16  
II.  TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES  18  
 (1)   INTRODUCTION  18  
 (2)   GENERAL CONSTITUTIONAL AND INSTITUTIONAL FRAMEWORK  18  
 (3)   STRUCTURE OF TRADE POLICY FORMULATION  19  
 (i)   Executive branches  of government 19  
 (ii)   Advisory, planning, and other bodies 20  
 (4)   TRADE POLICY OBJECTIVES  20  
 (5)   TRADE LAWS AND REGULATIONS  21  
 (6)   TRADE AGREEMENTS AND ARRANGEMENTS  26  
 (i)   Korea and the WTO 26  
 (ii)   Regional agreements 28  
 (iii)   Bilateral agreements 31  
 (iv)   Unilateral and other trade preferences 37  
 (7)   FOREIGN INVESTMENT REGIME  37  
III.  TRADE POLICIES AND PRACTICES BY MEASURE    45  
 (1)   INTRODUCTION  45  
 (2)   MEASURES DIRECTLY AFFECTING IMPORTS  47  
 (i)   Customs procedures 47  
 (ii)   Customs valuation 52  
 (iii)   Tariffs 53  
 (iv)   Tariff quotas 61  
 (v)   Other levies and charges 62 WT/TPR/S/268/Rev.1 Trade Policy Review 
Page iv 
  
   
 
    Page 
  (vi)   Import licensing, quotas, and prohibitions 63  
 (vii)  State trading 64  
 (viii)  Contingency measures 65  
 (ix)   Standards and other technical requirements 66  
 (x)   Government procurement 76  
 (3)   M
EASURES DIRECTLY AFFECTING EXPORTS  80  
 (i)   Registration, documentation, and clearance 80  
 (ii)   Export prohibitions, restrictions, and licensing 81  
 (iii)   Export subsidies 81  
 (iv)   Duty and tax concessions 82  
 (v)   Export finance, guarantees, and insurance 82  
 (vi)   Export promotion and marketing 83  
 (4)   MEASURES AFFECTING PRODUCTION AND TRADE  83  
 (i)   Taxation 83  
 (ii)   Financial assistance 87  
 (iii)   State-owned enterprises and privatization 90  
 (iv)   Competition and consumer policy 93  
 (v)   Intellectual property rights 99  
IV.  TRADE POLICIES BY SECTOR      110  
 (1)   INTRODUCTION  110  
 (2)   AGRICULTURE AND LIVESTOCK  111  
 (i)   Features 111  
 (ii)   Policy developments 111  
 (iii)   Selected activities 119  
 (3)   FISHERIES  122 
 (4)   ENERGY   125 
 (i)   Hydrocarbons 126  
 (ii)   Electricity 128  
 (iii)   Coal 130  
 (5)   MANUFACTURING  130  
 (i)   Automobiles 132  
 (ii)   Shipbuilding 133  
 (iii)   Other manufacturing activities 134  
 (6)   SERVICES  135 
 (i)   Features 135  
 (ii)   Overall commitments under the GATS 136  
 (iii)   Regional and bilateral agreements on services 136  
 (iv)   Financial services 137  
 (v)   Telecommunications 144  
 (vi)   Transport 149  
 (vii)  Distribution services 153  
REFERENCES   155 
APPENDIX TABLES  163 
 Republic of Korea WT/TPR/S/268/Rev.1 
 Page v 
 
 
CHARTS 
    Page 
I.  ECONOMIC ENVIRONMENT  
 I.1 Product composition of merchandise trade, 2007 and 2011 14 
I.2 Direction of merchandise trade, 2007 and 2011 15 
III.  TRADE POLICIES AND PRACTICES BY MEASURE  
 
III.1 Average applied MFN and bound tariff rates, by HS section, 2008 and 2012 55 
III.2 Distribution of MFN tariff rates, 2008 and 2012 56 III.3 Tariff escalation by 2-digit ISIC industry, 2008 and 2011 57 
IV.  TRADE POLICIES BY SECTOR  
 IV.1 Interest spreads and profits, 2006-11 140 
 
 
TABLES 
I.  ECONOMIC ENVIRONMENT  
 
I.1 Selected macroeconomi c indicators, 2007-11 3 
I.2 Basic economic and soci al indicators, 2007-11 5 
I.3 Balance of payments, 2007-11 7 
I.4 Outflows of foreign direct investment, 2007-10 16 
II.  TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES  
 
II.1 Latest WTO notifications, end-May 2012 23 
II.2 Summary of FDI tax incentives, 2012 40 II.3 FDI restricted sectors, 2012 43 
III.  TRADE POLICIES AND PRACTICES BY MEASURE  
 III.1 Tariff structure, 2008, 2011, and 2012 54 
III.2 Summary analysis of the preferential tariff, 2012 60 
III.3 Structure of direct and indirect tax revenue, 2004-10 84 III.4 State involvement in the economy, 2012 91 
IV.  TRADE POLICIES BY SECTOR  
 IV.1 Agricultural support by commodity, 1986-88, 1995-97 and 2008-10 115 
IV.2 Direct payments to agriculture, 1986-88, 1995-97 and 2008-10 117 
IV.3 Structure of the financial system, 2007 and 2011 137 
IV.4 Government and foreign ownership of commercial banks, June 2011 138 
IV.5 Banking indicators, 2006-11 140 IV.6 Sub-standard and below loans, 2006-11 141 
IV.7 Ownership structure of major telecom operators, June 2011 146 
 WT/TPR/S/268/Rev.1 Trade Policy Review 
Page vi 
  
  APPENDIX TABLES 
 
    Page 
I.  ECONOMIC ENVIRONMENT  
 
AI.1 Merchandise exports by product group, 2007-11 165 
AI.2 Merchandise imports by product group, 2007-11 166 AI.3 Merchandise exports by destination, 2007-11 167 
AI.4 Merchandise imports by origin, 2007-11 168 
III.  TRADE POLICIES AND PRACTICES BY MEASURE  
 
AIII.1 MFN tariff averages by HS chapter, 2008 and 2012 169 
AIII.2 Non- ad valorem  (alternate) MFN applied tariffs and ad valorem  equivalents 
 of their specific duty component, 2011 173 
AIII.3 Adjustment tariff, 2011 176 
AIII.4 Tariff quotas on agricultural products, 2011 177 AIII.5 Fill ratios for main agricultural tariff-rate quotas, 2010 182 
AIII.6 Autonomous tariff quotas, 2011 184 
AIII.7 Domestic agricultural support notified to the WTO, 2008 196 
 
   Republic of Korea WT/TPR/S/268/Rev.1 
 Page vii 
 
 
SUMMARY  
 
(1) ECONOMIC ENVIRONMENT  
1. Korea's export-driven economy has rebounded from the global financial crisis that erupted 
around the time of its previous Trade Policy Review in 2008.  This rebound is the result of the revival 
of trade world-wide and supportive macroeconomic and financial policies, including the largest fiscal 
stimulus among OECD countries, as well as accommodative monetary policy and a sharp depreciation of the exchange rate of the won during the latter part of 2008.  The rebound was, by and large, 
achieved without resorting to restrictive trade measu res;  on the contrary, Korea has instead opened its 
market further to international trade through ma jor bilateral free-trade agreements.  The strong 
recovery in exports is such that Korea is now th e world's seventh largest exporter, up from twelfth in 
2008.   
2. Policies aimed at enhancing the internationa l competitiveness of exports of manufactures, 
produced mainly by large business conglomerates, have  contributed to a large and widening gap in 
labour productivity and thus wages, between the manufacturing and services sectors, thereby 
contributing to income inequality.  Although growth  in labour productivity recovered quickly from a 
sharp slowdown in 2008, owing to the recovery of exports and investment, growth in total factor 
productivity (TFP), a much more accurate measure of economic efficiency and thus international 
competitiveness, appears to have been virtually zero or even negative in 2008 and 2009, respectively.  
The unemployment rate rose to a record level of 3.7% in 2010 before dropping to 3.4% in 2011. 
3. During the review period, monetary policy, by a nd large, kept inflation within the target of 
3±1%, even in 2011, amid rising food and fuel pr ices.  Korea's prudent fiscal policy, reflected in 
continuing modest fiscal surpluses during much of the period under review (which have contributed to 
its current account surpluses), and consequently low central government debt (31.9% of GDP) in 
2010, have also served it well.   
4. Korea's current account registered a substantia l overall surplus, averaging roughly 2.3% of 
GDP during the review period, reflecting the excess of gross national saving (31.4% of GDP) over 
gross domestic investment (29.0% of GDP).  Foreign exchange reserves increased from some 
US$200 billion in 2008 to over US$300 billion in 2011 (equivalent to nearly seven months of 
imports), making Korea's reserve holdings the sev enth largest in the world.  The economy has 
continued to be outward oriented, with trade in goods and services rising from 107.2% of GDP in 
2008 to 110.3% in 2011.  Manufactur ed goods still account for the bulk of exports (85.3% in 2011).  
The pattern of trade has continued to shift from the United States, the EU, and Japan to China, 
especially for merchandise trade. 
5. Whereas Korea is a major exporter of capital, inward foreign direct investment is among the 
lowest in relation to GDP in OECD countries, d espite the officially favourable attitude towards 
inward FDI, generous incentives, and recent impr ovements in the ease of doing business.  Although 
Korea's share in the global market's total FDI in flows rose between 2008 and 2010, it remains below 
its 2004 and 2006 levels.  This performance seems to be due, inter alia , to the cost of doing business 
in Korea and burdensome regulations, as well as to factors related to the "Korea discount", the amount 
by which investors undervalue Korean stocks owing to the perceived investment and geopolitical risk 
in the country.  During the review period, Korea has implemented measures to address some of these 
issues, and, inter alia,  promote FDI in specialized zones and locations.  However, three sectors remain 
completely closed to foreign investors and 29 are partially restricted.   WT/TPR/S/268/Rev.1 Trade Policy Review 
Page viii 
  
  (2) TRADE POLICY FRAMEWORK  
6. Korea is an original Member of the WTO.  It grants at least MFN treatment to all its trading 
partners and, as a developing country, receives the special and differential treatment provided for in 
the WTO Agreements.  The structure of trade polic y formulation, implementation, and evaluation in 
Korea has remained largely unchanged since its previous Trade Policy Review in 2008.   
7. Korea has maintained its support for, and commi tment to, liberalization and strengthening the 
multilateral trading system and the successful conclusion of the Doha  Round negotiations.  
Nevertheless, Korea has intensively pursued compre hensive free-trade agreements with major trading 
partners or regional groups (i.e. ASEAN, Indi a, the EU, Peru, and the United States), and is 
continuing or planning negotiations to establish FT As with other large economic blocs and newly 
emerging economies.  These agreements, which ha ve been notified to the WTO and cover, inter alia , 
goods, services, and investment, are seen as a ca talyst for reforming the economy and raising 
competitiveness through further liberalization and dere gulation in certain sectors.  Nevertheless, 
agriculture remains only partly covered and sensitiv e agricultural items (e.g. rice) are excluded from 
the FTA-driven liberalization.  Adjustment measures to compensate domestic producers and 
companies that seem seriously injured by FTA-indu ced import competition have been strengthened.  
Korea, a major donor to the WTO's Trade-Relate d Technical Assistance and Aid for Trade, has 
continued to provide duty-free treatment to most imports from least developed countries. 
8. Korea attaches high priority to making its laws transparent and readily accessible, including 
by foreigners;  many laws are available in English on Internet sites maintain ed by relevant ministries 
and agencies.  Regulatory reform has progressed w ith emphasis on stimulating economic growth, and 
action taken to, inter alia , help overcome the global economic cris is included revising, suspending or 
mitigating the implementation of so me burdensome regulations.  Kore a has taken steps to fulfil its 
transparency obligations at the multilateral level by, inter alia , meeting its WTO notification 
requirements, though notifications in certain areas (e .g. state trading, special  safeguards, agricultural 
export subsidies, and government procurement) have been subject  to long submission gaps.  
(3) TRADE POLICY DEVELOPMENTS  
9. The customs tariff is one of Korea's main trade policy instruments as well as a major and 
increasing source of tax revenue (6% of total tax reve nue in 2010).  The 2012 customs tariff remains 
relatively complex, involving a multiplicity of rates (84 ad valorem , 46 alternate duties) often with 
small rate differences and some involving decimal poi nts.  No tariff cuts were undertaken during the 
period under review.  As a result of the adoption of the HS 2012 tariff nomenclature, the average 
applied MFN tariff rate increased from 12.6% in 2011 (virtually the same as in 2008) to 13.3% in 
2012.  This is high by OECD country standards, th ereby requiring tariff concessions or drawbacks (to 
ensure that tariffs levied on in termediate inputs do not feed through as taxes on exports), adding to the 
complexity of border taxation.  Peak ad valorem  rates also remained unchanged and concentrated in 
agricultural items (WTO definition);  applied MFN tariff rates range from zero to 887.4% (for 
manioc).  Some 85% of rates were 10% or be low in 2012.  Tariff-rate quotas are in place under 
Korea's multilateral agricultural market-access comm itments, with in-quota rates ranging from zero to 
50% (2012) compared with out-of-quota rates up to 88 7.4%, and with a decreasing average fill rate of 
66.7% (2011).  Other measures (e.g. "autonomous" tariff quotas, usage tariffs, and duty concessions) 
selectively reduce tariffs on inputs.  Korea has bound 89.9% of its tariff lines; that is, 98.4% of 
agricultural lines (excluding mainly rice) and 88.4% of its non-agricultural lines (WTO definitions).  
The gap of 4.3 percentage points between the av erage bound and applied MFN tariff rates imparts a 
degree of unpredictability to the tariff regime and provides scope for the authorities to raise applied Republic of Korea WT/TPR/S/268/Rev.1 
 Page ix 
 
 
rates within the bindings.  Korea has continued to  use this gap to apply higher MFN duties (e.g. 
adjustment duties) termed as "flexible tariffs", which the authorities maintain are within WTO bindings;  product coverage under "flexible ta riffs" rose from 101 in 2007 to 334 in 2012.   
10. During the period under review, Korea pursued  wide-ranging trade facilitation by further 
streamlining and modernizing (and diffusing overseas) its fully computerized, user-friendly customs 
procedures in line with its World's Best Customs 2012+  plan.  Transfer pricing and customs valuation, 
two areas in which multinational corporations faced  difficulties while doing business in Korea, were 
addressed. 
11. Rice remains the only item subject to import quotas (until 2014).  Import licensing 
requirements and prohibitions are maintained most ly for the protection of public morals, human 
health, hygiene and sanitation, animal and plant lif e, environmental conservation or essential security 
interests in compliance with domestic legislation re quirements or international commitments.  Korea 
has used anti-dumping provisions against imports invol ving mainly chemicals, kraft paper, plastics, 
stainless steel, and particle board;  it initiated 8 new cases and has 31 final measures in effect on 
imports from 13 countries, mostly in Asia.  
12. Korea periodically restricts or monitors exports of certain products (e.g. rice and steel) to 
ensure adequate domestic supplies, and ther eby possibly assist downstream processing of these 
products.  Export prohibitions are aimed at prot ecting animal rights and endangered species, and 
conserving natural resources.  Direct export subsid ies are maintained to reduce marketing costs for 
certain agricultural products (e.g. fruit, vegetables, flowers, kimchi, ginseng, and livestock);  they 
totalled ₩ 32.68 billion in 2008, according to the most recent data available.  In addition to the tariff 
drawback scheme, excises and VAT are rebated at th e border, while income tax relief is accorded to 
enterprises located in free-trade zones.  Exporters benefit from export credit insurance, finance, and 
the promotional activities provided by state-owned institutions. 
13. Various measures, involving grants, tax concessions  or low-interest loans, continue to support 
the production and trade of a range of products an d to encourage SMEs, R&D, and environmental-
protection activities.  Although "sunset" clause s were intended to terminate tax incentives 
automatically, many were extended.  SMEs are amo ng the beneficiaries of these measures, which are 
especially generous for information technology activities;  a Fund now supports those who face 
problems of access to raw materials.  Emphasis was placed on financial assistance to new growth engine activities in green technology, high-tech  "convergence", and high value-added services.   
14. Attempts have been made during the past five  years to ensure that new Korean industrial 
standards are in harmony with newly adopted international standards, and the share of 
non-harmonized standards has remained unchanged.  At the same time, the number of Korean 
standards contained in mandatory technical regula tions has increased by about 70%.  Efforts have 
continued to review food labelling standards to better reflect inte rnational requirements, including 
new requirements related to children's favourite food products, nutritional la belling, and irradiated 
ingredients.   
15. Despite the lack of domestic price preferen ces, government procurement is still seemingly 
used as an instrument of economic policy to pr omote SMEs, companies in a "disadvantageous 
position", regional development, and green purch asing.  As a consequence, the government 
procurement market is more closed than the rest of  the domestic market.  Korea is a party to the WTO 
Government Procurement Agreement (GPA);  the value of contracts subject to GPA commitments 
increased though certain procurement remains uncovered by these undertakings.  Most procurement remains decentralized, as more than 63% of th e procurement market involves direct purchases by WT/TPR/S/268/Rev.1 Trade Policy Review 
Page x 
  
  public institutions.  The already small share of foreign suppliers has dropped steadily since the 
previous review, due to the highly sophisticated  and increasingly competitive domestic suppliers of 
manufactures and construction services, as well as  the discontinuation of government purchases 
financed by international public loans, whic h require international competitive tendering.  
Consequently, foreign suppliers acc ounted for 1.6% of the Public Procurement Service's total business 
operations in 2010.   
16. State involvement in the economy persists, as privatization efforts during the period under 
review yielded little result (only eight firms were privatized), despite the Government's resolve to 
proceed with divestments.  Two government agen cies and one producer association are responsible 
for imports of all rice and some other agricultural items;  their operations a llow for important price 
mark-ups, although no mark-ups were imposed on rice during most of the review period.   
17. Korea's extensive range of intellectual pr operty rights legislation has been further 
strengthened with amendments owing partly to the implementation of commitments under FTAs with 
the EU and the United States.  IPR protection was further enhanced with the expansion of 
international commitments, the reinforcement of border enforcement, and other improvements.  
Parallel imports of genuine products compliant with certain requirement s are allowed, in the interest 
of competition and thus consumers. 
18. During the period under review, Korea removed some anti-competitive provisions in its 
competition laws and regulations, and monopoly power has decreased steadily.  Nonetheless, market 
concentration remains relatively high.  Large busin ess conglomerates are subject  to special regulation, 
and cross-shareholding is banned between subsidiaries under the same holding company;  ceilings on 
the total amount of shareholdings in other domes tic companies were removed in 2009.  Large 
corporations and SMEs have been encouraged to voluntarily sign fair-trade and shared-growth 
agreements;  future work is focused on improving  competition conditions for SMEs.  Liner shipping 
conferences remain exempt from competition legisl ation.  Consumer protection has also been 
improved by helping consumers to better protect th eir rights and interests themselves, as well as 
ensuring that consumers share adequately in the benefits of FTA-driven liberalization;  
privacy-related concerns top the e-commerce legislative agenda. 
(4) SECTORAL POLICY DEVELOPMENTS  
19. During the review period, agriculture was exposed  to increased FTA-driven liberalization and 
was assisted by more market-oriented and environm entally friendly government intervention.  Despite 
domestic support equivalent to 2.2% of GDP (in 200 8-10), almost as much as agriculture's declining 
2.7% share of GDP (in 2011), labour productivity still remains relatively low, albeit improving, at 
roughly two fifths of the national average.  Alt hough self-sufficiency has been attained for some 
major products (rice), the average rate has droppe d and targets for 2015 and 2020 were increased;  at 
the same time, the volume of agricultural imports ha s continued to rise.  Average applied MFN tariff 
protection for agricultural goods (WTO definition), at  55%, is more than eight times the average for 
non-agricultural goods (6.6%).  Tariff-rate quotas ar e 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 restrictions have also been in place for rice, but were little utilized.   Special 
safeguard provisions (SSGs) under the WTO Agre ement on Agriculture have been used less 
frequently since 2008.  Agriculture receives substa ntial domestic financial assistance, involving 
product-specific support, in line with the relevant WTO provisions.  The outcome of such support is that Korean consumers pay much higher prices (on average 1.7 times the world levels).  The Republic of Korea WT/TPR/S/268/Rev.1 
 Page xi 
 
 
importance of support in the form of direct pa yments has increased.  Action has been taken to, 
inter alia , foster private investment in agricultural co rporations, protect farm household income from 
natural disasters, support precision farming practi ces with lower use of fertilizers, expand the 
traceability information system protecting consumer interests, and assist rural development.  The 
differentiated pricing system to stabilize milk supply and demand has contributed to a further 
reduction of excess milk supply.  Despite retaining fisheries-related subsidies, efforts to reduce over-
fishing were continued and action was taken to en courage environment-friendly offshore aquaculture. 
20. During the period under review, efforts have c ontinued to reduce oil dependence and cope 
with rising energy demand, including through increasing the share of renewable sources in total 
primary energy supply and projects overseas, as we ll as to reduce energy demand (energy efficiency) 
and the high energy intensity of production.  State involvement in the gas and electricity sectors persists and impedes competition.  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 gas to costs.  Domestic coal production (mostly anthracite coal), mainly destined fo r power plants, continues 
to be assisted by direct production subsidies, a VAT exemption (imported bituminous coal is subject 
to a 10% VAT), and the compulsory purchase of it s expensive output by the loss-making state-run 
electricity company.  The power exchange pool set s power generation prices to manage electricity 
dispatch;  cross-subsidies between consumers di stort prices, with agricultural users the main 
beneficiaries and all tariffs below production cost.   
21. Manufacturing's share of GDP increased (to 31.2% in 2011) while its share in employment 
remained relatively stable (thus, labour productivit y improved), as the economy became less services-
based.  The sector remains heavily outward orie nted and a world leader in information and 
communications technology (ICT), as well as in shi pbuilding and cars, activities dominated by large 
conglomerates.  Government policies (including tariffs, tax incentives, and reduced energy prices) 
have favoured manufacturing over services, which tend to be much less tradeable than manufactures.  
Border protection, which is almost entirely confined to tariffs and adjustment duties, is virtually 
unchanged since the previous Review.  Severa l tax and non-tax incentives assist R&D and SME 
activities.  As from 2009, support was focused on ac tivities termed as new growth engines with the 
objective of increasing exports of "green" goods (e.g. electric cars) by the major industries.  Other industry-specific support was made available for impr oving global competitiveness of the automobile 
parts, upgrading the steel industry, helping Korea regain the world's leading shipbuilding nation status 
in 2011, and fostering the pharmaceuticals i ndustry expansion (including in biosimilars). 
22. Services, the largest sector of the economy, remain characterized by relatively low labour 
productivity (now less than half the level in manuf acturing) and declining growth in total factor 
productivity (TFP).  This is partly due to the lack of sufficient competition owing to, inter alia , 
state-ownership and excessive regulations, including  restrictions on inward FDI.  Measures were 
taken to improve corporate governance, transpar ency, soundness, and capital adequacy ratios in 
banking and other financial services;  the financia l sector restructuring continues to benefit from 
public funds and its macro-prudentia l regulations were strengthened.  Despite some decline, state-
ownership persists in financial a nd transport services.  Maritime and air transport are also subject to 
cabotage restrictions.  In addition, there are fore ign-ownership ceilings in several sectors, notably 
telecommunications, air transport, and coastal ma ritime services, and a prohibition in radio and 
television broadcasting.  Legislation was passed fo r the planning and promotion of convergence of 
broadcasting and communications activities, as well as to create a more competitive broadcasting market.  Restrictions on the access of large retaile rs (super supermarkets) to traditional markets are 
about to be implemented.  Korea's GATS commitmen ts remain unchanged, but further undertakings 
beyond its GATS commitments were undertaken in the context of recent FTAs.  WT/TPR/S/268/Rev.1 Trade Policy Review 
Page xii 
  
  (5) OUTLOOK  
23. Korea's economic fundamentals remain, by and la rge, sound.  Despite its impressive rebound 
from the global financial crisis, Korea's economy remains vulnerable to exogenous shocks through 
international trade, particularly its heavy relian ce on exports of manufactures produced mostly by a 
few large business conglomerates, and financial linkag es.  Equitable and sustainable growth depends 
on the Government implementing structural refo rms, especially those aimed at improving the 
investment climate, thereby making Korea more attractive to FDI;  addressing labour market rigidities, and the likely decline in the labour force, owing to a rapidly aging population;  as well as improving productivity, particularly in energy and services, for example, by further opening them up 
to domestic and foreign comp etition through multilateral as we ll as regional and bilateral 
liberalization.  These and related reforms, including  privatization and contin ued regulatory reforms, 
would increase the flexibility of the Korean economy and its ability to respond to growing external competition.