KOREA - LAWS, REGULATIONS AND PRACTICES IN THE TELECOMMUNICATIONS PROCUREMENT SECTOR
Document: Request for Consultations by the European Communities
Date: 20 May 1996
Document codes: WT/DS40/1; G/L/74; G/STR/D1/1
Complainant: EU
Respondent: South Korea
Dispute stage: Consultation
Agreements cited: Art. I, III, XVII  GATT 1994

KOREA - LAWS, REGULATIONS AND PRACTICES IN THE
TELECOMMUNICATIONS PROCUREMENT SECTOR
Request for Consultations by the European Communities
The following communication, dated 9 May 1996, from the Permanent Delegation of the
European Commission to the Permanent Mission of Korea, is circulated in accordance with Article 4.4
of the DSU.
On behalf of the European Community, I hereby request consultations with Korea under
Article XXIII:1 of the GATT 1994 and Article 4 of the Understanding on Rules and Procedures
Governing the Settlement of Disputes (hereinafter also referred to as the "Understanding") with respect
to Korean laws, regulations and practices in the telecommunications procurement sector.
According to the Basic Telecommunications Act (hereafter: "Telecom Act"), the Minister of
Communications (MoC) is responsible for developing and executing a plan for the promotion of
telecommunications technology (Article 8), including, for instance, the establishment and financing
of research institutes (Article 10). The MoC can require network operators to make financial
contributions to these institutes and to spend a certain ratio of annual revenues on R&D investments
(Article 12). According to Article 6 of the Enforcement Decree, the MoC can select research subjects
for these institutes which include the promotion of domestic production of telecommunications equipment.
The Korean government has applied these provisions to promote the build-up of a domestic industry
in telecommunications network equipment.
The Government Procurement Fund Act (hereafter: "Procurement Act") regulates the
procurement of government agencies. It covers government and local agencies as well as "other
agencies" as described in the Presidential Decree for the Enforcement of the Procurement Fund Act
(hereafter: "Presidential Decree"). The latter establishes that the term "other agencies" refers to
government-invested corporations such as, for instance, Korea Telecom (KT). Article 2 of the
Presidential Decree distinguishes between "foreign currency" procurement and "domestic currency"
procurement. The former applies to procurement of goods and services which are not available on
the domestic market. Participation is open to all foreign suppliers. This does not hold for equipment
which is available on the domestic market. The "Working Rules for the Procurement Fund Act"
determine under Article 10 that the Director General notifies agencies covered by the Procurement
Act which productshave tobe purchased locally. Aspointedout above, thisprocurement regime applies
to KT, as a government-invested corporation.

The combined effect of the promotion of domestic manufacturing of telecommunications network
equipment and the above-mentioned procurement legislation has been to drive European manufacturers
out of the Korean market during the last decade. Today, more than 90 per cent of KT's procurement
of network equipment is carried out under the "domestic currency" regime to which European suppliers
do not have access. The European Community considers that this legislation constitutes a breach of
Korea's obligations under the WTO, particularly those under Articles III and XVII of the GATT 1994,
or that it constitutes a measure applied by Korea which, even if it did not conflict with the provisions
of the WTO, may nullify or impair benefits accruing to the European Community thereunder.
Following the conclusion of two Korea-US bilateral telecommunications agreements, in 1992
Korea adopteda SpecialRegulation onthe AccountingofGovernment-Invested Corporations(hereafter:
"Special Regulation") requiring KT to open partly its network equipment market to US suppliers.
By doing so, Korea has granted US products an advantage, favour or privilege which has not been
accorded tolike products originatingin the European Community. The European Community therefore
considers that this Special Regulation constitutes a breach of Korea's obligations under Article I of
the GATT 1994.
The second network operator in the Korean telecommunications market, Dacom, applies internal
procurement rules which discriminate against foreign products. Article 5 of Dacom's "Working Rules
for Materials Purchasing" providesthatforeignpurchasing shouldonly be undertaken when the material
is not available on the domestic market. It is the understanding of the European Community that such
procurement rules are against the commercial interests of a private company operating in a competitive
market. The European Community wishes to examine with Korea to what extent Dacom's purchasing
policy and the government's role therein constitute breaches of Articles XVII and III of the GATT
1994.
Therefore, the EuropeanCommunity requestsa meetingwiththe appropriateKoreanauthorities
to discuss the matter with a view to finding a mutually satisfactory solution in accordance with Article 4
of the Understanding.