In 1995, the U.S. trade surplus with the Republic of Korea was $1.2 billion,
a shift from a $1.6 billion trade deficit in 1994. U.S. merchandise exports to
Korea were $25.4 billion in 1995, $7.4 billion or 41 percent more than in 1994.
Korea was the United States' fifth largest export market in 1995. U.S. imports
from Korea totaled $24.2 billion in 1995, a 23 percent increase over those in
Korea was the United States' third largest market in 1995 for agricultural
products, up from fourth in 1994. Korea was the United States' third largest
market for beef.
The stock of U.S. foreign direct investment in Korea was $3.6 billion in
1994, or 15.6 percent more than in 1993. U.S. direct investment in Korea is
largely concentrated in banking, manufacturing and wholesale.
Korea will bind 92 percent of its tariff lines as a result of the the Uruguay
Round negotiations. The average bound rate for industrial products will be 8.2
percent once the commitments are fully implemented. The average applied tariff
rate is 7.9 percent.
Except for rice, all agricultural products are bound. In January, 1995, Korea
began implementation of its Uruguay Round commitments to lower duties on over 30
agricultural products of primary export interest to the United States, including
such intermediate and high–value products as vegetable oils and meals, processed
potatoes, mixed feeds, feed corn, wheat, fruits, nuts, popcorn, frozen french
fries and breakfast cereals. Duties on these products will be reduced by 40
percent from the 1993 applied levels in 10 equal installments between 1995 and
Korea also established tariff-rate quotas that established minimum access to
a previously closed market, or maintained pre-Uruguay Round access (see also
Quantitative Restrictions below). Within-quota tariff rates are to be maintained
at zero or low levels. However, as a result of this "tariffication" of previous
non-tariff trade barriers, the over-quota tariff rates on some products are
For example, there are a number of agricultural products that have
out-of-quota tariff rates of over 200 percent. Products with significant export
interest from U.S. suppliers include natural and artificial honey, skim and
whole milk powder, barley and barley malt, popcorn, ginseng root and some
ginseng processed products.
Korea is in the process of phasing-in tariff reductions to zero tariffs on
most of all products in the following sectors: paper, toys, steel,
semiconductors, and farm equipment. Korea is also in the process of harmonizing
tariffs on chemicals to final rates 0, 5.5 or 6.5 percent depending on the
product, and reducing tariffs on scientific equipment by 65 percent from
pre-Uruguay Round levels.
Korea harmonized and bound most tariffs on textile and apparel products at
least at the level of U.S. rates: 7.5 percent for man–made fibers, 15 percent
for yarns, 30 percent for fabrics and made–up goods and 35 percent for
However, duties still remain very high on a large number of high–value
agricultural and fisheries products. Korea imposes tariff rates above 45 percent
on most horticultural products of interest to U.S. suppliers, such as shelled
walnuts, table grapes and citrus.
Products subject to a tariff rate of at least 30 percent or higher include
certain meat, poultry, offal, most fruits and nuts, many fresh and processed
vegetables, all flour and starches, peanuts, various vegetables oils, juices,
jams, peanut butter, soups, beer and distilled spirits and dairy products.
U.S. firms continue to report that the combination of current tariffs and
non–discriminatory value–added taxes for agricultural and manufactured products
is often sufficient either to keep imports out of the market or raise their
prices such that competitiveness is significantly diminished.
For example, Korea reduced its tariffs on distilled spirts (other than grape
brandy) to 20 percent on January 1, 1996. However, imported distilled spirits
are still assessed higher taxes than local spirits. While the local soju
is taxed at 35 percent, whisky and brandy is taxed at 100 percent, other
distilled spirits are taxed at 80 percent, and liquors are taxed at 50
Korea's "education tax" further compounds the discrimination between imported
and domestic distilled spirits. An "education tax" of 30 percent is imposed on
distilled spirits that are taxed at a rate of 80 percent or higher, but only a
10 percent tax is imposed on spirits which are taxed at under 80 percent.
Another example is foreign passenger vehicles, which are subject to an
applied rate of 8 percent, more than three times that of the United States.
Korea then levies a "cascading" system of high taxes on top of the 8 percent
tariff, three of which are based on engine size. As a consequence, foreign autos
are prohibitively expensive. (Korea is the only auto producer in the world that
has not bound tariffs on passenger vehicles).
In September 1995, the United States and Korea reached an agreement that will
result in a 15 percent reduction in the overall tax burden. The United States
will continue to seek fair market access.
Korea has used "emergency tariffs" to respond to import surges and protect
domestic producers. While Korea has not imposed any new emergency tariffs since
1994, previous tariff increases have not been phased-out. For example, in 1992
Korea raised the tariff on all carbon zinc and alkaline cell batteries from 11
percent to 30 percent. The surcharge expired in 1994, but Korea extended it for
another year. While the United States negotiated a reduction from 30 to 20
percent, Korea has still not restored tariffs to the 1992 level.
Korea implements quantitative restrictions through its import licensing
system. All goods entering Korea require a Foreign Exchange Bank-issued import
license. The Export-Import Notice contains lists of products which are approved,
restricted or prohibited. Approximately 99 percent of imported goods receive
routine automatic approval. Remaining tariff line items (mostly agricultural and
fishery products) are restricted for import, i.e., subject to quotas or tariff
rate quotas with prohibitively high rates which can range up to 900 percent.
Korea selects products for "national promotion" which are routinely denied an
import license. The list is revised on a quarterly basis at the request of
Korean producers, and usually includes about 80 high technology products,
including information technology and agricultural machinery.
Under a 1989 agreement relating to liberalization of Korea's GATT
balance–of–payments (BOP) measures, an additional 283 items (again, primarily
agricultural and fishery products) must be liberalized between 1992 and 1997. Of
these products, 42 were liberalized in 1992, 44 in 1993, 45 in 1994, and 49 in
1995. Another 31 will be liberalized in 1996.
In 1989, a GATT panel ruled that Korea's quantitative restrictions on beef
imports were inconsistent with Korea's GATT obligations. The panel directed
Korea to consult with its trading partners, including the United States, on how
Korea would eliminate the import restrictions or otherwise bring them into
conformity with GATT provisions cited in the GATT panel report.
A bilateral agreement on beef imports was signed in 1990, and in July 1993
the United States and Korea concluded the second of three agreements aimed at
fully establishing free–market conditions for the importation and distribution
of imported beef in Korea. (The third agreement was negotiated in the Uruguay
Round. See below.)
Called the "Simultaneous Buy Sell"(SBS) system, the agreement establishes
annually increasing minimum access levels, guarantees direct commercial
relations between foreign suppliers and Korean retailers and distributors (such
as five–star hotels and supermarkets) and guarantees that growing volumes of
beef will be sold through that channel instead of through a government
corporation. New retailers and distributors are added to the direct access
system over the term of the SBS agreement. Each year the United States and Korea
meet on a quarterly basis to ensure full implementation of the agreement's
Under the Uruguay Round Agreement, the minimum import quota for beef is to
expand from the current 106,000 ton quota to 225,000 tons by the year 2000,
while at the same time expanding the proportion of the quota imported through
the SBS system. Korea has agreed to remove all non–tariff barriers to beef
imports, including state trading, by January 2001.
Also as part of its Uruguay Round commitments, in January 1995 Korea began
phasing–out all import restrictions on a number of important U.S. agricultural
exports, including beef, pork, frozen chicken, oranges, orange juice, grape
juice and fruit juice beverages, dairy and whey products.
Korea's administration of the tariff-rate quotas for certain products agreed
under the Uruguay Round raises new market access problems. In 1995, the United
States expressed its concerns with Korea regarding the fair operation of quotas
on several products. For example, Korea established a quota for oranges of
15,000 metric tons in 1995. This quota will expand to 20,000 metric tons in
1996, 25,000 metric tons in 1997, and thereafter by 12.5% annually until
Of the 1995 15,000 metric ton orange quota, Korea designated a Korean citrus
cooperative as the sole importer for 14,000 metric tons. The United States has
expressed its concern that such an arrangement can present a conflict of
interest. In fact, a number of problems arose with the first shipments of U.S.
oranges in 1995, including delays at the port(see also Import Clearance). The
Korean producer cooperative delayed the importation of oranges until after the
local crop was marketed, and stored the imported oranges for up to five months
before they could be marketed. As a result, the quality of the imported oranges
In the case of Korea's poultry tariff-rate quota, the government held an
auction to allocate the 7,700 metric ton quota, but the delayed timing led to
missed opportunities for U.S. suppliers. The auction was not held until
mid-March, when domestic poultry prices had fallen. The delay made imported
poultry less price competitive, particularly given the added costs of auction
bids. Several local importers defaulted on their contracts as a result, and
Korea actually imported 1,984 metric tons less than the 1995 quota. Lost export
sales are estimated at $2 million.
Korea lifted its import ban on rice in 1995 and established a quota for
51,307 tons. This quota will increase to 205,228 tons by 2004. However, Korea
limited the end-use of the rice to processing through a state trading
organization. The United States has raised its concerns over the end-use
Since 1987 Korea has maintained the Import Diversification Law which is
effectively a ban on Japanese products (see also Motor Vehicles). Japan has
declined to challenge the GATT-inconsistent law in exchange for lucrative
contracts with Korean companies.
However, U.S. companies which source their products or parts from Japan or
use Japanese components have also been adversely affected by the ban. In
December, 1995, after the United States had raised its concerns for more than a
year, Korea agreed to remove laser printers and notebook computers from the
list. Other products of significant export interest still remain on the list,
such as heavy equipment and auto parts. Korea should eliminate the law in light
of Korea's plans to join the OECD in 1996.
Korea's import clearance process is among the most frequently cited trade
barrier to U.S. exports. Clearance procedures are still excessively slow and
arbitrary, despite Korea's 1992 promises of reform.
Surveys of U.S. trading partners in Asia indicate that import clearance for
most agricultural products requires less than 3–4 days. The lone exception is
Korea, where import clearance typically still takes two to four weeks.
The greatest delays are attributed to the Ministry of Health and Welfare
(MOHW) and the Ministry of Agriculture, Forestry and Fisheries (MAFF), which
share responsibility for health, food safety and sanitary- phytosanitary
inspections at Korea's ports of entry. Both ministries impose numerous
requirements that prohibit access or inhibit import clearance while adding costs
to importers (see also Standards, Testing, Labeling and Certifications).
U.S. companies report fewer problems with the Korean Custom Service (KCS).
Korea passed legislation in early 1994 which facilitated the streamlining and
automation of customs clearance procedures. The KCS advanced its original
timetable for reform, from 1998 to late 1996. The United States actively
monitors Korean implementation of the steps in a working group co–chaired by
U.S. and Korean customs officials.
In May, 1995, the United States initiated consultations under the World Trade
Organization's (WTO) dispute settlement procedures after U.S. citrus exporters
complained in March, 1995 that grapefruit and orange shipments had been detained
at the port for up to three weeks, causing catastrophic levels of decay. Instead
of using random or "suspect" sampling techniques, Korea inspects and tests 100
percent of all containers. Testing all containers for pesticide and other
chemical residues results in lengthy delays. In response to the U.S. request for
WTO consultations, Korea administratively revised inspection procedures to allow
fresh fruit and vegetables to clear customs within five working days. While this
step appears to have reduced some of the delays at the port for perishable
products, delays for less perishable products still remain unacceptably high at
two to four weeks.
Another frequently cited cause of delay is testing requirements administered
by MAFF's National Plant Quarantine Service (NPQS). The NPQS often subjects
imported fruit to fumigation for insects commonly found in Korea, which adds
significant time and cost to the import clearance process.
Also of concern is the NPQS requirement of "zero-decay" for imported fruit
and vegetables. All spoiled fruit must be removed from containers and all
remaining product must be repackaged before the containers leave quarantine,
even though the import contract specifies acceptable spoilage limits which have
not been exceeded. The practice is costly and can add another three to four days
at the port; it also does not appear to be enforced equally for domestic fruits
Korea indicated to the United States in May 1995 that it planned to reform
its testing and inspection system by March 1996. The United States has been
monitoring this effort and will continue to conduct consultations under the
WTO's dispute settlement procedures.
U.S. exporters also cite as barriers to import clearance Korea's
country-of-origin regulations for imported agricultural products and processed
foods, which impose unnecessarily burdensome labeling requirements. For example,
if agricultural imports are to be distributed in packaging other than as they
appear at customs clearance, each item requires a separate "inner packaging"
Korea's country of origin and general labeling requirements for products
change frequently, often without notice. Shipments will have already arrived at
the port when an exporter discovers that the products must be unpacked and
relabeled at considerable expense. U.S. suppliers then are hindered from
fulfilling contract obligations on time to their Korean customers.
Korea stated to the United States that its country-of-origin labeling system
is designed "to prevent unfair transactions such the disguised sale of cheap
Also of concern are unannounced, unpublished, and arbitrary changes in
STANDARDS, TESTING, LABELING AND CERTIFICATION
While formal barriers to imports have fallen, Korea has numerous secondary
barriers that effectively prevent the liberalization envisioned in the major
trade reform initiatives of the late 1980s.
Lack of transparency or adequate notification is still an ongoing trade
barrier. Korea often fails to meet its obligations to notify under the WTO, or
allow adequate time for comments. Korea increased the number of its
notifications in 1995, but often did not describe the change, nor grant
extensions for comments as requested by the United States to allow for
Most Korean laws are very general and discretionary; the implementation is
embodied in unpublished "internal guidance" developed by relevant ministries.
Actual changes to regulations are rarely notified in a timely manner to
importers or exporters. Implementation periods are unrealistically short, which
tends to disrupt trade.
Regulations supposedly intended to protect health and safety often deviate
substantially from international practices in both substance and method. They do
not appear to be founded on any scientific basis or risk assessment, and are
often drafted in such a way that they affect only imported goods.
For example, the Korean Food Code lists specific products which are familiar
to Korean regulators. Unless a product is included in the Food Code, it is
considered "new" and subject to regulatory review prior to import. So-called
"new" products have ranged from peanut butter to popcorn.
Extensive product information is required of importers under this system,
known as "self-specification". The system is especially restrictive for
new-to-market products, which are more likely to be imported. Often review
criteria is unspecified, or not based on legitimate health or safety criteria.
Some of the required information is either of a proprietary nature or simply
In 1995, Korean authorities detained shipments of U.S. popcorn for more than
six months, then rejected the shipments on grounds that it had high levels of
e-coli bacteria. No test results were provided to the U.S. exporter. The U.S.
exporter, who had retested original samples taken from the shipment, was denied
the right to resubmit the negative test results. Korea also rejected arguments
that high temperatures used in making popcorn would kill any bacteria.
After investigation, Korea stated it was the fault of the Korean importer who
had "self-specified" that shipments of U.S. popcorn had tested negative for
e-coli bacteria. Yet Korean inspectors apparently interpreted "negative" as zero
tolerance, and in fact no standards even existed for e-coli bacteria on popcorn
in the Korean Food Code. A year later, the Korean importer still was unable to
sell the popcorn, and the small U.S. exporter had lost over $50,000 dollars.
As part of the WTO consultations, Korea stated it planned to abolish the
self-specification program by "incorporating the self-specifications into the
Korean Food Code." It is unclear what this means. Presumably product
specifications that resulted from importers' self-specification submissions --
which were not necessarily based on science or which may conflict with another
importers' submissions -- are now part of the Korean Food Code.
Korea's Food Additive Code also restricts food imports by failing to
recognize additives already approved by the Codex Alimentarius Commission of the
Food and Agricultural Organization (FAO), the joint FAO - World Health
Organization expert committee on food additives, or the U.S. Food and Drug
Administration. Contrary to international practice, Korea approves food
additives on a case-by-case basis, rather than allowing additives which are
"generally recognized as safe" to be used in all food products.
Korea's Imported Food Products Management Guidelines also restrict imports.
The Guidelines require that every container of every shipment be inspected and
tested, contrary to the international practice of "suspect" or random testing.
Domestic food products are not subject to this level of inspection and
Also contrary to international practice, Korea often subjects imported fruit
to treatment for insects commonly found, and untreated, in Korea. Korea also
requires incubation testing for 100 percent of certain imported fruit, even if
the fruit has been in transit for weeks. Requiring fruit to be unnecessarily
tested and treated is costly, discourages imports and often leads to rapid
deterioration and eventual destruction of the fruit.
A number of U.S. horticultural products are effectively banned because of
Korea's use of unscientific phytosanitary standards. These include apples,
pears, and stone fruit. Korea's National Plant and Quarantine Service has
repeatedly agreed to undertake risk assessments for these commodities since
1994, but little progress has been made to date.
The WTO SPS Agreement has greatly increased U.S. ability to challenge unfair
regulations and testing procedures imposed on U.S. agricultural exports to
For example, pursuant to a November, 1994, Section 301 petition filed by the
U.S. beef and pork industry, the United States initiated consultations in May,
1995 under WTO dispute settlement procedures. Of particular concern was Korea's
government-mandated shelf-life restrictions, which effectively prohibited
shipping because expiration dates were so short that by the time a product
cleared Korean customs, the date had expired. Korea's shelf-life requirements
were not based on scientific studies nor enforced equally for domestic
This led to a bilateral settlement in July 1995. Korea agreed to phase-in the
common international practice of manufacturer- determined "sell-by" dates for
most food products including meat, beginning in October, 1995 and completed by
July 1996. Savings are estimated at $250 million a year for the U.S. beef
However, Korea continues to restrict shelf-life for sterilized milk products,
such as UHT milk, and bottled water. The United States has reserved its right to
request a panel under WTO dispute settlement procedures.
U.S. cosmetic producers cite Korea's replicative testing requirements and
unscientific standards for imported cosmetics. Korea requires replicative
testing for each shipment, including animal testing. Importers of cosmetics are
still required to share confidential business information with local trade
associations who are their competitors.
Non–transparent standards also affect imports of industrial products, such as
medical equipment and veterinary instruments. U.S. suppliers report that product
approval requirements not only lack clarity but are being applied inconsistently
across product categories and by the several Korean test agencies designated to
register and test medical devices.
After consultations in 1995, Korea agreed to reform its standards for medical
equipment based on international standards. The United States will continue in
1996 to work with Korea to ensure that these standards are adopted.
The Office of Supply, Republic of Korea (OSROK) is responsible for
procurement on behalf of government agencies and at times on behalf of public
corporations or other enterprises in which the government holds a majority
share. The ministries concerned formulate their government agency procurement
The Ministry of Trade, Industry and Energy no longer officially screens
requirements to determine whether they can be met from local sources. However,
U.S. firms report that Korea still encourages local procurement through a
variety of less explicit means. As a result, U.S. participation in attractive
public sector projects is often precluded.
In addition, U.S. companies continue to report that bids including offsets
are encouraged, albeit no longer required outright. Offsets are still a
condition of sale for major military procurement. In Korea offsets can range
from 30 to 50 percent of the total contract value.
Korea completed its accession negotiations to the WTO Government Procurement
Agreement and will implement its new obligations on January 1, 1997. Korea
agreed to cover goods and services procurement (including construction) by
central government entities, sub–central entities and many government–owned
commercial enterprises. Korea also agreed to provide access to its computer
network procurement. Among the major government–owned enterprises covered by
Korea are the Korea Electric Power Corporation, the Korea Petroleum Development
Corporation, the Korea General Chemical Corporation and Korea Telecom; in the
case of Korea Telecom telecommunications commodity products and network
equipment were excepted.
Under the terms of the 1992 bilateral telecommunications agreement with
Korea, U.S. providers of commodity products and network equipment should be able
to compete. The United States annually reviews Korea's compliance with this
bilateral agreement, as required under Section 1377 of the 1988 Trade Act. Each
year, U.S. companies increasingly report non-compliance with the 1992 agreement,
including excessive type approval requirements, lack of trade secret protection,
and de facto buy local policies. The United States will be considering its
options under U.S. trade law in accordance with Section 1377.
Korea has not yet fully liberalized mobile communications services, or
"Special Service Providers." The current Korean regulatory structure and
practice continue to restrict foreign access to various mobile services,
including cellular, paging and various trunking services.
Traditionally, Korea has aggressively promoted exports through a variety of
policy tools, although the use of these policies and programs has declined.
Korea has committed to phase-out the remaining programs which are not permitted
under the GATT Agreement on subsidies and countervailing measures, to which it
is a signatory. Korea will retain permissible programs under the WTO Agreement
on Subsides, principally in the form of tax incentives and targeted credit, and
focused on small and medium sized enterprises.
Traditionally, the Korean Government has provided large subsidies to its
shipbuilding industry. U.S. shipbuilders have operated without U.S. Government
subsidies since 1981. In response to continuing foreign shipbuilding subsidy
practices, the Shipbuilders Council of America filed a section 301 petition in
1989 seeking the elimination of subsidies and trade distorting measures for the
commercial shipbuilding and repair industry. As a result, a Shipbuilding
Agreement was negotiated under the auspices of the OECD. On December 12, 1995,
Korea, the European Union and Norway formally ratified the OECD Shipbuilding
Agreement, which is designed to eliminate all subsidies and to create a new
antidumping mechanism to address the predatory pricing of ships. The Agreement
was scheduled to enter into force on January 1, 1996, after its ratification by
all Parties to it. This did not happen because Japan and the United States
failed to complete their respective ratification processes last year. The
Government of Japan has indicated that its delay in ratification was entirely
procedural and has expressed full confidence that its process will be completed
within the first half of 1995. Consequently, the Parties to the Agreement agreed
to extend the ratification date to June 15, 1996, and entry into force to July
LACK OF INTELLECTUAL PROPERTY PROTECTION
Since 1993, Korea has made a modest effort to strengthen its intellectual
property rights laws and enforcement of those laws. Korean officials placed
priority on prosecution and increased penalties. The government has continued
this campaign, dedicating extra-budgetary resources and sponsoring public
awareness seminars. As a result, Korea was not placed on the Special 301 foreign
priority country list in 1995.
In 1995, the Korean National Assembly adopted amendments to Korea's
copyright, computer software and customs laws in order to comply with its
obligations under the WTO Agreement on Trade-Related Aspects of Intellectual
Property Rights (TRIPs). Some of these laws will not be implemented for up to
two years. Of particular concern is a provision that shortens retroactive
copyright protection eleven years less than required under the TRIPs Agreement.
There has been some improvement over the past two years in removing pirated
and counterfeit goods from the Korean market. In particular, Korea significantly
curtailed the copying and sale in Korea of U.S. copyrighted works created before
1987 and therefore not protected under Korea's copyright law.
Korea also established "special enforcement periods," in which significant
resources were devoted to raids, prosecution and other copyright enforcement
activities. While enforcement against audio and video piracy has improved
considerably, U.S. software publishers continue to seek more aggressive Korean
government action. U.S. software publishers are particularly concerned about the
lack of enforcement against large end–user infringers.
Also of concern to the software industry is Korea's customs valuation of
software based not on the medium but on the full value of the content. This
method is not transparent and leaves great room for discretion.
Korea has taken steps to reduce the number of cases in which Korean companies
register trademarks similar to U.S.– owned marks. The Korean Industrial Property
Office (KIPO) has also worked to resolve individual cases more expeditiously.
However, since the collapse of legitimate licensing contracts, U.S. firms report
an increase in unauthorized use. Korea does not recognize trade dress. These
practices are contrary to a 1986 bilateral Record of Understanding.
Korea has long been a source of exports of infringing goods. While progress
has been made in improving customs procedures and cooperation with the U.S.
private sector to identify and stop these exports to third countries, the United
States continues to seek more active involvement of Korean government officials
in this area.
Some Korean companies pirate U.S.-copyrighted textile designs and export them
to third countries, competing with U.S.-produced goods.
Although Korean laws on unfair competition, trade secrets and semiconductor
chips provide some trade secret and mask works protection in Korea, they remain
seriously deficient. For example, U.S. firms face significant problems with
government regulations requiring submission of very detailed product information
(i.e. formulae or blueprints) as part of registration or certification
procedures. U.S. firms report that although such information is business
confidential, it is not given sufficient protection by government officials and,
in some cases, is made available to Korean competitors.
U.S. officials are also concerned that recent amendments to the Audiovisual
Works Act and the Computer Program Protection Law will make it more difficult
for U.S. software publishers to do business in Korea due to onerous
registration, deposit and censorship requirements. U.S. concerns can, however,
be addressed through implementing regulations.
U.S. pharmaceutical companies report significant delays in obtaining final
approval from the Ministry of Health and Welfare (MOHW) for the local sale of
new products developed outside of Korea. The process is staged, starting with
the presentation of a certificate of free sale from a third country, then a
145–day delay in registration approval, followed by a required clinical trial of
about one year. MOHW officials have often refused to accept applications for
registration of new imported products without a certificate, delaying approvals
still further. The total process can last two years.
U.S. companies operating in Korea also report that they do not receive
national treatment with respect to drug reimbursement under the Korean health
insurance system. This effectively discourages hospitals and other large
end-users from buying imported drugs.
Korea does not recognize some famous U.S. cartoon characters. Korean courts
have exonerated Korean infringers of famous U.S. characters, including Mickey
Korea does not have effective laws or procedures to protect various
industrial designs. Even though some U.S. product designs or machinery layouts
have been copied by Korean competitors, U.S. firms have no legal recourse.
Korea continues to maintain restrictions on some service sectors through a
"negative list." In these sectors foreign investment is prohibited or severely
circumscribed through equity or other restrictions. Korea continues to restrict
foreign investment in the following sectors of interest to U.S. companies:
courier services, language training services, cable television and insurance
Korean restrictions on the availability of television and radio advertising
time limits the ability of companies –– especially new–to–market companies –– to
make consumers aware of products.
Audiovisual (see also Other Barriers)
Foreign Content Quota for Free TV: Korea restricts foreign
activities in the audiovisual sector by limiting the percentage of weekly
broadcasting time that may be devoted to imported programs, not to exceed 20
Screen Quota: By requiring that domestic films be shown in each
cinema a minimum number of days per year, Korea effectively imposes a screen
quota on imported motion pictures. The quota acts as a deterrent to cinema
construction, which is needed to expand theatrical distribution in Korea.
Foreign Content Quota for Cable TV: Cable channels may devote only
50 percent of air time to foreign sports, science and documentary programs. All
other types of foreign programming, including movies, are subject to an even
stricter quota of 30 percent. These quotas are applied on a per-channel basis.
There are only two movie channels (one basic and one premium), which, together
with strict content quota, severely limits the market for foreign products.
The United States will consult with Korea in light of its commitments under
the WTO General Agreement on Trade in Services. Estimated losses due to services
barriers alone are at $5 million annually.
Insurance: Korea is the second largest insurance market in Asia
after Japan, and is the sixth largest in the world, with more than 38 billion
dollars in premiums.
Korea has made some progress since its initial opening of the market in 1986
under a bilateral agreement with the United States. Guidelines effective in 1992
permit the issuance of non-par products and the acquisition of real estate by
foreign firms, but only under highly restrictive conditions.
Korea plans to deregulate premium rates, but firms will not have the full
freedom to set rates until the late 1990's. While Korea simplified the approval
process for insurance products already available in the Korean market, U.S. life
insurers are still not permitted to sell personal accident insurance. U.S. firms
continue to experience delays in receiving approvals for new-to market products.
In 1995, Korea announced plans for liberalization in its effort to join the
OECD in 1996 that will be implemented over time. However, the process of reform
is far from complete for a country at Korea's advanced stage of economic
development. The U.S. industry continues to cite as major problems an economic
needs test, restrictive rate and form regulation, limitations on investment,
lack of transparency and due process, distribution barriers, including broker
restrictions, and reinsurance restrictions.
Banking: Foreign banks continue to face numerous obstacles which
impede their operations in Korea. Foreign banks are permitted to establish
branches, only after one year has passed following the establishment of a
representative office and subject to onerous individual branch capitalization
requirements. Foreign banks face issuance limits for certificates of deposit
based on branch vs. global capital, limiting their ability to obtain local
currency funding. Foreign banks also face discriminatory treatment in the
interbank market. Foreign banks are disadvantaged by a relatively
non–transparent regulatory system, and must seek approval for introducing new
products and services.
Securities: Foreign securities firms also face serious market access
barriers in Korea. Subsidiaries of foreign securities firms are not allowed,
although the scope of business for branches has recently been expanded. Foreign
equity in joint ventures is limited to less than 50 percent. Only branch offices
of foreign securities firms are permitted, subject to capitalization
requirements that are high by international standards. Further, multi-branching
is not allowed.
Foreign ownership of listed shares is restricted to a ceiling of 4 percent
per foreign investor and 18 percent in aggregate. Foreign firms are not allowed
to participate in the domestic securities over–the–counter (OTC) market, and
brokering is limited to listed stocks. Membership on the Korea Stock exchange by
foreign firms is permitted, but prohibitively expensive. With regard to
securities investment trust enterprises (SITEs), only representative offices are
allowed and foreign equity in existing domestic SITEs is limited to 50 percent.
Similar restrictions apply to foreign equity in domestic investment advisory
Korea's tightly controlled financial sector has a direct impact on trade and
investment issues facing U.S. firms in other sectors of the Korean market. The
United States is pursuing these issues through the U.S.–Korea Financial Policy
discussions between the U.S. Treasury Department and Korean Ministry of Finance,
and through Korean's accession process to the OECD in 1996.
As of January 1, 1994, 87 percent of the sectors in Korea's standard
industrial classification system were open to foreign equity investment in
principle (including 98 percent of the manufacturing sectors and 76 percent of
the service sectors).
However, foreign investors' effective access to the Korean market continues
to be conditioned under law and regulation, as well as administrative guidance
and practice that are opaque and subject to variable interpretation.
As part of a 1989 bilateral agreement on investment, Korea agreed to revise
or eliminate many of its discriminatory practices affecting the establishment
and treatment of U.S. and other foreign investors in Korea. Once established in
Korea, foreign investments are entitled to be treated in an identical manner to
100 percent Korean–owned investments (i.e., national treatment), except in
certain limited areas such as land acquisition or exploitation for national
The Korean government can only reject a foreign investment proposal in any
sector not on the government's "negative list" or not specifically identified in
the agreement for one of five reasons (protection of national security;
maintenance of public order or protection of public health, morality, or safety;
fulfillment of obligations relating to international peace and security; if the
investment will result in monopolistic or predatory practices in the domestic
market; or violation of Korea's Antitrust and Fair Trade Law) and only within 60
days of notification to the government. In all other cases, foreign investors
are free to proceed with investments in these sectors.
Korea does have an investment screening process and investment
"notifications" in Korea require government approval. Although the government
has reduced documentation required for investment applications, notification and
approval procedures remain burdensome and often require submission of
proprietary information, including contracts.
The 1989 agreement also requires Korea to eliminate all local equity
participation requirements imposed by "individual laws" (apart from requirements
imposed for reasons of land acquisition, exploitation of land or other
resources, or national security) and to refrain from imposing any "performance"
requirements (e.g., technology transfer, local content, or local manufacture).
Korea has not fully eliminated local equity participation requirements. U.S.
telecommunications companies reported in 1995 that Korea's Ministry of
Information and Communications, Korea Telecom and other companies have imposed a
de facto "buy local" policy.
The Korean government has revised its Alien Land Acquisition Act to permit
foreign–invested firms to purchase land for business purposes, including staff
housing. The United States remains concerned, however, that other laws provide
disincentives for foreign investment by placing overly strict limits on the
purchase, use and sale of land by foreigners. In some situations, Korean
land–use laws could result in heavy taxes on unused land and possible sale of
land at below–market prices if legal requirements are not met within a specified
As of November 1992, U.S. investments in Korea with more than 50 percent
foreign ownership are no longer subject to Korea's "going public" policy. Those
with less than 50 percent foreign ownership and that filed after January 1,
1989, remain subject to the policy. This policy can require local and
foreign–invested firms established for three or more years and identified by the
Korean Securities and Exchange Commission to sell at least 30 percent of their
stock to the public. No U.S. firms have yet reported that they have been
affected by the law. The United States continues to urge Korea to abolish its
"going public" policy with reference to foreign firms, many of which are
In light of these and other factors, U.S. companies continue to experience
difficulties in establishing investments in Korea, contributing to Korea's
reputation as a particularly difficult market in which to invest.
Despite improvement in the past few years, Korea's investment regime is still
far from OECD standards and more restrictive than many other Asian economies. In
September 1995, Korea's Ministry of Finance and Economy announced two reform
initiatives designed to conform Korea's system more closely to international
standards, including those of the OECD. The changes are slated for
implementation beginning in 1997, and will abolish the investment approval
Korea did not notify the WTO of any Trade-Related Investment Measures
The government-affiliated Korean Broadcasting Advertising Corporation
(KOBACO) has been given a monopoly over the allocation of television and radio
advertising time. U.S. firms have asserted that they were unable to obtain
access to prime time television advertising slots because of the locked–time
allocation system and a variety of other KOBACO rules, a result that unfairly
impedes the ability of foreign firms to gain consumer acceptance in the Korean
market. As of October, 1995, KOBACO eliminated the locked time allocation
system. However, KOBACO rules continue to prevent market forces from operating
normally in this area.
Industry associations are delegated, through both formal and informal means,
substantial regulatory authority in Korea. In a number of instances, industry
associations have abused their powers by discriminating against non–members and
potential competitors, including American firms. In 1994 Korea investigated 68
industry associations and found that 48 of the associations had been engaging in
anticompetitive or unfair practices. Another 60 associations were scheduled to
be reviewed in 1995. Of particular concern to the United States is the
anticompetitive behavior of the Korean insurance and cosmetic industry
Although Korea has stated that it will seek to remedy the anticompetitive and
unfair practices uncovered in its investigation, legislative changes necessary
to correct the practices have not been initiated, and may be years away. In
addition, hundreds of other associations that likely engage in similar kinds of
anticompetitive practices have not yet been reviewed by Korea.
In the past two years, the Korean Fair Trade Commission has been strengthened
considerably and has made significant improvements in its enforcement policy.
Nevertheless, a major enforcement effort will be required in order to deter and
eliminate chronic anticompetitive practices in the Korean market.
Korea's auto industry moved from the ninth largest motor vehicle manufacturer
in the world in 1991 to fifth place in 1995. Korea is the world's third largest
auto exporter after Japan and the European Union; in 1995, Korean exports
accounted for 41 percent of total Korean motor vehicle manufacturing. Korea's
home market is also the fastest growing market in Asia.
Yet no other major auto-producing country imports fewer cars than Korea. In
1995, total import sales accounted for only 0.45 percent of the market.
Korea has maintained a severely closed "sanctuary" market with an array of
trade barriers, including an import ban on Japanese cars. Of major concern to
U.S. companies is the prohibitively high, "cascading" system of taxes, which are
calculated on top of an eight percent tariff. The tariff is unbound in the WTO
and more than three times that of the United States. Burdensome automobile
standards and certification procedures make it difficult and costly to introduce
new models to the Korean market. Pervasive anti-import sentiments have limited
marketing opportunities and intimidated potential customers. Restrictions on
television advertising and retail financing also adversely affect foreign
In September 1995, as a result of bilateral consultations held under Super
301, Korea signed an agreement with the United States to increase access for
U.S. and foreign passenger vehicles. The agreement reduced by fifteen percent
the overall tax burden on cars with larger engines, liberalized many Korean
standards and certification procedures, lifted some restrictions on advertising
and retail financing and obtained the Korean Government's assurances that it
would no longer promote an anti-import bias among consumers.
Korea has already implemented most of its commitments in good faith. However,
until more foreign cars are sold in Korea, it remains to be seen whether the
provisions of the agreement covering standards and certification will be
implemented at a working level.
The United States views the agreement as a first step in liberalizing one of
the most protected auto markets in the world. We will continue to monitor the
implementation of the agreement and seek further market opening measures from
Korea in 1996.
Video Importation: Korea prohibits foreign companies from becoming
registered producers of videotapes. Only video duplicators are eligible to
import video masters, making the importation of master video tapes by foreigners
illegal. Foreign companies which have established video distribution
subsidiaries in Korea are forced to use local companies to import and duplicate
their videotapes, resulting in increased costs.
Cable TV Law: Korea's Cable TV Law went into effect in 1992, and
Korea's first cable systems became operational in 1995. The restrictive nature
of the regulations creates a cable system different from that found in virtually
any other country. The regulations effectively eliminate retransmission of
regional satellite channels, which is how U.S. companies often distribute
programming for pay TV services. Market access is further restricted by the
inadequate supply of local programming.
The estimated cost to the U.S. industry of these barriers is $10 million.
Disincentives to Trade, Investment
U.S. firms continue to report that Korea remains one of the most difficult
markets in the world in which to trade and invest. A number of factors are cited
to support this conclusion. Excessive government regulation and broad
administrative discretion on the part of government officials results in costly
additional bureaucratic processes and arbitrary treatment of individual firms,
both foreign and domestic.
Also of concern is Korean harassment of U.S. companies which seek U.S.
government assistance in addressing even normal "doing business" issues. Some
U.S. companies reported that one Ministry in particular advised them against
raising concerns with the U.S. government. A state-owned enterprise also
reportedly requested a U.S. company to include a provision in its contract which
would have effectively precluded such contact with United States officials.
Frequently even experienced U.S. exporters report that they do not want their
company name or products mentioned in U.S. Government representations to Korean
officials for fear of retribution by Korean functionaries or negative, "scare"
reports by some in the Korean media.
In July, the United States and Korea established a consultative mechanism
designed to ensure that Korea's steel sheet pricing is commercially driven, and
that steel sheet and pipe and tube exports are not voluntarily restrained. Data
provided to date demonstrate that Korea's domestic hot rolled sheet prices do
not fluctuate in response to demand and other economic factors, and may be below
prevailing regional market prices. This trend may provide Korea's down stream
industries, such as pipe and tube producers, with an advantage in international
markets. Further consultations on this issue will take place.