International Trade 2021

Last Updated December 11, 2020

South Korea

Trends and Developments


Authors



Lee & Ko was founded in 1977 and is now Korea’s leading international law firm. Lee & Ko’s international trade team distinguishes itself from others by its unparalleled expertise and its members, including former ministers, ambassadors, foreign service officers and legal counsels of the Korean government. It provides a one-stop full service on international trade matters, ranging from investor-state dispute settlement under the WTO and BITs to trade remedy proceedings in various jurisdictions, foreign investment, trade policy analysis, and export control/sanctions. Recently, the Lee & Ko team has successfully represented the Korean government in state-to-state dispute settlements.

Introduction: Korea, a Defender of Multilateralism

The election of the WTO Director General, which is currently underway, clearly shows Korea’s position on international trade. Yoo Myung-hee, the Korean candidate, has expressed the conviction that Korea’s economic development can be credited to multilateralism. Indeed, Korea has made rapid economic progress precisely through international trade. The country has been a beneficiary of multilateralism that has been strengthened since the opening of the GATT (General Agreement on Tariffs and Trade) era, and has also been one of its strongest defenders. It is Korea’s basic policy to support free trade based on multilateralism.

Korea’s Response to the Crisis in Multilateralism

The crisis in multilateralism came to the surface as the halt of the selection process of the WTO Appellate Body member. The Appellate Body, as the highest international tribunal, has been responsible for resolving trade disputes among WTO members. In fact, the stalled status of the negotiation to update and improve the WTO Agreements, the Doha Development Agenda (DDA), was a harbinger of the crisis. It can now be said that the DDA negotiation has almost failed.

As such, in response to the crisis in multilateralism, Korea has proactively participated in facilitating Appellate Body reform, and has also proposed various ideas to overcome the crisis.

As the DDA has been stalled, many countries have accelerated in making free trade agreements (FTAs). Korea is one of the forerunners in this respect, simultaneously amending the rights and obligations of the current FTAs to reflect new industrial needs in relation to its partner countries. According to the Korean government (www.fta.go.kr), 16 FTAs have been ratified, four FTAs are signed, seven FTAs are being negotiated, and two FTAs are now being studied in advance of starting negotiation. Korea has recently negotiated and signed an FTA with the UK as a result of Brexit.

In addition, the Regional Comprehensive Economic Partnership (RCEP) has been concluded. A total of 15 countries (Korea, China, Japan, Australia, New Zealand, and the ten ASEAN countries) have signed, making it the largest regional trade agreement in the world at the current time. It will enter into force 60 days after at least six signatory countries of ASEAN and three other signatory countries have deposited their instrument of ratification.

The trend in making regional trade agreements is inevitable, to a certain extent. The current rules agreed upon in the Uruguay Round (September 1986 – April 1994) cannot address new trade issues arising out of recent industrial changes represented by the "fourth industrial revolution." Industrial/technological developments – artificial intelligence, digital currency, etc – call for a significant upgrade of the old trade tools. For example, the WTO system does not effectively address the norms that would directly govern the new emerging fields, as represented by the digital economy. As a result, regional trade agreements serve as a tool for addressing new industrial challenges. 

COVID-19 and International Trade

COVID-19 has affected global trade in goods and services. However, Korea has successfully operated a disease prevention and control system in response to the pandemic. Although experiencing economic downturn, the IMF evaluated the Korean economy positively by forecasting a growth rate of 1.9% (World Economic Outlook, October 2020).

Despite its success in disease prevention and control, the sluggish international trade due to COVID-19 poses a challenge to Korea. Since international trade accounts for a substantial portion of the country’s economy, the global economic depression caused by the pandemic has also negatively affected the Korean economy.

Major Trading Partners

Following the US election, many commentators forecast that Biden’s trade policy will be different from that of the Trump administration. Indeed, unlike Trump, Biden supports multilateralism based on rules. Thus, some of Trump's policies are likely to be reversed or at least modified. One example may be Section 232, through which the Trump administration brought national security into the rules of international trade; in the past, the national security issue had been controlled within the frame of export control and economic sanction. In the new Biden era, some of Trump’s trade measures – such as countervailing duties investigation on the allegation of currency manipulation – are likely to lose support. Traditionally, financial policy has been understood to be distinguished from international trade policy.

However, the difference between Biden and Trump may not necessarily be as big when it comes to China. As the US approach to China becomes more and more a matter of power politics, security-based trade measures – such as export controls, sanctions and CFIOUS – may even be strengthened in the future.

Recently Korea and the EU held a panel hearing of a labour dispute raised by the EU pursuant to the trade and sustainable development chapter under the Korea–EU FTA. This is the first dispute settlement under the FTA. As multilateralism faces a crisis, the EU has tried to enhance the enforceability of its trade agreements. In particular, the EU has emphasised the importance of trade and sustainable development – namely, labour and the environment. Despite the ambitious nature of the chapter, the trade and sustainable development chapter provides a softer process which differs from the general dispute settlement set forth in Chapter 14 of the Korea–EU Free Trade Agreement.

Korean companies will maintain their keen interests in the development of issues regarding economic sanctions on Iran, Russia and North Korea. In particular, Korean banks have primarily focused their concerns on sanctions on Iran, while – from a political perspective – some have focused their attention on sanctions on North Korea. Recently, in June 2020, North Korea exploded the inter-Korean liaison office at the Gaeseong Industrial Complex, which is located in the North and served as a symbol of economic co-operation between the South and the North. In the Korea–US Free Trade Agreement, an individual chapter for the Gaeseong Industrial Complex has been agreed.

Both Korean and global companies should take into account the revised trade agreements – such as the USMCA and the Korea–US FTA – when they establish business strategy. The newly negotiated rights and obligations (eg, the rules of origin for automobiles under the USMCA) continue to have a substantial impact on global car-manufacturers. The progressive labour provision in the USMCA is another point to be noted. Given the new USMCA regulations, it is imperative for Korean companies to prepare themselves for the changes in order to meet their business needs.

Developments in Trade Remedy

Recently, there have been several changes in trade remedy investigation in Korea. Proposals for amendments in relevant domestic regulations with respect to the investigation on anti-dumping and countervailing duties under the Customs Act have been prepared to better meet the standard provided in the WTO Agreement. The major changes are as summarised below.

First, in accordance with relevant provisions of the WTO Agreement, the Customs Act has been revised to strengthen protection of confidential information during a trade remedy investigation. The Act specifies the type of information in the list of confidential information, the disclosure of which would be of significant competitive advantage to a competitor. 

Second, several changes have been made to enhance transparency with regard to the use of facts available: (i) in order to provide a full protection to the procedural rights of interested parties in the investigation process where facts available are used, the amendment stipulated that the investigating authority should confirm the facts available by using reasonably obtainable information or materials; (ii) transparency has been further strengthened by requiring that a notice and an opportunity for explanation should be given to the interested parties when the investigating authority relies on the facts available. Furthermore, according to the amendment, the investigating authority should also provide reasoning for its use of facts available when notifying its determination.

Third, in order to enhance the procedural rights of interested parties, the amendment specifies that petition for an investigation or review should be provided along with a notice of its initiation. In addition, under the amended Act, more information will be provided to the interested parties with regard to the final determination of review, including the essential considerations relevant to the determination.

Fourth, in the event that the period for the imposition of anti-dumping duties is extended under the special circumstances set forth in the Act, the amendment allows extension of the period for investigation correspondingly. Under the current Customs Act, the anti-dumping duties should be imposed within 12 months from the notice of initiation, which can be extended up to 18 months under certain circumstances. However, the current Act has remained silent about the possibility of extension of the period for investigation in such cases. The newly prepared regulation now provides clarification by stipulating that an additional two months can be allowed for investigation in such cases.

Fifth, amendments for countervailing duties investigation under the Customs Act were made to better meet the standard of the WTO Agreement on Subsidies and Countervailing. As a matter of Korean domestic law, the amendment is to align with the regulations on anti-dumping duties. Since there have been no countervailing duties investigation in Korea to date, there have been less opportunities for making meaningful amendments. As a result, there is a relatively large amount of room to improve, compared to the regulations on anti-dumping duties.

The following are some of the major changes in countervailing duties investigation introduced in the amended Act:

  • it has been stipulated that petition for an investigation on countervailing duties shall be notified to the government of the exporting country supplying such goods, and at the commencement of the investigation, petition for investigation shall be provided to the government of the exporting country and the supplier;
  • similar to the aforementioned regulations for anti-dumping duties, the Minister of Economy and Finance shall impose measures for countervailing duties within 12 months from the date of notice of initiation in the official gazette, and when this period needs to be extended for a period up to 18 months under special circumstances, the investigation period could also be extended for up to two additional months; and
  • relevant provisions for new suppliers, and imposition of countervailing duties in the event of failure to implement undertakings by exporters have been added.

The Foreign Trade Act

The export control system on strategic items in Korea is regulated mainly through the Foreign Trade Act, and is operated in accordance with the principles of the international export control regime such as the Wassenaar Arrangement. The basic structure of export control in Korea can be summarised as a licence system that requires obtaining an export licence for certain categories of items. 

For example, an export licence shall be obtained in order to export any items designated as “strategic items” under the Foreign Trade Act. For other items that are not designated as strategic items but are highly likely to be used for the purpose of manufacturing, development, use or storage of “missiles and weapons of mass destruction”,  the Foreign Trade Act specifies that they are still subject to licence under certain circumstances.

In practice, however, not only “missiles and weapons of mass destruction” but also items that are likely to be used for the purpose of conventional weapons have been subject to the licence system. Thus, the recent amendment of the Foreign Trade Act has clarified the scope of the items subject to the export control system by including “conventional weapons” to the potential use of such items.

In addition, with regard to the determination of whether an item is subject to export control, the amended Act introduced a self-judgement system under which traders who complete a certain curriculum would be able to make an independent judgement for their items without having to seek determination from relevant agencies such as the Ministry of Trade, Industry and Energy.

Unfair Trade Practices

Pursuant to the Act on the Investigation of Unfair Trade Practices and Remedy against Injury to Industry, the Korea Trade Commission (KTC) has the authority to investigate unfair trade practices such as infringement on intellectual property rights and violation of the country of origin labelling. Under the current system, the types of acts subject to such investigation include:

  • import, export and/or manufacturing of the items that infringe intellectual property rights for the purpose of supplying them into the border or exporting them;
  • an act of falsifying the country of origin labelling; and
  • an act of falsifying or exaggerating product quality.

When the KTC decides that such act is unfair trade practice, it can impose corrective measures such as an order for discontinuance of import and export and imposition of a penalty. 

According to the KTC, the most frequently investigated case from the aforementioned categories is an infringement on the intellectual property right, which accounts for 60% of all of the investigations for unfair trade practices from 1987 to September 2020. Among intellectual property right infringements, investigations on trade mark and patent infringements have been most frequently conducted. As of October 2020, four cases currently under investigation by the KTC are related to trade mark and patent infringements.

The KTC has made efforts to strengthen the investigation system. For example, since 2007, the KTC has opened report centres industry-wide. Easy access to the report centres enables petitioners to report infringement more conveniently.

In addition, the KTC has also tried to strengthen the investigation system by improving the relevant laws and regulations. The Act on the Investigation of Unfair Trade Practices and Remedy against Injury to Industry was newly amended and enforced from June 2020. Key points of the amendments are as follows.

First, the amendments clarify that supplying items from a foreign country into Korea that infringe publication rights, the rights of database creators and the rights of geographical indications that are protected by relevant laws and treaties fall under the category of unfair trade practices. The amendments also clarify that exporting or importing items which falsify or exaggerate their contents, manufacturing methods, use, amounts, etc, is included in the category of unfair trade practices.

Second, the application period for investigations on unfair trade practices has been extended from one year from the date such conduct occurred to two years from the date such conduct occurred.

Third, the amended Act clarifies and improves the regulation on provisional measures. Prior to the amendment, provisional measures were available when provisional measures are taken to prevent irrevocable damage that is being caused or is likely to be caused by unfair trade practices under investigation; however, in practice, such measures had rarely been imposed.

In this respect, the following changes were introduced: (i) the amended Act clarifies the types of provisional measures such as discontinuance of export/import/sale/manufacturing of the relevant items, prohibition of carrying the relevant items into the Korean market and discontinuance of advertising/promoting the relevant items; (ii) it is also specified that provisional measures shall be effective until the determination that no unfair trade practices exist is made by the KTC or a decision for closing the investigation following the withdrawal of petition for the investigation. In addition, the KTC has the authority to issue an administrative order for security if the petitioner of the provisional measures fails to provide the security.

Lastly, stricter penalties against unfair trade practices will be imposed. For example, under the amended Act, the KTC is authorised to request taxation information relating to a taxpayer from the relevant authority when it is necessary in order to collect penalties on unfair trade practices. Furthermore, in the case where a person who has been found to be involved in unfair trade practices fails to comply with a corrective order, the Act provides the ground for compulsory collection of charges to compel the compliance.

Conclusion

To sum up, facing various changes from outside, Korea is endeavouring to reinforce the shared value among trade partners by its continuous support for multilateralism – and, at the same time, to expand the free trade area. Furthermore, as one of the key players in international trade, Korea has taken a meaningful step forwards by improving many of its domestic laws and regulations to better comply with global trade rules.

Lee & Ko

Hanjin Building 63 Namdaemun-ro
Jung-gu Seoul 04532
Korea

+82 2 772 4000

+82 2 772 4001/2

mail@leeko.com www.leeko.com
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Trends and Development

Authors



Lee & Ko was founded in 1977 and is now Korea’s leading international law firm. Lee & Ko’s international trade team distinguishes itself from others by its unparalleled expertise and its members, including former ministers, ambassadors, foreign service officers and legal counsels of the Korean government. It provides a one-stop full service on international trade matters, ranging from investor-state dispute settlement under the WTO and BITs to trade remedy proceedings in various jurisdictions, foreign investment, trade policy analysis, and export control/sanctions. Recently, the Lee & Ko team has successfully represented the Korean government in state-to-state dispute settlements.

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